Barbados Light and Power (BL&P) has received the green light from the Fair Trading Commission (FTC) to recover over $20 million for its 5MW energy storage device (ESD) through the Fuel Clause Adjustment (FCA).
In an application submitted to the FTC in August last year, BL&P had said it was seeking to recover $22,947,770 – the full cost of the ESD, as well as return on capital over its warranty lifetime.
In addition, the power company had proposed to share a minimum of five per cent of the fuel savings with customers each year.
The ESD, which carries an operational warranty of ten years, cost the utility company $19.5 million.
In announcing its decision on Monday afternoon, the FTC said as part of its assessment of the application, it had issued a call for intervenors in September 2017.
“Intervenor status was granted to six organizations 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,” the FTC said in its release.
Recovery of the ESD costs is approved for a period of three years, commencing from September 1, 2018, and will be reviewed six months prior to the expiration date to assess the recovery mechanism.
The FTC said while it acknowledged there were varied approaches for the cost recovery of nascent technology assets such as an ESD, the approaches would 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 organization/regulator must be allowed the flexibility to utilize cost recovery strategies that best address the issues and attendant circumstances before it,” the FTC in explaining the rationale behind its decision to grant the recovery through FCA as opposed to a rate review.
“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, 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,” it explained.
The regulatory body explained that in its decision it determined that the costs of the ESD were “prudently incurred” and the BL&P would be allowed to recover the costs.
It said the FCA was “an acceptable mechanism” to recover the ESD costs and that “heat rate targets are introduced as a strategy to incentivize the utility to ensure that fuel is more optimally utilized in its production of electricity”.
The regulatory body said the heat rate targets would be reviewed and amended as necessary and that “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”.
In its ruling the FTC said there were several benefits to be derived from the use of the ESD, including an 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,” it said. (MM)