The ARMS billing issue has many facets, many of which are emotional because they hit everyone’s pockets. It is easy to dismiss the criticism of the calculation by confusing it with political statements about tariff decreases and past practices.
I would like to move away from the emotional and political arguments and stick to the mathematics of the bill calculation and propose a solution that is already tried and tested in the Maltese economy.
Twenty or so years ago we were faced with a similar (albeit much more complex) problem when we tackled the PAYE tax deduction system as part of the Inland Revenue reform. One aspect of that reform was the need to accurately deduct the exact amount of tax from employees so as to obviate the need for them to submit tax returns.
The tax return was (still is) a mechanism to assess the amount of income for the whole year, calculate the tax due and collect or refund the difference from the amount of tax paid during the year. Income tax calculations are more complicated because salaries fluctuate with variables like overtime, bonuses, increases, time-based income, part-time, allowances, etc.
The problem was solved by establishing a pro-rata averaging formula that ensured that fluctuations would be catered for and the exact amount of tax due was collected. The system has been in place for some 20 years nationwide and has worked very well.
What is proposed is a possible solution. It is by no means the only one but at least this system is fair because it does not penalise the consumer to the benefit of ARMS
The parallels with the ARMS electricity tariff system are there:
Both systems have increasing rates based on annual bands
Both systems are based on an annual system (annual income and annual consumption)
Both systems have fluctuating inputs (income and unit consumption)
Both systems have periodic calculations (tax usually every pay period and electricity consumption every billing period)
Both systems have an issue with recovering from bracket creep (moving into a higher bracket)
The point of this article is not to explain the detailed working of the system. As every employee on the island knows, the amount of tax collected in the FSS system is highly accurate. Few would bother to question the monthly calculation needed to achieve the fair result by year end.
The formula-based system is fair. It smoothens out the fluctuations through the year and homes in on the right total deduction by year end.
The current system used by ARMS is unfair and one-sided. The current system will penalise a consumer when the billing period units consumed cause bracket creep. Unlike the taxation system there is no system of yearly assessment to refund overbilling during the year. The system is based on annual rates and annual bands. A system to honour that tariff is required and expected.
The mechanics of the formula-based calculation are:
Project the average consumption for the year to date for the full year.
Calculate the yearly cost of that projected consumption. Calculate the pro-rata cost for the year to date.
Subtract the amount billed up to the previous period from the pro-rata cost for the year to date.
The amount in Step 4 is the amount that will be billed. By year end the exact amount required will be billed regardless of fluctuations. Any overpayment as a result of wild fluctuations will be retained as a credit on the account.
What is proposed is a possible solution. It is by no means the only one but at least this system is fair because it does not penalise the consumer to the benefit of ARMS.
The point of this article is to raise awareness that solutions do exist if ARMS are interested in removing their unfair billing system. Twenty years ago few would have thought that the PAYE system could be reformed. What is required today is what was required then – the political will to implement a fairer system.
Robert Agius was one of the architects of the Inland Revenue reform which commenced in the 1990s.