Being more than fair

No one is disputing that Grand Cayman has a reliable utility provider.

I for one applauded and applaud CUC for restoring power so quickly after the destruction of Ivan. However, I think a recent Letter to the Editor writer is being disrespectful to the many consumers who are finding it increasingly difficult to budget monthly because their utility bill is rivalled with mortgage payments, groceries, C&W, water, mortgage, health/house insurance, etc.; so please explain how they are being ungrateful / unreasonable because they dare to complain that one company is demanding such a large share of their already stretched salaries.

The persons affected the most by this squeeze are the average person on the street – people who do not earn six figures annually. Unbeknownst to the writer, the wealth in the Cayman Islands is not equally distributed despite what the foreign press reports.

What ‘free lunch?’ CUC’s main concern is its bottom line and obligations to its shareholders. NB: in March 2000 Fortis Bermuda acquired an initial equity interest of 20 per cent in CUC; January 2003 its increased ownership interests to 38.2 per cent; and in November 2006 (post-Ivan), acquired an additional 16 per cent ownership interest of approximately 54 per cent becoming the controlling shareholder. I do not think this huge, multinational company lost very much because of Hurricane Ivan and yet was compensated by many unfortunate Caymanian residents who lost nearly everything.

If CUC paid anything out of pocket, one can probably conclude given the way the market operates it would have been reimbursed ten-fold via the Hurricane Ivan Cost Recovery Surcharge to recoup such ‘loss’. I believe it was reported that approximately $20 million was collected from consumers under the previous CRS period to rebuild CUC’s infrastructure. Similarly, many victims of Ivan unfortunately learnt that they were inadequately insured, but unlike CUC, there was no one to defer their rebuilding cost or recoup their losses.

I hope that now that CUC has ‘sufficient disaster insurance coverage in place for its generation and T&D equipment,’ its consumers can rest easy that in the advent of another hurricane as catastrophic as Ivan, any loss sustained by CUC will not be passed onto the consumers to rebuild their infrastructure.

The writer claims ‘CUC already is not making much money. According to CUC’s website, available at www.cuc-cayman.com CUC’s income has declined over the last eight quarters. CUC earned 30 cents per share in the quarter ending 31 July, 2006. This fell to 17 cents per share for the quarter ended 30 April, 2008. Not good.’

This is strange considering Hoover, Reuters, and Standard & Poor’s Ratings Services publish otherwise. CUC’s 2005 revenue was $92.9 million (total net income 4.2 million), 2006 revenue was $135.7 million (total net income 22.9 million), and 2007 revenue was $158.8 million (total net income 18.5). The drop in 2007 was driven by a charge associated with the disposal of steam-turbine assets and higher operating expenses. The charge on disposal of the steam-turbine assets reduced earnings of Fortis by approximately $2 million in 2007. Google the aforementioned names and link them with CUC and you will gain a more unbiased opinion other than the spin on CUC’s website in their media release section.

I doubt anyone would agree with the writer that CUC is the ‘victims’ or is ‘hurting’ financially, when the S&P is reporting ‘The company’s regulatory arrangement, through the [21.5-year license], supports credit quality. In essence, the license will provide for a cap on rates with adjustments for inflation (fuel costs will be passed through). We expect this arrangement will earn the company a [7 per cent-11 per cent return on its rate base (which translates into a return on equity of 10 per cent or greater)].’ It is not the case that we ‘never recognise something good when they have it,’ but CUC is guaranteed an annual return of 10 per cent while the average consumer receives an annual ‘cost of living’ of 2-3 per cent.

In any event, when is enough, enough?

Please also do not insult the intelligence of the average consumers of these Islands or try to disabuse us of the right to ask questions, which directly affect the quality of our lives under an impending recession. If you are grateful, happy and complacent with CUC and the way they operate including their costs then so be it. However, spare me the view that CUC is magnanimous and its altruism without a price. The energy rate does not include fuel cost, transmission, distribution – or their profit. No one can argue that CUC has not been given very favourable mandates and special concessions to operate profitably since day one, some 42 years.

Do you still think we are being unfair to CUC?

Natasha Bunting

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