Belco seeks electricity price increase
Belco is preparing to ask energy regulators for permission to raise its electricity prices.
The imminent rate filing to the Energy Commission to change basic tariffs comes after Belco’s parent company Ascendant Group Ltd announced a fifth consecutive year of falling electricity sales.
This afternoon Ascendant reported full-year earnings of $5.9 million in 2014, up $1 million from 2013. The company said the increase was mainly due to accounting adjustments on certain one-off items occurring in 2013.
Ascendant also announced that it will submit plans to Government this year to convert its infrastructure to change Belco’s primary fuel to natural gas instead of fuel oil. The ‘Integrated Resource Plan’ (IRP) also includes proposals for “utility-scale solar renewable energy systems” to help diversify the Island’s energy sources and energy efficiency programmes.
Ascendant estimated that implementation of these plans would create 150 jobs for Bermudians.
In its earnings statement, Ascendant said Belco’s return on equity was “unacceptably low” because revenues had slumped with declining electricity demand, while cash flows were strained under increasing operating costs and capital outlays needed to maintain its aging generators.
“Belco will shortly be submitting a rate filing to Bermuda’s Energy Commission to adjust tariffs in order to achieve an acceptable rate of return that will allow it to continue to provide reliable service and attract investment for needed electricity infrastructure,” Ascendant stated in its earnings commentary.
For many electricity bills have fallen in recent months, thanks to a slump in the global price of crude oil which has reduced the cost of the fuel used to power Belco’s generators. This has translated into a sharp fall in the fuel adjustment charge, which this month was cut to 11.5 cents per kWh, 26 per cent lower than it was in January 2014.
Ascendant’s 2014 annual report shows that Belco’s electricity sales totalled 577.4 kilowatt hours (kWh) in 2014, after demand fell from residential and commercial customers alike. This marks an 11.25 per cent drop since 2010 when Belco sold 650.6 million kWh.
Ascenadant Group chief executive officer Walter Higgins said: “Ascendant Group continues to grapple with the effects of Bermuda’s prolonged economic recession, rising health care costs, aging electricity infrastructure and increased competition across all lines of business.
“With the exception of the slight increase in net earnings in 2014, due mostly to accounting adjustments, Ascendant Group has experienced eight years of generally declining net earnings since 2005 when the Company reported $28.5 million, compared to the current 2014 net earnings of $5.9 million.
“The weakened economy and a declining local population have negatively impacted electricity sales, as well as revenues from the sale of goods and services provided by the company’s other operations during the year.”
Ascendant said the decline in electricity consumption was driven primarily by “the departure of both Bermudians and the non-Bermuda workforce as international companies consolidated operations outside of Bermuda or reduced the level of staffing on the Island.
“In addition, many customers are voluntarily conserving and reducing their electric energy consumption, adding to the downward pressure on sales.”
Last June Ascendant slashed the quarterly dividend it pays to shareholders by more than half to 35 cents per share in order to save capital.
The Bermuda Stock Exchange-listed company’s share price fell by almost half last year to close 2014 at $5.40 — less than a fifth of its book value, which was calculated as $30.59 per share.
The company was also tested by the visit of hurricanes Fay and Gonzalo in the space of a week last October. Ascendant said it spent $2.9 million restoring the network after the storms. Belco replaced 80 transformers, 228 poles and 4.25 miles of cables as a result of the hurricanes.
Ascendant Group’s total operating expenses decreased $4.6 million in 2014 to $238.9 million, thanks to the fall in fuel costs — 49 per cent of the company’s total expenses — and a $1.2 million decrease in the cost of its defined benefit pension plan.
Ascendant added: “The company is reviewing a number of options to reduce overall compensation and benefits costs while ensuring an optimal number of skilled, competent staff to meet operational requirements and maximise productivity in a safe, secure working environment.”