Belco to Algonquin not a done deal
The sale of Bermuda’s electrical grid to any buyer can only move forward with approval by Bermuda’s independent Regulatory Authority. For that reason, the recent offer from Algonquin Power & Utilities Corporation to pay $360 million to shareholders of Belco’s existing owner, Ascendant, is not a done deal.
Non-shareholders, especially Bermuda’s ratepayers and residents, may wonder what is in the deal for them — and, ultimately, that may depend on the integrated resource plan for the utility, which is also subject to regulatory approval.
For those who have a stake in Bermuda’s energy future, public statements by APUC, a Canadian company that has formed a joint venture with a Spanish company called AAGES, are worth attention and interpretation. Here is a key passage from their release about the proposed acquisition:
“APUC will work closely with the Bermuda Government and the Regulatory Authority to ensure a seamless transition so that the residents and businesses of Bermuda will continue to receive the same safe, reliable and cost-effective utility service that they currently enjoy. APUC is committed to maintaining the existing local management and operations teams. Customers should not expect any impact to rates from the acquisition. AAGES’ project implementation experience is available to support the major generation rehabilitation programme under way at Ascendant and help accelerate Bermuda’s commitment to reducing carbon intensity.”
First, APUC implies that Belco customers enjoy existing electricity prices. They are some of the world’s highest rates, yet the company describes them as “cost-effective utility service”.
This speaks for itself.
Related to rates, it is rational for APUC to seek to extract from Bermuda every dime it pays for Belco — and more. By paying an extraordinarily high per-share premium to buy the Ascendant stock, the price of electricity to the consumer is most likely to increase to eventually pay for the cost of the premium purchase price paid by APUC to Ascendant shareholders.
APUC states “customers should not expect any impact to rates from the acquisition”, which would suggest they see enormous profit potential with the present rates and that they expect no relief from high rates even if their cost basis for power declines in the future.
Importantly, the Regulatory Authority that oversees Belco rates has not yet disclosed whether it has approved or will approve a rate hike requested in April 2019, which Belco appeared to attribute in part to massive LNG infrastructure investments that have neither been accepted by the RA or hundreds of participants in the regulatory proceeding about that proposal. The LNG investments were proposed in the original Belco Integrated Resource Proposal, which a recent statement from Belco senior management indicates was never being considered by Belco.
APUC also states: “AAGES project implementation experience is available to support the major generation rehabilitation programme under way at Ascendant and help accelerate Bermuda’s commitment to reducing carbon intensity.”
This vague statement appears to still leave LNG on the table for Belco since it could reduce the carbon footprint of Bermuda. However, it would not be a net benefit to world climate change because of the extreme adverse impact of methane gas released from the production sites all the way to delivery.
Efforts by the Bermuda Government since 2011 through the issuance of position papers and other studies to make a major policy commitment to have substantial solar power and wind power in place by 2020 have been ignored to date.
We are anxiously awaiting the release of a new plan from the RA for Belco’s energy resource development that will set a course in this direction, and it should make clear for both economic and health reasons that LNG is not a part of Bermuda’s electricity generation future.
As an island country, where it is so important now and in the future to demonstrate to our tourists Bermuda’s commitment to protecting our environment, we must be leaders on clean energy and climate change.
From the information released to date, APUC has not clearly and simply taken LNG off the table in Bermuda’s future, and without that clarity, our energy sector could drag the entire economy to the wrong side of this vital set of issues.
If our commitment were substantially to renewables to produce electricity, we could set another example of smart investment and sustainability for the world like the Hawaiian island of Kauai, instead of becoming a fossil-fuel demon.
• Is APUC/AAGES the potential buyer Bermuda needs or wants in its electricity future?
Bermuda customers, the energy department of Government and the RA, in particular, need to focus in detail on some of the history of the potential buyer and specifically the strengths and weaknesses it brings to Bermuda. It appears from fact-sheet filings required for the New York or Toronto Stock Exchange that APUC expects to buy Belco through a joint venture with Abengoa, a huge international utility company that just three years ago was also the largest Spanish company ever to have nearly gone bankrupt.
In fact, Abengoa had at least two Delaware subsidiaries that were given bankruptcy-court protection in Delaware for at least nine months to give them time to reduce debt and find new capital and partners as part of a workaround.
APUC appears to be one of the opportunistic new Abengoa partners who set up at least two entities where neither APUC nor Abengoa own a majority controlling interest in AAGES. Nevertheless, it appears that both companies would seek to determine the terms upon which renewable energy resources would be developed in Bermuda, and whether Bermudians themselves would be able to benefit.
Bermuda’s best interests may not be a factor in future business decisions made by a potential buyer, and that should be carefully considered by the Bermuda Government now when it decides whether or not to approve APUC’s offer to Ascendant shareholders.
What experience qualifies potential buyers of our electric grid to help Bermuda achieve a renewable energy future?
We raise the following points in summary format, suggesting the RA and Bermuda Government should explore each at length with APUC and Abengoa as the potential buyer of Belco to seek detailed answers in their due diligence:
• Neither Abengoa nor APUC has any experience generating or delivering electrical power in hurricane-prone jurisdictions
While Abengoa operates wind generators from platforms in the River Plate area between Uruguay and Argentina, these do not appear to be state-of-the-art, nor are they designed to withstand hurricane-force winds for which Bermuda must be prepared. Also, APUC’s experience with wind generation is all land-based, which would be hard to adapt with Bermuda’s limited space.
• Neither Abengoa nor APUC has experience or expertise with integrating electric vehicles into a distribution grid, which will be a game-changer for our island’s energy economy
Any potential buyer should explain how batteries in some new electric cars equipped with two-way plugs will be integrated into Bermuda’s electricity grid. The car battery can store solar power from residents’ rooftops and feed the excess to the electric company grid. As we gain 3,000 electric vehicles over the next decade, we will soon have more energy stored on board our cars than the entire island needs in its most demanding hour.
• Neither Abengoa nor APUC is focused on the most recent technological advancements or distribution systems that enable customers to generate solar power that could both reduce their costs and feed the grid
While Abengoa Solar is a world technological leader in developing, owning, and operating vast fields of mirrors that concentrate the Sun’s power, this land-intensive technology is not applicable to Bermuda. In reviewing public information about APUC’s solar renewable activity, it has been hard to find where its past use of solar would meet Bermuda’s space limits and the need to use existing rooftops and already developed areas in creative ways to generate renewable energy.
• Neither Abengoa nor APUC details how or through what programmes they expect to deliver consumer savings as the cost basis for clean energy continues to decline far below our present rates
Costs are falling rapidly for rooftop solar, offshore wind, high-efficiency heat pumps and electric-vehicle batteries. All of these can add value to Bermuda’s economy by improving the performance of our electricity grid.
In short, the proposed acquisition of Bermuda’s monopoly owner of our electrical grid and generating systems should not be approved by the RA and the Bermuda Government unless the investment plan it will follow is compatible with the Integrated Resource Plan developed, debated and accepted by Bermuda itself. The first step will be finishing an IRP consistent with Bermuda policy goals and approved by the RA, and only then, a second step would be considering whether a potential buyer is able to implement that plan on terms that are good for our economy and the people of Bermuda.
• Sir John Swan, a businessman, was the former Premier of Bermuda between 1982 and 1995, and a former Belco board member. Michael Murphy, a former attorney for American International Group, was the chairman of the Association of Bermuda Insurers and Reinsurers between 1985 and 2005