Belco urgently needs to be allowed to increase its electricity rates in order for Bermuda to continue to enjoy a “first-world” electricity system.

That is the view of Walter Higgins, the utility’s chief executive officer, who said a continuation of “abysmally low returns” posted in recent years would deter the investors who provide Belco’s capital base and its ability to make the investments necessary to maintain its creaking infrastructure.

“The returns have become so untenably low that at some point you’d have to ask yourself why any rational person would invest in this business,” Mr Higgins said.

“The company must be viewed as a viable investment for either a debt provider — like a bank or a bondholder — or for any investor you might want to attract by issuing new shares.

“It does not look like a viable investment today with falling sales in a rising cost environment. So we have to do something about that. As much as we would like some magic solution that doesn’t involve increasing the rates, there really isn’t one.”

Asked why expenses were rising even when Belco was producing less electricity, Mr Higgins said the rising cost of pensions, healthcare and maintenance were principal drivers.

“Many of the engines are already past the age at which they should have been retired,” he said. “Not only are they using 30-year-old technology that burns more oil than more modern engines, but the maintenance costs to keep them running rises every year.”

Mr Higgins said he received an alert every time any one of Belco’s 17 engines was not working. Typically this would happen between five and eight times per day, he said.

He said the people maintaining the engines — some of whom are younger than the engines themselves — did a “remarkable job” keeping them going.

In 2011, Belco had applied for a rate rise that it said would have enabled it to finance a new $70 million North Power Plant to replace the oldest of its generators, which are now more than 30 years old, but the application was turned down by Government.

Mr Higgins said the new engines would have paid for themselves in the space of four years through savings on maintenance costs and better fuel efficiency. The company had said at the time that the result of putting off the upgrade would be higher maintenance costs and lower reliability — and that was how things had turned out, he added.

Shutting down engines permanently with the drop-off in demand had been considered to further cut costs, but this would increase the risk of supply interruptions — something Belco considered unacceptable, Mr Higgins added.

Some transmission lines were more than 50 years old, he added.

“Three times last year we had to dig up Cedar Avenue because an underground transmission line failed. Replacing some of that infrastructure would help to bring down those high maintenance costs,” he said.

Labour costs, which include employee and retiree benefits, made up 30 per cent of expenses, he said, and had fallen as a percentage of total expenses in recent years. Labour unions had helped by agreeing to a two-year pay freeze.

Depreciation made up 15 per cent, maintenance and engine overhauls 12 per cent. A further 25 per cent are fuel costs. Although most fuel costs are accounted for separately in the fuel adjustment revenue, the first $30 a barrel is listed as a Belco expense and is paid for by the customer as part of the base rate tariff.

Asked about the scope for further cuts, Mr Higgins said: “You have to make sage decisions about cutting costs in a utility because you do want to meet the load whenever it comes.

“If you start cutting back, then when the economy comes back you won’t be ready for it and if we simultaneously have an oil blowout again, we’ll be right back in the soup and asking ourselves, ‘Why didn’t we do something about it when we could have?’”