CEO: OfReg blocked additional CUC rate hike request
(CNS): Following backlash about the CUC base rate hike this summer, OfReg CEO Sonji Myles has said the utilities regulator had no choice but to approve the annual rate hike because it complied with the conditions of the licence. However, he said that OfReg had blocked a proposal by the power provider that would have imposed another 3% to 4% increase on bills for residential customers.
CUC had submitted an application seeking approval to “rebalance” its consumer class rates, but OfReg refused because it would have seen commercial customers’ rates go down and residential customers’ go up with no apparent rationale.
In a press statement about the public concern over the recent increase in already costly power bills, Myles explained that it is not possible for OfReg to reject CUC’s annual base rate increase, but he said the time had come to address the conditions of the company’s Transmission and Distribution Licence, which has not changed since it was issued in 2008.
The licence includes a Rate Cap and Adjustment Mechanism (RCAM), which provides the formula on which annual rate adjustments are calculated and implemented. This process is not new and is conducted every year as part of CUC’s licence agreement, the release said. OfReg’s legal role in this process doesn’t involve ‘approving’ the rate because the regulator has no discretion in law to refuse the increase, only to verify the data upon which the adjustment is based to ensure that the proposed increase is compliant with the licence conditions.
“Part of our role as the regulator in the energy sector and in all utility sectors is to protect consumers and ensure that our licensees meet the terms and conditions of their licence,” Myles said. “CUC’s annual rate cap adjustment review is one such condition of its licence, and the submission for this year was reviewed and found to be within the set terms of the licence. Based on the existing terms, OfReg is unable to deny a justified adjustment.”
This mechanism, he explained, is designed to ensure that there are no sudden swings of the base rate based on inflation brought about by sudden increases in the cost of known inflators, such as food and fuel. For that purpose, any base rate adjustment under the RCAM is based on a mix of 60% Cayman CPI and 40% US CPI, minus food and fuel.
Myles noted that OfReg had inherited this system and is legally obligated to follow the formula until there is some other mechanism, which can only happen with a change to the licence. Once OfReg confirmed the data on which the RCAM adjustment was based, it had no choice but to agree to implement that change, otherwise it would be immediately subject to a successful legal challenge by CUC, he said.
Although OfReg is unable to do anything about that hike due to the current licencing conditions, where the regulator could act it did so, Myles said. CUC’s current T&D licence was granted in 2008 and has not been updated since then.
CUC had submitted an application seeking OfReg’s approval to “rebalance” its consumer class rates, based on its Cost of Service Study (COSS). The request related to how commercial and residential customers are charged, and OfReg had refused it because there was no apparent rationale for the proposal and it would mean that commercial rates would be reduced at the expense of residential rates. The latter would have increased by up to 4% over and above the RCAM adjustment, which would have imposed an undue additional expense on those CUC consumers who could least afford it, the CEO said.
“Any proposed rate increases or change, from any licensee, is closely scrutinised and reviewed for
compliance with its terms and conditions, supported by financial information, before approval. Those
that do not comply or which would appear to impose an unjustifiable, unnecessary or unfair burden
on consumers are refused, as was the case with CUC when it submitted a proposal to rebalance its
commercial and residential base rates,” Myles explained.
CUC has recently 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.
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 the need to encourage renewable generation was recognised. 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.
“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,” Myles said.
Cayman’s critical national infrastructure, which includes CUC’s Transmission and Distribution System, must be protected. Any such changes would have to be implemented after consultation with CUC.
“We take our job as the regulator very seriously and we hold ourselves to very high standards to protect consumers in the Cayman Islands,” Myles stated in the release. “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 the regulator is mandated by law to review and advise the 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,” he added.
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Category: Business, Politics, Private Sector Oversight, utilities
We MUST Question and Correct this!
Q. (as I understand it..)
Why was the CUC Contract renewed without being renegotiated for better terms AND bring put to public Tender?!
Which government did this?..and was MP Hew (brother of CUC CEO Hew) in power then?
Was MP Arden McLean, former FUC Executive and major shareholder, involved?
This ABUSE of public trust goes back to the original sale of the Original PUBLIC OWNED CUC/Power Company, into privatization, to the Huge loss and detriment of generations of people now!
Cut-rate are two words which best describe the type of civil servant our Great DG has hired and nurtured in our world Ass civil service! They ain’t goin to do $#@% for us especially against CUC ! Playing mind games with the public sentiment!
dont worry be happy because cuc soon run themselves out of business because of greed.
Can OffReg explain why the internet is so slow? Is this a regulatory problem or is it an internet service provider problem, or both?
I’m being charged a premium for high speed internet, but not getting what I paid for. Whose fault it it? Or is it my fault for paying more for high speed internet?
