What is this ARMS is­sue all bout and are peo­ple re­ally mak­ing a fuss?

The Malta Independent on Sunday - - NEWS - He­lena Grech

De­spite the grow­ing num­ber of peo­ple who have come to un­der­stand why their bills are get­ting big­ger, and de­spite the fact that Malta en­joys one of the low­est costs per unit of elec­tric­ity in the EU, oth­ers are still com­ing to grips with what the whole is­sue is all about.

In ad­di­tion to the key women who have sounded the alarm over un­fair billing prac­tices, such as Pa­tri­cia Gra­ham who runs ‘Up In ARMS’ – a group tack­ling billing is­sues, and Jo­hanna Ax­isa MacRae who runs Malta Ten­ant Sup­port –a group that deals specif­i­cally with un­fair prac­tices against those rent­ing prop­erty, an­other woman has taken to so­cial me­dia and started the ball rolling to high­light un­fair prac­tices in the gen­eral billing sys­tem.

Econ­o­mist Marie Briguglio raised the is­sue of how ARMS has been cut­ting up the var­i­ous elec­tric­ity quo­tas per day rather than cal­cu­lat­ing con­sump­tion on an an­nual ba­sis, mean­ing that some house­holds are jump­ing to the 16c, 35c and some­times even 60c on a daily ba­sis.

How does the ARMS billing sys­tem work?

ARMS Ltd uses a stepped tar­iff sys­tem with the un­der­ly­ing prin­ci­ple be­ing that the more you con­sume, the more you pay. There are five sep­a­rate bands, as high­lighted on its web­site.

In all, 2,000 units are charged at 10c5 (band 1), 4,000 at 12c9 (band 2), 4,000 at 16c (band 3), 10,000 at 34c2 (band 4) and, lastly, in ex­cess of 20,000 units are charged at 60c7 (band 5).

The var­i­ous tar­iffs are charged per house­hold, and not per per­son.

Based on a le­gal notice, ARMS charges house­holds on ‘cu­mu­la­tive con­sump­tion per an­num’ which ‘may be billed on a pro rata ba­sis’.

A sep­a­rate le­gal notice pro­vides for ARMS to is­sue bills cov­er­ing any num­ber of days it may deem fit:

“Res­i­den­tial Premises Ser­vice shall be billed, for any pe­riod or pe­ri­ods as the dis­tri­bu­tion sys­tem oper­a­tor may, from time to time de­ter­mine, in ac­cor­dance with the fol­low­ing charges and tar­iffs,” fol­lowed by the afore­men­tioned tar­iffs.

In ef­fect, this means that ARMS can bill based on any num­ber of days it chooses.

How does ARMS cal­cu­late its bills?

A sig­nif­i­cant pro­por­tion of peo-

ple liv­ing in Malta are now re­ceiv­ing bills ev­ery two months based on ac­tual con­sump­tion. Pre­vi­ously, most peo­ple were re­ceiv­ing bills ev­ery two months based on es­ti­mates and would then re­ceive a bill for six months based on ac­tual con­sump­tion. A rec­on­cil­i­a­tion ex­er­cise would be car­ried out to cor­rect any over or un­der-pay­ment.

With the bills be­ing is­sued ev­ery two months, on ac­tual con­sump­tion, ARMS are chop­ping up the var­i­ous elec­tric­ity bands and ra­tioning them per day.

What does it mean to ‘ra­tion’ the dif­fer­ent elec­tric­ity bands?

As an ex­am­ple, take the 2,000 units at 10c5. What is hap­pen­ing is that those 2,000 units are di­vided by 365 days to re­flect one cal­en­dar year, and are then mul­ti­plied by the num­ber of days cov­er­ing the bill, around 60: (2000/365 *60).

This ex­er­cise is cal­cu­lated for each elec­tric­ity band in or­der to as­cer­tain the ‘quota’ of each rate per­mis­si­ble per billing pe­riod. For ex­am­ple: 2,000 units di­vided by 365 days pro­vides for each house­hold to con­sume 5.479 units per day at 10c5. For a bill cov­er­ing 60 days, those 5.479 units are mul­ti­plied by 60 days pro­vid­ing for 328 units in the en­tire billing pe­riod to be charged at 10c5.

