Typical households will see their electricity bills rise by 7 per cent or more, if Belco’s application to increase its rates is granted.

Under proposals submitted to the Energy Commission yesterday by the utility, residential tariffs, or the base rate, would be jacked up by between 5 per cent and 29.9 per cent, depending on the level of usage. (See details here).

Commercial customers would see their bills climb by an average of nearly 15 per cent, Belco said in a statement.

“Increases for the largest commercial customers, ‘demand customers’, will be based on their efficient use of the electricity system ranging from approximately eight per cent to over 20 per cent,” Belco added.

Belco also wants to increase the facilities charge, which is set according to average consumption per day, by one fifth.

As a regulated utility, Belco cannot increase its rates without first getting permission from the Energy Commission.

The fuel adjustment rate, which is governed entirely by the price of fuel that Belco burns, is not part of the rate increase proposal.

The company said the rate increases were necessary to sustain the level of investment needed to maintain a reliable, “first-world” electricity system. Belco has invested $375 million in electricity infrastructure since 2000.

The company’s sales of electricity have declined 11 per cent since 2010, as a result of a falling population and a decline in economic activity. Meanwhile expenses have risen, driven by ever-increasing maintenance costs for Belco’s ageing fleet of generators and rising healthcare and pension costs. The combination of factors has squeezed profits to what Belco chief executive officer Walter Higgins says is an “unsustainable” level.

“Belco recognises the challenges faced by businesses and residents since the onset of the recession and, as a result, has delayed seeking a rate increase for as long as it could,” Mr Higgins said in the statement.

“Unlike some other businesses which can reduce costs by varying their products based on sales volume, the electric utility business cannot, as it has high fixed costs for equipment and maintenance of equipment in order to deliver a safe and reliable electrical supply.”

Under the rate increase application, Belco says that a household using 600 kilowatt hours (kWh), which would have paid a monthly bill of $217.93 last month, would pay $234.62 in September under the terms of the requested increase — an increase of $16.69, or 7.8 per cent.

The higher the level of usage by a household, the higher the percentage increase it would suffer. For example, a household with a 1,500kWh monthly bill would pay 15.6 per cent more under the Belco proposal, climbing from $610.72 to $706.09.

These examples assume that fuel prices, which have plunged since last summer, remain at last month’s levels.

The base rate would increase by 5 per cent to 16.54 cents perkWh for the for the first 250kWh used, by 10.3 per cent to 26.46 cents per Kilowatt hour for the 250-700kWh tier, and by 29.9 per cent to 38.61 cents perkWh for anything above 700kWh.

Mr Higgins said Belco had worked hard to contain costs.

“In areas where we can, we have done our best to reduce costs by controlling wages, changing and reducing benefits, implementing early retirements, retaining unfilled vacancies and continual operational efficiency improvements, including reducing metering losses and energy diversions,” the CEO said.

“We are always actively looking at ways to better manage costs, and certainly we are looking at future infrastructure that would enable greater efficiencies for both the utility and customers with the benefit of greater stability and affordability.”

Belco stated that even assuming the rate hikes are approved, customers will be paying lower electricity bills in September than they were in September of last year.

This is because the fuel adjustment charge has dropped nearly 40 per cent since last September, when it was 19 cents per kWh, compared to 11.5 cents last month. The estimation that bills will be lower than last September is dependent on fuel prices remaining low.

As part of the filing to the Energy Commission, Belco has submitted a ‘Cost of Service Study and Cost of Capital Report’, which estimates that a “suitable return”, in line with peer island utilities, should be 10.5 per cent, as compared the 1.81 per cent realised in 2013, and the 3.34 per cent in 2014.

Belco’s rate rise request comes two days before shareholders are due to assemble for the annual general meeting of Belco’s parent company, Ascendant Group Ltd.

Ascendant’s share price has fallen from $42.50 to $5 in the space of ten years, while the quarterly dividend payout has plunged from 39 cents per share to eight cents over the same period.

Yesterday’s statement recognises that shareholders “have been carrying the investment load under Belco’s equity structure”.

Mr Higgins added: “If Belco’s capital structure had included long-term debt, given its low returns and continuing capital expenditure, the company would have struggled to service the debt.

“Belco has to pay the market price for capital whether it comes from shareholders or financial institutions.”

• For an unobstructed view of the proposed rate increases, click on the PDF link under “Related Media”.