Please can OfReg initiate a competitively bid, utility scale solar auction.
The Fuel Cost (at $0.17/kWh), which is passed through, is over 30% higher than the Energy Charge ($0.13/kWh) that CUC earns. Therefore the Fuel Cost likely represents the biggest part of the average bill.
My understanding is that Utility Scale Solar has the potential to reduce the Fuel Cost by around a third, or more. And, Utility Scale Solar is much more cost efficient than Residential.
OfReg can’t alter the contract particulars that the PPM committed the people to for the next 20 years. OfReg is essentially stating they have no practical purpose beyond seat-warming. They are powerless to shield consumers from the agreed profit metrics, they say. The only way out of this is to cancel the contract outright for non-performance, and there is an avenue to do that with CUC’s recent stated failure to factor commissioned usage loads in summer generative capacity per their license. Cabinet should cancel the license on those grounds and open the playing field, with time of use rate metering, among other things.
I trust that you understand that CUC asked OfReg to do just that several years ago. OfReg said they would but them appears to have done nothing so far. I too hope they get a move on to have the bid completed ASAP and the winner motivated to get the plant underway ASAP.
OfReg cannot do that – only cabinet..
Bury those ugly powelines
Now we got a Caymanian in charge…interim again..and oops, nothing changes.
The rate cap adjustment mechanism is standard in the electricity sector worldwide. It acts as a safeguard. The utility is allowed to adjust rates for inflation to ensure that it can remain a going concern, otherwise it will eventually not be able to cover costs and go under. So you have 2 choices, you either allow them to adjust each year so that we can all adjust to the new rates, or you don’t have the mechanism and eventually will have no choice but to do a large adjustment all at once to prevent the utility from going under because it has become unprofitable and then goes into the red. Many people seem to think that’s a good thing because then we can replace CUC. They are fooling themselves into thinking that a new company coming into such a small environment will be able to provide much lower rates. They won’t. If you actually analyze CUC’s audited financial statements you will see that they are making around 7+% profit. Not much really. Electricity, like everything else is expensive here but it’s not as if CUC is fleecing the country. If I were government I would focus on ways to help people lower their bills through improvements to the building code to make construction more electricity/heat efficient, more cost up front but lower monthly costs thereafter, and reducing construction costs through subsidies and bulk buying agreements of key construction materials.
this is a rational well explained statement… hence it will be ignored by CNS audience at large
7:49, Too bad the so called rational statement completely ignores solar power.
It neither includes, nor excludes, solar power, which is just a form of power generation.
10:04, Perhaps you have problems reading. The statement talks about people lowering their power bills. Surely if you are serious about people lowering their power bills then solar power should be in the discussion.
If we can talk about construction codes then we can talk about solar power.
The purpose of my post was to explain the mechanism since that was the focus of the recent publications, and to put forward suggestions for how Government can help quickly in the present environment. I think we are all in agreement that solar is needed (though I can’t say that I care for the current model wherein I am subsiding the wealthy to put solar on their houses), so my leaving it out in the original comment was not intended to convey that I was against it or ignoring it as a viable solution. I note also that CUC has been pushing for large scale solar for years and there seems to be some sort of lobby going on to ignore that and focus on residential rooftop solar. Like in anything else basic economics applies. You reap the most benefit/get the best price when you focus on larger scale.
10:09, Using your solar power perspective that states you don’t care for the current model, where you are subsidizing the wealthy, find me an example any where in the world where the affluent have not always been the first movers to solar. However, in the case of Spain, after users both residential and commercial 10 years ago started utilizing solar, prices eventually started coming down substantially for everyone.
What model do you like for solar implementation?
CUC rhetoric about pushing for large scale solar power for years is true, however, the simple facts are that their actions, except for one solar farm, do not meaningfully match their rhetoric.
How are you subsidizing anyone?
I pay a premium embedded in my electricity rates so that people who got into CORE until about 5 years ago could be paid more for their solar than the alternative cost to generate it. Which means my bill could be less and the difference is funding their bills.
With the current CORE rates, it’s about break even to the alternative, but I still have to pay for all those people who are getting the higher rates.
You are using the energy that they produce though, as it’s fed back to the grid. Everyone has to pay for it, including solar users who are grid tied without enough battery storage to only use their free energy. If CUC had more solar farms, you can guarantee that we will have to pay their price for the energy.
Obviously, but their price for the solar farm energy will be less than if it were generated by diesel, and far less than what I am currently paying for the people with it on their rooftops.
That’s the point that was made – the solar farms will make the energy cheaper for everyone, but a lot of the rooftop solar is making the bills more expensive.
If it was 1985, and there was only CUC’s grid-scale diesel fueled generative capacity factoring in the electrical grid matrix, your reasoning might make sense, but we can no longer pretend that’s the case in 2024.
