On most electricity bills, you can find the Fuel Adjustment Charges. This charge comes from various other electric utilities that you use. In this, most utilities file the rates with monitoring organizations. They project the amount and cost of fuel they’ll use to produce electricity.
In performing these projections, the estimates may vary. So a comparison is done between the actual cost of fuel and purchased power experienced. This “adjustment charge” is then multiplied by the kilowatt-hours of power. Further used to account for the changes in fuel and acquired power prices.
FAC (Fuel Adjustment Charge) or FCA (Fuel Cost Adjustment) or FPPCA (Fuel and Power Purchase Cost Adjustment) is amount that utilities apply on bills. It is based on varying price of fuel or Coal. The variations and fluctuations occur in the price of coal or fuel every month. This is based on demand and supply of coal.
1.FAC is not included in the tariff slabs because regulatory commissions of various states fix tariffs for electricity periodically. The revision happens every few years. A new price is set based on the cost of construction and distribution. The utilities must manage these changing costs by passing it to the consumer.
2.Changes in FAC – It varies from state to state. In some places, FAC is calculated every month. In most of the states it is Quarterly. In case new tariffs are not defined frequently, the FAC component in electricity bill can be as much as the electricity tariff amount.
3.Calculation – Every state has a different formula to calculate FAC amount.
4.Impact of FAC – It is a charge that is applicable per unit of electricity consumed. Contrasting fixed rates, it is a variable component on the bill. It changes as per your consumption of electricity every month. It can be negative as well but mostly it is positive. Any reduction in monthly consumption will help in bringing down the amount.
The Fuel Adjustment Factor (or FAF) is an additional charge added to your cargo rates to cover the cost of fuel. You will find that most established transportation forwarders will provide the FAF price as an additional cost to your agreed transport rates.
Working Out The FAF surcharge
Fuel is a dynamically priced commodity. It causes the FAF surcharge to change constantly. A FAF calculation table is commonly used to determine the FAF surcharge. The applicable fuel adjustment is based on the standard pump price. It is computed from an independent source. The pump price is based on data collated from fuel purchases made every 24 hours. It ensures whether the Fuel Adjustment Factor is up to date and correct.
The Fuel Adjustment Clause
The Fuel Adjustment Clause (FAC) is a mechanism that permits utilities to adjust the price. Also, to reflect fluctuations in the cost of fuel used to supply that electricity.
The formula for the calculation of the fuel surcharge is prescribed by law. It takes into consideration the difference in the current price of fuel and the average price for the previous year. Also, considers the number of units of electricity sold for the previous month. Once the fuel surcharge is calculated, this is added to the tariff and multiplied by the number of units. By this, you can calculate the total bill for the current month.
Is FAC necessary ?
Fuel costs make up a significant part of the cost of generating electricity. Fuel prices, including the price of coal can fluctuate widely over short periods. The FAC allows utilities to reflect those changes in their rates without requesting changes in their base rates. Without FAC, utilities would likely be required to file for more frequent adjustments. The changes in base rates would also be greater.
The FAC is set against a baseline fuel cost. It is incorporated within the consumption-based (per kilowatt-hour) part. If the utility’s fuel costs in each month are above the baseline, the FAC appears as a surcharge. If fuel costs fall below the baseline, the FAC appears as a per-kilowatt-hour credit.
Most of the documents become public records. The utilities’ monthly FAC statements can be viewed on the Website. The six-month and two-year FAC reviews are conducted, with hearings that are open to the public. As with any other case, members of the public may submit comments on the FAC cases.