The Barbados Light & Power Company Ltd. (BLPC) is seeking to recover millions of dollars in investment associated with its five-year Clean Energy Transition Programme (CETP) as it estimates significant revenue shortfall during the period.
This could see customers paying a minimal charge on their electricity bill over a specified period.
The utility company officially applied to the Fair Trading
Commission (FTC) four months ago for a Clean Energy Transition Rider (CETR), pointing out that with the massive capital investments to be captured under the CETP, reliability and resilience of the electricity network will be enhanced and fuel costs reduced during that period.
“However, the programme’s costs exceed what the BLPC can absorb under existing tariffs and, without some form of rate relief, would undermine the financial viability of the BLPC,” it said in its June 19 application to the FTC.
The CETP is a five-year investment programme that began in December 2019, consisting of capital expenditure to strengthen reliability, efficiency and resilience of the national grid as Barbados moves towards 100 per cent reliance on renewable forms of energy by 2030.
The company is estimating an average investment of just over $165 million per year to facilitate infrastructure replacement and modernisation, and is also forecasting millions of dollars in revenue shortfall.
“The BLPC’s annual operating income and rates of return will decline to unsustainable levels without some form of base rate relief during the period. This revenue deficit will mainly be driven by higher depreciation expenses and operating costs as a result of the growth in capital investments,” the company explained, as it outlined the grounds for the application.
“A rate relief mechanism to facilitate timely recovery of costs is critical at this time to allow the BLPC to access capital financing at reasonable terms to support the CETP,” it added.
The company said moving forward without a cost recovery mechanism to obtain “timely relief” would likely lead to delays in the funding for the “urgently” needed investments to sustain high reliability and efficiency levels.
“The BLPC is therefore proposing to implement a Clean Energy Transition Rider (CETR) as an alternative rate-relief mechanism to facilitate the timely recovery of the costs associated with the CETP,” it said.
The BLPC said the alternative rate-relief mechanism would benefit both customers and the company, explaining that it already used a form of rate tracker in the form of the Fuel Clause Adjustment mechanism, which is a tariff mechanism that allows the company to recover the cost of fuel used in electricity production. It is influenced mainly by movement in the purchase price of fuel.
The company said the CETP investments required a CETR adjustment of, on average, five cents per kilowatt hour (kWh) over the initial four-year period.
The company explained that it anticipated that the proposed charge to be added to the monthly bills would gradually increase from $0.032/kWh in 2021, to $0.046/kWh in 2022, $0.050 in 2023 and then to $0.065 in 2024.
However, with projected fuel cost savings as a result of the investments, customers would end up having a lower net bill impact depending on a low, expected, or high fuel price scenario.
“The CETP investments for recovery through the CETR over the next four years are anticipated to result in fuel cost savings to customers, which will offset some or all of the revenue requirements associated with the CETP over the initial four-year period. The level of fuel savings realised will depend on the market price of fuel over the CETP investments’ commissioning period,” the company said.
Responding to a question from Barbados TODAY on Tuesday during an online call, BLPC’s Director of Customer Solution Kim Griffith-Tang How said the application to the FTC for a CETR was primarily based on the level of investment to be made in the renewable energy sector.
She explained that usually the company would first make its investments and then approach the regulator so it could get a “reasonable rate of return” on those investments, and a rate review would be carried out, which was costly and timely.
However, she insisted that the company did not have the luxury of going through a lengthy rate review after the investments, adding that the CETR was a more practical approach.
“What the Clean Energy Transition Rider is, effectively, is a cost recovery mechanism, and really, if you look across the world, several utilities and their regulators have had to develop and implement more flexible and timely mechanisms for cost recovery of the investments that the utility has to make,” said Griffith-Tang How.
She told Barbados TODAY that before the company proceeds with its planned investments each year it would first be discussed with the Ministry of Energy and the regulator.
“Once they are deemed to be prudent and necessary then we will be given the provision to move ahead with those investments that have to happen. The CETR is basically a mechanism that allows us to recover the cost of those investments,” she explained.