CUC.U’s dividend paid USD$0.185 per share on June 15, the dividend yield is around 5.1%, 2.8% higher than last years. Clearly they would need to be raking it in to pay that out from retained earnings, and the fleece spread is now increasing another 3%. An enterprise can’t pay that out on 7% profit margin.
2:03, Not sure which utility / power world you are living in. 7% profit?
In 2003 CUC net earnings increased by 17% to $38.7 million a $5.5 million an increase from net earnings of $33.2 million in 2022.
Even CUC’s Canadian parent, FORTIS, has been having yearly earnings increases of only around 7% the past few years.
Find me another utility company in the U.S. or Canada with a 17% earnings increase in 2023?
On top of that, there was only a 1% increase in total customers and a 9% increase in system peak demand in 2023. That 9% system peak demand could be lowered with a proper peak energy use system that the rest of the developed world seems to have.
Interesting how you say government should focus on the building code and construction related issues. What you should be saying, if you were serious about lowering costs here is that CUC and the government should be focusing on solar power and renewable energy.
Of course, a serious implementation of solar power would mess up CUC’s big profits down the road. I don’t blame you for taking your self interested position. But I find it a bit rich saying CUC is not fleecing the country.
Keep enjoying your nice big yearly dividends while the average person in Cayman continues to pay never ending increases in utility costs and helping to make the Cayman Islands a place only for rich people.
It is true that elsewhere there are rate cap adjustments, but those regulators also expect to see performance, results and investment in infrastructure before massive distribution of profits to shareholders by way of dividend payments. No such mechanism exists here, or would be properly enforced if it did. CUC just continually shaft us while OfReg barely perform their function.
This analysis is flawed since CUC gets a fixed ROI based on their investment under the CIG contract. So increase in base rate has no real impacton their ROI.
you are incorrect and still living in pre-2008 times, stop spreading lies
The terms agreed by previous opaque PPM governments exemplified by this license agreement, as well as billions in further lost opportunity costs (via additional business giveaways and developer public-funded freebies) are why consumers cannot expect protections, good value, or even sensible consideration via government branches. Those hopes were already gifted away by imbeciles, who benefited in some other way that the ACC is yet to investigate. OfReg serves no useful purpose.
OK, I understand! Can someone now light a fire under the BCU to get off their duff and process the applications for rooftop Solar Panel installations which people like me have paid for months ago, which are reportedly stuck on BCU’s desk while the renewable energy potential remains un-harnessed!
Peter, I was recently in Spain and learned that solar power is so successful there that Spanish energy costs have been coming down considerably the past year. Apparently, as solar panels and renewables take over in Spain the problem they are now having is what to do with all the solar power produced.
Between 11 am and 7 pm, the sunniest hours in Spain, prices are now near zero in Spanish wholesale markets. Everybody in Spain has a smart meter which results in flexible power usage in hours when more energy is produced and utilised.
I can understand why CUC has gone slow for years with supporting solar power here. Renewables are going to severely impact CUC profits if they were allowed to be extensively implemented.
In a place with 350 days a year of sun it is plain stupidity that we are paying so much for our energy needs. I do wonder what is the breaking point for our society on the cost of energy in the Cayman Islands.
Wishing you luck getting your approvals soon. You are one of many in the same situation with zero political will to push solar because Ministers and their family and friends have financial interests in CUC and receiving healthy dividends each year.
We are a hurricane zone. Spain is not. No subsidies here either.
11:35, The greatest subsidy in the world is a utility monopoly.
Sure we are in a hurricane zone but Cayman gets more than double the hours of sunshine as compared to southern Spain. Hurricanes don’t generate power for residences.
You are in a hurricane zone and prefer to have electricity poles that crash every time instead of well designed, independent solar power (with backup batteries)? And while we are at that, why the Cayman Islands do not authorize Starlink satellite internet? Who is making money out of the cable monopoly?
https://www.facebook.com/61551042088893/videos/millions-in-ruins/1019939973167504/
Solar panels are developing all the time. Now they can be fit snug into the roof, you can buy solar roof tiles, solar windows, solar blinds. We are not the only island in the hurricane belt and most others geared up to solar and wind power a long time ago. That’s before we even get into geothermal and air source heat pumps. Stop thinking everyone around you is stupid and do some solid research.
Ah yes 6:28, but how long does it take to get the solar rooftop applications processed in the Cayman Islands?
You obviously have no idea. Do your own research and don’t think people are stupid.
They can’t do anything and are effectively useless. Too many MLAs and prominent local business people with vested interests and lots of influence. Same old, same old.
So does this mean my business is paying more than my share of costs?
