BELCO: Decision Puts Reliability Into Jeopardy
The Minister’s reluctance to allow a rate increase during these tough economic times “puts reliability of electricity supply into jeopardy,” BELCO President Andrew Parsons said yesterday [May 17].
On May 9th 2012 the Minister of Environment, Planning and Infrastructure Strategy Marc Bean rejected an appeal from BELCO to raise rates for residential customers.
Minister Bean explained: “Our approach balances the need for a new power generation plant with economic concerns. The decision was made with the interests of the Bermudian people at heart.
“In fact, Belco itself recognized the difficult economic times when they elected in 2011 not to increase rates as per the rates approved back in 2007 by the former Price Commission. This speaks to Belco’s knowledge and sympathy for the economic hardships suffered by the rate payers, and unfortunately that hardship still continues.”
The Minister added: “While I respect and understand why Belco made their request, the recent article gives the impression that Belco is unable to undertake any infrastructure improvements due to the fact that the full tariff requested was not approved.
“That’s just not true. I am confident that we can protect the Bermudian people from harmful rate hikes during the economic recovery while moving forward with the new power plant.”
The Minister said of his formal decision on May 9: “We’ve allowed for multiple Belco increases in the past because we understood the global market and their expansion needs. The Commission made an imminently reasonable decision that ensures that Belco would have no problem financing the borrowing costs of building the North Power Plant.”
The Minister added: “When making their decision in February 2012 the Energy Commission examined both Belco’s capital needs and public interest – a fact which becomes evident when reading the Commission’s Decision.”
BELCO President Andrew Parsons said that the company is disappointed with the Minister of Environment, Planning and Infrastructure Strategy’s decision to reject the majority of BELCO’s appeal of the Energy Commission’s finding against a rate increase to support the building of a new North Power Station.
“The Energy Commission approved only 25% of the rate increase required to finance the North Power Station. While we understand the Minister’s reluctance to allow a rate increase during these tough economic times, this decision puts reliability of electricity supply into jeopardy.
“It also reduces opportunities to improve fuel efficiency to reduce costs in the mid-and-long-term, and limits the viability of conversion to less expensive liquefied natural gas as a possible long-term option for Bermuda’s electricity generation,” Mr. Parsons said.
BELCO said, “The application submitted to the Energy Commission in October 2011 was for an average increase of 4.3%, 3.9% and 4.1%, respectively, over the next three years to support the building of the North Power Station to replace inefficient, aging plant.
“While, under the application, rates would have increased for the larger energy consumers, the application included a restructuring of the rates schedule which would have resulted in the average residential customer using 700 kilowatts a month realising a decrease in their monthly bill of $10.72. Development of the North Power Station and the installation of the new engines would also create an estimated 100 construction jobs.
“The plan was for the company to install three, 14-megawatt diesel engines in a new power station building to be completed by summer 2013 at a cost of $70 million. Once the engines were up and running, their efficiency would result in a $7.5 million-per-year fuel savings which, as stated in the application, BELCO would return to customers through the fuel adjustment mechanism.”
Mr. Parsons explained, BELCO cannot build the North Power Station unless the company receives a rate that will support the debt financing of $70 million required to build the power plant.
“The power plant is not BELCO’s only large capital project obligation. Over and above the $70 million required to build the new power station, we have allocated in excess of $20 million for necessary capital projects in other areas, particularly the electricity transmission and distribution system. This is not unusually, as BELCO traditionally invests between $20-$30 million annually on electricity infrastructure and support systems.
“In past years BELCO has been able to fund capital development from company income that otherwise could have been paid out to shareholders as greater dividends for return on their investment. However, during the last 15 years total capital expenditures have exceeded net income by an average of 41%, requiring BELCO to now move to debt.
“We have a dual responsibility of maintaining a reasonable level of return on our shareholders’ investment, and sensitivity to the impact our rates have on our customers and the Bermuda community. In North America the average rate of return for shareholders is 11%. In other island communities it averages between seven-and-18 percent.
