2015 GBPC Rate Application
The Grand Bahama Port Authority, Limited (“GBPA”) wishes to advise the public that Grand Bahama Power Company Limited (“GBPC”), in accordance with the Operating Protocol and Regulatory Framework (‘Regulatory Framework”), has filed its Rate Plan Proposal with GBPA, the regulatory authority with the responsibility for the power sector in Grand Bahama.
GBPC 2015 Rate Application Executive Summary
The Regulatory Framework, agreed to in January 2013, requires the Grand Bahama Power Company (GBPC) to submit a full rate case to the Grand Bahama Port Authority (GBPA) in 2015 in order to apply for rates during 2016-2018. As in other regulated businesses, GBPC has had to submit a number of studies and statistics in order to justify any change in rates. These included a Cost of Service Study (which determines the actual cost to serve various classes of customers), a depreciation study, service level information and detailed financials laying out the operating costs and the justification for them.
This application is in accordance with the Operating Protocol and Regulatory Framework Agreement (Regulatory Agreement) dated January 17, 2013 between GBPC and the GBPA. For some matters associated with this application, GBPC has consulted with the GBPA’s consultant in order to ensure agreement with certain principles used through the rate setting process.
Despite national inflation, GBPC has been able to propose a rate submission for customers which results in no increase to the “All-in” price of electricity for 90% of all customers, regardless of customer category. That means that the All-in rate is not expected to increase from where it was in 2011.
GBPC has demonstrated a reduction in operating costs through improvements such as: better generation heat rates, reductions in waste oil, workforce reduction and realignment, work planning improvements, and reductions in system losses to best in class levels. These cost reductions directly benefit customers as part of the rate calculations in this application.
The current application introduces a 4.5% base rate reduction for the first 350kWh of energy that is used by all residential customers. Sixty percent (60%) of residential customers will see no increase to the base tariff and 85% of residential customers will see a decrease to the “all-in” price of electricity (which includes fuel and base rate) when compared to the average “all-in” price for electricity in 2015.
Commercial and General Service Large customers should expect a slight increase in the base tariff at approximately 3.6%; however, these customers actually see an average of decrease of 1% or less to their “all-in” price of electricity (including fuel and base rate) when compared to the average “all-in” price for electricity in 2015.
As customers continue to use more energy and the system load increases, the utility is required to assess its ability to reliably meet the customer demand with its existing fleet of generators. GBPC has completed an Investment Review Plan (IRP) to aid in this analysis. The IRP guides GBPC in creating a long term strategy for its future investment decisions, at the lowest possible cost and allows for the development of an accurate 5 year capital program. The proposed strategy arising out of the GBPC IRP is to utilize technology to help avoid the next additional piece of generation required for the GBPC system. This avoided cost of generation is of benefit to all customers of Grand Bahama and has shaped the tariff design and GBPCs capital investment program going forward.
GBPC has begun to lay the framework to introduce renewable and alternative energy solutions to the island which lessen its dependence on fossil fuels and continue to position it as a leader in new technologies resulting in improved operations.
As the regulator of Grand Bahama, the reliability of the power supply failed to meet the needs of customers. GBPA required GBPC to improve its system reliability and to date we are seeing these improvements with a reduction in outage frequency and duration exceeding 55% compared to the past 5 years. As well, they are demonstrating the opportunity that exists within their facilities to improve plant efficiency by more than 25% (heat rate/ engine efficiency).
Highlights of the Submission
GBPC seeks approval for the revenue requirement set out which enables GBPC to recover the reasonable costs of providing service to customers and to meet its financial obligations, including provision for a just and reasonable return.
GBPC seeks approval for:
- Adjustments to the rates & charges, as described in the application
- A new tariff classification called Large Industrial, as described in the Application
- Development of a Renewable Energy Rider, on a pilot basis
- A revenue requirement including base revenue of $71.2 million
- A decreased revenue requirement of $600,000 from 2014
- A reduction on Return on Rate Base from 10% to 8.8%
- A Hurricane Self Insurance Fund, which allows GBPC to have money put aside, on behalf of customers, in advance of a hurricane event. This is a proactive approach to begin to provide rate protection for customers from an immediate tariff increase, if a hurricane causes significant damage. The charge will be $0.003 per kWh that would go into effect January 2017 and collect about $1 million per year
In support of their request GBPC has submitted the following studies and reports:
- An Investment Review Plan (IRP) which looks at the customer load forecast and compares it against GBPC’s current generation availability. The IRP helps to create a long term plan that guides the utility in its future investment decisions at the lowest possible cost and allows the utility to develop an accurate 5 year capital program.
