Demystifying The Fuel Adjustment Rate (FAR)
Understanding how fuel prices are regulated in Bermuda is crucial for residents and businesses alike. This article explores the RA's role in ensuring a stable fuel supply and implementing the FAR to reflect actual costs and global price trends.
A function of the Regulatory Authority (RA) is to ensure Bermuda has a constant fuel supply and monitor fuel prices according to global trends. Fuel is essential for various uses, such as operating vehicles and providing electricity to homes across our island. Consequently, the RA employs an analytical approach to setting rates, including the Fuel Adjustment Rate (FAR).
The FAR charges are implemented quarterly and applied to Bermuda Electric Light Company (Belco) consumers' bills every month. The FAR consists of two parts: the fuel adjustment, which reflects the actual cost of fuel supply, and government taxes.
BELCO covers the upfront cost as they pay for first cost of the fuel from the supplier, shipping, handling, on island transportation and import duty upfront. Then, the FAR, set by the RA, acts as a price recovery mechanism to recoup these exact costs. BELCO does not profit from the FAR as it is designed to only cover BELCO’s actual fuel cost for them to supply electricity to their customers. The RA analyses and reviews the FAR every three months.
The fuel adjustment charge is calculated by multiplying the FAR by the consumer's total kilowatt-hour (kWh) usage.
Why The FAR Fluctuates
The global economy significantly influences the cost of fuel. Factors such as supply and demand, wars, the COVID-19 pandemic, and inflation impact the price of goods, including oil.
Fuel costs are expected to fluctuate over time. For example, the FAR from January to March 31, 2024, was 18.362 cents, compared to 14.304 cents during the same period in 2023.
Bermuda's generating stations are fueled by heavy fuel oil and diesel. While crude oil does not directly impact the fuel cost in Bermuda, its price can correlate with other fuel and oil prices.
By understanding the FAR, consumers are equipped with the knowledge of how their bills are calculated monthly. Gaining insight into how external factors influence the electricity generated on island can lead to a better understanding of Bermuda's electrical landscape. The RA works diligently to regulate energy prices fairly and equitably, ensuring the best outcomes for all island residents, balancing investment and consumer protection as mandated.