Belco profits surge, dividend raised 50%
Belco’s operating earnings surged 36 per cent last year as the power utility benefited from in increase in tariff rates for electricity from June last year.
The company earned $24.3 million, according to figures released today by its parent company Ascendant Group Ltd.
At the group level, Ascendant said net income climbed 43 per cent to $24.9 million, compared to $17.9 million in 2015, largely due to an $11.7 million gain on the sale of Bermuda Gas to Rubis.
Ascendant said its board had decided to increase the quarterly dividend by about 50 per cent to 11.25 cents per share, raising the annual yield for shareholders to 5.3 per cent at today’s closing price of $8.50 on the Bermuda Stock Exchange.
AG Holdings Ltd recorded a 5 per cent increase in operating earnings to $543,000, largely due to improved performance at iEPC Ltd, partly offset by reduced earnings at Air Care caused by inventory writedowns and relocation costs, as well as decreased rental income at Ascendant Properties Ltd.
Unallocated group expenses climbed $6 million, the company said, in part due to “accruals related to the company’s long-term incentive programme” and improved revenues were also partly offset by a proposed death benefit programme for future retirees.
Results were also impacted by higher claims at the group’s captive insurance company, Ascendant Bermuda Insurance Ltd related to crankshaft damage on one of Belco’s generators.
Over the past year, Ascendant said it had repurchased 822,817 shares, of which 595,000 shares were cancelled. The decision to hike the dividend was based on “underlying earnings performance, strong cash flow and reduced gearing levels”, Ascendant said.
Belco’s sales volume decreased 0.8 per cent from 590 million kilowatt hours (kWh) in 2015 to 586 million kWh in 2016 on a meter-read basis.
Sales to residential customers were down 0.2 per cent. Large commercial sales decreased 1 per cent and small commercial, street lighting and other sales were down 2 per cent.
Fuel consumption fell and overall fuel costs decreased $15.2 million from $92.8 million in 2015 to $77.6 million in 2016. The average cost of a barrel of fuel declined from $101.06 in 2015 to $85.91 in 2016, which includes $31.79 per barrel for customs duty.
“This represents an increase of 38 per cent in the duty from 2015. Since 2014, while oil commodity prices have decreased, customs duty on fuel oil has increased 111 per cent,” Ascendant said.
The tariff increases approved by the Energy Commission took effect on June 1 last year, which allowed Belco to make a 7 per cent return and will allow for an 8 per cent return for 2017, but the regulator mandated that revenues above the allowed return on capital should be set aside in a Tariff Stabilisation Fund, to be used to defer future tariff increases. The balance in this fund at the end of last year was $6.6 million.
Sean Durfy, Ascendant’s chief executive officer, said: “2016 marked the beginning of significant changes both within the group and in the external environment in which we operate.
“We embarked on an invigorating slate of new corporate initiatives intended to enhance our customer’s experience with the company, improve business processes to become more efficient, increase profitability and growth opportunities.
“Our people are key to our future success and we have begun to focus on building a culture of engagement through new employee programmes that will stimulate empowerment, accountability and pride in all we do.
“Externally, 2016 saw the shift to a new regulatory environment that will introduce new protocols and procedures for the way Belco generates, distributes and sells electricity in Bermuda. After a decade of discussions and delayed decisions, Belco’s assets are ageing and inefficient; driving up cost to the customer and increasing the risk of Belco not being able to meet Bermuda’s future electricity demand.”
Mr Durfy said Belco had scheduled the decommissioning of 80 megawatts of generation that had outlived its useful life by 2019-2020.
“Twenty-five per cent of our transmission and distribution cables are more than 60 years old and this will increase to 40 per cent over the next ten years,” the CEO added.
“Bermuda deserves a more reliable, safe, cost effective and environmentally friendly electricity supply than our current aged infrastructure can provide. The investment into a new generation plant, upgrading transmission and distribution assets and introducing liquefied natural gas is critical in order to meet that expectation.
“It represents the most prudent and cost-effective approach in addressing the risks of our ageing infrastructure, while enhancing the island’s environmental profile and minimising electricity costs. \
“We will need the support of all relevant stakeholders in an expeditious manner to ensure a stable and reliable electricity supply for the future.”
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