- A Cost of Service Study (COSS) which accurately reflects how GBPC’s actual costs are allocated to serving the different classes of customers
- GBPC’s depreciation review of the assets from the T&D and Generating operations, which has confirmed that GBPC is depreciating its equipment properly. This analysis demonstrates that GBPCs assets are properly accounted for (and depreciated) when completing the tariff design.
- The Capital Structure which shows the Weighted Average Cost of Capital (WACC) which has been updated from the previous WACC study of 2010.
- GBPC Hurricane Vulnerability Review, which is designed to aid Grand Bahama Power Company (GBPC) in their contingency planning of the potential vulnerability with regard to their Uninsured Transmission & Distribution (T&D) assets – specifically; poles, accessories and overhead cables - to Tropical Cyclone force events.
- Various Revenue Requirement Schedules that comprehensively outlines what is requisite for Fuel, O&M Depreciation and Amortization Summary for the applied period.
- GBPC Performance information that demonstrate the annual improvements to various Key Performance Indicators (KPI’s)
- A 5 year capital plan based on expenditures that focus on: i) the deferral of future generation, ii) reduction of system peak demand, and iii) reliability improvements (generation and T&D). The plan includes LED light change-out, Automated Metering Infrastructure (AMI), a storage system for frequency regulation, and potentially solar generation.
- The East and West End Agreements mandate that any increases in tariffs should not exceed the rate of inflation since the date of the agreements. The rate of inflation, since the date of each agreement, has increased by 46.7% and during this same period the West End rates increased by 15.3% and the East End Rates increased by 22.6%.
Base Revenue Requirement
The Revenue Requirement for GBPC reflects the reduction in WACC from 10% to 8.8%. In spite of increases in the rate base due to investments in capital projects, all other costs have been kept at 2014 levels in order to minimize the impact to customer rates.
A Cost of Service Study (COSS) has been completed which reflects how GBPC’s actual costs are allocated to serving the different classes of customers. The COSS has allowed GBPC to assess how much revenue is attributable to each customer class and review that against what the COSS model predicts should be recovered from each customer class. This application provides revised tariffs to move closer to the ideal COSS allocation.
Figure 1 below provides a breakdown of the proposed factors which comprise the average Base Rate and Fuel Charge.
Figure 1 – Average Rate Base Factors and Fuel
While rate rebalancing is necessary to ensure that the Company can offer competitive rates to customers without cross subsidies, only partial rate rebalancing is being proposed at this time to avoid “rate shock” to certain customer classes.
GBPC seeks to update its rate design to better reflect customers’ use of the system. GBPC has proposed several rate design modifications. The last change in electricity rates was granted in 2012; however, this was a rebalancing of the base rate, where the “All-In” rate (inclusive of base rate and fuel charge) was designed to remain the same or lower. The proposed tariff for 2016 to 2018 results in a slight increase to the base rate with an offsetting decrease in the fuel charge that results in an essentially flat “All-in” rate for customers until 2019. The fuel hedging program that is in place, allows for portions of fuel to be locked in over the next four years; this strategy allows GBPC to take advantage of the historical low prices for oil and buy future year requirements at quite low pricing. This strategy allows GBPC to better predict the future price for oil that they will consume, and better safeguard from the volatility of world oil markets due to uncontrollable situations or crisis that can cause oil to hit future high prices.
Figure 2 shows the “All-in” Cost/kWh for 2011 to 2018.
Figure 2 – Historical All-in Rate
Figure 3 shows an overview of the projected fuel Charge for GBPC Customers for 2008 to 2018.
Figure 3 – Fuel Charge Trend
Proposed Tariffs and Sample Bills for Residential and Commercial Customers
Figure 4 shows the proposed tariffs for the 2016 to 2018 period, with a comparison to the 2015 tariff.
