Minister: ‘Reforms Will Transform Energy Sector’

“The purpose of the Electricity Bill 2015 is to introduce a new regulatory regime that modernizes the regulation of electric power generation, distribution and retail sale for the benefit of the residents of Bermuda,” Minister of Economic Development Dr Grant Gibbons said in the House of Assembly on Friday.

Speaking on the Bill, Dr Gibbons said, “We have seen the growth of the solar industry in the past few years and its increasing utilization in both the residential and commercial sectors in Bermuda.

“It now makes sense to open larger scale generation to other participants and to new renewable and alternative sources. In order for competition to develop fairly and efficiently to benefit Bermudian consumers, we need to implement a much more robust and agile regulatory framework.

“The purpose of the Electricity Bill 2015 is to introduce a new regulatory regime that modernizes the regulation of electric power generation, distribution and retail sale for the benefit of the residents of Bermuda.

“The improved regulation will liberalize the market, protect end users, redefine the incumbent utility, and ensure that opportunities exist for all credible entities willing to participate in the planning and delivery of Bermuda’s energy future.

“The reform of the Island’s electricity sector also comes at a critical time as several of the Utility’s generation assets are scheduled to be retired in the near future, with some generators already working well past their useful life.

“Notwithstanding this, there are an increasing number of alternate and viable technologies available for Bermuda to consider, which include solar, wind, waste to energy, and liquefied natural gas [LNG]. The near and long-term investment decisions that will be driven by these options will have a long-lasting impact on our economy.

“Therefore the intent of this Bill Mr. Speaker, is to not only establish a framework by which future investments in the production and sale of electricity will be evaluated and regulated, but to also transfer responsibility for the regulation of electricity from the Energy Commission to the Regulatory Authority of Bermuda – which was launched in January 2013 under the Regulatory Act 2011 – and is currently responsible for regulating the telecommunications sector.

“This Government remains committed to serving the best interests of Bermuda,” added Dr Gibbons. “It is our intent that these reforms will transform the energy sector to a more inclusive and competitive market, operating with transparency and accountability for all of our residents and businesses.”

The Minister’s full statement follows below:

Mr. Speaker, electricity has been in commercial production and use in Bermuda since the early 1900’s, when BELCo began its operations in Hamilton with a 50kW generator. Since that time, oil markets have changed and consumer demand has risen exponentially as Bermuda became a successful tourist destination and then a worldwide hub of international business. These and other changes have shaped our attitudes and expectations toward the supply of electricity. Once a luxury, electricity now supports our economy and our modern lifestyles, so that nearly everything we do is dependent on reliable and high-quality electricity supply. Bermuda is not alone in that dependency, and other developed and developing economies are now competing for a finite resource, namely oil, to fuel the generators that produce their electricity and underpin their transportation sectors. Not only has pricing stability become a prime focus, but with increased global oil use comes increased global emissions – and our need to be conscious of our responsibilities as a community to reduce our environmental impact for the benefit of future generations.

Mr. Speaker, with challenges come opportunities, and there are certainly opportunities for other technologies and market participants in the electricity sector. We have seen the growth of the solar industry in the past few years and its increasing utilization in both the residential and commercial sectors in Bermuda. It now makes sense to open larger scale generation to other participants and to new renewable and alternative sources. In order for competition to develop fairly and efficiently to benefit Bermudian consumers, we need to implement a much more robust and agile regulatory framework.

Mr. Speaker, the purpose of the Electricity Bill 2015 is to introduce a new regulatory regime that modernizes the regulation of electric power generation, distribution and retail sale for the benefit of the residents of Bermuda. The improved regulation will liberalize the market, protect end users, redefine the incumbent utility, and ensure that opportunities exist for all credible entities willing to participate in the planning and delivery of Bermuda’s energy future.

Mr. Speaker, the reform of the Island’s electricity sector also comes at a critical time as several of the Utility’s generation assets are scheduled to be retired in the near future, with some generators already working well past their useful life. Notwithstanding this, there are an increasing number of alternate and viable technologies available for Bermuda to consider, which include solar, wind, waste to energy, and liquefied natural gas [LNG]. The near and long-term investment decisions that will be driven by these options will have a long-lasting impact on our economy.

