CUC pre-deal signed

The Cayman Islands Government and Caribbean Utilities Company signed an Agreement in Principle on Thursday as a precursor to signing a formal agreement for Grand Cayman’s electricity provider.

Based on December 2007 fuel costs, residential consumers using less than 2,000 kilowatt hours per month will save 12.2 to 15.9 per cent on their current bills. Smaller commercial enterprises that use between 500 and 5,000 kilowatt hours per month will save between 3.7 and 8.8 per cent of their current bills.

Leader of Government Business Kurt Tibbetts said the agreement, which is not legally binding, represented a breakthrough for the consumer in controlling the cost of living and in ensuring the reliable supply of electricity in the future.

‘In addition to a fundamental restructuring of the entire electricity industry… the AIP that we have signed today will lead by the end of next month to the signing of two new licences for CUC – one for generation and one for transmission and distribution – both for a period of 20 years.’

A formal agreement and licences are expected to be signed in January, said Olivaire Watler, head of the Government’s negotiating team.

‘The licences cannot be signed until certain legislative changes are made,’ he said. ‘As soon as that is accomplished, the licences will be issued.’

Mr. Tibbetts said one of the reasons the current meeting of Legislative Assembly did not end in December was so the House could make changes to the Electricity Regulatory Law to facilitate the issuance of the new CUC licences.

Mr. Tibbetts said the cost of fuel – which is charged to CUC customers as a pass-through expense – represents about 40 per cent of electricity bills. To counter the high cost of fuel, the Government has agreed to give CUC a 20-cents-per-Imperial-gallon rebate on the duty it pays on fuel.

Any increase in current fuel prices of 20 cents or more would negate the current estimated savings, but would still lower customers’ bills from what they could be.

‘While we have no control over [world fuel prices], we’ll do the best with this that we can,’ said Mr. Tibbetts. ‘But whatever we face, the rest of the world has to face.’

As part of the agreement, CUC has agreed to forego the Hurricane Ivan cost recovery surcharge.

Electricity Regulatory Authority Managing Director Phil Thomas said there was still CI$2.2 million of the agreed $11.3 million Ivan surcharge to be collected.

‘CUC is basically walking away from $2.2 million in cost recovery surcharges,’ he said

The new rates will take effect 1 January 2008. Based on current fuel costs, residential consumers who use 1,000 kilowatt hours per month will see a $46.69 decrease in their bill. Residential customers who use 2,000 kilowatt hours per month will see $70.92 decrease in their bill.

Also as part of the agreement, CUC has agreed to freeze its base rate through 31 May 2009. Although the next general elections will most likely take place earlier that month, Mr. Tibbetts said the timing of the rate freeze was ‘absolutely coincidental’.

Future CUC rate increases after that date will be subject to a rate-cap mechanism that will adjust the base rates in accordance to a formula that takes into account inflation as measured by a blend of U.S. and Cayman Islands inflation indices – excluding fuel and food – and CUC’s return on rate base.

If CUC’s return on rate base is more than 13 per cent, it would have to decrease electricity rates; if it falls within 11 to 13 per cent, there will be no electricity rate adjustment; and if it falls below 11 per cent, CUC will be entitled to an electricity rate increase.

However, rate base increases would be limited to 80 per cent the rate of inflation.

CUC President and CEO Richard Hew noted that the consumer price decreases were occurring at a time of world-wide increases in the cost of materials, equipment and oil.

‘CUC will continue to do its part to keep inflation down by focusing on cost containment under the new price cap regulation,’ he said. ‘In turn, we continue to encourage consumers to focus on their own efficient use of electricity and provide additional savings on their own.’

Minister of Infrastructure Arden McLean called Thursday a historic day.

‘I am very pleased with the result,’ he said. ‘I look forward to the real conclusion when we can sign the licence for CUC for the next 20 years.’