The Barbados Light & Power Company Ltd Motion to Review and Vary the Decision of the Fair Trading Commission on the Application of the BL&P to Recover the Costs of the 5MW Energy Storage Device through the Fuel Clause Adjustment

• Jurisdiction: Barbados
• Court: Fair Trading Commission (Barbados)
• Judgment Date: 23 April 2019
• Docket Number: Document No.: FTCUR/MTNDECESD/BL&P-2019-01

The Barbados Light & Power Company Limited Motion to Review and Vary the Decision of the Fair Trading Commission on the Application of the BL&P to Recover the Costs of the 5MW Energy Storage Device through the Fuel Clause Adjustment

Document No.: FTCUR/MTNDECESD/BL&P-2019-01

FAIR TRADING COMMISSION

DECISION

TABLE OF CONTENTS

SECTION 1 SUMMARY	3
SECTION 2 BACKGROUND	7
SECTION 3 LEGISLATIVE FRAMEWORK	11
SECTION 4 RATIONALE FOR DECISION	13
SECTION 5 DETERMINATION	52

SECTION 1 SUMMARY

1.0 On 18 May, 2018, the Barbados Light and Power Company Limited (BL&P) submitted its Motion to Review and Vary the Fair Trading Commission (FTC) Decision on the Application to Recover the Cost of the 5 MW Energy Storage Device (ESD) through the Fuel Clause Adjustment (FCA) (‘Decision’) dated 13 April, 2018. The Motion contests part (iii) of the said Decision on the following grounds:

• (i) Ground 1 – Error of Fact – ‘The BL&P asserts that the Commission erred in fact when it misapplied the information which was provided by the BL&P in relation to determining suitable heat rate targets in its utilisation of Regression and Trend Line Analysis to determine the ascribed heat rate targets. Neither the BL&P nor any other party to the consultation was given the opportunity by the Commission during the consultation to respond to the appropriateness of this type of methodology being applied to set heat rate targets. Such error went to the core of the Commission's Decision and has played a substantial role in its Decision outcome’ 1;

• (ii) Ground 2 – Important Matter of Principle – ‘The BL&P contends that the Commission's Decision raises an important matter of principle as the heat rate maintenance/improvement programme, as presently constructed, causes the BL&P in the dispatch of its generation fleet to make decisions that require a tradeoff between cost optimisation that would benefit customers or meeting the Commission's ascribed heat rate targets’ 2;

• (iii) Ground 2 – Important Matter of Principle — The BL&P acknowledges the prescribed penalty or reward in a performance incentive mechanism must be such that it sufficiently incentivizes efficiency. However, the penalty as presently determined would present financial

  risk which could cause hardship to the BL&P on a month to month basis which is not easily resolved due to the regulatory constraints of raising debt. At its extreme this could ultimately be to the detriment of customers. This is another important matter of principle, which has been raised by the Decision as rewards or penalties can be unduly high if they are aligned to volatile or uncertain factors such as international oil prices.' 3

1.1 Under each ground, the BL&P has identified two sub-grounds which may be set out as follows:

• (i) Ground 1 – Error of Fact – Misapplication of Information provided by BL&P

• (ii) Ground 1 – Error of Fact – Failure to consult on methodology used to set heat rate targets, i.e. Trend Line Analysis and Regression Analysis

• (iii) Ground 2 – Important Matter of Principle – Trade-off between Cost Optimisation and meeting heat rate targets

• (iv) Ground 2 – Important Matter of Principle – Financial Risk and Hardship to BL&P & Detriment to Customers.

1.2 The Motion was subject to consultation and Intervenors were invited to submit comments. Additionally, pursuant to the BL&P's request, the Commission heard oral submissions on 20 December, 2018. This allowed the BL&P the opportunity to appear and reiterate its position before the Fair Trading Commission's (the Commission) Electricity Panel. Intervenors were also given the opportunity to participate at this hearing.

