SUPPLY OF ELECTRICAL POWER IN BELIZE

UNCLAS BELMOPAN 000299

SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON EINV BH
SUBJECT: SUPPLY OF ELECTRICAL POWER IN BELIZE

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Summary
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1. Belize Electricity Limited (BEL),whose major shareholder is
Fortis Inc. of Canada, is Belize's primary distributor of
electricity. Since the beginning of the year, regulatory conflicts
with the Public Utilities Commission continue to dominate BEL's
focus. More recently, a shortage of supply of electrical power from
its major supplier (the Comisisn Federal de Electricidad of Mexico)
may put additional pressure on BEL's operations in the coming
months. End Summary.

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Belize Electricity Limited
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2. Belize Electricity Limited (BEL) is the primary distributor of
electricity in Belize. The company's shareholding is comprised of
70.2% held by Fortis Inc. of Canada, 26.9% by the Belize Social
Security and the remaining interest is held by small shareholders.



3. The company has a customer base of approximately 74,200 accounts
with a peak demand of 74 megawatts (MW). Its demand is met by
multiple sources of energy that primarily include power purchases
from Belize Electric Company Limited (BECOL),Hydro Maya Limited
(HML),the Comisisn Federal de Electricidad (CFE) which is a Mexican
state-owned power company, and from its own diesel-fired and
gas-turbine generation. All major load centers are connected to the
country's national electricity system, which is interconnected with
the Mexican National Grid, allowing the Company to optimize its
power supply options.

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Regulatory Conflicts
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4. The Public Utilities Commission (PUC) is authorized under the
Public Utilities Commission Act to serve as the economic regulator
for the electricity, water and telecommunications sectors in Belize.
Regulatory issues between BEL and the PUC have continued to
dominate the former's focus into 2009.


5. In March 2008, BEL requested the Public Utilities Commission
approve a 15% increase in electricity rates. The company's request
was rejected by the PUC which cited its profits as a central reason
for rejecting BEL's request for a rate increase. Since 2004, the
company had profits exceeding Bz$18 million (US$9 million) which
peaked at Bz$29.9 million (US$14.95 million) in 2007 with annual
return on investment averaging between ten and twelve percent.


6. In April 2008, BEL again requested a 13% increase in electricity
rates through the Annual Review Process (ARP) which was similarly
rejected by the PUC in an ARP Final Decision of June 2008. The
PUC's Final Decision, which was based on 350 comments from the
public, input from PUC technical staff and an independent expert
opinion, maintained the average tariff at $0.441 per kWh but changed
the Rate Setting Methodology. The PUC noted that an Agreement with
the CFE would have allowed savings of BZ$7.5 million annually.


7. In 2008, BEL went to court to challenge GOB's repeal of the 2007
Tariff Setting By-laws, the PUC's Final Decision, and the PUC's Rate
Setting Methodology used to arrive at the Final Decision. Note: The
By-laws refer to a Statutory Instrument (S.I.) which is a subsidiary
law promulgated by the relevant Minister of Government. This
particular SI was done by Melvin Hulse, Minister of Public
Utilities, NEMO and Transportation. End Note.


8. In January 2009, the Supreme Court denied BEL's claim against the
Government's repeal of the 2007 Tariff Setting Byelaws, but
acknowledged that the Company's case is not without merit. In June
2009, the Court of Appeals (COA),the highest court in Belize,
dismissed an appeal brought by BEL challenging the Supreme Court's
decision which upheld the amendment to the 2007 Tariff Setting
By-laws. The COA rejected BEL's argument that the repeal was
unlawful since the company was not consulted prior to implementing
the instrument. The legality of the repeal has now been confirmed by
two courts.


9. In February 2009, the PUC amended its 2008 Final Decision in
relation to the period January 1, 2009 to June 30, 2009. The
amendment required a 15 percent reduction in electricity rates to be
applied retroactively from January 1, 2009. This amendment was
issued despite BEL's filing for an appeal to the Supreme Court in
July 2008 to contest PUC's Final Decision. Nevertheless, the PUC
justified the rate decrease in light of excess revenues collected by
BEL which it claimed by law should be credited back to the consumer
as a result of fall in the expected cost of oil during the latter
part of 2008. BEL was subsequently granted an injunction on the
decreased rates of electricity until the appeal of the PUC's June
2008 decision is heard. This case is expected to be heard by the
Supreme Court at the end of July 2009.


10. In its most recent Annual General Meeting, BEL declared losses
at the end of 2008 that amounted to Bz$10.8 million (US$5.4 million)
as compared to a profit of Bz$29.9 million (US$14.95 million) in

2007. The Company claimed that this change of Bz$40.7 million
(US$20.35 million) was as a result of the almost Bz$20 million
(US$10 million) in excess power costs it was forced to absorb after
failing to get approval for the rate increase.

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Shortages in supply of electricity
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11. Recent power shortages have come about as a result of Belize's
continued reliance on the importation of power from Mexico. Last
year, Mexico's CFE provided 53.6 per cent of Belize's total energy
supply. In July, the PUC announced that Belizean consumers will be
faced with shortages in the supply of electricity due to CFE
shortfalls in power generation. Between July and August, the CFE
will be undertaking repairs to its facilities which only allow it to
supply 15% of Belize's energy demand, and that power will be at a
higher price. Mexico is generally Belize's largest supplier,
accounting on average for approximately 40% of Belize's total
supply. In 2008 the power supplied from Mexico reached 53.6%.
Dependence on supply from Mexico generally drops off a bit towards
the latter part of the year during the rainy season when Belize's
hydro facilities have more water.


12. To help mitigate the current CFE shortfall, an emergency
agreement was reached between BEL and Belize Aquaculture Limited
(BAL) to temporarily supply up to eight megawatts additional power
from BAL's generation facility. BEL is currently taking 16 MW of
power from Belize Aquaculture Limited and 32.5 Megawatts from its
sister company, BECOL.
DIFFILY