It took a long time, over four years if you count the aborted negotiations after Hurricane Ivan, but the Government last week finally signed new licence agreements with CUC.
Although not all of the fine details of the agreement have been debated yet, on the surface the new licences look like a major improvement over the previous ones.
We know consumers will be happy, for there has already been an electricity rate reduction implemented in January and CUC has said it will freeze the current rate for at least another year.
After that, CUC’s rate increases will no longer be determined by a 15 per cent return on rate base as it had been, but by a mechanism which will be adjusted in accordance to an inflation index that combines US and Cayman consumer price index movements. Under this plan, CUC should have returns of between nine and 11 per cent.
Price considerations aside, the new licence also mandates CUC work towards better efficiency and greener forms of electricity, including renewable kinds of energy, which might include solar, wind or waste-to-energy. By doing this, CUC and the Cayman Islands can reduce their reliance on oil.
Even though the Cayman Islands are small, anything it can do to reduce its carbon emissions in a time of global climate change is a responsible step to take by a country.
The new agreement will also open up electricity generation to competition. Competitors – which could include a waste-to-energy facility at the George Town Landfill – would use CUC’s transmission system to deliver the electricity they produce.
People should not expect, however, that just because the electricity industry is opened for competition, they will see prices drop like they did when the telecommunications industry opened for competition. The two industries are very different, and competition in the electricity industry has actually caused some problems for consumers in other jurisdictions.
CUC President and CEO Richard Hew gave a stark warning last week when he said the days of cheap energy are over. Oil isn’t likely to go back down to $40 per barrel.
A year from now, CUC will be able to raise its rates and it probably will. The way people can manage that increase and future ones is to practice conservation and to make their residences more energy efficient.
During the long licence negations, government gave some and CUC gave some. Now it is time for residents to do their part to mitigate the spiralling cost of energy.
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