Presumably you’re in business to generate revenue to pay your bills /support your lifestyle… If so your business is doing what it should in paying your energy bills.
Further it is being a good corporate citizen and giving back to the community! Good job, we the poor and impoverished salute you!
nope. paying fair share. CUC wanted to increase residential rates to reduce commercial rates – but with no real explanation.
I would guess that the cost of service study referenced by OfReg indicated that the average business was paying more than their impact on the grid costs, and the average residence the opposite.
From my reading of the release, it wasn’t so much a rate “hike” as being described but rather a redistribution.
OfReg has, by choosing not to enact the recommendation from the study, in effect chosen to subsidize some of that residential electricity cost through my business. Feels like that kind of decision would warrant a consultation for public feedback.
Is that a problem?
Your business plan should be to make a profit, and is a percentage of the cost of doing business, otherwise it would be better to just leave your money in the bank.
When your electricity bill goes up, you make more money. Unless you are a poor businessperson.
Give people the option to full power their own homes and commercial buildings without any of CUC connections that way they can’t claim it will damage their infrastructure.
You can go off-grid today. There is no restriction against this.
I heard that you cant get a C.O.unless you are connected to CUC.And if you allow them to disconnect you for nonpayment and you pay the bill,but not the reconnection fee,they will still bill you rental on the meter.
then you were mis-informed, none of that is true
Maybe. These new-fangled ideas (even from 20 years ago) are often beyond the pay-grade of the electrical inspector that has to certify and commission the electrical connections in the building. You’ll be waiting longer than usual for sure to get someone that understands the plan under review (which is already glacial). YMMV.
Pax, You obviously have absolutely no idea how long it takes to get applications approved for rooftop solar panel installations.
A totally sad joke the barriers put up to prevent people going off grid.
You already have this option. Exercise it.
and use what?
Rubber stampers
“OfReg’s legal role in this process doesn’t involve ‘approving’ the rate because the regulator has no discretion in law to refuse the increase, only to verify the data upon which the adjustment is based to ensure that the proposed increase is compliant with the licence conditions.”
Then this regulator is toothless and CUC effectively has free reign to act as they see fit.
You are thinking of the oil companies who charge what they want.
1:08, Not true. Oil company fuel prices are largely determined by OPEC and international pricing. They do not charge what they want.
the 2008 license needs to be renegotiated- which is what OfReg is saying – buts lets see if this current much is up to that?
There are no Cabinet Fat Cats willing to tamper with their donor class, all banking regular dividends. They don’t care about Caymanian cost of living, so long as they get fatter. There’s no re-negotiation on the horizon.
1:26, And in the new renegotiated license there need to be significant requirements towards moving to solar / renewable energy.
Suggest you look at the Aruba / Curaçao / Bonaire model. Lessons to be learned there. Also worthwhile looking at Spain too.
sigh… no….
1. CUC has to act according to the conditions of their license.
2. OfReg ensure that they do that.
so noone is toothless, and no-one has free reign.
HOever, the 2008 license does really need to be updated – which is what OfReg is drawing attention too.
perhaps next time read the whole article?
A regulator having no choice but to accept actions of the regulated entity is a strong indication of them being just as described, toothless.
All you mentioned is that the toothlessness isn’t their fault. The comment at 1:30 is still accurate.
Wrong. Read the entire article. OfReg actually denied another base rate change that would have resulted in a further increase. Ultimately they exercised their authority where they could. There are regular industry practices where regulators have limited authority and can only review and approve things. Then there are others areas where the regulator has full authority and in this case the article says they did act in the interest of the most vulnerable consumer.
No authority has full power to do all that they want.. police can’t send people to jail they can only collect evidence and present it.
The monetary authority cannot dictate every aspect of financial /insurance business… and so on and so fourth…
Good job Mr. Myles and Mr. Jackson …. Just keep applying the pressure!
Are you all really this friggin ignorant or are you just gaslighting?
If a judge in a court of law says someone didn’t break the law because no such law exists would you say that judge is toothless? No! The judge has a job to ensure the law is followed/upheld.
OfReg’s job is to ensure the law/license/regulation is followed. That is what they have done here. Far from toothless, they’re doing their actual job. If you don’t like the law/license/regulation then talk to the people who make them. And, since you all are apparently as simple as they come that’s your MP!
OfReg didn’t chime in or raise awareness of CUC’s license renewal, or the embedded deviations from international utilities best practise. Instead, they quietly sat on their hands and let the renewal slide through at same terms. This “regulator” isn’t a watchdog. They are instead absolutely complicit in the next two decades of guaranteed abuse now thrust on our consumers.
“the toothlessness isn’t their fault”
Yes, it seems you’re violently agreeing with the same position you just called gaslighting.
I get it, you think that to be right, someone else has to be wrong.