Therefore the intent of this Bill Mr. Speaker, is to not only establish a framework by which future investments in the production and sale of electricity will be evaluated and regulated, but to also transfer responsibility for the regulation of electricity from the Energy Commission to the Regulatory Authority of Bermuda – which was launched in January 2013 under the Regulatory Act 2011 – and is currently responsible for regulating the telecommunications sector.

Mr. Speaker, this Electricity Bill, has been drafted and is intended to work in conjunction with the Regulatory Authority Act 2011. The Regulatory Authority Act, or RAA, provides the rules of engagement for the Regulatory Authority; specifically, how it operates, how it supervises licensees and service providers, how it provides oversight to the regulated sector, and its responsibilities to the public, government and industry. This new Bill is defined as “sectorial legislation” under the auspices of the RAA and adds electricity as a regulated sector along with telecommunications.

Mr. Speaker, in November 2014, the Government began its public consultation process for electricity with the Energy Summit, the final session of which was a facilitated workshop session during which key electricity issues and sector stakeholders were identified. In 2015, through a series of workshops held with the Regulatory Authority, non-governmental organizations, Government departments, industry stakeholders, and interested members of the public, the electricity policy framework was developed. As this Honourable House will recall, the National Electricity Sector Policy of Bermuda was tabled in this Honourable House and debated on June 5th last year.

Mr. Speaker, the National Electricity Sector Policy established four key objectives for the electricity sector in Bermuda. They are that the provision of electricity service should be:

• Least-cost and high-quality;
• Environmentally sustainable;
• Secure; and
• Affordable.

Mr. Speaker, the Policy also introduced an aspirational matrix of electricity supply options that suggested targets for both renewable energy generation and energy efficiency and conservation that could possibly be achieved over the next 20 years. These options included diversifying how we generate electricity with natural gas, solar photovoltaic, wind, waste to energy, and a ‘future renewable energy’ source, which is yet to be determined.

The aspirational matrix is just that – aspirational. It does not define nor mandate specific investment decisions, but instead provides a starting point for public consultation and planning. The investment decisions will be guided by a defined regulatory process under the jurisdiction of the Regulatory Authority after in-depth stakeholder consultations.

Mr. Speaker, in the course of wider public consultation and workshops aimed at evolving the new Electricity Policy into workable legislation, it was evident that both economic considerations and environmental concerns were key, so the new legislation is aimed at striking a reasonable balance between the two. Honourable Members will recall that a draft electricity bill was tabled in July 2015 before this Honourable House rose for the summer. This allowed a longer period for public review and comment before this current Electricity Bill was tabled in December of last year. Mr. Speaker, it is worth noting that public consultation has been carried through every part of the policy and legislative development process – and in fact, as Honourable Members will see in the legislation, public input will play a significant role in determining Bermuda’s energy future.

Mr. Speaker, while the Electricity Bill enshrines the four key objectives specified in the National Electricity Sector Policy, it is important to recognize that tradeoffs are sometimes required between multiple objectives. Consequently, this Bill provides some flexibility to the Regulatory Authority in allowing them to make decisions that strike a reasonable balance between potentially competing objectives.

Mr. Speaker, as mentioned, the Bill transfers responsibility for the regulation of electricity from the Energy Commission to the existing Regulatory Authority. The functions that the Authority will be responsible for include:

• Licensing the generation of electricity
• Licensing the transmission, distribution and retail sale of electricity
• Sanctioning investment decisions
• Regulating wholesale and retail tariffs, and
• Setting service standards.

Additional capacity to help fulfill these new obligations will be created within the Authority in the form of two additional Commissioners.

Mr. Speaker, licensing will be a key responsibility for the Regulatory Authority. There will be three types of licenses, namely Bulk Generation, Self Supply, and Transmission, Distribution, and Retail [TD&R]. Bulk generation refers to large scale electricity generation above a set threshold that will be determined by the Authority after consultation. The requirements of a Bulk Generation license will be rigorous, in order that electricity loads and supply can be planned and dispatched in an orderly manner that maintains, and if possible, improves on the integrity and reliability of the service we enjoy at present in Bermuda.

Mr. Speaker, the license threshold that differentiates a Bulk Generator from a Distribute generator has not yet been established, but will be done in consultation with the electricity industry and key stakeholders. It will be designed so that those who are engaged in small-scale solar electricity production will not be required to have a license. Instead, these smaller producers will only require a Standard Contract agreement with the Utility, which is an updated and more robust version of the Interconnection Agreement they hold at the moment.

