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Ascendant earnings double as sales rise

Better year: Belco's electricity sales rose in 2015 for the first time in six years

Ascendant Group Ltd’s operating earnings doubled to $14.5 million last year as electricity sales rose for the first time in six years.

The group, which owns Belco, attributed the $7.2 million increase in earnings to improved results at the power utility, driven by higher sales, reduced windstorm expenses and a reduction in bad debt expenses.

Walter Higgins, Ascendant’s chief executive officer, said the 2.3 per cent increase in electricity sales suggested that an economic upturn could be under way.

He added that the company was preparing its long-awaited proposals for the future of electricity production in Bermuda in its Integrated Resource Plan that it plans to submit to the Government next month.

Ascendant added that it expected a decision soon from the Energy Commission on the application made by Belco last year to increase electricity rates.

The company argued the increase was necessary because its return on capital was “unacceptably low” when compared to peer utilities and insufficient for Belco to be able to make necessary investments in its infrastructure.

“Since 2000, Belco has invested a total of $390 million to provide Bermuda with a first-world electricity system,” Ascendant stated. “Belco cannot sustain these levels of investment with its present earnings.

“In June 2015, Belco submitted a request to the Energy Commission to increase electricity rates to provide a suitable return on capital consistent with peer utilities as determined by a third-party Cost of Capital Report. It is anticipated that the Energy Commission will make a final determination of Belco’s request shortly.”

The rate increases requested by Belco would increase electricity costs by about 7 per cent for the typical household and between 8 and 20 per cent for major commercials users.

Last year Belco saw its first increase in electricity sales since 2009. The utility sold 590 million kilowatt hours, up from 577 million in 2014. But it is still a long way from the 2009 peak of 656 million kWh, reflecting the shrinkage in the economy since then.

The sales rise was driven by residential sales, which were higher due to temperatures that were warmer than 2014 and historical averages. But sales to commercial customers remained flat, as energy efficiency and conservation measures offset the effect of the warmer weather.

Mr Higgins said: “It appears Bermuda may have begun its recovery from eight years of recession. There is renewed interest in energy, infrastructure and tourism related developments and the electricity sector is going through a transformative period.”

He added that the Electricity Act, passed in March this year, and the national electricity policy, both of which set out a vision for greater use of renewables and a more efficient electricity system, were “in line with our Integrated Resource Plan”.

Belco had planned to submit the IRP last year.

Mr Higgins explained: “We delayed submitting our original IRP to the regulator in 2015 in order to better understand the pending policies and processes, as well as thoroughly consider how recent fuel market changes and technology advances have affected the suitability and viability of liquefied natural gas and large-scale deployment of renewable energy systems.

“We intend to submit the IRP to the regulator in June 2016.”

Falling oil prices enabled Belco to buy cheaper fuel last year, a saving reflected on electricity bills by the plunging fuel adjustment rate. The average price Belco paid for a barrel of fuel was $101.06, which includes taxes, shipping and handling, down from $128.60 in 2014.

Nearly a quarter of the cost of last year’s fuel, or $23.05 per barrel, was made up of Customs Duty, a figure that has since risen to $31.79 per barrel after duty increases in the Government’s 2016/17 budget.

Ascendant Group cut operating expenses by more than 12 per cent to $197.5 million last year. Lower fuel costs were a factor, as well as a significant reduction in bad debt expenses and a decrease in labour overtime costs, as there were fewer storm expenses and fewer unplanned outages.

Ascendant’s consolidated net income was $17.4 million, a $0.2 million decrease from 2014. This figure was impacted by a one-off gain of $5 million from amendments to employees’ post-retirement benefits plans and also by costs arising from the restructuring of Bermuda Gas.

Last month Ascendant sold Bermuda Gas, a propane distribution and commercial service company, to Rubis for $17.7 million.