Regulator says it rejected second CUC rate increase

Utilities regulator OfReg says it refused to approve a second rate increase requested by CUC.

The entity also sought to correct the record on the bump in rates that it did approve.

In a statement on Wednesday, OfReg insisted it had no discretion to refuse CUC’s 3.2% increase – equivalent to around $10 on a $300 monthly bill – which retroactively came into effect 1 June.

But officials say they turned down another request from the utility that would have led to an additional increase in rates for residents.

OfReg said the first rate increase was implemented as required in the conditions of the power company’s Transmission and Distribution Licence issued by the Cayman Islands government in 2008.

“Based on the existing terms, OfReg is unable to deny a justified adjustment,” OfReg Interim CEO Sonji Myles said in the statement.

He acknowledged the regulator’s role in the energy sector is to protect consumers and ensure that licensees meet the terms and conditions of their licence.

He added, the “time is right to review and update the existing licence regime, especially in light of the recent proposals reflected in the National Energy Policy, to better protect consumers by allowing for a contemporary, yet competitive mix of generation solutions that are routinely monitored to ensure the highest standards of efficiencies and quality of service.”

CUC said Tuesday that with the approved 3.2% increase, it expected the average residential customer’s monthly bill to increase by $4.88 based on the average monthly residential household consumption in 2023, which stood at 1,153 kilowatt hours.

CUC last increased its base rate in February 2023.

Legally locked agreement

The Rate Cap and Adjustment Mechanism (RCAM) established in CUC’s licence, OfReg explained, is designed to avoid “sudden swings” of the base rate from inflation caused by sudden cost increases of “known inflators such as food and fuel”.

“This process is not new and is conducted every year as part of CUC’s licence agreement. OfReg’s legal role in this process does not involve ‘approving’ the rate which the RCAM dictates –  it has no discretion to refuse such a rate increase,” the regulator said.

Instead, it explained that its function is to verify the data upon which the RCAM adjustment is based to ensure that the proposed increase is compliant with the conditions of the T&D licence.

The system approved by government in 2008 pre-dates OfReg, which insists it “is legally obligated to follow the rate making regime, until there is some other form of rate making mechanism implemented, which could only happen with an amendment of the CUC T&D Licence”.

It said once OfReg verifies the data that the annual RCAM adjustment is predicated on, “it has no choice but to agree to implement that change in the base rate, otherwise it would be immediately subject to successful legal challenge by CUC”.

Second rate increase refused

OfReg said it did, however, stymie an attempt by CUC to further raise rates.

It said the power company had submitted an application seeking OfReg’s approval to “rebalance” its consumer class rates based on its Cost of Service Study (COSS) but the regulator said it refused to approve the rebalancing of the base rates between the commercial and residential classes.

It said, “there was no apparent rationale” for the rebalancing and the change would mean that commercial rates would be reduced at the expense of residential rates, “which would have increased by an additional 3-4% over and above the RCAM adjustment increase.”

OfReg said the board’s decision was based on its conclusion that such a rebalancing, “especially in light of the RCAM adjustment, would impose an undue additional expense on the class of CUC consumers who could least afford it”.

The power company has stated that improvements to efficiencies from forthcoming upgrades to power generation infrastructure and its Battery Energy Storage System (BESS) should reduce energy costs for consumers over time and into the future as more renewable energy sources come online.

OfReg said the terms and conditions of CUC’s T&D licence at the time it was granted could not have predicted the significant changes in power generation technology, “although there was recognition at the time for the need to encourage renewable generation”.

In addition to this, it said, given the current cost of fuel, which forms a significant part of every energy bill, OfReg suggests that more needs to be done to implement measures for regulation of efficiency standards.

Myles said the regulator takes its job very seriously and upholds itself to very high standards to protect consumers in the Cayman Islands.

“We must however work within the legal framework and limits to our powers provided to us in order to fulfil our role. Progress and innovation in the energy sector has moved forward since the CUC T&D licence was first written and issued, and how we generate, distribute and manage our energy requirements today is very different,” Myles said in a press release.

As the regulator, he added, it is also mandated by law to review and advise government on any required changes to licencing laws to meet the requirements of a modern energy sector.

“This may include implementing efficiency standards and measures to enforce these for licensees who fail to meet them,” the OfReg statement said.