Mr. Speaker, a Self Supply license will enable a larger customer to essentially come off-grid. A potential licensee will be required to demonstrate that they can provide sufficient capacity and redundancy to serve all their own electricity needs, with no reliance on BELCo. The rationale for this level of self-reliance, is to ensure that the utility can re-deploy its power assets to other users without the possibility of compromising the grid stability in the event a large customer suddenly and unexpectedly comes back on line.

Mr. Speaker, the final type of license is a Transmission, Distribution and Retail, or TD&R, License. There is no public benefit, given the cost of infrastructure and the size of Bermuda, to allow competition in TD&R, therefore there will be only one licensee. The TD&R license is for the operation and management, as well as the infrastructure and retail administration required to deliver electricity from a generator to the end user, or retail customer. The TD&R licensee will be tasked with procurement of generation resources, management of the grid and maintaining service and standards to the end user. The TD&R license holder will be closely regulated in exchange for being the sole licensee. Simply put, BELCo will hold the only TD&R license, but it will no longer have exclusive control over all parts of the electric service supply chain in Bermuda.

Mr. Speaker, as noted above, the procurement of generation resources will be done by the TD&R licensee, but they will be accountable to the Authority for those acquisitions, which must be made in accordance with the Integrated Resource Plan, or IRP. Anyone who produces electricity, ranging from small distributed generation, as in residential rooftop solar PV, to utility scale power plants, will have the opportunity to provide competition under the new regulatory structure.

The Bill prohibits ‘wheeling’, which is the transport of electricity from one entity to another using the utility’s network. In other words, it does not allow an independent power producer to use the Utility’s infrastructure for selling electricity directly to a third party. This means that anyone producing power above an established threshold will hold a Bulk Supply License and sell that power to the grid at a regulated price.

Mr. Speaker, in addition to this Bill creating a framework for the licensing structure in the electricity sector, it also empowers the Regulatory Authority to set service standards for the industry. These standards include reliability and quality of service obligations for all license holders. Another new feature included in this legislation is the addition of provisions to protect the rights of the consumer. The Authority will be given the power to regulate rates and the commercial and marketing practices of any sector participant. The Authority will also be able to issue directives governing the confidentiality and use of customer data.

Mr. Speaker, Bermuda needs affordable, high quality, environmentally sustainable, and secure electric power to sustain its economy. Like most other countries we primarily rely on fossil fuels to generate electric power. The fuels that Bermuda has traditionally used are a combination of diesel and heavy fuel oil. Although readily available, they are subject to volatile pricing and are a major contributor to greenhouse gas emissions. Currently, Bermuda has limited renewable energy options for “base load” power, which is the power required to meet consistent consumer demand every day and all day. Commercially viable and low cost renewable energy technologies that can generate electricity for Bermuda include solar, wind, and waste to energy. However, each is limited in its ability to provide steady and reliable around-the-clock power.

Mr. Speaker, notwithstanding these limitations for base load, renewable energy has the potential to significantly contribute to Bermuda’s “peak load” power requirements by providing incremental power during high demand periods, such as the middle of the day, when the demand for air conditioning, for example, is higher. Renewable energy sources will help to reduce the need for higher-cost peaking engines to be loaded by the Utility. Government clearly recognizes the value of renewable energy and this is why efforts have begun to issue a rigorous RFP for a solar utility-scale development at the airport ‘finger’. The value of renewable energy will undoubtedly increase as energy storage technologies improve and decline in cost. Increased storage capacity will enhance the ability of renewable energy to make significant contributions to base load in the future.

Mr. Speaker, there are also opportunities to replace our current base load fuels, diesel and heavy fuel oil, with others that are readily available, produce less greenhouse gas emissions and are less costly than the current fuels. Liquefied Natural Gas [LNG] is one such option. More importantly, fuels such as LNG, are projected to have significantly less price volatility in the global energy markets.

Mr. Speaker, as we consider new base load fuels and the commercial scale deployment of various renewable energy alternatives, a regulatory mechanism is required that would allow them to be considered with full public participation. That mechanism Mr. Speaker, is the inclusion in the Electricity Bill of a protocol for the development of an Integrated Resource Plan or IRP.

