Electricity prices are to rise after regulators gave power utility Belco permission to increase its rates for the first time in three years.

The new rates, which will take effect next month, will result in residential customers paying 8.7 per cent more on their monthly bill for the first 250 kilowatt hours used. For the next 550 kWh used, there will be a 5.7 per cent increase and for the top tier — anything over 700 kWh — a 17.7 per cent hike will apply.

The graduated facilities charge will also rise by between $5 and $20 per month, depending on the amount of electricity used.

Commercial rates will go up between 16.6 per cent and 22.4 per cent, depending on the amount of electricity used.

Belco pointed out yesterday that the impact will be softened by the fuel adjustment rate being at a nine-year low of 7.65 cents per kWh.

The utility said that the net effect means that the total bill for small and average residential users will be lower when the new rates take effect next month than it was 12 months earlier.

An average user who had a monthly bill of $225.38 in June 2015 will have a bill of $217.45 when the new rates kick in next month, Belco said, representing a decrease of 3.5 per cent.

The decrease is entirely due to the steep fall in the fuel adjustment rate, from 11.5 cents per kWh in June last year to 7.65 cents for next month, as a result of the fall in global oil prices meaning cheaper fuel for Belco’s generators to burn.

“The Energy Commission, recognising that Belco requires a reasonable return on capital in order to make the ongoing infrastructure investments required to deliver the highly reliable electricity system for business and residential customers, has instructed the utility to revise its rates in order to achieve a 7 per cent return on capital in 2016 and 8 per cent in 2017,” Belco said in a statement yesterday.

Belco had sought a higher rate increase to bring its return on capital up to 10.5 per cent, which it has argued is in line with utilities in similar jurisdictions.

“As part of the filing, Belco had an independent report prepared on the cost of capital, which indicated that a suitable return for Belco, in line with peer island utilities, should be 10.5 per cent, well above the 1.8 per cent realised in 2013, the 3.3 per cent in 2014, and the 6 per cent in 2015,” Belco added.

“Over the past several years, despite higher system reliability, Belco’s realised return on capital has been consistently much lower than other island utilities.”

Belco has argued that it needs to increase earnings to maintain the necessary level of investment in its plant and infrastructure.

The power company said it had invested about $390 million since 2000, even as electricity sales plunged during the recession.

“Given the prolonged erosion of sales revenues in a capital-intensive and high fixed-cost regulated business, Belco could not sustain high levels of investment with unreasonably low earnings,” yesterday’s statement added.

• For full details of Belco’s rate changes, click on the PDF link under “Related Media”