1.3 The Commission carefully considered all relevant information, including Intervenors' submissions, presentations at the oral hearing and the Commission's own research. The Commission also noted the provisions of the Barbados National

Energy Policy (BNEP) 4 and the stated objective therein, to move to 100% renewable energy (RE) by 2030, and the impact that such movement could have on any heat rate targets set. While the Commission is not persuaded that the Decision should be varied on all the grounds raised by the BL&P in the Motion, the Commission has determined that there is some justification for variation of the Decision to remove heat rate targets from peaking units. As such, the Commission has determined that the Decision be varied as follows

• (i) The implementation of a heat rate maintenance/improvement programme shall be restricted to all baseload plant. Heat rate targets shall be based on the prior five (5) years' heat rate performance. The statistical tools Trend Line Analysis and Integrated Cumulative Sum (CUSUM) shall be utilised to determine heat rate targets. The gross generation shall be used in the computation of heat rates. Targets shall be subject to review annually or as warranted at the discretion of the Commission.

• (ii) The BL&P shall be required to submit to the Commission the results of standard heat rate tests for all plant/units every six (6) months and no later than 30 days after 30 June and 31 December of each year. Tests conducted shall comply with international performance standards and guidelines. The results of heat rate tests must be signed by the BL&P's senior management or the contracting party performing the heat rate tests.

• (iii) The BL&P may apply to the Commission for applicable exemptions, where its operations are considered to be subject to force majeure events. Such requests shall describe the nature of the event, the cause, resolution plan and future mitigation strategies.

• (iv) The approved heat rate targets are as follows:

  • • (Low Speed Diesel 1) LSD1 — 9,067.28 BTU/kWh;

  • • (Low Speed Diesel 2) LSD2 — 7,980.52 BTU/kWh; and

  • • (Steam plant) S1 and S2 — 15,370.20 BTU/kWh.

• (v) Gas turbine units (peaking units) shall not be assigned heat rate targets.

• (vi) The Commission requires the BL&P to submit the heat rate performance of all plant/unit on a quarterly basis as part of its continuous regulatory reporting.

1.4 All other aspects of the 13 April, 2018 Decision remain the same.

SECTION 2 BACKGROUND

2.0 On 13 April, 2018 the Commission issued its Decision, No. FTCUR/DECESD/BL&P-2018–2, on the BL&P's Application to recover the costs of the 5MW ESD through the FCA (Decision). In summary, the Decision allowed prudently incurred costs of the 5MW ESD to be recovered via the FCA for a period not exceeding three (3) years. The Decision also stipulated that the BL&P should engage in a heat rate improvement programme based on ascribed targets for each generation plant/unit.

2.1 On 18 May, 2018, the BL&P submitted its Motion to Review and Vary the Decision, supported by an affidavit from Mr. Rohan Seale, Director of Asset Management of the BL&P. In the Motion, the BL&P requested that item (iii) of the Decision, regarding the implementation of heat rate targets, be varied. Part (iii) of the Decision states as follows:

“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

• • LSD1 — 9,067.28 BTU/kWh

• • LSD2 — 7,980.52 BTU/kWh

• • Gas Turbines:

  • ܀ 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.”

The Motion contested this part of the Decision only.

2.2 Under Rule 53(6) of the Utilities Regulation (Procedural) Rules 2003 (URPR), the Motion should have been submitted within 14 business days of the Decision. In accordance with Rule 7 of the URPR, the BL&P sought and was granted an extension of time within which to submit the Motion.

2.3 In its Motion, the BL&P requested a stay of implementation of the Decision pending the review. This request was repeated in a letter sent to the Commission by the BL&P dated 13 August, 2018. By Order No. FTCUR/STYORD2018-01 dated 10 September, 2018 and related Decision No. FTCUR/STYDEC2018-01 dated 10 September, 2018, the Commission granted the BL&P's request and granted the stay of the implementation of part (iii) of the Decision until after the Motion was heard and determined.

2.4 By way of written correspondence, the Commission invited the Intervenors who had participated in the hearing of the initial application to make submissions on the Motion no later than 16 October, 2018. The Commission also published a Notice in the...