Belco Files To Increase Basic Rates In 2005

HAMILTON, Bermuda: 31st December 2004 - BELCO has received approval from the Price Control Commission for an overall 1.5% rate increase effective January 1, 2005, and approval for rate increases of 1.5% in 2006 and 2007.  The application was submitted to the Price Control Commission on November 19, 2004.

It has been nine years since the Company increased its basic rate. Over this period BELCO has successfully been able to finance its operations and continued capital expansion from its income growth brought about by higher sales and cost containment efforts, and has thereby avoided any form of a rate increase.  However, given the continued pressure of rising costs, and the increased levels of capital asset expenditures necessary to meet the growing demand on our system, we no longer find ourselves in a position to sustain this period of rate containment.

The application, approved by the Price Control Commission, is for an increase in the Facilities Charge for all customer categories and an adjustment to the Energy Charge in order to achieve an average 1.5% increase in overall rates. Based on energy usage, the new rate results in increases of between 1% - 2% to individual customers.  BELCO's rate increase is approximately 59.5% lower than the present annual rate of inflation (1.5% vs. 3.7%). 

For the average residential customer using 730 kilowatts, the increase is equal to approximately $3.65 per month. This includes a $2.00 increase in the monthly Facilities Charge, from $10.00 to $12.00, and a decrease in the kilowatt hour (kWh) rate for the first kWh of usage.  This increase largely offsets the effect of the increase in the Facilities Charge for lower-usage customers.  There is also a small increase in the kWh rate for usage above 100 kWh.  We are sensitive to the impact an increase has on low-usage customers, who also tend to have less ability to pay. We, therefore, requested and received approval, for the rates for kWh usage to be adjusted to have minimal impact on these customers.

The Facilities Charge is a fixed fee that recovers some of our fixed customer-related costs, such as basic distribution facilities, metering, service drops, billing and meter reading. These fixed costs for residential customers amount to approximately $37.00 per month and, while it would be ideal to recover all of these costs in the Facilities Charge rather than the Energy Tariff, on a percentage basis this would impact the lower-usage customer much more than the higher-usage customer.  As has been our practice, BELCO's rate increase application included a commitment to continue to provide a total exemption of the Facilities Charge to residents on financial assistance.  This is done through a monthly refund to the Department of Financial Assistance. 

BELCO has spent, on average, $23.5 million annually since 1996 on capital enhancements and refurbishment.  This continued upgrading of assets and the addition of new, more efficient electricity generating plant has resulted in significant increases in our fuel efficiency levels which have helped to improve the number of kWh generated per barrel of fuel, thereby, containing the quantity of fuel used and, subsequently, the cost. Unfortunately, however, this has not been enough to overshadow the significant rise in the posted prices of a barrel of fuel in the world markets during the last year.  This is a major dilemma which BELCO and the country face.  Costs per barrel of fuel have reached record highs and, this in turn, has resulted in the highest ever fuel adjustment rates, which now account for 20% of a customer's bill. To temper the impact of high fuel rates, BELCO has waited as long as possible to apply for a rate increase.

In 2005, we will see the addition of two new 14.3 megawatt diesel engines needed to meet continuously growing demand.  These units are budgeted to cost $45 million. The Company anticipates that based on its load growth projections, and older plant retirement dates, we will have to consider similar capital investment as early as 2008.

In addition to generating equipment, the Company continues to invest heavily in transmission and distribution plant.  In 2004, we will have completed, at a cost of $1 million, the addition of a new substation on St. John's Road which will help ensure the continuity of supply for the new Berkeley School project.  In order to upgrade our transmission cable network, we have also undertaken a three-year project to reinforce our 22 kilovolt (kV) cable system through to our Fort Hamilton, Prospect and Hospital substations. This major initiative will cost in excess of $5.6 million.

BELCO's request for Approval in Principle for rate increases of 1.5% in 2006 and 2007 is in line with previous applications, and was made in an effort to smooth the increase, by eliminating peaks and valleys in our rates, thereby, providing our customers an opportunity to budget their costs for the next couple of years. Approval in Principle was also requested so that the Company may proceed with advanced financial planning necessary for preparing for future development to continue to meet the Island's energy requirements.

As has been the practice in the past, BELCO has advised the Price Control Commission that the Company will not increase rates in 2006/2007 if income levels appropriately sustain the Company's needs for the ensuing year.  BELCO in fact took this step in 1996 when the Company restructured rates to remain revenue neutral, rather than impose the agreed upon rate increase of 2.75%.  Additionally, the Company remains committed to containing costs and has recently begun an extensive initiative to review major work and re-engineer the way it is done in order to identify improvements in cost efficiency and overall effectiveness.