Mr. Speaker, IRPs were traditionally developed by electric utilities to create strategic plans to meet future energy demands over a specified period, and are generally required to have these plans reviewed by their regulators. In the past in Bermuda, the utility’s IRP may have informed base rate filings, but our regulators had no real ability to comment or otherwise change that IRP. It was primarily an internal tool which was developed by the utility for the purpose of guiding their infrastructure development and investment plans to meet projected future demand..

Mr. Speaker, the IRP process is currently used successfully in many other jurisdictions, including Hawaii, California, Oregon, Washington State, Idaho, Montana, Utah, Colorado, Arizona, Nevada, New Mexico, British Columbia, Manitoba, Crete, Austria, Alexandria and India. It is a more modern and inclusive means by which to determine our future energy plans.

Mr. Speaker, the Bill defines Bermuda’s IRP process as follows:

1. The Regulatory Authority, after consultation with BELCo, will determine when an IRP needs to be developed, and will request a draft IRP from the Utility. BELCo is ideally suited to produce the draft, not only because they have the requisite knowledge and experience, but because they have the data required to develop the necessary models.
2. The Regulatory Authority will review the draft IRP to assess whether it meets their requirements for public consideration and then commence the public consultation process, which will include challenge as well as comments. This transparent process will allow other prospective bulk generators to participate and challenge, provided that they have proven technologies and experience to support their position.
3. After consultation, BELCo will submit a revised plan to the Authority. Once the Authority is satisfied that the IRP includes the best possible mix of energy for Bermuda, the IRP will be approved and published on the website of the Authority.

Mr. Speaker, the development of the IRP will be an iterative process, carried out with full public participation to ensure that each successive draft achieves the best balance of the four Electricity Policy objectives, which are, to repeat, least-cost and high-quality, environmentally sustainable, secure, and affordable. With respect to the implementation of the IRP, the Authority will also supervise and monitor the procurement activities. This oversight will ensure that the most economically efficient means of achieving the targets of the IRP are pursued, which may include the purchase of power from new independent and bulk power producers.

Mr. Speaker, the IRP will be an essential tool in setting retail tariffs, or rates, which is another responsibility of the RA under this new regime. Tariff setting methodologies will take into consideration the policy objectives, but also allow the TD&R licensee to a rate of return that reflects the cost of service and the costs of achieving the service standards set by the RA. The RA will also have to ensure that the TD&R licensee is able to attract investors by receiving a reasonable rate of return on their investments, while still ensuring that the interests of the end users are well-served.

Mr. Speaker, monitoring, compliance and enforcement are also key features of this Bill. There are penalties for contravention of the Act or its Regulations, and the offences are not limited to the utility, but include all market participants. The offenses range from failure to pay license fees and failure to comply with safety standards, to obstructing the Minister or the Authority, and tampering with critical infrastructure. Consequences for offences are analogous to those in the electronic communications sector, under the Electronic Communications Act 2011, using fines, and where warranted, custodial sentences. In this section in particular, it is essential to refer to the relevant sections of the RAA, in order that the hierarchy and progression of corrective actions are understood. Enforcement actions will not be taken capriciously or arbitrarily, and will offer the licensees reasonable time to take corrective action.

Mr. Speaker, the Electricity Bill 2015 also includes a transitional provision to ensure that BELCo will be granted those licenses that it will require to continue operating under the new regulatory environment. These licenses will be issued only after specific filing obligations have been met. Also, and as a transitional measure, the Act ensures that BELCo will continue to have the legal authority to provide all existing electricity services until such time as the new licenses have been issued.

Mr. Speaker, it is this Government’s intent to begin the process of modernizing the electricity sector by enacting this legislation. The first major milestone along that path is the transfer of regulatory responsibilities from the Ministry and the Energy Commission to the Regulatory Authority of Bermuda.

Mr. Speaker, this Government remains committed to serving the best interests of Bermuda. It is our intent that these reforms will transform the energy sector to a more inclusive and competitive market, operating with transparency and accountability for all of our residents and businesses.

Mr. Speaker, in closing, I would particularly like to acknowledge the hard work of the Department of Energy, the AG’s Chambers and our consultants, Castalia and Legal and Drafting Services Ltd. In addition I would like to thank energy sector providers and the public for their contributions and participation in this process.

Thank you, Mr. Speaker

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