The agreement reached last June between Caribbean Utilities Company and the Cayman Islands Government concerning the renewal of CUC’s licence has expired and the two sides are no longer in negotiations.
The disclosure was made in the Legislative Assembly after Minister Julianna O’Connor-Connolly tabled a bill for the creation of an Electricity Regulatory Authority.
The bill was passed by the House later in the meeting Wednesday.
Mrs. O’Connor-Connolly said that by September, 2004, the formal agreement had almost been finalised for a new licence agreement.
The new agreement would have immediately reduced electricity rates, allowed for competition within the electricity generation industry, and paved the way for the formation of the Electricity Regulatory Authority.
‘However, as we all know, Hurricane Ivan intervened on 12 September and caused considerable damage to CUC’s transmission and distribution systems, and generation facility,’ she said.
After the hurricane, negotiations to conclude the new licence agreement fell away, Mrs. O’Connor-Connolly said.
‘Indeed, CUC in several press releases has stated that discussion would only resume at a more appropriate time, when all the costs associated with the damage caused by Hurricane Ivan are known, and that they would be applying for a rate increase as determined under the existing licence.’
Mrs. O’Connor-Connolly said Government was ‘disappointed to say the least that CUC did not wish to continue discussion.’
West Bay MLA Cline Glidden, who served as chairman of the Government’s Utility Advisory Board and who also chaired the sub-committee that conducted the negotiations which led to the Heads of Agreement, said he was not sure why CUC withdrew from the negotiations.
‘We only know they had agreed and then after the storm, they didn’t want to continue,’ he said.
However, Mr. Glidden did postulate a reason for CUC’s unwillingness to go through with the agreed deal.
He said their 15 per cent rate of return, as specified under the current licence, allows CUC to recover Hurricane Ivan related costs through adjustment, something it could not do under the proposed price-cap earnings structure.
Mr. Glidden read from a press release from CUC to the Toronto Stock Exchange on 30 November, 2004.
‘The terms of our existing licence permit the company to recover Hurricane Ivan related costs through rate adjustment,’ he said. ‘At the opportune time, the company will make proposals to Government on how best to implement rate adjustments and recover cost with will result from Hurricane Ivan.’
Mr. Glidden questioned whether CUC thought opportune to mean after the General Election with another Government.
‘Are they hoping there’ll be another government that will be more friendly?’ he asked.
Mr. Glidden explained that up until July of last year, CUC had recognised the need to move forward and had agreed on fundamentals of how to do so.
He said those fundamentals, on which the Bill was based, included the need for a regulatory authority.
Despite his comments on CUC withdrawing from licence renewal negotiations, Mr. Glidden praised the utility company for its outstanding job after Hurricane Ivan.
Minister O’Connor-Connolly said the Government would be delighted if CUC returned to the table and they could get a new licence regulated. ‘But we’re in no way mandating that they do that,’ she said.
Regardless of the fact that talks with CUC had ceased, Mrs. O’Connor-Connolly said the Government’s negotiating team ‘in a pro-active fashion’ was told to continue with the Legislation to establish the Electricity Regulatory Authority.
Mrs. O’Connor-Connolly said the Bill was timely because negotiations for the renewal of CUC’s current licence were supposed to commence within six years of its 2011 expiration date in any case.
She said that without the new legislation in place, there could be ‘implied consent of the current contract.’
Responding to the comments made in the House, CUC said Thursday it was surprised that Government was alleging actions of CUC made it necessary to bring the legislation forward at this point.
‘The fact that the Heads of Agreement between CUC and Government expired was not a consequence of any action taken by CUC,’ the company said. ‘It expired as a consequence of Ivan.’
CUC said it was always open for Government to restart the negotiations, but it had not chosen to do so.
In an unrelated press release issued earlier on Thursday concerning financial results, CUC mentioned the Electricity Authority Bill.
‘(CUC) cannot rule out the possibility that the enactment of the ERA Bill may have a material impact on the existing contractual rights and obligations between CUC and the Government under its existing licence,’ the company stated.
In his debate on the Bill, Opposition MLA Arden McLean said he was surprised to hear the negotiations between CUC and Government had stopped.
Mr. McLean said he wondered what effect passing the Bill would have.
‘Could this possible affect the relationship between (CUC) and the Government?’ he asked.
‘Something tells me CUC wasn’t part of the final bill,’ he continued. ‘It would be a shame not to have the incumbent on board.’