FTC ISSUES DECISION ON BL&P APPLICATION TO RECOVER COSTS OF ESD THROUGH FCA

The Fair Trading Commission has approved and issued its Decision on the Barbados Light & Power Company Limited’s (BL&P) Application to Recover the Costs of the 5MW Energy Storage Device (ESD) through the Fuel Clause Adjustment (FCA).

The BL&P Application, which was submitted in August 2017, outlined the BL&P’s request to recover the costs of a 5MW/20MWh ESD via the FCA. The ESD carries an operational warranty of 10 years and capital cost of BDS $19.5 million; the BL&P sought to recover BDS $22, 947, 770 - the full cost of the ESD, as well as a return on capital over its warranty lifetime. In addition, the BL&P proposed to share a minimum of 5% of the fuel savings with customers each year.

As part of its assessment of the Application, the Commission issued a call for intervenors in September 2017; intervenor status was granted to six organisations and/or individuals, who actively participated in the written hearing on the matter. In its analysis, the Commission considered the intervenors’ submissions, responses to interrogatories submitted and the findings of its own research.

Benefits to accrue from the use of the ESD include: enhanced grid resilience through frequency and voltage regulation; improved reliability through the smoothing out of fluctuating supply; and the provision of reserve capacity and lower fuel cost to customers. The commencement of deployment of this technology, in light of the anticipated increasing penetration of variable renewable energy resources on the grid, will facilitate the achievement of the clean energy objectives espoused in the Barbados National Energy Policy.

The Commission acknowledges that there are varied approaches for the cost recovery of nascent technology assets, such as an ESD and notes that approaches will differ depending on specific objectives, circumstances and the applicable operating environments. It maintains that the nature of regulation is not static or rigid and that an organisation/regulator must be allowed the flexibility to utilise cost recovery strategies that best address the issues and attendant circumstances before it.

The adaptation of the FCA mitigates the need for an overall rate review and allows the Commission to closely monitor the device’s cost recovery. Overall, rate base rate reviews are costly in terms of time, human resources and capital and said cost would ultimately be borne by the customer. Additionally, the Commission considers that, to use this Application to trigger a full rate hearing would not be prudent, given the current dynamics of the sector and the expected changes in the near to medium term.

In its Decision, the Commission determined that: the costs of the ESD are prudently incurred and the BL&P will be allowed to recover said costs; the FCA is an acceptable mechanism to recover the costs of the ESD; heat rate targets are introduced as a strategy to incentivise the utility to ensure that fuel is more optimally utilised in its production of electricity - heat rate targets are appropriate and shall be reviewed and amended as warranted; the weighted average cost of capital (WACC) is set at 10%; and all financial inputs of the FCA related to the recovery of ESD costs shall be audited by a representative of the Commission to ensure its value is correctly determined. Based on the data provided, the average annual FCA with the ESD is expected to be lower than the average annual FCA without the ESD.

Recovery of the ESD’s costs is approved for a period of three years, commencing from September 1, 2018. Six months prior to the expiration date, a review shall be conducted to assess the continued appropriateness and applicability of the recovery mechanism.

The Decision document may be accessed here.

April 16, 2018