ON THE LEFT: ‘Buy all, sell all’ a suitable approach
The Barbados Light & Power Company Limited takes this opportunity to respond to the issues highlighted by the participating parties in the motion to review the Renewable Energy Rider (RER) decision of August 8, 2013.
The recommended RER credit of 1.6 times the Fuel Clause Adjustment (FCA) represents the avoided fuel cost of distributed renewable energy (RE) generation capacity. The company agrees with Stoute and Fields that the RER credit factor includes no subsidy to RER customers. However, under the sale of excess billing arrangement, RER customers would enjoy a subsidy since they would not be contributing their allocated share of the costs of providing their service.
This shortfall between revenue and cost would initially be borne by [BL&P] and ultimately by the non-participating customers.
The three main cost drivers in providing electricity include customer demand and energy-related costs. Customer-related costs are the fixed costs associated with having a customer connected to the electric system regardless of whether the customer uses any electricity or not. These include, but are not limited to, costs associated with the metering and servicing installations, meter reading, customer service and billing.
Demand-related costs are associated with the generating facilities, transmission and distribution lines, sub-stations, transformers and other facilities required to meet individual customer peak demand and the combined peak demand of all customers throughout the year.
Energy-related costs are costs that vary with the amount of energy used. These costs can be further divided into fuel costs and base energy costs such as operation and maintenance expenses.
Under strict cost of service classification, customers’ tariffs are structured with separate components to recover the costs that are associated with each cost driver. The major costs associated with the supply of electricity are the capital investment and operational costs, which are generally fixed in the short to medium term.
In an ideal world, all of the capital investment and fixed operational costs would be collected through the fixed customer and demand charges. However, in practice, due to the higher historical cost associated with demand meters, customers on the domestic service and general service tariffs are not supplied with meters with demand measurement capacity and, as a result, all of the fixed demand costs and some of the customer-related costs are recovered through the volumetric base energy (kilowatt hour) charges.
The 2010 rate review decision moved customers closer to their cost of service; however, a relatively large portion of the fixed costs of running the electric system continues to be collected through volumetric based energy (kilowatt hour) charges. Therefore, whenever renewable energy generating customers purchase less electricity under the sale of excess billing method, they avoid paying their allocated share of the fixed costs of running the electric system.
Consequently, the [BL&P] is forced to operate the electric network with lower than expected available funds. This shortfall would be initially absorbed by the [BL&P] but ultimately will be transferred disproportionately to non-RER customers.
The “Buy All, Sell All” arrangement is a suitable approach to overcome the issues of fixed cost recovery and cross subsidies in facilitating grid-tied renewable energy generation.
(This is part of the BL&P’s response to intervenor submissions filed in relation to the Motion to Review the Renewable Energy Rider decision.)