How the RA updates electricity rates

Published on
March 27, 2023

This article explains the RA's Retail Tariff Methodology and how the review affects electricity rates.

What is the Retail Tariff?

The Retail Tariffs are the rates (tariffs) charged to BELCO’s customers, and are made up of the Facilities Charge, Usage (kWh) charge, taxes, and fees.  The Retail Tariff determines the total charges on your BELCO bill.

The RA reviews the Retail Tariffs every 12 months in order to update electricity rates for customers.

The Retail Tariff Methodology:

The Electricity Act 2016 (“EA”) prescribes the methodology which governs the process of electricity rate setting and the role of the RA in enabling BELCO to generate a total revenue (“Allowed Revenue”). The Retail Tariff Methodology is a framework to calculate BELCO’s revenue allowance for providing service to its customers and to recover the costs in relation to procuring electricity.

The RA is mandated to independently review BELCO’s Retail Tariff proposal on a quarterly basis, through a process referred to as a Retail Tariff Review.

Key steps in the Retail Tariff Review includes the following:

  1. The RA requests BELCO to submit its initial Retail Tariff Review submission for their proposed Allowed Revenue.
  2. BELCO submits its proposal.
  3. The RA conducts its review which may include a follow up to BELCO for additional information requests if clarity is needed from the initial submission
  4. BELCO submits additional information requested.
  5. RA conducts its final review. This includes determining if the predictions are accurate.
  6. The RA issues an Order, setting BELCO’s 2023 Allowed Revenue.
  7. The RA requests BELCO to propose Retail Tariffs in alignment with the approved Allowed Revenue.
  8. BELCO submits Retail Tariffs for approval.
  9. The RA reviews BELCO proposed Retail Tariffs.
  10. The RA approves and publishes an Order. The approved Allowed Revenue is then used to derive new electricity rates for the subsequent review period, i.e., one or two years.

What is Allowed Revenue?

The Allowed Revenue recovers the reasonable costs of service incurred in achieving the service standards. These costs include investment costs (and an appropriate return on such investments), operating expenses, fuel procured for generation, generation procured, and other expenses including Government authorisation fees, the Regulatory Authority fee, and other statutory fees.

The key factors to determine the Allowed Revenue:

  • Regulatory asset base: assets of service provider or utility company which are used and useful in the provision of regulated service to the customers.
  • The rate of return:  the return on investment given on assets in the regulatory asset base.
  • OPEX allowance: the operating expenditure. This is expenditure incurred in the day-to-day running of a business.
  • Fuel and other passthrough cost: the total cost of fuel, taxes and fees incurred to deliver the electricity services to the customers.
| Key Input | BELCO Retail Tariff Filing | RA Decision | | :--- | :--- | :--- | | 2023 Rate of Return | 8.96% | 7.17% | | Total 2023 Capital Budget (excluding Regulatory Asset) | BMD 40.75 million | BMD 36.78 million | | 2023 Revenue Allowance (excluding Pass‐through Cost) | BMD 159.26 million | BMD 145.66 million |

The Allowed Revenue is set for the year 2023 for the 12-month period starting on 1 January 2023 and ending 31 December 2023.

While the set Allowed Revenue that BELCO can recover from retail tariffs is sent for the given review period of 12 months, the Allowed Revenue may be altered during the period. This may result from differences in fuel costs between those forecasts and those actually incurred. This is handled by an automatic “trueing up” mechanism which adjusts the cost allowances such that they align with the actual costs borne by a company.

An element of a frequent true-up mechanism is maintained in the form of the fuel adjustment rate (“FAR”), which adjusts the total tariffs intra-year to reflect the changes in the fuel costs.

Calculating Updated Retail Tariffs:

BELCO’s total revenue is allocated across different customer classes and converted into retail tariffs. Tariffs are set at a level that reflects the actual cost of service. The current retail tariff structure remains unchanged from previous years and consists of three main tariff consumer categories ‐ residential, commercial and demand. Residential customers pay fixed charges through a Graduated Facilities Charge. There are five tiers for this fixed charge, and it is based off customers average energy consumption.

Commercial and demand customers also have a fixed charge($/month regardless of energy consumption). Commercial customers are for businesses and demand customers are large consumers such as hotels or hospitals. Demand customers pay an additional fixed charge derived from the peak power they draw from the system.

For the energy charges, residential and commercial customers have inclining tariff blocks (IBT). Your energy consumption determines the tariff block you are charged. They will pay higher rates for increased electricity consumption. Demand customers have declining block tariffs (DBT), the rates lower for increased electricity consumption.

There are also dedicated retail tariffs for specific customer groups such as street lighting, quarry, government, and churches. Within each key customer category, the current retail tariffs consist of:

  • a Facilities Charge (different tiers for residential customers) ($/customer);
  • energy charges, for different blocks of consumption ($/kWh);
  • demand charges (only for demand customers) ($/kW);
  • a Fuel Adjustment Rate – the FAR ($/kWh); and
  • a Regulatory Authority Fee – the RAF ($/kWh).