“BELCO has consistently been well below most other jurisdictions, averaging between five-and-six percent over the past five years, while at the same time, re-investing $20-$30 million in the electricity infrastructure. BELCO’s 2011 rate of return was 3.79%, which is the rate the Minister has deemed should be allowed for 2012 and 2013.
This rate of return will not support BELCO pursuing debt financing in any form, bonds or otherwise, for the new power station,” Mr. Parsons said.
BELCO said, “After many years of public consultation and discussion, BELCO does have Planning and Environmental approvals for the building of the new North Power Station as it will replace old generating engines, now operating beyond what should have been their retirement date.
“The Company first submitted its re-development plan to Government in 2007. Since that time, numerous stakeholders in Government, the Opposition, Government ministries, Environmental and other groups have participated in the discussions. BELCO has also hosted and participated in several public consultation sessions, including a two-day open house at the Company’s power plant.
“Based on wide-ranging feedback, BELCO adjusted its original plan to allow time to consider alternatives, including renewable technology options. BELCO also brought forward Phase II of its original plan and installed three 4.5 megawatt gas turbines while it issued a formal Solicitation of Interest for large scale renewable alternatives in 2008.”
“While renewable technologies can supplement power requirements, the reality is, there is no renewable technology that can reliably replace fuel oil as the source for consistent power production in an isolated island environment. We are proud of our system performance and reliability, which is a function of our design factors and operating regime.
“We were surprised and remain concerned that the Energy Commission believes we should reduce our reliability safety margins which the Commission itself states, ‘has served Bermuda well.’
“A secure electricity system is the foundation of Bermuda’s infrastructure. Economic development and our reputation as a sophisticated business jurisdiction are dependent on our ability to continue to supply a reliable electricity service. As Government and the private sector promote Bermuda as an international business destination of choice, it must not be forgotten that confidence in the reliability of Bermuda’s electricity infrastructure is an important selling point.
“We are pleased that the Minister did reverse the portion of the Energy Commission’s ruling that purported to cap BELCO net earnings, a move the company believes goes beyond what is allowed under the Energy Act and sends a very negative signal to the business community and potential investors. There are other areas where we also question the scope of the ruling and the line between regulatory authority over electricity rates, and management’s ability and prerogative to make decisions in the best interest of the company. We will be seeking judicial review of the Commission’s decision.
“While the BELCO and Government agree that we need to replace aging power generation plant, and that Bermuda is going through difficult times, BELCO believes we need to invest in this infrastructure today to ensure safe and reliable power and greater cost efficiencies in the near-to-mid-term and future. We will continue to work with the Minister and Ministry to find a solution,” Mr. Parsons said.
All of the details regarding the Energy Commission’s decision are available here.
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I’m not even reading all of this. It’s a joke. Belco is a business. Use profits for improvements. Pay smaller dividends or skip a couple (yes I acknowledge investors need return. Belco is investing for their profit return). Give employees less of a discount. They’re well paid AND get 30% off their Belco bill. The fuel adjustment surcharge is a joke in itself. Businesses hedge to make money, not pass it all on so there is NO RISK for the company. What a good business model. Imagine if every company did that.
Ps. PLP declining the increase is an election ploy.
Question: are you suggesting 100% of BELCO profits should be paid to the lender of the $70million for the next 15 years so that they can install a plant that will save Bermuda $7.5 million per year on fuel, every year? I wonder why a business person/shareholder hasn’t jumped at this brilliant idea.
Look at the bigger picture: the Bermuda government would be happy to WASTE $10,000,000 of our taxpaying money to fund the improvement of a Sports Complex owned by the PHC Sports Club that will be of no benefit to majority of Bermudians rather than come to a workable solution with the Bermuda Electric Light Company that WILL be of benefit to all Bermudians and residents alike. Go Figure. Now that’s what should alarm people.
