Customers’ electricity bills are top of mind for many in Bermuda right now and understandably so. On February 28, the United States and Israel launched military strikes against Iran and in the three weeks since, the price of oil has risen from about $68 per barrel to $95, a 40 per cent increase. Oil prices were last this high after Russia's invasion of Ukraine in early 2022.

Belco relies on heavy fuel oil and diesel to power its engines and generate electricity. These fuels are supplied by a global fuel supplier under a multi-year agreement established through a competitive bidding process, ensuring a reliable supply at the most competitive price. The fuel Belco purchases originates in North America, where it is refined before being shipped by large tankers to Ferry Reach in Bermuda, stored in tanks and periodically pumped to Belco's generation plant on Serpentine Road in Pembroke.

Over the course of a 12-month period, Belco receives between five and seven fuel shipments on average. The total cost of each shipment reflects the entire end-to-end expense of procuring and delivering fuel, not just the purchase price of the oil itself, but blending, shipping, handling, storage and pipeline delivery from Ferry Reach to Belco’s central plant in Pembroke.

The price of fuel passed on to customers is regulated by the Regulatory Authority of Bermuda and adjusted quarterly via a Fuel Adjustment Rate (FAR) mechanism, which customers see as a line item on their electricity bill. It is important to note that Belco does not profit from adjustments to the FAR. Belco recovers what it spends on fuel, and nothing more. As of January 1, 2026, the FAR was set at 13.799 cents per kilowatt-hour, representing approximately 30 per cent of the average customer's total energy bill.

To manage fuel price volatility, Belco systematically purchases a meaningful portion of its future fuel needs at fixed prices, timed to coincide with expected deliveries. These fixed-price fuel contracts provide customers with protection from price volatility. When oil prices spike sharply, as they have now, the impact is cushioned and delayed rather than immediate. A short-term elevation in oil prices of one to three months will have a limited impact on the current FAR. However, a sustained increase beyond three months will have a greater effect on customer bills.

The good news for customers is that the FAR will decrease marginally on April 1, from 13.799 cents to 13.784 cents per kilowatt-hour. The Government's anticipated elimination of its fuel tax is the primary driver of this reduction. Those savings more than offset the current rise in market prices, meaning customers have benefited from reductions in the FAR since the fourth quarter of 2025.

Depending on how long the conflict continues and what happens to oil prices over the coming months, an adjustment to the FAR may be necessary in the second half of this year. We will communicate any such change clearly and in advance, as approved by the Regulatory Authority. In the meantime, Belco will continue to actively manage its fuel procurement to protect customers as much as possible from global market volatility. Customers can learn more about the FAR and ways to reduce their bill by visiting belco.bm.

Joe Barbosa is senior finance director at Belco