Minister of Infrastructure Arden McLean introduced a bill to amend the Electricity Regulatory Law in the Legislative Assembly Friday, saying the amendments were necessary partially to ensure proper regulation.
Mr. McLean said the existing law did not give enough regulatory power to the Electricity Regulatory Authority.
‘This [amendment] gives much more authority to the Authority,’ he said. ‘I said this before… you cannot expect an authority to regulate without teeth; they would have no usefulness.’
The new law creates teeth for the ERA, including penalties for infractions of up to $500,000 in some cases.
The proposed amendments, which the bill says are made for the purpose of restructuring the power industry in the Cayman Islands and to strengthen the enforcement provisions of the law, makes more than 40 changes to the existing law.
Some of those changes were necessary because the law was originally structured to facilitate the terms of the Head of Agreement the Cayman Islands Government signed with Caribbean Utilities Company in 2004 concerning the non-exclusive renewal of its licence, Mr. McLean said.
However, the exigencies of Hurricane Ivan forced CUC to pull out of the negotiations before the final agreement was signed. After the People’s Progressive Movement took power in May 2005, licence renewal negotiations with CUC were reopened later that year, but under different precepts.
It took more than two years for the government negotiating team, which is headed by attorney Olivaire Watler, to reach an agreement in principle with CUC. The many amendments to the current ERA Law and the Electricity Law were necessary to allow for the anticipated licence renewal agreement.
Mr. McLean said the negotiations had ‘not all been a bed of roses’.
‘Negotiations at times have been very intense and led, on more than one occasion, to an impasse,’ he said, adding that he had to intervene in those instances.
In the end, the parties came to what Mr. McLean called a fair arrangement.
‘The new law will allow for competition in the generation of electricity while allowing CUC to earn a fair rate of return.’
Mr. McLean noted that during negotiations, many people had suggested the Government was not going to liberalise the power generation market. The new agreement would do just that, he said. However, CUC will retain exclusive rights for the transmission and distribution of electricity.
‘[It] would not be in the best interests of this country to have liberalisation in that arena,’ he said.
Although all the details of CUC’s new licence agreement are not yet known, the bill to amend the ERA law gave insight into some of the details, which Mr. McLean discussed while explaining the many amendments to the current law.
Under the new licence agreement, Mr. McLean said CUC will be required to purchase excess electricity generation from other entities generating it under what will be known as Power Purchase Agreements. Those agreements would have to be approved by the ERA first.
The new agreement will also require CUC to use a calculation called a ‘rate cap and adjustment mechanism’ to adjust their base rates.
Other aspects of the new law will allow the ERA to extend the life of a generation unit to a term that would correspond with the estimated remaining life, without a bidding process. Among other things, this provision will prevent companies that generate power from unnecessarily replacing generating capacity, which is something that could affect consumer prices.
CUC will also be required under the new deal to look at using renewable sources of energy and to ensure emissions from the generation of electricity are kept to a minimum, Mr. McLean said.
In addition, the new law gives the ERA the ability to suspend or revoke a licence and to issue cease and desist orders, and for the imposition of harsh financial penalties for non-compliance.
Mr. McLean said the ERA had a lot of responsibility in ensuring the sustainability of the country in the environment of a liberalised electricity industry, particularly when it came to licensing others who might enter the market.
‘If the Authority does not enforce the regulations, we will have licensees all over and the standards will be no more,’ he said. ‘The Authority must oversee [licensees] or it makes no sense for us to have liberalisation in the generation process.’
Mr. McLean said the ERA must be robust and independent. He also said the ERA must protect both consumers and licensees, while at the same time promoting quality competition.
‘This country cannot afford fly-by-night companies coming here and talking about how they want to put up electricity plants and then they buy land and bring in Third World generators,’ he said. ‘Everywhere in the world you have people who think they can outsmart small island people.’
Mr. McLean noted that the final agreement with CUC had not been reached and said the negotiations were so fluid that amendments to the ERA bill would have to be presented at committee stage. However, the cost reduction that will occur as part of the negotiations will still go into effect for CUC’s billings that are made at the end of January, Mr. McLean said.
After debate, the Legislative Assembly passed the motion that the bill be given its second reading and the House adjourned until Wednesday.