Election ploy or not, the PLP finally made the right decision. BELCO is barking up the wrong tree.
The only winner is the foreign fuel company. Burn baby burn, waste more fuel than needed in them 1979 engines!
@ Andrew Parsons: “While we understand the Minister’s reluctance to allow a rate increase during these tough economic times, this decision puts reliability of electricity supply into jeopardy.” Is this some sort of threat to the customers of Bermuda or scaremongering on your part due to the fact that you and your shareholders did not get what you wanted!?
The OBA (Old Boys Association) is still at play..
Wasn’t Vince Ingham, a PLP candidate, in power during all those rate hikes in the previous years that used the same argument?
And wasn’t it the PLP dominated Energy Commissionboard the body which approved all those rate hikers in recent years?
Yah but the PLP is for the people………..
Bulls***
Vince Ingham actually just joined the PLP, so has nothing to do with it
Yes, raise the rates. I just got a health insurance hike too…gas prices rising…..food prices rising…… anyone else want to join in on the party?
ME too, I thinking about charging you for the use of the name
.
LOL
This just doesnt make any type of sense. The amoount of Profit Belco makes every year they should be able to pay for this with out any increase. But i understand can’t cut the big bosses pay.
Belco and Government please work on this.
Thanks Minister Bean…
It’s not his fault that BELCO shareholder’s greed outweighs their common sense.
THANMXS SENATOR BEAN GOOD STUFF
Election ploy by PLP, certainly.
Threat by Belco? Veiled, but yes, and childish.
A private company must look to itself for these financing opportunities. Dividends are not sacrosanct, and the consumer should not have to absorb all extra costs of operations. Go back to your drawing board and come up with something better. Then let’s talk.
Maybe you should get some foreigners on your board like the banks all have. They seem to know how to get money out of this place.
A better reason for renewable energy to start making a mark in Bermuda.
$70 million would buy a lot of solar panels
Or a lot of wind turbines, axial turbines or cross flow turbines all of which are perfect sources of energy for Bermuda. For those who want to argue the .07 percent increase of heat generated from the Texas wind turbine farm. This farm has over 1000 turbines on it which is an unrealistic comparison to how many we would need in Bermuda & our current diesel generators produce more than a .07 percent heat increase at present.
Then Belco’s profits will continue to decrease with more power outages, I will make sure to have plenty of gas for the grill this summer and get that generator full and going. Time to go solar.
Was thinking the same with regards to going solar…..
Plain and simple, profits should’ve been invested in renewables. Imagine if Belco didn’t have to expand because it was generating electricity from Solar Panels or other alternatives. That little matchbox on the Pure Energy House was not maximized to potential. Imagine the return if Belco tested something that actually paid for itself!
“Mr. Parsons explained, BELCO cannot build the North Power Station unless the company receives a rate that will support the debt financing of $70 million required to build the power plant”. “their efficiency would result in a $7.5 million-per-year fuel savings”
I feel that BELCO’s shareholders should take a share cut for the next ten years instead of looking to us the consumer to fatten your pockets…
Mark Bean for Premier…
Why would BELCO build a new power plant which runs on diesel? If they are that stuck in the past, why not run the plant off coal?! This fact alone should be reason enough to not allow this plan to move forward.
Natural Gas is the way to go. Cleaner AND cheaper for the customer… ah, now I think I understand.
I’m in total agreement. The US is awash in natural gas, so much so that the price of NG is at an all time low and should remain there for a long time. Projections indicate the US can produce enough NG to wean themselves off of OPEC and have enough for exporting. Yes liquified NG is difficult to transport and store and they will have to overcome the environmental issues related to “fraking”, but the savings compared to diesel fuel is huge. The Govt could even provide duty breaks for cleaner burning NG conversions. If the govt is going to commit to a long term investment of $10M I’d prefer it be applied to this than PHC.
The new plant runs on LNG OR DIESEL.
