On Friday, the Cayman Islands Electricity Regulatory Authority announced that CUC had won a competitive bidding process with its proposal to build a new 39.7-megawatt diesel plant, ensuring the continuation of the company’s monopoly over Grand Cayman’s energy market.
Many residents of the island, we imagine, reacted to that news with a protracted sigh of resignation typically reserved for the monthly ritual of cracking open the electric bill, with the full and painful awareness that no matter how many hundreds of dollars it is this time around, there’s no escape from paying the piper what he’s rightfully owed. The only recourse, of course, is to quit listening to so much music — or in CUC’s case, quit using so much air-conditioning, electronics and refrigeration.
That’s on a household-by-household basis. From a broader perspective, the primary lesson we draw from CUC’s new 25-year contract is that alternative methods of energy generation — wind, solar, etc. — have not yet developed to the point of large-scale commercial viability in Cayman. It’s worth mentioning that the competition drew bids from three firms — CUC, DECCO Ltd. and U.S.-based Lewis Berger Group — submitting plans involving diesel, heavy fuel oil, liquefied natural gas and propane as fuel sources, with CUC’s diesel proposal ultimately prevailing.
It’s also worth noting that ERA was assisted in its selection by large consulting firm ICF International (a NASDAQ-listed company reporting gross revenues of close to US$1 billion last year). That hopefully should defuse any doubts about the objectivity of the bidding process, following the debacle involving the since-disgraced, and currently jailed, ex-ERA Managing Director Joey Ebanks, whose allegations of impropriety in the previous bidding process (won by DECCO, then canceled by ERA) were found by Cayman’s Anti-Corruption Commission to be “completely without merit.”
Many people may rail against CUC remaining the monopoly provider out of ideological opposition to private monopolies. That’s understandable. But anyone with more than a passing familiarity with economics knows that in some instances, having a monopoly provider is actually the optimal scenario for consumers. We suspect that may very well be the case in this instance, given the relative smallness of Cayman’s energy market and the capital-intensive nature of electricity generation. (For perspective, CUC’s winning proposal will cost in the region of $85 million.)
For better or for worse, what we have now is a renewal of vows, of sorts, between Cayman and CUC. In order to make this contractual relationship run more smoothly, however, we pose the following modest proposal:
Eliminate — entirely — the government’s duty on diesel fuel, currently at 75 cents per imperial gallon, and set to be reduced to 50 cents next year.
According to the government’s calculations, a 75 cent reduction should lead to a 12.9 percent decrease in monthly power bills, with that money going directly into the pockets of consumers.
While we’re at it, eliminate duties on all fuel sources — gasoline, propane, natural gas, etc. — and all equipment used to generate power — solar, wind, etc. From a tax revenue standpoint, Cayman’s government should be technologically neutral when it comes to decisions that individual households, and businesses, are making when it comes to grappling with energy costs.
Zeroing out the duty on diesel fuel will do more to reduce ordinary people’s cost of living than any competitive bidding process. Eliminating artificial and arbitrary barriers and restrictions will allow for experimentation and real consumer choice.
Who knows — perhaps in time, perhaps long before CUC’s 25 years are up, technology will have progressed, and the economics will have evolved, to where “clean” energy such as wind and solar will make “green” (i.e. financial) sense for Cayman.
Until then, diesel it is.
CUC, full steam ahead!