#BTColumn – Where is the ease in cost?

Disclaimer: The views and opinions expressed by this author are their own and do not represent the official position of the Barbados Today.

by Michael Ray

May I say to all stakeholders including government, regulators and consumers: if the Barbados Light & Power Company is supposed to be using more and more solar energy, as recently published in the print media – and the company has undertaken such a program when it first started years ago – then logically and mathematically, consumers should continue to benefit from consistent reductions in electricity bills that are subjected to charges from the Fuel Clause Adjustment.

However,  this does not appear to be the experience of consumers who continue to receive bills that include the FCA.

For the purpose of clarity, the following extracts give insight and understanding of what the Fuel Clause Adjustment really is and how it negatively impacts electricity costs.

Barbadians have been questioning the seemingly ever-increasing cost of electricity over the last two years and the Fair Trading Commission (Commission) and the Barbados Light & Power Co. Ltd. (BL&P) have, through various media, sought to explain the reasons for the increase.

As the utility regulator, the Commission is charged with establishing principles for arriving at rates to be charged as part of its regulatory function. One factor which influences the rates charged by the BL&P is the Fuel Clause Adjustment (FCA).

The FCA is a direct pass through charge whereby the customer is required to pay for the portion of fuel used to generate the quantity of electricity used by that customer.  (Extracted from the website of the Fair Trading Commission).

The Fuel Clause Adjustment (FCA) was originally established in 1965 for commercial and industrial customers and extended to include all customers in 1974. ‘The FCA is approved by the Commission as a mechanism for the Barbados Light & Power (BLPC) to recover the cost of fuel used in the production of electricity.

The cost of fuel purchased is recovered and applied equally to all customer groups through the FCA charge. Changes in the FCA are influenced mainly by movements in the purchase price of fuel.

The FCA is calculated monthly as the sum of the previous month’s cost of energy purchased and cost of fuel consumed, plus any cumulative over and under recovery divided by the kWh sales of the previous month. The cost of energy purchased includes energy purchased from renewable energy resources. (Extracted from the website of the Barbados Light & Power Company).

The FCA is a mechanism that is intended to allow the company to recover the cost of fuel used in the generation of electricity.

In its simplest form, the unit value of the FCA is the cost of fuel used divided by the kWh sales. Because of the requirement for some forecasting, the company may at times over or under-recover, but by the end of the year imbalances are reconciled.

It is a direct pass-through charge, which allows the company to recover the amount that was expended on fuel only. In 2007, the Commission undertook a study on the fuel adjustment charge, which confirmed, among other things, that the company does not make any profit on this charge.

The actual unit price of fuel oil is outside the control of the BL&P as it is required to purchase fuel from the Barbados National Oil Company Limited, the sole direct supplier of fuel oil on the island.

In order to ensure continuity of service, the BL&P is required to maintain adequate reserves. This means purchasing fuel months before it is used and maintaining an inventory. The price of fuel being used to generate electricity would therefore not correspond directly to the current price.

Furthermore, in order to be assured of a reliable source of supply, the utility purchases its fuel under contract and that price may not correspond to the current market price. Thus, it usually takes several months for changes in fuel prices to be reflected in the FCA. (Extracted from the website of the Fair Trading Commission).

The FCA is approved by the Commission as a mechanism for the Barbados Light & Power (BLPC) to recover the cost of fuel used in the production of electricity. The cost of fuel purchased is recovered and applied equally to all customer groups through the FCA charge. (Extracted from website Wikipedia).

As part of the overall plan to reduce our carbon footprint with elimination of fossil fuel usage, it is reasonable to conclude that our sole power utility company, by incrementally increasing solar and wind power, is simultaneously reducing its usage of fossil fuels.

Therefore consumers continue to anticipate benefits by way of incremental reductions in their electricity bills as long as the BL&P is continuously moving away from fossil fuels and moving towards renewable energy sources for the production of electricity and power.