Section 35(1) of the Electricity Act 2016 (the EA) requires the Regulatory Authority of Bermuda (the RA) to determine the Retail Tariff according to the methodology which was set by the RA in the Regulatory Authority (Retail Tariff Methodology) General Determination dated 19th October 2018 (the Methodology GD) and the principles set out in part 6 of the EA.
Section 35(2) of the EA requires the methodology set by the RA to enable the Transmission, Distribution & Retail (TD&R) Licensee to generate a total maximum revenue (the Allowed Revenue) that 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. This Order sets forth the RA’s decisions regarding the Allowed Revenue for 2023, underpinning the retail tariffs to be applied by the Bermuda Electric Light Company Ltd (BELCO), as the TD&R Licensee.
Although the RA sets the level of Allowed Revenue that BELCO can recover from retail tariffs for a given tariff review period, the Allowed Revenue may be altered during the period. This may result from differences in fuel costs between those forecasts and those actually incurred and is handled by an automatic “trueing-up” mechanism. Allowed Revenue in respect of the particular year can also be impacted by an incentive mechanism (which compares actual technical performance against targets), whilst changes in sales volume can mean that actual revenue for the year varies from that forecast. Any resulting mismatches between Allowed Revenue and actual revenue resulting from these factors may be adjusted for in subsequent tariff periods.
Key inputs to determining the level of the Allowed Revenue are the regulatory asset base (including additions resulting from BELCO’s capital expenditure), the rate of return, the operating cost allowance together with fuel and other pass-through costs, factors resulting from “trueing-up” mechanisms (such as the Energy Sales Adjustment and the Energy Purchase Adjustment), and adjustments resulting from the implementation of performance and efficiency regimes described in the GD. Another important factor is the sales forecast.