The Barbados Light & Power Company Ltd Application to Recover the Costs of the 5MW Energy Storage Device through the Fuel Clause Adjustment

• Jurisdiction: Barbados
• Judgment Date: 13 April 2018
• Docket Number: Document No.: FTCUR/DECESD/BL&P-2018-02
• Court: Fair Trading Commission (Barbados)

The Barbados Light & Power Company Limited Application to Recover the Costs of the 5MW Energy Storage Device through the Fuel Clause Adjustment

Document No.: FTCUR/DECESD/BL&P-2018-02

FAIR TRADING COMMISSION

DECISION

TABLE OF CONTENTS

SECTION 1 EXECUTIVE SUMMARY	3
SECTION 2 INTRODUCTION	6
2.0 Background	6
2.1 Legislative Framework	8
SECTION 3 INTERVENORS AND SUBMISSIONS	9
SECTION 4 THE COMMISSION'S ANALYSIS	13
SECTION 5 THE DETERMINATION	29

SECTION 1 EXECUTIVE SUMMARY

1 On July 11, 2017, the Barbados Light & Power Company Limited (BL&P) applied to the Fair Trading Commission (Commission) under Section 16 of the Utilities Regulation Act, CAP.282 (URA) of the Laws of Barbados for approval of:

• (i) Recovery of the costs associated with the commissioning of a 5MW Energy Storage Device (ESD) in proportion to the fuel savings benefits it delivers; and

• (ii) The recovery of the cost of the ESD through the Fuel Clause Adjustment (FCA).

2 The initial Application did not meet legislative requirements and the BL&P duly submitted an amended Application on August 4, 2017; Procedural Directions were issued by the Commission on September 4, 2017. The Commission received submissions from six (6) intervenors within the timelines provided for by the Commission, as detailed in this document. The Commission duly conducted its analysis and held a written hearing as provided for under Section 15(4) of the URA and Rule 37(1) and 37(2) of the Utilities Regulation (Procedural) Rules (URPR), 2003. The Commission also served on the Applicant additional interrogatories with respect to the assignment of heat rate targets in order to assess the efficiency of the BL&P's generation systems; these and the associated responses were also shared with the intervenors. The intervenors had the opportunity to respond; one responded.

3 In summary, the major issues which were raised and considered by the Commission were:

• (i) The prudence of the BL&P being allowed to recover the cost of the ESD;

• (ii) The most appropriate mode of recovery of the ESD's cost, whether by FCA or rate base;

• (iii) Efficiency as defined by heat rate performance;

• (iv) Assessment of the appropriateness of the proposed 95%/5% ratio sharing of savings benefits generated by the ESD between the utility and the customers 1, 2; and

• (v) Assessment of the appropriateness of the Weighted Average Cost of Capital (WACC).

4 After a detailed analysis of the BL&P's Application, the submissions of intervenors and the Commission's own research, the Commission has determined the following:

• (i) The cost of the ESD is prudently incurred and thus the BL&P shall be allowed to recover said cost;

• (ii) The FCA is an acceptable mechanism at this time to recover the cost of the ESD;

• (iii) Recovery of the ESD's costs is approved for a period of three (3) years, commencing from September 1, 2018. Six (6) months prior to the expiration date, a review shall be conducted to assess the continued appropriateness and applicability of the recovery mechanism. The BL&P shall pursue a heat rate maintenance/improvement programme based on the following heat rate targets for each plant type and the individual unit in the case of the gas turbines:

  • • Steam Plant — 15,370.20 BTU/kWh

  • • Low Speed Diesel (LSD) 1 — 9,067.28 BTU/kWh

  • • Low Speed Diesel (LSD) 2 — 7,980.52 BTU/kWh

  • • Gas Turbines (GT#)

    • ܀ GT01 — 17,514.40 BTU/kWh

    • ܀ GT02 — 15,209.60 BTU/kWh

    • ܀ GT03 — 14,070.30 BTU/kWh

    • ܀ GT04 — 13,007.80 BTU/kWh

    • ܀ GT05 — 12,872.50 BTU/kWh

    • ܀ GT06 — 12,861.30 BTU/kWh

  The heat rate targets shall be reviewed and amended annually or from time to time, as is warranted. The results of heat rate tests of plant/unit performance shall be signed by senior management of the BL&P or contracting party performing the tests, prior to its submission to the Commission. In the event that the BL&P's operations are impacted by perceived force majeure conditions, it shall be eligible to apply to the Commission for exemptions. Such submissions shall detail the nature and cause of the event, resolution plan and future mitigation.

