Understanding the Fuel Adjustment Rate

Mar 27, 2022

In order to meet Bermuda’s energy demands, we must purchase fuel to run our engines. Ultimately, our goal is to transition to renewable energy and away from a reliance on fossil fuels.

Bermuda Fuel Adjustment Rate Explained

The FAR is approved by the Bermuda Regulatory Authority (RA) and reflects the total cost to deliver fuel to BELCO’s central plant. It’s comprised of two parts—the fuel adjustment and Bermuda Government taxes.

The Fuel Adjustment

The fuel adjustment is based on the total cost of procuring 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’s 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. 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 do not exhibit the same price behaviour as crude oil. You should be cautioned from thinking there is a direct link between the price of crude oil and your fuel adjustment charge.

In recent months the price of oil has steadily increased. Refined fuels are also exhibiting similar price increases. Like other businesses that purchase fuel, our customers are exposed to the market fluctuations in fuel prices.

Taxes

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.

Putting it all together

Once the total cost of fuel is determined, 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 RA and reflected in your bill in the next billing cycle.

The FAR is a cost recovery mechanism and all cost increases, as well as any savings due to a reduction in BELCO fuel costs, are passed on to customers.

We remain committed to transitioning to a renewable energy company and are working diligently towards integrating alternative power generating technologies, including solar, and exploring the efficacy of integrating offshore wind turbines into our energy mix. Longer term, this will reduce our dependency on fossil fuel and will reduce our exposure to price shocks in the oil market. Further, we are focused on and have made great progress in improving efficiencies and system reliabilities. It is unfortunate that these will be negatively impacted by the substantial increase in fuel costs this year.

You can learn more about the FAR as well as tips on energy efficiency and ways to reduce your bill at www.belco.bm.

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