Belco Holdings expects to receive $12.9 million ? $3.9 million short of its claim ? from its insurers for the fire that destroyed two switchrooms and caused an Island-wide blackout last July.

Belco reported the settlement in its 2005 annual results released yesterday, in which it said its net earnings rose ten percent to $20.4 million.

Belco said it submitted to its insurers a total claim of $16.8 million for the fire, of which $12.9 million is anticipated to be the settlement.

It said that amount had been incorporated into the 2005 financial results with $4.8 million being applied to offset direct expenses incurred due to the fire. The remaining $8.1 million will be applied to the cost of construction of the replacement facility, which is expected to cost $10.7 million.

Belco Holdings? earnings from normal operations rose to $20.4 million compared to $18.5 million at year end 2004, it said.

The increase was attributed to consistent electricity load growth in both the commercial and residential sectors, as well as a 1.5 percent increase in basic rates for electricity, and a ?solid contribution? from Bermuda Gas.

The sales of property in St. George?s and of Belco Holdings? 51 percent interest in Belco Energy Services Company Limited (BESCO) also contributed to the result.

Earnings per share from normal operations were $3.98 at year end 2005, up almost ten percent over year end 2004. The market price per share was down slightly from $41.80 in 2004 to end the year at $40.35. Belco shares last traded at $39 on Tuesday.

Belco ended the year earning $19.2 million from normal operations, compared to $17.3 million in 2004.

Overall kilowatt hours (kWh) sales increased 3.64 percent. Commercial sales were 2.98 percent ahead of 2004. Residential sales increased 4.27 percent.

Belco?s 2005 operating costs increased 11 percent to $143.1 million which includes $66.2 million in fuel costs and purchased power, an increase of 17 percent over 2004. The average price per barrel of fuel increased 18.27 percent to $65.26 from $55.18 the previous year.

Two new medium speed diesel engines brought into service last April with the completion of the East Power Station extension are responsible for improvements in fuel efficiency from 654 kWh per barrel in 2004, to 678 kWh per barrel in 2005, Belco said.

During 2005, Belco invested $23.5 million in property, plant and equipment which included $8 million towards the cost of the East Power Station, a $45 million project that was completed under budget at $41.1 million. Belco said there were also significant upgrades and improvements to the transmission and distribution system totalling $8.1 million which included the new substation on St. John?s Road that was brought into service in November.

Earnings at Bermuda Gas were down three percent to $1.1 million in 2005 which the company attributed to the write-off of $97,000 of inventory identified during the move from its old warehouse, as well as a reduction in residential appliance sales due to difficulty in accessing merchandise from hurricane-hit New Orleans.

In February 2006, Belco entered into an agreement with Current to Current Bermuda Limited to purchase up to 20 megawatts (MW) of electricity to be generated from ocean currents. The first 10 MW of power is due to be available to Belco by the end of 2007.

Garry A. Madeiros, president and chief executive officer said, ?The timing of this partnership is excellent, as our forecast anticipates the need to add generating capacity to our system by 2010.?

He said Belco has begun sharing its outlook of energy options with Government and stakeholders as it plans for the next 20 years of electricity supply and delivery.

?Belco is not a legislated monopoly but by default, has been Bermuda?s sole electricity provider. We do not expect this status to continue, and as we have already demonstrated through our power purchase agreement with Current to Current Bermuda Limited, the future will see us entering into partnerships to diversify our energy supply mix,? said Mr. Madeiros.

The company is weighing opportunities for distributed generation that will see the development of electricity generating sites outside its current location. This includes adding renewable components to its energy mix, and taking advantage of opportunities where the Company and our customers can realise greater benefits.

?Distributed generation facilities could be developed by Belco, in partnership with others, or by individual customers meeting their own needs and selling excess supply to the grid. On a large scale, options for distributed generation include the possibility of Belco building and operating additional fuel oil driven generation plants at alternative locations,? said Mr Madeiros.

He lists Morgan?s Point, Dockyard, Southside and Esso at Ferry Reach as possible sites.

?Distributed generation on a small scale, either owned and operated by Belco or a customer, could offer additional revenue potential, particularly in locations where large customers within close proximity could benefit from the steam and water by-products of Combine Heat and Power (CHP) installations. For example, a CHP plant at Bermuda College could provide steam and water to nearby hotels and the hospital, while also serving as a practical study site for future power plant employees,? he said.

As for labour relations, Mr. Madeiros noted that the issues experienced in the quarter had been disturbing. The company fended off a strike threat at the beginning of the year after reaching agreement on an across-the-board wage increase.

?As everyone in the bargaining unit was given at least a base increase with no reposition of jobs, the overall effect on the Company was more costly than had been planned,? Mr. Madeiros said.

He added Belco is reassessing the value of keeping certain functions internally, versus outsourcing. There have also been discussions to consider an extended work week in certain areas to reduce overtime and better reflect the requirements of a 24-hour, seven-day operation.

A labour disruption following a decision to outsource five positions in the housekeeping section of the Energy Supply Group lasted one day after the redundant employees were reinstated under a new set of performance expectations and standards.

?The labour issues we experienced this quarter have been very disturbing for the whole organisation, however, out of this has come a clear path forward for both parties to work together for the benefit of the entire organisation. We look forward to working with the ESTU to continue to improve the performance of our organisation and restore good labour relations for the benefit of all,? said Mr. Madeiros.