Ascendant better off delaying a foreign takeover – for now
We would like to endorse and commend the Regulatory Authority of Bermuda for its decision in the recently released first Bermuda integrated resource plan to reject liquefied natural gas as an option and for committing Bermuda’s electricity generation programme to using at least 75 per cent renewables to be put in place by 2035.
The RA’s foresight and courage in making this decision, if properly developed, could lead to the creation of brand new industries, many new jobs in Bermuda for Bermudians, local investment opportunities, huge foreign exchange savings leading to fossil fuel independence, and no longer being held hostage to the whims of the global oil market. Even Belco now supports the IRP in principle.
In light of the IRP’s high commitment to the specific kinds of renewables that fit Bermuda’s unique topography, Bermudian Ascendant shareholders should be questioning if this opaque, proposed, one-time payout to shareholders for their stock really makes sense for the future of our country.
This is a proposed sale to foreign owners, a loss of cyclical revenue and a potential exodus of significant assets that Bermuda will never get back. This is also our chance to lead ourselves in the right direction for the many and not the few. Let’s establish Bermuda as a leader in technology, policy and innovation to attract new talent and competition, rather than give up our right to choose our own destiny.
The revolution happening now in the electric car market, the increased excess capacity to store rooftop solar or other electricity in their battery packs and either sell it to Belco’s grid or use it in our homes in the evenings through the use of a two-way charging system could rapidly make the recently acquired Belco generators at the North Power Station a partially redundant asset.
Moreover, if properly and intelligently set by the RA, customer costs of purchasing electricity would be reduced and the Bermuda people could see the details of how they may participate in this cost reduction directly on their bills. The Renault project in Porto Santo, in the Madeira islands, is an example that shows how the benefits of the electric car with large battery packs could satisfy most of Bermuda’s power needs in the near future.
With this IRP decision, Bermuda has now entered a new paradigm where the best path to lower electricity costs has been chosen to be an aggressive pursuit of new clean-energy sources where we must all play our part to attain the result. The “build more, profit more” model of the arcane power monopolies such as Belco is now bankrupt — a dead duck.
This defunct model is the basis for their proposed sale at a very high premium price and can only lead to significant increases to customers’ costs of electricity. Instead, the right incentives to align utility, distribution and customer needs must be carefully chosen by the RA and the Bermuda Government so that the Bermudian people committed to the future of the island are all pulling in the right direction.
Does Bermuda now even need to consider a foreign buyer for Belco at this strategic moment of change in energy source direction?
The IRP decision should also force a complete detailed analysis by the RA and by the Bermuda Department of Energy of Ascendant’s proposed sale to Algonquin Power & Utilities Corporation, especially since the entire process since early 2019, which eliminated many prospective bidders, has been fatally flawed. No one, not even Belco knew six months ago of the IRP decision to commit to at least 75 per cent renewables and to eliminate LNG as an option. How could bidders intelligently make a fair estimate of the value of Belco before the IRP was issued? Many of the more careful, potential quality bidders were surely left behind by the flawed process of putting the cart before the horse.
The Ascendant shareholders who vote on whether to accept the APUC offer on Friday, along with the RA and the Bermuda Government, who have the ultimate say on whether the proposed foreign buyer is acceptable, must carefully consider what if anything APUC offers Bermuda to meet its renewable objectives as provided in the IRP.
The bottom line is that Bermuda needs to reduce the cost of electricity for Bermudians and ultimately the cost of living on the island. There are recent precedents of regulatory authorities in Hawaii and other locations of rejecting bids from power-generating companies at premium payout prices to shareholders for a variety of reasons — many of which appear to exist in the APUC-proposed purchase.
We have recently reviewed most of the public information available surrounding the proposed purchase of Belco by APUC, including the public announcements of the proposal, Securities and Exchange Commission fact sheets, investment expert analysis of the APUC transaction and its impact on APUC, and the recent financial statements of both APUC and Ascendant/Belco.
We have concluded that the proposed purchase by APUC offers little if anything to satisfy Bermuda’s long-range electricity objectives and reduction in customer electricity costs, as recently expressed in the IRP.
Bermuda may be better off if Ascendant, with the right management attitude and its new vision embracing the IRP, continued without a foreign takeover bid being considered until it is determined what can be delivered by Belco and other Bermudian investors to meet the IRP objectives. It would be the most inopportune time for Ascendant insiders, senior management and foreign shareholders — collectively at least 22 per cent of the company ownership — to be permitted by the RA/Bermuda Government to bail out, take more hard currency out of Bermuda or realise large incentive payouts to senior management at a time when management focus on the future of renewables is most needed.
In the interest of brevity, we have summarised our reasoning in arriving at these conclusions, but are prepared to provide details to any interested or concerned parties.
Papers prepared for the shareholders meeting on Friday provide some vague statements expressed by the outgoing board about long-term savings to ratepayers evolving over time in moving towards renewables and lots of legalese on why two-thirds voting shareholder approval by an amalgamation mechanism to eliminate minority shareholders objecting to the transaction was the way to go.
Ascendant directors emphasised the many ways that the $36-per-share cash offer was a wonderfully high premium price for the shareholders to receive from APUC. Algonquin eventually must recoup the premium it proposes to pay, most likely from customer ratepayers’ increases, part of which Belco already applied for with the RA in March this year, just before any sale or bidding process to sell Belco was announced by management. A proposed $420 million rate base was submitted by Belco in its request for a rate increase.
No details were laid out by APUC as to how, when and in what amounts the customer ratepayers would have savings on their bills, only a statement that the transaction itself would not increase rates.
Is APUC the right potential purchaser to be considered to meet the IRP renewables’ 75 per cent minimum objective?
While APUC and Ascendant management are presenting the potential buyer as a state-of-the-art renewable conglomerate, almost all of the renewables APUC owns are in hydroelectrical power, concentrated solar power, land-based wind generation and large, land-use solar fields for utility production — none of which would apply to Bermuda’s topographically unique power-production renewable needs.
No specific information has been provided about who will own Ascendant within APUC, other than “an affiliate of APUC” or the corporate-governance chain of command or decision-making process affecting Ascendant within an extremely large and complex buyer such as Algonquin.
The press releases state that the Ascendant head office would remain in Bermuda, which could be a self-serving tax position. It appears that the ”affiliate” will be AAGES itself, a joint venture between APUC and telecommunications company Abengoa, where each of Algonquin and Abengoa have only minority interests.
We do not know Abengoa’s objectives, but do know it almost went bankrupt in 2016. Are these risks of possible economic instability, complex ownership and partially defined corporate governance acceptable to ratepayers, the RA and the Bermuda Government?
According to our research:
• 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 other 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 soon could be a game-changer for our island’s energy economy
Any potential buyer should explain how batteries in some new electric cars or buses equipped with two-way charger plugs could 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. With a gain of as few as 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 subsidiary Abengoa Solar has been 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.
Clear, detailed answers to the issues raised heretofore must be provided by APUC or by any other prospective buyer to the Bermuda public, the RA and the Department of Energy before a proposed sale of such magnitude could be possibly considered to go forward.
Electricity is a fundamental need, publicly regulated, and is required to maintain lives, cost-effective businesses and the comforts of all Bermudians, and should be treated as such. The days of an old-line monopoly and foreign profiteers dictating exorbitant rates to the Bermuda people are over.
• 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
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