OfReg accuses CUC of breaching licence over rolling blackout plans

Utilities regulator OfReg has accused Cayman’s monopoly power supplier, Caribbean Utilities Company, of being in breach of its licence for failing to predict and respond accordingly to growing electricity demand on Grand Cayman.

CUC last week announced that it may have to implement rolling blackouts to deal with the increasing demand for power.

Samuel Jackson, chairman of OfReg, in a strongly-worded statement issued on Friday, said the terms of the electricity company’s licences state that it is CUC’s responsibility to procure “adequate generation”, either by producing or by buying “firm power”, which is electricity that is constantly available, such as diesel-powered.

He added that it was also CUC’s sole responsibility to forecast what power is needed, and that when such forecasting predicts additional firm electricity capacity will be needed in the future, CUC is required to issue a Certificate of Need, or CON, to OfReg. That would then trigger a competitive generation solicitation process.

Jackson said that, since OfReg’s inception in 2017, the power company had not issued a single CON to the regulator, “despite the fact that there has been an ongoing construction boom since then, with larger than ever developments coming online at a faster rate than was seen between 2008 and 2011”.

He said, in predicting load growth, it is industry standard for CUC to monitor the number and magnitude of planning permissions granted and to use that information to calculate the projected load growth long before construction is commenced on any development that is approved by the Central Planning Authority.

“It is therefore hard to understand how CUC could not have foreseen the significant increase in demand for electricity in the past 10 years, sufficient for it to be obligated to issue a CON,” Jackson said. “CUC’s failure in that regard would therefore appear to be a fundamental breach of its obligations under its T&D Licence, which has now led to the situation that they have put themselves in.”

Rolling outages

In its statement last week advising the public to expect rolling outages due to load shedding, CUC said this was because its “generation reserve margin” – additional capacity beyond peak consumer electricity demand – is currently at lower-than-normal levels.

It stated that this increased the risk of having to shed customer load in the event of any unplanned loss of generation, adding, “The shrinking reserve margin is due to rapidly increasing electricity demand driven by economic growth and record high temperatures and delays in adding new generating capacity to the grid.”

CUC said outages would last for between 30 minutes and an hour, and would be more common during the peak hours of 4:30pm and 8pm, though they may occur as early as 3pm due to high temperatures.

The utility company said peak electricity demand on Grand Cayman grew by 9% from 113.5 megawatts in 2022 to 124.1 megawatts in 2023 and is expected to grow further this year.

OfReg argues that it was CUC’s responsibility to forecast that demand, and respond to it by increasing capacity accordingly.

CUC noted, in its statement, that in 2019 it had proposed a 13-megawatt solar and storage project to OfReg to meet projected increasing power demand with a clean energy option, but that proposal was not approved, pending the initiation of a competitive bid process by OfReg.

Then, in 2021, CUC again formally requested that OfReg approve its procurement of 23 megawatts of solar and storage capacity, and that the procurement process by OfReg was now in the final planning stages.

While awaiting that process to be completed, CUC in 2023 leased 10 megawatts of mobile generation, and an additional 10 megawatts to be installed later this year, for which it said regulatory approval is pending.

OfReg: We’re not to blame

In response to this, Jackson insisted there was “no validity in CUC’s attempt to blame OfReg for the failure of a bid for renewable energy in 2019, as that was not a bid for firm power and, as such, even if it had been granted, that would not relieve CUC of its obligation to forecast the additional capacity of firm power that would be needed to ensure that they could provide consumers with such firm power as and when needed.”

Solar and other alternative energy is not considered firm power.

Jackson also pointed out that a condition of the CUC transmission and distribution licence requires the power company to maintain a reserve margin for the purposes of redundancy and security of supply of electricity to its grid.

“Simply put, it is designed to ensure that there is a reserve of generating capacity that is available in the event of unforeseen circumstances such as generator failure, etc.,” Jackson said.

“The 35-55% reserve margin CUC has is arguably generous by normal standards, which is typical for an island grid, as there is no other generation available from a neighbouring country or state, as would be the case elsewhere where a particular grid on, say, the North American or European continents can be interconnected with another grid.”

He added that, as far as the regulatory body could ascertain from CUC’s recent press release, its position is that once its peak demand approaches a level such that reserve falls towards 35% of additional capacity (i.e. 35% more than peak demand), “then that will as a matter of fact result in rolling blackouts and necessitate them undertaking load shedding, etc., even if none of their generation units fail”.

Describing this position as “illogical”, Jackson said many places in the world get by on a 5-10% reserve margin and, added, “in any event, CUC has not provided any valid explanation as to how even a precipitous dip towards the bottom of their reserve margin of 35% would automatically result in blackouts and/or CUC having to engage in load shedding”.

Jackson continued, “Worse yet is that CUC, who despite their apparent failure to accurately forecast load growth, or at least to issue a CON (thereby requiring the OfReg to grant them two tranches of temporary generation in 2022 and 2023 in order to make up the consequent shortfall), is now saying that they have already ordered yet another 10MW of additional temporary generation.

“Even more concerning is that CUC say such additional temporary generation is ‘pending approval’ even though, as far as the Board is aware, they have yet to submit any such application for the OfReg Board to consider.”

He noted that the board’s concern about the “proliferation of temporary generation” is that this “instantly translates into a higher cost for the consumer since the relatively smaller CAT diesel generators that CUC leases and imports for temporary generation tend to be significantly less efficient … than the larger diesel generators that CUC have in their fleet”.

He added that the cost of leasing of these units, along with the cost of the additional fuel they consume, are directly passed through to CUC’s consumers.

“For that reason, the Board considers that temporary generation should only be deployed in genuinely exigent circumstances, where, for example, one of CUC’s generators experienced a failure,” he said.

Jackson said, since CUC had not abided by the terms of its licence and accurately predicted and responded to the growing demand for electricity on island, “there can be no justification and certainly no basis under their current licence for CUC to seek permission for temporary generation”.

The OfReg chairman added that the regulatory board will now also consider “whether and to what extent the issues raised by CUC will inform its ongoing review of CUC’s [transmission and distribution] licence”.