Figure 4- GBPC proposed tariff structure with resulting % change
With the proposed tariff structure for the residential class, 85% of GBPCs customers, who are customers consuming less than 800kWh monthly, will see their total (All-In) bill decrease by $5-9 per month. Residential customers who consume more than 2000 kWh (and account for 13% of GBPC customers), will see their total (All-in) bill increase by $5-10 per month, depending on usage amounts.
100% of Commercial customers will see their total (All-in) bill amount decrease by up to 1%.
Figure 5 shows the impact on total costs for the residential and commercial class of customers with various consumption levels. As shown, there are savings for all customer classes and consumption levels on Fuel charge.
** - Note that items appearing in brackets represent a decrease in the cost of electricity
Figure 5 Residential and Commercial Class of Customers Bill Comparisons
GBPC’s submission notes that for the period 2012 – 2015, the utility has progressed steadily towards achieving its three–point plan established in early 2011. This plan was established after it was made very clear what the customers of Grand Bahama required from their power utility: stabilize rates for customers, improve the reliability of service, and lessen the utility’s dependence on fossil fuels.
Specific progress includes:
- Reduction in operating costs due to significant reductions in waste oil/sludge, and reductions in System Losses - See Figures 6, 7 respectively
- Implementation of a fuel hedging program to better control fuel costs and provide long term stability and predictability to customers
- Continued Capital Upgrades to both Generation and Transmission & Distribution (T&D) infrastructure, to enable more efficient generation and more reliable power delivery for customers
- Improvements of more than 55% in system reliability for the supply of electricity (less outages, shorter duration) - See Figure 8 and 9
- Improvements of more than 25% for generating plant Heat Rates which reduces the amount of fuel burned thereby reducing the fuel charge – See Figure 10
- Fuel Charge Trend and future stability compared to previous years – See Figure 11
- Creation of a Customer Survey to begin tracking customer satisfaction - See Figures 12 - 14
- New Vegetation Management Program
Figure 6 - Sludge Management
Figure 7 - System Losses
Figure 8 - Annual Total Duration of Outages for the Average Customer
Figure 9 - Annual Number of Outages for the Average Customer
Figure 10 - Heat Rate
Figure 11 – Fuel Charge Trend
Figure 12 – Customer Satisfaction with GBPC’s Overall Service
Figure 13 – Customer Satisfaction with Reliability of Electricity Supply
Figure 14 – Customer View of the Importance of Renewable Energy
Renewable and Alternative Energy
GBPC is undertaking an innovative approach to lowering its system peak demand and deferring future fossil-based generation investments as indicated in Figure 15. The proposed plan includes:
- The change out of all night lighting to LED technology:
- The new lights will replace high pressure sodium (HPS) lamps in a move designed to decrease the amount of energy consumed by street lighting on the island. This move toward the installation of LED lights is in keeping GBPC’s plan for improving energy efficiency, reducing carbon emissions and the use of fossil fuels.
- The introduction of Solar PV technology:
- GBPC recognizes that the use of solar provides benefit to customers, partly by enabling the deferral of future capital investment in fossil fuel generation assets. Solar, when combined with a cost effective energy storage system to capture the sun’s daytime energy, can be successful on Grand Bahama, where we have the ability to release the stored energy during the night when the island’s energy demand is at its highest. Areas being investigated include the East End of Grand Bahama and the Industrial area.
- Customers being able to generate/sell electricity to the grid, using renewable sources of energy:
- Customers throughout Grand Bahama will also have the opportunity to sell energy they produce to the utility with the development of GBPC’s new Renewable Energy Rider rate. This rate allows for customers to supply energy generated from energy sources such as Solar PV, Wind turbine or other forms of renewable energy to the grid.
- The introduction of Biofuel to its vehicles by the end of 2015 and then Generating Equipment:
- GBPC will introduce Biofuel as a source of energy with the utilization of biofuel in GBPC’s diesel vehicles in November 2015. Initially a 20% biofuel, 80% petroleum blend will be used. Biodiesel will be used in GBPC’s generation equipment at lower concentrations as the volume of biodiesel produced permits.
Figure 15 – GBPC Renewable energy and generation deferral plan