On The Barbados Light & Power Company Ltd Application to Establish a Clean Energy Transition Rider as a Cost Recovery Mechanism

• Jurisdiction: Barbados
• Court: Fair Trading Commission (Barbados)
• Judgment Date: 31 May 2023
• Docket Number: Document No.: FTCUR/DECCETR/BLPC/2023-02

on The Barbados Light & Power Company Limited Application to Establish a Clean Energy Transition Rider as a Cost Recovery Mechanism

Document No.: FTCUR/DECCETR/BLPC/2023-02

FAIR TRADING COMMISSION

DECISION

Table of Contents

LIST OF ABBREVIATIONS	3
SECTION 1 EXECUTIVE SUMMARY	4
SECTION 2 INTRODUCTION	7
2.1 Background	7
SECTION 3 LEGISLATIVE FRAMEWORK	10
3.1 Legislative Framework	10
SECTION 4 INTERVENORS AND SUBMISSIONS	12
SECTION 5 SUMMARY OF SUBMISSIONS	16
5.1 Synopsis of Submissions	16
SECTION 6 COMMISSION'S ANALYSIS	21
6.1 Introduction	21
6.2 Grounds of Application	21
SECTION 7 DETERMINATION	27
7.1 Introduction	27
SECTION 8 APPENDIX 1	30

LIST OF ABBREVIATIONS

ACRONYMN	ABBREVIATIONS
BLPC	Barbados Light & Power Company Limited
BNEP	Barbados National Energy Policy
CETP	Clean Energy Transition Programme
CETR	Clean Energy Transition Rider
COSR	Cost of Service Regulation
ESD	Energy Storage Device
ELPA	Electric Light and Power Act, 2013–21
FTCA 2020	Fair Trading Commission Act, CAP. 326B, as amended
GMP	Grid Modernisation Plan
GoB	Government of Barbados
IPPs	Independent Power Producers
IRRP	Integrated Resource and Resiliency Plan
MEB	Ministry of Energy and Business
MESBE	Ministry of Energy, Small Business and Entrepreneurship
PV	Photovoltaic
RB	Rate Base
RE	Renewable Energy
ROR	Rate of Return
RR	Revenue Requirement
The Commission	The Fair Trading Commission
URA 2020	Utilities Regulation Act CAP. 282, as amended
USOA	Uniform System of Accounts

Section 1 Executive Summary

1 On June 19, 2020, the Barbados Light & Power Company Limited (the “BLPC”) submitted an Application which was accepted for filing, with the Fair Trading Commission (“the Commission”) pursuant to Section 16 of the Utilities Regulation Act, CAP.282 (URA) of the Laws of Barbados for approval of:

• i. The establishment of a Clean Energy Transition Rider (CETR)

• ii. The CETR be the mechanism to recover the cost associated with its Clean Energy Transition Programme (CETP).

• iii. Itemised categories in the Application to form CETP. 1

2 The CETR mechanism is a cost tracker which when implemented will recover the costs of approved projects associated with the CETP between rate cases in a timely manner. These projects are in support of achieving the Government of Barbados (GoB) transitional goal of 100% renewable energy (RE) by 2030. The CETP at the time captures existing and future investments, namely (i) a 33 MW Medium Speed Diesel (MSD) plant, a 10 MW windfarm, 15 MW solar PV plant, the existing 5 MW Energy Storage Device (ESD), an additional 10 MW of battery storage, and grid modernisation investments.

3 The Barbados Renewable Energy Association (BREA) and the Ministry of Energy, Small Business and Entrepreneurship as it then was but now referred to as the Ministry of Energy and Business (“MEB”), both applied for approval to intervene in the proceedings and were granted intervenor status.

4 Procedural Directions were issued to the parties (the BLPC and Intervenors) participating in the matter.

5 BLPC submitted an Addendum to their Application dated 22 January, 2021 to the Commission to clarify the scope of recovery of the CETR mechanism and present changes to its design due to ongoing negotiations with the GoB.

6 On 10 February, 2023, the BLPC submitted an amendment to the aforementioned supplemental Application which further confirms the scope of cost recovery under the CETP.

7 The BLPC is not seeking to recover any specific cost item under the CETP at this time but is requesting approval for an alternative cost recovery mechanism.