• (iv) 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;

• (v) The formula for the determination of the FCA in February shall now be:

  

• (vi) The formula for the determination of the FCA for all months excluding February shall now be:

  

• (vii) The BL&P's quarterly regulatory reports as submitted to the Commission shall now include, but are not limited to, the monthly performance data of the ESD:

  • a) Cycle life;

  • b) Energy Charged (kWh);

  • c) Energy Displaced (kWh);

  • d) Energy Charged Costs ($/kWh);

  • e) Energy Displaced Costs ($/kWh);

  • f) Round Trip Efficiency (%); and

  • g) Net Fuel Savings ($)

• (viii) Ad-hoc reporting on any emergency events, associated with the ESD, shall be submitted to the Commission within seven (7) working days of occurrence of the event; and

• (ix) A WACC of 10% is approved.

SECTION 2 INTRODUCTION

2.0 Background

5 Economic growth is a major concern for Barbados and the rest of the Caribbean and one of the prerequisites for such growth is an expansion in energy supply. There is a positive relationship between output per capita and both the capital stock per capita and energy consumption per capita. The role of the regulator in the adoption of energy technologies includes protecting the ratepayer, while ensuring that the utility is afforded the opportunity to achieve a reasonable return on its investments. This means that all aspects of the deployment and integration of these technologies, such as energy storage systems, must be considered.

6 The BL&P has applied to the Commission for approval to recover the costs of a 5MW/20MWh ESD via the FCA. The capital cost of the ESD is BDS $19.5 million and carries an operational warranty of ten (10) years. It is seeking to recover BDS $22,947,770 — the full cost of the ESD, inclusive of a return on capital over its warranty lifetime. This is contingent on the ESD's ability to realise fuel savings subject to forecasted fuel prices – where annual fuel savings exceed the annual estimated recovery cost of the ESD. The BL&P proposes to recover the ESD costs once per year, in February.

7 The Applicant proposes to share a minimum of 5% of the fuel savings with customers each year. Where the actual fuel savings fall short of 105% of the ESD recovery, the BL&P proposes an adjustment of the ESD recovery amount, to ensure customers obtain a minimum of 5% of the net annual fuel savings. If the life of the ESD exceeds the 10-year warranty, fuel savings will be shared between the BL&P and ratepayers at a rate to be determined by the Commission. Where the realised life of the ESD is less than the warranty life, the BL&P will absorb the unrecovered cost of the ESD.

8 The BL&P suggests the FCA as the appropriate cost recovery mechanism 3 for the ESD and claims that the ESD's ability to deliver fuel saving benefits will relieve ratepayers from price

or operational risk 4 associated with traditional cost of service recovery mechanisms. The FCA was designed to facilitate recovery of the service provider's full fuel cost and was subsequently amended to include the recovery of costs associated with purchased power. ESDs are considered critical tools for unlocking the benefits of traditional generation and aligning the renewable energy (RE) electricity output to meet current grid requirements 5

9 Electricity production is derived from steam, diesel, aviation jet (Av jet) and solar photovoltaics (PV) generator sets. This energy comprises approximately 95% thermal plants and 5% RE contribution. The BL&P asserts that the ESD will allow efficient energy dispatch of base load and peaking plants and the execution of grid management functions – frequency and voltage response, which will result in fuel savings.

2.1 Legislative Framework

10 Under Section 4(3) (a) of the Fair Trading Commission Act, CAP. 326B (FTCA) of the Laws of Barbados, the Commission is responsible for establishing principles for arriving at the rates to be charged by service providers. The Commission also has this duty under Section 3(1) of the URA, which states:

“The functions of the Commission under this Act are, in relation to service providers, to (a) establish principles for arriving at the rates to be charged”.

11 In accordance with Section 2 of the FTCA and the URA, “principles” mean the formula, methodology or framework for determining a rate for a utility service.

12 Additionally, Section 2 of the URA states that “rates” include

• (a) “every rate, fare, toll, charge, rental or other compensation of a service provider;

• (b) a rule, practice, measurement, classification or contract of a service provider relating to a rate; and

• (c) a schedule or tariff respecting a rate;”

13 By virtue of Section 16 of the URA, where the Commission has not fixed a period of time in accordance with Section 15(1), the Commission may, on its own initiative or upon an application by a service provider or consumer, review the rates, principles and standards of service for the supply of a utility service. In light of this provision, the BL&P has correctly filed an Application with the Commission for approval to recover the cost associated with the commissioning of a 5MW ESD via the FCA.

14 On October 11, 2013, the Commission issued its Decision on its own Motion to Review the FCA, pursuant to Section 16 of the URA. The FCA was approved by the Commission as a principle or formula that the BL&P is permitted to use to pass through the cost of fuel used to generate electricity and power purchased to its customers.

15 By virtue of Section 36 of the FTCA, the Commission may, on application or on...