CUC fuel factor declines

Electricity customers in Cayman will continue to see lower fuel factors on their bills from Caribbean Utility Company over the next couple of months.

CUC’s fuel cost dropped to a 10-month low in December at $2.3218 per imperial gallon, which will relate to a fuel factor of 9.1595 cents per kilowatt hour billed.

By comparison, from July through November 2006, the fuel factor never dropped below 10.2517 cents per KWH, peaking in July at 11.4036 cents per KWH.

Although regional oil prices can and often do fluctuate significantly, the short-term outlook shows prices are likely to decrease over the next few months.

More importantly, the longer term forecast has oil prices remaining relatively stable and slightly lower than in 2006.

‘The good news is they are certainly not projecting an increase, either this year or next year,’ said CUC President and CEO Richard Hew.

The $2.32 price per gallon still represents a major increase over what fuel costs were in the past.

‘Just four or five years ago the target price was $1.40 [per imperial gallon],’ Mr. Hew said.

With oil reserve margins reducing somewhat and the price for a barrel of oil dropping, Mr. Hew thinks it’s possible fuel prices could drop even more than forecast.

‘We’re not hearing talk about $100 barrels anymore,’ he said. ‘I don’t know; $50 a barrel is a psychological barrier and if oil gets back to that price, it could slip even more.’

According to the terms of its licence agreement with the government, CUC can pass on the cost of fuel to consumers when the price goes over the base rate of 79.73 cents per imperial gallon. That price represents the cost of fuel when the licence agreement was signed in 1986.

Mr. Hew noted that there have been two import duty increases since the licence agreement was signed, meaning it is highly unlikely that fuel costs will ever approach the original base rate, even if the cost of oil dropped significantly.

Fuel is priced to CUC by terms of a contract it has with the two local oil companies. CUC pays a base price as stated by the Platts Oilgram Index, plus shipping, duty and a profit margin.

Currently Esso supplies 80 per cent of the volume sales to CUC, while Texaco supplies the remainder. Their five-year deal expires 1 May and the contract will be put back out to tender.