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(CNS): This summer, following a backlash to CUC base rate hikes, OfReg CEO Sonji Myles said the utility regulator had no choice but to approve the annual rate hike because it was consistent with license conditions. However, he said OfReg blocked a proposal from power suppliers that would have added another 3% to 4% to residential customers’ bills.
CUC had submitted an application seeking approval to “rebalance” its consumer-level rates, but OfReg rejected it because it would have resulted in rates for business customers falling and rates for residential customers rising, which was clearly unjustified.
In a press statement regarding public concerns about recent increases in already expensive electricity rates, Myers explained that it was impossible for OfReg to reject CUC’s annual base rate increase, but he said now was the time to address the company’s Transmission and distribution licensewhich has remained unchanged since its release in 2008.
The license includes the Rate Cap and Adjustment Mechanism (RCAM), which provides the formula for calculating and implementing annual rate adjustments. This process is not new and is conducted annually as part of CUC’s license agreement, the news release states. OfReg’s legal role in this process does not involve “approving” rates, as the regulator does not legally have the power to reject rate increases, but only to verify the data upon which the adjustments are based to ensure that the proposed increases comply with the conditions of the license.
“Part of our role as regulator of the energy industry and all utilities is to protect consumers and ensure our licensees comply with the terms and conditions of their licenses,” Myers said. “CUC’s annual rate cap adjustment review is one of its license conditions, and this year’s submission was reviewed and found to be in compliance with the terms of the license. Under the existing terms, OfReg cannot deny a reasonable adjustment.”
He explained that this mechanism is designed to ensure that the base rate does not fluctuate suddenly due to sudden increases in the cost of known inflationary factors, such as food and fuel. To this end, any base rate adjustment under the RCAM is based on a combination of 60% Cayman CPI and 40% US CPI, minus food and fuel.
Myers noted that OfReg inherited the system and is legally obligated to follow the formula until some other mechanism emerges, which can only be achieved by changing the license. Once OfReg confirms the data on which the RCAM adjustment is based, it has no choice but to agree to implement the change or it will be immediately subject to a successful legal challenge from CUC, he said.
Myers said that while OfReg could not do anything about the increase due to current licence conditions, the regulator took action where it could. CUC’s current T&D licence was issued in 2008 and has not been renewed since.
CUC has submitted an application seeking OfReg approval to “rebalance” its consumer-level rates based on its Cost of Service Study (COSS). The request concerned the way business and residential customers are charged, but OfReg rejected it because there was no clear rationale for the proposal and it would mean business rates would be reduced at the expense of residential rates. The CEO said the latter would increase by up to 4% over the RCAM adjustment, which would impose unnecessary extra costs on those CUC consumers who can least afford it.
“Any proposed rate increase or change by any licensee is subject to rigorous scrutiny and review.
Comply with their terms and conditions and provide financial information to support it before you can get approved.
Provisions that do not comply with regulations or appear to impose an unreasonable, unnecessary or unfair burden
Consumer interests are rejected, as CUC submits that rebalancing
commercial and residential base rates,” Myers explained.
United Utilities (CUC) recently said upcoming upgrades to its generation infrastructure and battery energy storage systems (BESS) will bring efficiency gains, thereby reducing future energy costs for consumers, as more renewable energy comes online.
While the need to encourage renewable energy generation is recognised, the terms and conditions under which CUC’s T&D licences were issued could not anticipate significant changes in generation technology. Given that fuel costs currently make up a large portion of every energy bill, OfReg suggests that more needs to be done to implement regulatory measures for efficiency standards.
“Now is the right time to review and update the existing licensing regime, particularly in light of recent proposals reflected in the National Energy Policy, to better protect consumers by allowing a mix of modern and competitive generation solutions, which are regularly monitored to ensure the highest standards of efficiency and quality of service,” Mr Miles said.
Cayman Islands’ critical national infrastructure, including CUC’s transmission and distribution systems, must be protected. Any such changes must be implemented in consultation with CUC.
“We take our job as a regulator very seriously and we hold ourselves to high standards to protect Cayman Islands consumers,” Myers said in the release. “However, we must work within the legal framework and powers to fulfil our responsibilities. Advances and innovations in the energy industry have come a long way since the CUC Transmission and Distribution License was first issued, and the way we generate, distribute and manage our energy needs today is very different.”
Myers said the law empowered the regulator to review and advise the government on any necessary changes to licensing laws to meet the requirements of a modern energy industry. “This could include the implementation of efficiency standards and measures to enforce those standards on licensees who fail to meet them,” he added.
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