Belco’s planned new $70 million North Power Station is “critical” but the Bermuda public should not have to foot the bill for building it by suffering rate hikes, Minister of Environment, Planning and Infrastructure Strategy Marc Bean said yesterday.Mr Bean said he hoped to sit down with Belco management to discuss “alternatives and other options” for raising capital to finance the new plant, including retained earnings, changing dividend payouts, a bond or issuing more shares.“The Ministry would like to first be clear that it fully supports Belco’s plans to install a new power plant,” Mr Bean said. “However, with Bermudians hurting from high cost of living, the rate increase, in both the opinion of the Minister and the Energy Commission, simply cannot at present be borne by the public in its entirety as per Belco’s original submission.”However, Belco said it felt it had already explored all of the alternatives to rate hikes, and they were not feasible. The company intends to seek a judicial review of the Commission’s decision.Belco president Andrew Parsons said a bond issue was simply another form of debt requiring repayment, and for the issuing of more shares to be attractive, investors would have to get a better rate of return than around 3.7 percent. Mr Parsons said the dividend had not increased in five years.Belco parent Ascendant, which is also the parent company of Bermuda Gas, recorded net income of $11.12 million last year, down from $16.02 million in 2010.Ascenadant pays a dividend yield of around six percent, amounting to dividends paid totalling $8.8 million in 2011.Belco had sought to raise rates for residential customers for three successive years, and to put in place a five percent increase in demand customers’ rates per annum through 2014, and a 3.75 percent increase over the same time for small commercial customers.Mr Parsons said: “The Energy Commission approved only 25 percent 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.”Belco said the application submitted to the Energy Commission in October 2011 was for an average increase of 4.3 percent, 3.9 percent and 4.1 percent, respectively, over the next three years to support the building of the North Power Station to replace inefficient, ageing plant.While, under the application, rates would have increased for the larger energy consumers, Belco said 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, Belco said.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, Belco said 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 said: “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 unusual, 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 percent, 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 percent. 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, reinvesting $20-$30 million in the electricity infrastructure.“Belco’s 2011 rate of return was 3.79 percent, 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.”After many years of public consultation and discussion, Belco said it had both 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.“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,” Mr Parsons said.“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.”He noted: “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.”Mr Parsons added: “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 Belco and Government agree that we need to replace ageing 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.”Minister Bean said his decision essentially supported the (Energy) Commission’s direction, and allowed some reasonable increase to Belco in recognition that some of their capital projects depended on the increase in rates.“The conclusion that no increase was allowed is incorrect,” he said. “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 because 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.”He continued: “On this point, the implication of yesterday’s [Wednesday’s] Royal Gazette article is that no new capital project would be undertaken by Belco and no necessary improvements made because of this decision to reject Belco’s appeal. This is clearly not in the best interests of the public and the Ministry is hopeful that this is not the reality of the situation.“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.“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.”All of the details regarding the Energy Commission’s decision are available at:http://www.gov.bm/portal/server.pt?open=512&objID=728&&PageID=231826&mode=2&in_hi_userid=2&cached=true