Belco in foreign hands offers little in these troubled times
The decision on whether Algonquin Power & Utilities Corporation is acceptable to the Bermuda people as the 100 per cent foreign owner determining our future fate with respect to the control of our most important utility could not be approaching at a more troubled uncertain economic time in the island's long history.
The Regulatory Authority of Bermuda has requested public comments on the transfer of control due by May 3. We had hoped that the authority, Ascendant Group, which owns Belco, and/or the prospective buyer would have provided specific answers to questions we have had outstanding for the past nine months.
Instead, we were unable to see the Algonquin submission to the authority, although it was prepared as a public document with many sensitive parts redacted by the lawyers for the company. We had no opportunity to discuss with either Ascendant/Belco, the authority or the proposed buyer specific answers to our questions.
The questions remain as follows:
What is the specific plan of Algonquin to lower prices for the customer?
So far only vague statements have appeared that savings may emerge for the customer at some point in the future.
With the RA still committed to giving an 8 per cent return to Belco on any depreciable assets of the company at a time when world interest rates are either zero or negative, an enormous incentive is created to follow the old power company model of adding as many depreciable assets to its base as possible to get an automatic, non-transparent, built-in profit that is on the backs of the customer rates.
Belco applied for a base increase in depreciable assets more than a year ago at a proposed $420 million. What base amount was approved by the RA?
What specific renewable plan does Algonquin have for Bermuda to cut our dependence on fossil fuel?
No specific plan has been presented. The $5 million offer to set up a foundation to “study” renewable energy for Bermuda is merely window dressing in this very large proposed buyout of $370 million, plus assuming substantial existing debt.
Bermuda today can and will rely on the technology that has been developed in the world already. The cost-efficient solar panels to produce renewable energy and electric vehicle battery systems, which can run the car but also feed the office or home, are two existing alternatives to bypass the power company if the local utility rates become too high. This will push the power costs up for those who can not afford the personal capital costs of these alternatives now being sold in other countries.
Algonquin presents itself to the Bermuda people as a 90 per cent renewable-oriented, cutting-edge power company. Actually, 52 per cent of its total renewable production is hydroelectric power, and almost all of the remaining is solar power composed of large fields of panels covering enormous acreage.
Bermuda, as a small, densely populated island has neither hydroelectric power or the space for Algonquin's solar renewable models. In addition, Algonquin has no experience in a hurricane-prone jurisdiction.
In the past year, Belco has demonstrated its ability, a firm commitment to renewables, the Integrated Resource Plan, and its pride as a company to satisfy the electricity requirements of Bermuda without the need to be sold to a foreign-controlling overseer at a premium cost.
It states in its recent financials that its objective is to become the best electric utility in the Atlantic.
According to its latest financial releases Belco has:
• Completed the 56MW installation of the new turbine engines, which it states should by themselves satisfy Bermuda's electricity needs for the foreseeable future
• Completed the 10MW battery storage system to reduce spinning reserve fuel costs and made other substantial savings in more efficiently managing the business
• Implemented an advanced metering system
• Moved to improve the grid system to be able to deal with more renewables accessing the grid
All of the above has been accomplished by Belco on its own balance sheet, under its existing capital and debt-financing arrangements with primarily local management and employees, and with existing shareholders — in a company that is still majority-controlled by Bermudians who receive annual dividends.
Meanwhile, the island's power needs and Belco sales from 2015 to 2019 decreased by total of 8 per cent over the period. Last year the electricity sales were down 3.3 per cent or $4.9 million. Power usage was down by 13.7 million kWh, or nearly 2 per cent.
Bringing in a foreign owner at a substantial premium price of $36 a share will in the long run only increase the drain on our most valuable foreign exchange reserves necessary to permit the local economy to thrive.
The premium price and existing debt must be eventually repaid in foreign currency; in dividends to the foreign owner, which comes on the backs only of the Bermudian rate-paying customers.
If the sale goes through, there is no assurance that the proceeds from the sale will be reinvested in the Bermuda economy. The foreign shareholders, who would be estimated to own more than 40 per cent of Ascendant/Belco, will take their money out of Bermuda for certain. Additionally, there is no indication and little likelihood that the Bermudian shareholders will reinvest their sales proceeds in the local economy, especially with the declining state of our economy at this particular time.
With the most unfortunate and recent shutdown of the tourist industry, affecting the infrastructure of the airport, hotels, tourist accommodation, restaurants, as well as most of offices in Hamilton as a result of the Covid-19 pandemic, power demands, Belco profits and power usage are likely to have dramatically plunged as well.
The timing of the return of the tourist industry is an unknown factor, most of which is beyond the control of Bermudians. As of today, the impact does not appear to be a short-term event. Whether the traditional methods of doing business in Bermuda will return with as much need for Belco power is an open question.
Caution and prudence during these troubled times, combined with Belco's great strides forward in the past year and its now firm commitment to renewables, demonstrates that Bermuda does not need a foreign overseer to satisfy its power needs.
An approval of the transfer of control of Belco by the RA to Algonquin would be a most unfortunate gamble on the economic future 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