Fuel Adjustment Rate (FAR) Explained

Apr 30, 2021

Bermuda Electric Light Company Limited (BELCO) customers will see a fuel adjustment charge on their monthly bill. The Fuel Adjustment Rate (FAR) reflects the total cost to deliver fuel to the BELCO central plant and is comprised of two parts – the fuel adjustment and Bermuda Government taxes.

The fuel adjustment is based on the total cost of purchasing fuel and includes shipping cost, supplier profit margin, local receipt, handling, storage and transport via pipeline from Ferry Reach to the BELCO Central Plant. It is important to note that the prices at which BELCO can procure fuel are subject to global oil prices. BELCO uses Heavy Fuel Oil (HFO) and no.2 diesel to power its engines to produce electricity. Both of these fuel types are refined fuels which are not directly linked to the crude oil indexes such as West Texas Intermediate (WTI) or Brent, consequently they will not exhibit the same price behaviour as crude oil. Customers should be cautioned from thinking there is a direct link between the price of crude oil and their fuel adjustment charge.

The second part of the FAR is comprised of two separate Government taxes. Currently the Government charges $31.79 per barrel of fuel in addition to a tax of  $0.40 per barrel of fuel which provides funding for the St. George’s UNESCO World Heritage Site.

Once the total cost of fuel is determined, considering the various costs outlined above, the FAR is calculated by dividing the forecasted total fuel consumption by the cost of fuel. The fuel adjustment charge is calculated by multiplying the FAR with a consumer’s total kilowatt-hour (kWh) energy usage.

The FAR is calculated quarterly and rises and falls as the purchase price of BELCO’s fuel rises and falls. The quarterly adjustment in the FAR is published by the Bermuda Regulatory Authority (RA) and reflected in customers’ bills in the next billing cycle.

The FAR is a cost recovery mechanism and both revenue and earnings neutral as 100% of the cost and any savings due to a reduction in BELCO fuel costs are passed on to customers.

BELCO periodically carries out competitive bidding processes in order to establish reliable sources of fuel at the most competitive prices. The Company may also from time to time take advantage of any favourable market prices and 100% of any opportunistic savings or reductions in fuel costs are passed onto consumers.


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