Okay, if Belco wants to make us pay for the new plant by passing the burden of raising capital onto us with rate increases, I fully expect, when this plant is finished , that I shall receive a certificate of partial ownership of said plant in the mail. Along with severe discounts!
@TheFuture, no company in the world should hope to fully finance upgrades to their system by deference onto the customer. That’s what profits are for. That would make this a purely risk free endeavour for Belco and as far as I know, we are not socialists… yet.
You need to study other jurisdictions before making uninformed statements.
A world war diesel engine submarine could stay submerged for almost a year without running its diesel engine. It could do this while still having electricity to run lights, plumbing & propellers. How could it do this? The diesel engine would run while it was at surface charging a battery no bigger than a small compact car then when it submerged the engine would shut off & the battery would kick in. There are numerous foreign power facilities that use this technology to conserve fuel & lessen the wear of their equipment & have been doing so since the 1950′s. Why hasn’t BELCO taken on this technology? Because they have been more concerned with profit gain then upgrades of their outdated system. Now this monopoly that has made billions or maybe even trillions over the years from its costumers wants to whine & wing over what more they are not going to be able to gain. GIVE US A BREAK! You did not plan for the future so now the only choice is to make pay cuts not to try & milk the costumers for more. If BELCO had not ripped IB companies off so badly over the years maybe the heads of them wouldn’t look at Bermuda business as an area for cutbacks. Now the empty buildings remain with the lights out & BELCOS profits have dropped for no fault but their own greed. If BELCO is really worried bout the future they should worry about the major impending war in the middle east between Israel & all the other islamic nations. This war that will definitely happen before the year is out will stop more than half the petroleum supplies from being shipped. Who do they think will get the oil rations? Not tiny drop in the ocean Bermuda. What alternative has BELCO come up with to make up for this inevitable petroleum shortage? The answer is NONE!
As i see it, the cost of living is increasing, as are commodities, so why shouldn’t Belco’s rates increase. We may not like it, but other than solar power, what alternatives do we have? Where would we stand when Belco decides there isn’t sufficient margin to maintain generation and delivery of power to Bermuda (even though there appears to be substantial profit, just not enough for them)?
Except our salaries, those of us lucky enough to be still drawing one, aren’t keeping up with the cost of living increases. There’s only so much you can squeeze us before we pop. The economy as a whole rises and falls on the backs of the middle class.
Belco has a fuel surcharge each month that is dictatated by purchasing fuel up to 3 months in advance, the fuel has also gone down over a period of time but the fuel surcharge hasn’t. The monthly surcharge is almost the same now as the usage charge for electricity. Money should have long been put aside for the repair and replacement of these generators, its a simple business practice. They did not deteriorate overnight and would have had an expected lifespan placed on them. Mybe its time for the few that are gobbling up the dividends to take a step back and release a new set of shares to raise the capital to carry out the work. I’m sure there will be no problem to raise the capital through this method especially when there is no other identity to waiver competition at this stage. Or is the time ripe for nationalizing the source of power to the island, heck the ex boss is in Government now he should have an idea how it works!!!
Actually Vince doesn’t have a clue how the operation works.
Belco … Doing more with a lot less . Pay attention you lot . Isn’t Vince Igham finished with Belco and about to feed off of the Government Gravey Train ?
More scare tactic’s to get more money from those that don’t have it…..
We pay for eletricity made by the generator, than we also get billed for the fuel used to power the generator. Now even that’s not enough…..hmmmm
Most of you are missing the point. The regulators allow Belco to charge rates necessary to upkeep the plant, and have a small profit, and no more. The regulators determine the amount of profit Belco can make. It has always been this way. Because of regulators, Belco has never had the option of ‘saving up profits’ to build a new power station. The business just doesn’t work that way. The ONLY way of financing the economic cost of building new plant, is to build it into the rates.
