Ascendant/BELCO Letter to Shareholders

The Ascendant Group Limited, parent company of BELCO, Bermuda Gas & Utility Company, PureNERGY Renewables, BELCO Properties, InVenture and Sigma Corporate Services, released the CEO’s 2010 fourth quarter letter to shareholders.

A.L. Vincent Ingham said “commercial sales (at BELCO) remained significantly lower than projected throughout the year. The decline in electricity sales was indicative of less activity in local and international business, and particularly in tourism, as well as fewer people occupying residential, commercial and hotel space,” and that BELCO saw a “disturbing increase in its accounts receivable.”

Calling it “unprecedented times” Mr Ingham said the next several months will “require difficult decisions, as BELCO manages down costs to meet this challenge.”

Citing aging machinery, Mr Ingham said “BELCO intends to make a $66 million capital investment in Bermuda’s electricity infrastructure in 2011. This includes replacement engines at the Central Plant and two new substations, as well as underground cable reinforcements to accommodate distributed generation, including large-scale renewable energy installations.”

The full letter follows below:

As we all know, 2010 has been an exceptional year in many ways. With this year drawing to a close, I believe that it is important to share with you how Ascendant Group is managing the effects of economic recession and leveraging the strengths and commitment of our people in order to be positioned for continued success.

Recent headlines, stating that Bermuda is in a dramatically worse economic situation than had been originally anticipated, are confirmed by significantly reduced electricity sales for BELCO in all consumer sectors. The beginning of 2010 saw increased residential electricity sales with the completion of new housing units, but sales to residences levelled off, while commercial sales remained significantly lower than projected throughout the year. The decline in electricity sales was indicative of less activity in local and international business, and particularly in tourism, as well as fewer people occupying residential, commercial and hotel space.

In 2010, BELCO also saw a disturbing increase in its accounts receivable, another effect of the continuing challenging economic climate. Given the current economic reality, BELCO announced on December 17, 2010 that it would apply to the Energy Commission to defer a previously approved 1.5 percent average electricity rate increase, which would have been effective 1 January 2011. This rate increase deferral is a corporate effort by BELCO to assist the community as it weathers the economic downturn.

As mentioned, BELCO, too, is experiencing the effects of the weak economy. In order to delay immediate workforce redundancies, the electric utility company has implemented a freeze on salary increases in 2011. BELCO is similarly seeking to negotiate with the union a wage increase freeze for its unionized employees. BELCO’s management held a meeting with all employees on December 17, 2010 to share the reasons for this decision. Unionized employees are scheduled to meet and come to a decision on the requested wage freeze early in the New Year. BELCO is also seeking to increase employee productivity and is reviewing the cost of employee benefits and other expenses to determine further cost-saving measures, including restructuring and possible outsourcing.

Clearly, these are unprecedented times and BELCO is re-organizing to redefine activities and expectations. The next several months will require difficult decisions, as BELCO manages down costs to meet this challenge. In addition to BELCO’s efforts, all other Ascendant Group subsidiaries are also reviewing labour and operating costs with the view to capturing savings, while also looking for ways to increase productivity.

Despite economic challenges, Bermuda’s reputation as a sophisticated destination for businesses and tourists is dependent upon maintaining a solid infrastructure, which includes a secure, reliable electricity supply. In order to continue delivering power reliably to homes and businesses, BELCO needs to retire some of its old plant, replacing it with new generation facilities by 2013. To meet that deadline, BELCO filed an application with the Department of Planning this week for the phased, 10-year redevelopment of its Central Plant in Pembroke.

Five of BELCO’s oldest generating sets, which have been in service for nearly 30 years, have already exceeded their normal services lives, while others are approaching service-life end. The old power station has the greatest environmental impact so, as it is phased out, area residents will benefit from better air quality and less noise. BELCO’s 2010 Central Plant plan differs considerably from the one previously submitted to the Department of Planning in 2007.

Over the past three years, BELCO has revised its plan, taking into account objections raised in 2007, as well as changing technology, energy efficiency, renewable energy and revised projections about Bermuda’s future energy requirements. BELCO reviews its energy plan every three years, as it works toward an energy mix, referred to as the “New Energy Equation”, which includes distributed generation and producing 20 percent of the island’s power from renewable sources by 2020. BELCO will implement extensive public consultation on its Central Plant redevelopment plan early in 2011.

BELCO intends to make a $66 million capital investment in Bermuda’s electricity infrastructure in 2011. This includes replacement engines at the Central Plant and two new substations, as well as underground cable reinforcements to accommodate distributed generation, including large-scale renewable energy installations, once sites have been agreed by Government. As Bermuda looks to build infrastructure to sustain and improve the provision of first- class services to residents, tourists and international business, Ascendant Group is poised to participate.

Ascendant Group subsidiary InVenture Limited is uniquely positioned to leverage the group’s collective expertise to deliver multi-faceted infrastructure projects that incorporate a balance of established and cutting-edge technologies. Bermuda Gas offers the island clean-burning fuel alternatives, while PureNERGY Renewables provides Bermuda with a range of customised renewable energy solutions. The sharing of knowledge and viewpoints across the Ascendant Group subsidiaries produces a progressive approach to planning Bermuda’s energy future.

At Ascendant Group, we are encouraged by Government’s new structure, particularly the amalgamation of Environment, Planning and Infrastructure Strategy under one Ministry, and the establishment of a Ministry that combines Business Development and Tourism.

Over the past several weeks, our subsidiaries have had the opportunity to meet with several new Cabinet Ministers. We are optimistic that our various views and positions are being heard, and that Government will look at Ascendant Group as a reservoir of expertise, able and willing to actively participate in charting a recovery out of the economic downturn and toward a renaissance of the Bermuda brand.

Looking ahead, 2011 will require innovative thinking, and a new collective, cooperative approach to achieving success for the Island, at a time when there is a new appreciation of what success means. We are, however, up to the challenge at Ascendant Group and look forward to a productive 2011.

On behalf of the Ascendant Group Board of Directors and all of my colleagues, I offer my best wishes to you for the New Year.

Sincerely,
A.L. Vincent Ingham
President & Chief Executive Officer

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