On av­er­age, a 60-day billing pe­riod will charge each house­hold 328 units at 10c5; 658 units at 12c9; 658 units at 16c; 1,644 units at 34c2 and any­thing above 3,288 units at 60c.

When look­ing at the quo­tas per day, each house­hold has 5.479 units at 10c5; 10.959 units at 12c9; 10.959 units at 16c, 27.397 units at 34c2 and any­thing be­yond 54.794 units at 60c.

There­fore, when cal­cu­lat­ing your house­hold’s in­come, ARMS chops up the elec­tric­ity band based on the num­ber of days in a par­tic­u­lar billing pe­riod and cal­cu­lates the bi-monthly ‘ra­tions’ such as the afore­men­tioned ex­am­ple de­pict­ing the 60-day ra­tions awarded to each house­hold.

If your house­hold con­sumed 1,000 units of elec­tric­ity in the space of two months, 328 units would be charged at the cheap­est rate amount­ing to €34.34, 658 units cost €81.51 and the last 14 units would cost €2.25 at the 16c tar­iff.

De­spite not reach­ing the 2,000 unit thresh­old, the hy­po­thet­i­cal house­hold still moved up to the more ex­pen­sive tar­iffs of 12c9 and 16c.

What is the out­come of fre­quent bills and this sys­tem of quota ra­tioning?

The out­come is a ma­te­rial im­pact on the amount due to ARMS for a par­tic­u­lar billing pe­riod. More fre­quent in­voices with the elec­tric­ity bands be­ing chopped up per day makes it that much eas­ier to move onto higher elec­tric­ity tar­iffs de­spite not hav­ing con­sumed more than the thresh­olds for each band as ad­ver­tised on the ARMS web­site.

In pe­ri­ods of high con­sump­tion, such as the cold months of win­ter and the ex­ces­sively hot sum­mer months, house­holds that make use of air-con­di­tion­ers and other ap­pli­ances to con­trol the tem­per­a­ture in their homes will be shocked to see they have moved onto higher elec­tric­ity rates ev­ery day. The shorter billing pe­riod means that such house­holds will not be able to off­set the high con­sump­tion pe­ri­ods with low con­sump­tion pe­ri­ods by mak­ing up for pe­ri­ods with dis­pro­por­tion­ately high use with oth­ers where lit­tle elec­tric­ity is needed.

Worse still, should a billing pe­riod come dur­ing a typ­i­cally low con­sump­tion pe­riod, say March and April where open win­dows and longer day­light hours save on elec­tric­ity con­sump­tion, fail­ing to make use of the full ra­tion for the billing pe­riod will re­sult in the loss of cheap rates. Go­ing back to the ear­lier ex­am­ple, if the house­hold in ques­tion con­sumed just 250 units in a 60-day pe­riod, those ex­tra 78 units that were not con­sumed will not be car­ried for­ward to the next billing pe­riod but will sim­ply be lost (250 +78 = 328 units at 10c5 for 60 days).

What has changed in the way that ARMS is billing its con­sumers?

After this is­sue gen­er­ated some in­ter­est, ARMS told this news­room, and re­leased a state­ment to say that it has not changed its billing sys­tem since 2009. This ap­pears to be the case in the way it makes its cal­cu­la­tions how­ever there has been a sig­nif­i­cant change, and that is the fre­quency with which the state wa­ter and elec­tric­ity billing en­tity is­sues in­voices.

Pre­vi­ously, many peo­ple ar­gued, with some jus­ti­fi­ca­tion, that re­ceiv­ing bills based on ac­tual con­sump­tion ei­ther ev­ery six months or an­nu­ally was too much of a shock to the sys­tem in terms of fi­nan­cial plan­ning. Many peo­ple failed to make pro­vi­sion through­out the year and were slapped with bills cov­er­ing long billing pe­ri­ods.

It would ap­pear that there is a link be­tween the in­tro­duc­tion of smart me­ters and the is­suance of bills ev­ery two months. Hav­ing said that, some house­holds – de­spite hav­ing the new smart me­ters – are re­ceiv­ing ‘no read­ings’ ev­ery two months and then an ac­tual bill cov­er­ing a six-month pe­riod.