As for the “veiled threat” comments…um, why do you think a new power generator is needed? It’s because the current plant is getting old. If Belco neglected to build new plant, and this one breaks down, we’d all be saying they “should have planned for the future”.
New power equipment won’t come out of thin air. If it isn’t paid for, we won’t have it.
By the way, listening to Marc Bean about anything complicated is a pure joke. He isn’t exactly the sharpest tool in the shed.
I suppose you believe the regulators don’t have shares in BELCO. If you believe this I’ve got a water tight screen door for a submarine I’d like to sell you. Do you think that after 108 years of business that the ones who get appointed to regulate the profits have not took the upkeep & repurchase of the generators into consideration? Of course they have but if the companies past president has been running electricity at their house up on store hill like it was NYCs central station especially around christmas to give a show off light show to the friends while getting massive discounts off the bill then the profits are not going to be the same as predicted by the regulators. This also goes for others receiving massive perks from being part of the upper tier of the BELCO family.
Reducing employee discounts won’t produce enough money to buy a new power station. And it’s the regulators the ones who are preventing the rate increase.
If belco’s net income is REALLY 14.54 million at present WHICH I DONT BELIEVE IT IS they would have to charge each costumer into poverty with increased rates to make the jump to 70 million in a year. Either that or the plant is planned to be built within years to come so when will they have the time or money for their 2020 green energy promise. Maybe this promise was just a lie just as them claiming to ONLY have a net of 14.54 million probably is. Im still waiting for Garry Madeiros to fulfill his green energy promises also. Oh wait a minute! Where’s Garry again? OH YES I REMEMBER NOW! RETIRED & RITCH!
What is with these half baked opinions? Regulators block the increase yet have a personal interest in the increase. Be rational man!
There’s nothing half baked about it. Even though regulators have shares in belco they still have to pay the high prices of electricity so of course they would block ridiculous increase demands. Its only those who have major shares or are part of belco’s top tier that get benifits of discounts in their bill so there’s no skin off their backs with an increase. Besides even with shares regulators have to do their job right. Your the one who is irrational if you think anything but a major unaffordable increase will make belco 55.46 million more a year. I guess you must be a multibillionaire if you think an up in rates like that from a company that already has overcharged their costumer for years is rational. Just as it has been asked of the government the same should be asked of belco, “Where did all their profits go since 1905?”
Wow. It seems exhaust from belco stack isn’t the only thing being inhaled here. Red the Annual report of this REGULATED firm and even penny is accounted for. For you to troll and cluelessly speculate about what you THINK MIGHT be happening without a single FACT on your side..l.well any clown could do that. Yawn.
get used to Marc Bean as they are grooming him when Derrick Burgess becomes Premier he will be the Deputy…..
oh stop with the nightmares…#godforbid
belco being a public trading company, should just offer more shares in the company or a corporate bond like all other real company on a stock exchange would do
I am glad that they were denied as there are many ways for a monopoly company to raise capital which has not even been attempted. They could and should deferr dividends for at least 3 years, they could float a bond or they could seek foreign investment if they believe that their company is worth it. They are asking the public to cover expansion cost at rates higher than the cost of living and that is unacceptable.
Three years dividens will not cover that amount of money (obviously).
If they “float a bond”, how will they repay it if they can’t increase rates?
Why would a foreign investor be interested in providing capital if the regulator denies the opportunity to get adequate return?
You’re obviously a financial expert. Enlighten us.
so cranky are you saying belco the only power company in the island has not made enough money over the decades that the company has not see it fit to put aside money from year to year for such projects really
Having shareholders means paying dividends. If you read anything in the media, or better yet, look at the annual reports, you will see every year belco is regularly putting aside HALF of the profits for capital projects. This has been going on for decades. This is why belco provides bda with the heist reliability of any caribbean country. Get used to that declining AND losing out on an opportunity to lower bills due to running 1970s equipment in 2012, 2013, 2014…and losing the opportunity to upgrade to equipment that can convert to run LNG. Fuel suppliers are the only winners with this decision, same electricity just more fuel burned. Laugh now, cry later.
