Plans for new power station on ice after Minister rejects Belco rate rise appeal

  • Profits down: Falling electricity sales impacted Ascendant's 2011 results

    Profits down: Falling electricity sales impacted Ascendant's 2011 results

Ascendant Group Ltd said last night it has shelved plans to install a new, more fuel-efficient power plant after Environment Minister Marc Bean ruled against the company’s request to raise base electricity rates.

The Energy Commission had previously turned down Ascendant subsidiary Belco’s plan to raise rates for residential customers by 3.5 percent for three successive years.

Belco appealed against the decision to Minister Bean. Last night, Ascendant revealed that the Minister had rejected its appeal.

The revelation came in the company’s earnings statement, which showed Ascendant’s profits plunged by more than 30 percent as one-time charges related to early retirements and weakening energy demand in the slowing economy took their toll.

Ascendant said it was now looking at its legal options and in light of the Minister’s decision, work on a the planned new, $70 million North Power Station would not proceed.

The company said this left Belco “with no choice but to continue to meet Bermuda’s future energy demand with older, less efficient and less reliable generation plant”.

Ascendant, which is also the parent company of Bermuda Gas, recorded net income of $11.12 million last year, down from $16.02 million in 2010.

In its earnings statement, Ascendant said one-time charges totalling $3.88 million arose from decisions regarding both the company’s pension plan and employee early retirements.

Electricity demand fell significantly last year, resulting in Belco’s net income falling $1.49 million to $14.54 million. Sales of electricity, net of fuel adjustment income, decreased $3.22 million in 2011 to $150.75 million, down from the $153.97 million in 2010.

Residential kilowatt hour (kWh) sales decreased 4.2 percent in 2011, following an increase in 2010 of 1.9 percent. Average consumption per customer decreased 4.2 percent during the year to an average monthly consumption of 678.5 kWh.

Ascendant stated: “A significant decrease of 11.58 million kWh is directly related to the economic downturn, as the number of active, metered residential units has declined due to a weak economy and increased numbers of non-Bermudian work permit holders leaving the Island, as some businesses either moved operations out of Bermuda or reduced staffing levels.”

Electricity sales in the commercial sector also fell 1.3 percent, compared to a decrease of 1.9 percent in 2010.

“Primary factors responsible for the reduction are business closures, reduced hours of operation, lower occupancy levels and concerted efforts by many businesses to reduce operating costs through energy conservation, due to the Island’s economic downturn,” Ascendant noted.

The diesel fuel which Belco burns to generate electricity was a soaring expense in 2011. Fuel costs increased $14.71 million from $107.34 million in 2010 to $122.05 million. Ascendant saw a 17.7 percent increase in the average cost of fuel or an additional $18.05 per barrel, up from $101.83 per barrel in 2010 to $119.88 per barrel in 2011.

Ascendant said Belco’s planned North Power Station project was budgeted to cost around $70 million over four years, involving the design and construction of three 14 megawatt (MW) diesel generating units plus associated work, with the engines scheduled to start operating in July 2013.

“The introduction of these engines is essential to meet Bermuda’s future energy demand, as three less efficient existing engines are scheduled for retirement in 2013, as are all East Power Station Phase I engines in 2017,” Ascendant stated.

“However, in February 2012, Belco received notice from Government’s Energy Commission that its October 2011 submission to increase basic tariff rates with effect from 1 January 2012 had been rejected.

“The rates increase is essential for Belco to secure financing for the North Power Station project. The Commission’s decision was appealed by Belco to the Minister of Environment, Planning & Infrastructure Strategy and on 9 May 2012, Belco received notification that the appeal had been rejected by the Minister with respect to the basic tariff rates increase.

“At the time of writing, Belco is considering its legal options. If the Minister’s decision stands, then the North Power Station project will not proceed, leaving Belco with no choice but to continue to meet Bermuda’s future energy demand with older, less efficient and less reliable generation plant.”

The company said the rejection of the rates increase would also impact other capital projects.

“For example, in 2011 Belco commenced logistical work in preparation for the Prospect-to-Flatts transmission cable replacement in 2012; however, as a result of the Minister’s decision this project has been deferred.

“This project is considered extremely important, as it would allow very old, problematic and operationally expensive 22 kV cables on the eastern portion of the Island to be retired, providing a more secure link to the Flatts substation and mitigating possible overloads on Fort Hamilton feeds to Flatts.”

Bermuda Gas’s net income fell 26.8 percent to $969,104, compared to $1.32 million in 2010.

Two other Ascendant companies, PureNERGY and inVenture, both reported widening net losses.

Renewable energy company PureNERGY sustained a loss of $1.39 million in the current year, following a 2010 loss of $405,276. Ascendant stated: “ Although recent announcements regarding financing, tax relief and other incentives for small-scale renewable energy systems are encouraging for PureNERGY, the operation of this company will be assessed during 2012, if these do not result in opportunities.”

inVenture, which was formed to pursue new investment opportunities outside of the energy business, reported a net loss of $184,560 in 2011, as compared to a 2010 loss of $72,035.

Ascendant added that plans “were well under way” to replace Vincent Ingham, who retired as chief executive officer at the end of last year.

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Published May 16, 2012 at 8:14 am (Updated May 16, 2012 at 8:13 am)

Plans for new power station on ice after Minister rejects Belco rate rise appeal

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