Cayman Islands

Joint media release by the Government of the Cayman Islands and Caribbean Utilities Company, LTD

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News and Press Release
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The Government of the Cayman Islands (Government) and Caribbean Utilities Company, Ltd. (CUC) today jointly announce that after a series of meetings between Minister for Communications, Works and Infrastructure, the Honorable Mr. Arden McLean, the Electricity Regulatory Authority (ERA), and the Management of CUC, agreement has been reached on changes to CUC’s billing structure for recovery of some of the uninsured losses incurred by CUC as a result of Hurricane Ivan. The hurricane caused catastrophic damage to CUC’s transmission and distribution (T&D) system, as well as to its generating and other plant on September 11- 12, 2004.

CUC was granted in 1986 a 25-year exclusive license to generate and distribute electricity to the island of Grand Cayman. The license permits CUC to earn a 15% return on assets employed in the generation of electricity as defined in the license. CUC must, as required in the license, submit to Government, no later than July 31 each year, a Final Return calculating the actual return on assets employed as defined in the license and the increase in basic billing rates permitted.

Due to the substantial damage incurred as a result of Hurricane Ivan and the unprecedented costs incurred by CUC to restore power as quickly as possible to Grand Cayman, the Final Return as submitted to Government today indicates that CUC would be permitted a rate increase of 9.5% on basic billing rates.

All parties, however, are in agreement that such an increase would not be in the best interest of the country in the aftermath of Hurricane Ivan, when many residents are still trying to recover from the effects of the hurricane.

After several meetings between Government, the ERA, and CUC Management it was agreed to introduce a Cost Recovery Surcharge (CRS), which will be a separate charge on customers’ bills. This surcharge will commence with CUC’s August 2005 billings and will have the following effect on basic billing rates:

Residential customers will see a separate charge on their bills of 0.749 cents per kiloWatt-hour (kWh) for each kWh of electricity consumed, which means that a residential customer consuming 1,000 Kwh per month will be charged a total CRS of $7.49 per month.

This equates to an increase in basic billing rates of 4.68%, which is less than half of the 9.5% permitted under the present license.

Small commercial consumers using 4,000 Kwh per month will see a CRS of $29.97 per month, and large commercial consumers using 130,000 Kwh per month will be charged a CRS of $973.87 per month.

The CRS is expected to appear on CUC’s customer bills for approximately three years, but this period may be shorter if growth in demand for electricity exceeds present projections, and as a result of which the $11,353,684 in CRS charges are recovered more quickly.

During the three-year period of CRS charges, CUC has agreed with Government that there will be a freeze on basic billing rates until July 31, 2008. There will be no retroactive increase in basic billing rates after the full recovery of the CRS.

The total property losses incurred by CUC as a result of Hurricane Ivan approximated CI$19.8 million. Business Interruption losses are estimated at CI$14 million over the 24-month indemnity period. After claims to its insurers, CUC has uninsured losses of CI$11.85 million as follows:

CI$
T&D Property, Plant & Equipment
5.91 million
Other Property, Plant & Equipment
1.64 million
Revenue Losses during insurance deductible period
4.30 million
Total
11.85 million

After discussions with Government, CUC agreed to absorb a further $500,000 of these losses, leaving $11,353,684 to be recovered through the CRS. In total, CUC has agreed to absorb some $3,044,000 of additional costs associated with Hurricane Ivan, which will not be passed on to consumers.

Prior to Hurricane Ivan, CUC had an installed generating capacity of some 123 megaWatts (MW) of power with a peak demand load of 85 MW. Immediately after the storm, generating capacity was less than 40 MW, and CUC has been working diligently to recover damaged generating capacity, as well as to order additional generating capacity to ensure that it can meet demand in the summer of 2005 and 2006.

Government, the ERA and CUC have agreed to recommence discussions within a couple of months regarding any new license or licenses that may be granted to CUC. The establishment of a disaster recovery fund or alternate catastrophic insurance to mitigate the financial impact of any future natural disasters will be discussed at that time.

The present license expires in January 2011. In June 2004, a draft Heads of Agreement was agreed between Government and CUC, outlining the terms of any new license or licences that may be issued to CUC. This Heads of Agreement was extended to September 2004 but lapsed as a result of Hurricane Ivan. This draft Heads of Agreement is anticipated to form the basis of discussions when they resume.