Column: Wayne Caines On BELCO, Electricity

[Opinion column written by Wayne Caines]

Bermuda Electric Light Company [BELCO] has one primary objective – to supply our customers with safe, reliable and affordable electricity.

Our ultimate goal is to become a renewable energy company and we are working steadily towards that goal. My personal commitment to the people of Bermuda – our valued customers – is honest and transparent communication.

One of my personal goals upon being appointed President of BELCO was to enhance our community engagement – through meeting with the residents in our local neighbourhoods, to town hall meetings, to online webinars and community outreach.

I believe we can all agree that for too long we have been reliant on imported fossil fuels. Pricing on these fuels can fluctuate wildly due to global supply and demand but, perhaps most importantly, the burning of these fuels impacts our environment and creates issues for our neighbours.

The cost of electricity is a burdensome expense for many Bermudians which means we, BELCO, must continuously look for ways to generate and deliver reliable service in a more cost-effective manner.

No one wants a fossil fuel power plant in their backyard but with Bermuda’s limited landmass, the only short-term option was to build a generation plant while the long-term strategy calls for a big change to a renewable engery future.

A culture of change is what we are implementing in our Company. We are committed to a sustainable future. A renewable future. A reliable energy future and at an affordable price for the power that sustains our way of life.

Between that future and now, there are undeniable realities we face. Facts we as a community must face together – and work together – to create sustainable and affordable solutions for a future we all desire and deserve.

BELCO has now been operating the North Power Station for about a year. Yes, there were, and remain, some teething problems but we have made significant progress and continue to work to run the plant at optimal efficiency and improving emissions. It is the last fossil-fueled plant BELCO will ever build.

Until we have researched, financed, built and integrated large-scale renewable energy sources, be it wind, solar, biomass or some combination, we must continue to run our power plant to supply Bermuda’s base load of energy. Residents rely on it as do our hospitals, tourism industry, international business, schools and telecommunications, everything that requires a reliable source of electricity.

There has recently been some confusion concerning BELCO’s rates and the order issued by the Regulatory Authority on the evening of Sunday, May 16th that the Retail Tariff – the base rate which customers pay for electricity – would be reduced.

In the spirit of transparency, outlining the make-up of BELCO bills will assist in illustrating where we are and what the future may hold as far as the price of electricity for our customers.

The base rate is simply the cost of building, operating and maintaining the infrastructure used to produce, transmit and deliver electricity to the homes and businesses across our island.

This amount is billed monthly and is segregated into variable and fixed charges. For residential and small commercial customers, the variable charges are outlined as Billing Charges on your bill and there is an inclining rate block structure meaning the less you use, the lower the price.

For residential customers, the fixed component, listed as Facilities Charge, is based on each customer’s average daily kilowatt hour [kWh] consumption over the previous 12-month period, which is reassessed monthly to reflect an Annual Rolling Daily Average.

The Fuel Adjustment Rate [FAR] reflects the total cost to deliver fuel to BELCO’s central plant and is comprised of two parts – the actual delivered cost of fuel and Bermuda Government taxes. The fuel cost is based on the total purchase cost of fuel and includes shipping cost, supplier profit margin, local receipt, handling, storage and transport via pipeline from Ferry Reach in St. George’s to the BELCO Central Plant in Pembroke.

BELCO uses Heavy Fuel Oil [HFO] and no.2 diesel to power its engines to produce electricity. Both of these are refined fuels which are not directly linked to crude oil prices. Consequently, they will not exhibit the same price behaviour as crude oil. However, as the price of crude increases, so too does the price of refined fuels.

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 to fund the St. George’s UNESCO World Heritage Site.

Once the total cost of fuel is determined, the fuel adjustment charge is calculated by multiplying the FAR with a consumer’s total kilowatt-hour [kWh] energy usage.

Due to the potential volatility in fuel prices, 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 Regulatory Authority and is reflected on customers’ bills in the next billing cycle.

During the past six months, the price of oil has steadily increased from a low of approximately $35.50 to almost $70 today, or a 100% increase. Consequently, refined fuels are also more expensive.

Due to this increase in price, it’s very likely the FAR will increase in the coming months. This increase will mostly offset the Retail Tariff reduction that comes into effect June 1st. The FAR is a cost recovery mechanism which means BELCO only bills the actual cost of fuel – no profit or mark-up.

We are acutely aware Bermudians have been suffering financially, socially and emotionally as a result of the Covid Pandemic and resulting lockdowns and economic turmoil. At BELCO, we pledged to do our part to assist and bring financial relief to our customers by continuing to work with the Regulatory Authority.

To clarify misinformation currently in the public domain, an average residential customer consuming 600 kWhs in December, 2019 would have paid $163.33 in base electricity rates, $63.00 in fuel adjustment, inclusive of Government taxes on fuel, and $2.85 in Regulatory Authority Fees. The gross total for that consumer would have been $229.18.

The same average residential consumer [600 kWhs] in June, 2021 will pay $143.72 in base electricity rates, $74.22 in fuel adjustment, inclusive of Government taxes on fuel, and $3.81 in Regulatory Authority Fees. The gross total for the consumer is $221.75.

With the recent increase in the RA Fee, implemented April 2021, and the shift in a portion of fuel charges from base rates to the FAR, as mandated by the RA, the overall impact to the consumer is a 3.2% reduction or savings of $7.43/month [approximately $89 per year].

The comparisons above are to prices from almost a year and a half ago. The realities of today are most customers will see a modest decrease in their bills in June, 2021 and then likely see increases in the FAR the very next month.

BELCO, alongside myself, commit to the people of Bermuda to be honest and transparent.

I am humbled and honoured to work with the exceptional team at BELCO who work 24 hours a day, 365 days a year to keep the lights on. I thank them for their dedicated service.

I look forward to continuing our community outreach and providing progress reports as we work to become a sustainable, reliable and affordable energy utility and energise the future prosperity of Bermuda.

- Wayne Caines, President – Bermuda Electric Light Company Limited

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