You would think poor Belco was broke.
If God almighty himself came down from the heavens and presented BELCO with a free, self perpetuating , spotlessly clean energy generation system they’d still gouge us and put the rates up.
So don’t think for a millisecond that the investment in a new plant would ever translate into savings for us . The same for all the pie in the sky hype about power from solar / wind and wave power plants. After the initial investment had paid for itself do you really think rates will go down ? ?
This is true & this is why I feel that government should break belco up into smaller companies like America did to IBM & more relatively Canada did to Toronto Hydro. Break the money & power hungry monopolies up & each section compete for their profits. This would keep the shareholders on their toes & innovative.
Uninformed trolls need to ask someone in jurisdictions that experienced break-ups and see just how high prices went up thereafter…you have the Internet – USE IT.
BELCO needs to see how they handle this in the rest of the world.
Here is the basic idea:
1. Increase generating capacity, or
2. Avoid increased capacity by making existing capacity more efficient.
Number one is very very expensive, and fiscally irresponsible.
Number two is easy to implement, it is done worldwide.
BELCO simply would offer incentives to homes and businesses to install energy-efficient lighting and equipment, thereby keeping costs down by not requiring capital investment for capacity upgrades. This would promote the use of LED lighting and solar energy, which is inexplicably absent from our island…despite the incredible return on investment. It would also increase employment for people in those industries.
Raising rates to increase capacity is taking the wrong fork in the road.
A very small percentage of the rest of the world is using diesel power. It is largely for small island states like Bermuda. Everyone else has hydro, nuclear is massive amounts. You refer to making capacity for efficiency gains when in fact your example refers to the loads being more efficient. Capacity is the source. Using a more efficient load while still using inefficient 1979 source still doesn’t add up. You are still burning more fuel than required to meet the load. It is anagalous to telling a 1979 ambulance to serve one parish rather than the whole island to save fuel. Upgrade the ambulance and let it do what it is meant to do. In case you hadn’t noticed, efficiency on the load side is something consumers are very slow to take up and years will be spent sending millions to fuel suppliers overseas while you hope consumers upgrade in the midst of a recession. The return is there but it takes years to recoup, hardly a priority when so many say they are struggling.
In my example, consumers WILL upgrade, when:
a) the utility pays for part of the cost, and
b) your power bill goes down
It does not take years to recoup, it takes *months* in a country where electricity costs 40 cents a kWh…with the exception of solar power, which is still stupid expensive…but if there is a cost incentive, it becomes more affordable.
And holding consumer loads steady or even reducing them, will push out the date when increased capacity needs to be looked at.
And I meant to say,
“Avoid increased capacity by making existing LOADS more efficient”. It was 6:00am for pete’s sake.
U r completely missing the point. The new engines are not to INCREASE capacity. They are to MAINTAIN capacity so the 1979 engines can be retired. In the process the 2013 engines would be FAR more efficient than the 1979 ones AND can run on cheaper LNG fuel. The entire country wins under this scenario. Nothing consumers do will alter the 1979 engine efficiency or fuel source. And utilities certainly won’t be paying for your LED lights mate.
I do not know if this has been talked about before but why belco has not looked at nuclear power…0% emissions.
Because if there’s an accident, where and how would you evacuate? the whole island would be exposed, it’s just not a great idea right now because of safety issues. Disposal issues run second- what do you do with spent fuel/contaminated waste water, etc.? And then there’s the notion of what technology would be appropriate within the nuclear realm- pebble bed’s still not used in utility-scale settings, do you really want us to be the guinea pig for this? I don’t. Admittedly, it could be an answer, but it has been examined at least cursorily, and it’s just not feasible for us. God forbid we had to get the hell away from it because of a plant problem, we’d all be exposed to the radiation in no time flat, and no way to get out quickly enough. Would be great if we weren’t so isolated…