Belco Holdings announced yesterday that its net earnings for the first half of 2008 were down over $2.6 million from the same period last year.

Bermuda's only electricity provider said high operating costs, customer conservation measures and weather conditions had an adverse effect on earnings and that Bermuda Gas also performed below expectations.

The company's consolidated net earnings were $7,115,494 for the first six months of the 2008 financial year, compared to $9,789,242 for the same period the previous year – a 27 percent decline.

Total kilowatt hours of power used decreased 0.8 percent over the same period last year. "While sales to large demand customers increased 4,322,368 kWh, or 3.7 percent, compared to the same period last year, this was not sufficient to offset the decrease in sales to the residential customer base, which decreased 7,113,871 kWh or 5.4 percent," the company said.

Belco said the dramatic rise in fuel costs earlier this year — with oil peaking at $147 per barrel in July — did not directly contribute to its falling earnings, however, the company believes conservation efforts on the part of consumers was "primarily driven" by the increased fuel adjustment charge.

"The dramatic rise in fuel costs has had a significant impact on the reported revenue of Belco, however, our actual revenue was $87,472,668 after adjustments for fuel surcharges, comparing favourably with $85,865,037 for the same period last year," the company said.

Fuel costs also impacted operating expenses which rose 5.0 percent, however. "Fuel continues to form a major component of our operating expenses, and we continue to suffer from the impact of rising world oil prices," the company said as it released its earnings statement. "Through June 2008, the average price per barrel of fuel was $108.30, a significant increase of almost 44 percent, up from $75.43 or some $14.7 million over the same period one year ago."

Belco also said the performance of Bermuda Gas was "disappointing" and its management has now been "tasked to take steps to return Bermuda Gas to targeted profitability levels". Net income for Bermuda Gas over the first six months of 2008 fell to $137,855 from 758,119 in the same period last year. The company said gas sales were significantly lower due to the relatively mild winter and the closure of some commercial customers.

Belco also noted that it bought the Winter-Cookson-Petty property at 25 Serpentine Road at the end of May. The company said the purchase was made to provide offices for Bermuda Gas and in anticipation of future growth.

Also in May, Belco announced the creation of a new subsidiary, PureNERGY Renewables Ltd, which offers design services and installation and maintenance of customised, small-scale renewable systems for residential and commercial markets.

Despite the setbacks, the company said is "cautiously optimistic" about the second half of the year.

"The Company continues to look to the future," the statement said. "We are encouraged by the significant number of major developments that have been announced. We continue to pursue the necessary permissions required to build generation capacity and to finalise plans, including alternate generation sites to reinforce our transmission network."

Belco also said it has initiated a share repurchase programme. Its shares, at June 30, 2008, were 6.67 percent below the value at the same time last year — falling to $21 from $22.50 in June 2007.

Trading yesterday on the Bermuda Stock exchange, the company's shares fell 4.75 percent to close at $19.05.