THE MISSING CENTS: Why Unrecovered Power Costs Become BEL’s Debt

The views expressed in this article are those of the writer and not necessarily those of Breaking Belize News.

By Dr. Leroy Almendarez: Belize Electricity Limited (BEL) faces a straightforward financial problem when the actual cost of purchasing electricity rises but the retail tariff does not adjust sufficiently or quickly enough to recover that increase. BEL must still pay its power suppliers at the actual contractual or market price, even when it is collecting less from consumers than the electricity cost it incurred. The difference does not disappear; it becomes an unrecovered cost that places pressure on BEL’s cash flow and, ultimately, contributes to amounts owed to power suppliers.

A useful way to understand the problem is to separate the cost of power from BEL’s other operating expenses. Electricity purchased from Mexico, Hydro Belize and other generators is an input into BEL’s business. BEL buys the electricity, transmits and distributes it through its network, and then recovers those costs through the tariff approved by the Public Utilities Commission.

Suppose, for example, the tariff structure allows BEL to recover an average cost of power of approximately BZ$0.3036 per kWh. If changing market conditions cause the actual cost of purchased power to rise to 35.36 cents per kWh, BEL experiences a shortfall of 5 cents per kWh.

Five cents may appear small when looking at one kilowatt-hour, but electricity utilities sell hundreds of millions of kilowatt-hours. If BEL purchases 100 million kWh during a period while carrying a 5-cent-per-kWh unrecovered cost, the financial gap is BZ$5 million. BEL would therefore have spent approximately BZ$5 million more purchasing electricity than it was permitted to recover from consumers during that period.

If the same imbalance continued for six comparable periods, the unrecovered amount would reach approximately BZ$30 million. If it continued for twelve, it would reach approximately BZ$60 million. The arithmetic demonstrates how relatively small differences of 3, 4 or 5 cents per kWh can quickly translate into tens of millions of dollars for a national electricity utility.

Consider the scale another way: at 100 million kWh, an unrecovered difference of 3 cents per kWh creates a BZ$3 million shortfall; 5 cents creates BZ$5 million; and 7 cents creates BZ$7 million. The problem is therefore driven by both the size of the cost gap and the volume of electricity purchased.

The critical point is that BEL cannot simply tell its suppliers that the regulator has not allowed it to recover the higher cost from consumers. Mexico (CFE), Hydro Belize and other generators must still be paid according to their contractual arrangements. When the cost is not recovered through the tariff, BEL must use available cash, postpone other expenditure or investment, borrow or obtain shareholder financing, seek government support or allow supplier payables to accumulate. None of these is sustainable indefinitely.

Economically, BEL is effectively financing part of the consumer’s electricity bill during the period between paying the supplier and recovering the appropriate cost through tariffs. This is why an unrecovered cost of power can eventually appear on BEL’s balance sheet as significant supplier payables.

There is also an important distinction between affordability and cost recovery. Government and the regulator may legitimately want to protect consumers from sudden electricity-price increases. However, preventing BEL from recovering an actual power-purchase cost does not eliminate that cost. It merely determines who carries it and when it is paid.

For example, if the true cost of electricity increases by 5 cents per kWh, a household consuming 200 kWh is temporarily shielded from approximately BZ$10 per month. Across 100,000 customers with comparable consumption, however, that same BZ$10 represents approximately BZ$1 million per month of cost that must be carried somewhere in the electricity system.

This is why a properly designed Cost of Power Adjustment mechanism is important. Its purpose should be to periodically reconcile the difference between the assumed cost of power embedded in the tariff and the actual cost BEL incurred. If actual costs rise materially above the reference cost, there should be an orderly mechanism for recovery. Equally, if the cost of power falls, consumers should receive the benefit through a downward adjustment.

The policy challenge is therefore not simply whether electricity rates should rise. The real question is how to ensure BEL remains financially capable of purchasing enough electricity to keep the lights on while protecting consumers, particularly vulnerable households, from sudden and excessive price shocks. Consumer protection can be delivered through targeted interventions, or rebates, allowing large unrecovered power costs to accumulate is not a sustainable substitute.

THE CORE ARITHMETIC

Unrecovered Cost Illustrative Volume Financial Shortfall

3 cents/kWh 100 million kWh BZ$3 million

5 cents/kWh 100 million kWh BZ$5 million

7 cents/kWh 100 million kWh BZ$7 million

BEL cannot continuously purchase electricity at 35 cents and recover only 30 cents. Someone must finance the missing 5 cents.

In simple terms, the bill for purchased power must ultimately be paid. Delaying recovery does not remove the bill, it only changes when it is paid, who finances it in the meantime, and potentially how large the eventual problem becomes. The sustainable policy objective is therefore cost-reflective electricity pricing combined with deliberate and targeted consumer protection.

The post THE MISSING CENTS: Why Unrecovered Power Costs Become BEL’s Debt appeared first on Belize News and Opinion on www.breakingbelizenews.com.