8 After a comprehensive assessment of the BLPC's Application, review of submissions from Intervenors, the state of the power sector, consideration of the BLPC's rate Application, and research by the Commission on alternative cost recovery mechanisms, the Commission has determined the following with respect to this Application:

• (1) The BLPC be required to submit an individual application for the recovery of costs of each asset/project through the cost recovery mechanism. The application should meet the following minimum criteria:

  • (a) Prior notice of application at least thirty (30) business days before making an application;

  • (b) Description of tracker formula to be implemented;

  • (c) Itemized description and computation to reflect updated rate base;

  • (d) Type, updated costs and function of each asset per CETP;

  • (e) Allocation of assets in CETP to conform to the USOA;

  • (f) Cost benefit analysis for asset(s) where applicable;

  • (g) Summary and calculation of individual proposed/actual annual costs, incremental revenue requirement, rate of return, rate and bill impact per CETP;

  • (h) Summary and calculation of cumulative proposed/actual annual costs, revenue requirement, rate of return, rate and bill impact under COSR framework;

  • (i) Statement of the effect on the number of rate case filings, with increases or decreases in rates;

  • (j) Computation of the effect on all rate classes; and

  • (k) Where appropriate the above information should be submitted in Excel Spreadsheet format with appropriate tabs.

• (2) The concept of cost recovery of prudently incurred cost through an alternative cost recovery mechanism be approved on condition that such costs on assessment of the Application are found to be unpredictable and volatile, reoccurring, and outside the BLPC's manageable costs;

• (3) The rate of return applicable to the CETR will be determined by the Commission;

• (4) The Commission will determine the reasonableness of all costs proposed for recovery and the duration period of recovery according to the principles of cost recovery; and

• (5) The BLPC will be required to submit audits in relation to any asset/project as the Commission deems necessary.

Section 2 Introduction

2.1 Background

9 The Barbados National Energy Policy 2019 – 2030 (BNEP) articulates a vision to achieve 100% renewable energy (RE) generation by 2030. This national objective targets largely the utilisation of 205 MW of centralized solar photovoltaic (PV), 105 MW of distributed solar PV, 105 MW each of onshore and offshore wind, and 200 MW of energy storage technologies. 2 This outlay of RE technologies under the BNEP is expected to cost BDS $4.4 billion. As it relates to the deployment of these indigenous energy resources, eligible market participants will be required to have individual generation, storage, transmission and distribution, dispatch and sale permits as stipulated 3 under the Electric Light and Power ( Amendment) Act, 2019 of the Laws of Barbados. Similarly, the GoB has adopted scenario 3, an aggressive decarbonisation strategy under its 2021 Integrated Resource and Resiliency Plan (IRRP); this plan provides annual capacity allocations for RE technology investments over the short to medium term in consideration of a pure RE power utilisation.

10 The existing power system is predominately fossil fuel based and the transition to purely RE dependent sources will require significant capital investments for these technologies, that is, investment by Independent power producers (IPPs) as well as the BLPC. Additionally, given the inherently, intermittent and variable energy sources, particularly, for wind and solar PV technologies, their energy characteristics will need to be mitigated against through further investments as well.

11 According to the principles of cost recovery, any investment by the BLPC that relates to the provision of an electricity service, once prudently incurred, shall be recovered through customer rates, as is the case with the existing Cost of Service Regulatory (COSR) model.

12 The BLPC submitted an application dated 19 June, 2020 to the Commission for the approval of a CETR mechanism, which is intended to facilitate the timely recovery of expenditure, inclusive of a return on investment associated with its CETP. The CETR is considered a formula 4 which when implemented will function as a flexible cost recovery mechanism 5, designed to recoup specific costs of capital expended under the CETP; these investments are considered essential in support of the GoB's vision of a purely RE based economy by 2030.

13 In consideration of the scale and magnitude of renewable generation that is contemplated under the energy transition and the constraints of the existing power system, the BLPC argues that the grid must now facilitate bi-directional energy movements 6, achieve greater operational flexibility, new functionality and resilience 7. Amidst these unprecedented changes anticipated in the power market, the BLPC foresees that it will retain the responsibility for a safe, reliable and efficient electricity service and as such, the energy transition warrants future investments to ensure the grid functions appropriately. 8 Collaboratively with the GoB, the BLPC developed a five-year CETP which was instituted in December 2019. This CETP consists of a 33 MW Medium Speed Diesel (MSD) plant, a 10 MW windfarm, 15 MW solar PV plant, the existing 5 MW ESD, an additional 10 MW of battery storage, and grid modernisation investments. 9 According to the BLPC, investments under the CETP are expected to provide resiliency support in light of the energy transition. However, the CETP costs suggest that these will exceed its manageable costs. In light of this, timely rate relief is considered pertinent to the success of the energy transition to 2030, as this

is expected to reduce pressure on the BLPC's rate of return, while facilitating the uptake of RE in a coordinated and safe manner. The projected rate of return without recovery of transitionary costs is below 4% for 2021 and onwards as depicted in Table 1A...