Oth­ers are still re­ceiv­ing es­ti­mates and have not yet been brought into the two- month bills based on ac­tual con­sump­tion. The is­su­ing of two-month bills is not based on lo­cal­ity ei­ther, with con­sumers in­form­ing this news­room that they are re­ceiv­ing bills on ac­tual con­sump­tion bi-monthly whereas their neigh­bours still re­ceive them ev­ery six months with ‘no read­ings’ in-be­tween.

One reader main­tained that he re­ceived bills ev­ery two months based on ac­tual con­sump­tion be

fore his smart me­ter was in­stalled. When ask­ing to shed some light on how it chooses to bill con­sumers, ARMS main­tains that “ev­ery­body” is billed ev­ery two months and that it is us­ing the same sys­tem as that in­tro­duced by the Na­tion­al­ist Party’s Wa­ter Ser­vices Cor­po­ra­tion.

Bills seen by this news­room, and first-hand ac­counts from var­i­ous sources who have had enough of the con­fu­sion sur­round­ing ARMS, con­tra­dict state­ments made by the state en­tity in a big way, but it still main­tains that the billing sys­tem re­mains un­changed.

Does this quota-ra­tioning sys­tem have a neg­a­tive im­pact on all con­sumers?

In short no, not ev­ery­body. If yours is a rel­a­tively small house­hold, and you con­sume your elec­tric­ity fairly con­sis­tently through­out the year, this will not have an im­pact on you, mean­ing that you will not have no­ticed an in­crease in your bills.

This is be­cause if you are con­sum­ing a com­pa­ra­ble num­ber of units of elec­tric­ity each day through­out the year, no mat­ter the sea­son, then you are not go­ing to suf­fer mov­ing up onto the most ex­pen­sive elec­tric­ity rates or lose out on the cheap units. This is be- cause there are no spikes and dips and there­fore no need for longer billing pe­ri­ods to off­set those spikes or dips.

What are the au­thor­i­ties say­ing about this?

En­ergy Min­is­ter Joe Mizzi stresses that he has brought all com­plaints to the at­ten­tion of the rel­e­vant en­ti­ties and is await­ing feed­back. He took um­brage at the no­tion sug­ges­tion that elec­tric­ity rates have not been re­duced un­der the Labour gov­ern­ment, which he says they have. The is­sue sur­rounds how much peo­ple are be­ing charged on their bills and not the cost of each unit, as can be seen above.

Par­lia­men­tary Sec­re­tary for Con­sumer Pro­tec­tion Deo De­bat­tista failed to give any form of re­ply to the ques­tion of how an en­tity in an abu­sively dom­i­nant mar­ket po­si­tion could be allowed to do this or whether he was aware of the dis­crim­i­na­tory pric­ing prac­ticed. The ques­tions were sent over two weeks ago.

The Malta Com­pe­ti­tion and Con­sumer Af­fairs Author­ity (MCCAA) has also failed to re­ply to – or even ac­knowl­edge – our ques­tions. Cor­re­spon­dence sent to us by a reader, how­ever, showed how the MCCAA is re­luc­tant to com­ment due to the pend­ing court case on the is­sue, after the case had been filed in court. When the is­sue was raised be­fore a rel­e­vant court case, the MCCAA sim­ply failed to an­swer in a sat­is­fac­tory way.

What is the so­lu­tion?

Ar­gu­ments for re­ceiv­ing bills more fre­quently are jus­ti­fied, as many peo­ple strug­gle to save and make pro­vi­sions through­out the year in or­der to plan for an­nual or bi-an­nual bills. Oth­ers have also ar­gued that it is un­rea­son­able to ex­pect ARMS to bill ev­ery six months or an­nu­ally be­cause no busi­nesses ever pro­vide such con­ces­sions due to is­sues with cash flow af­fect­ing their abil­ity to op­er­ate.

The most straight­for­ward an­swer, which has been ar­gued by econ­o­mists such as Dr Marie Briguglio and other aca­demics, is for ARMS to carry out a rec­on­cil­i­a­tion ex­er­cise at the end of each year and, at the very least, pro­vide cred­its for any over-pay­ments based on a house­hold’s an­nual con­sump­tion.

At no point has any author­ity from any suc­ces­sive gov­ern­ment ex­plained to its con­sumers – who have no choice but to pur­chase their wa­ter and elec­tric­ity from the state – that more fre­quent billing would re­sult in higher bills for a large pro­por­tion of house­holds.

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