Statement by URCO on CUC’s annual base rate adjustment

Caribbean Utilities Company’s recent base rate adjustment has understandably caused concern in the community, particularly at a time when many households are already under pressure from higher fuel and living costs. It has also led to commentary suggesting that the current government and URCO have chosen to “allow” this increase. The public deserves a clear explanation of how these increases arise and who put the present arrangements in place.

1. The rate mechanism was created in 2008

CUC’s Transmission and Distribution Licence, granted by the Cayman Islands Government in 2008, includes a legally binding Rate Cap and Adjustment Mechanism (RCAM). This mechanism sets out an automatic formula for annual base rate adjustments based on movements in inflation, using a mix of Cayman and US CPI, excluding food and fuel. It was negotiated and agreed between the government of the day and CUC, and has been applied every year since the licence came into force.

In other words, the framework that produces these annual adjustments is not something devised by the current administration or by URCO. It is a long‑standing contractual arrangement, embedded in a licence granted almost two decades ago.

2. URCO cannot lawfully ignore a licence it has inherited

Under that licence, URCO’s role is limited to verifying the data used in CUC’s RCAM calculation and confirming that the adjustment has been correctly applied under the agreed formula. Once that verification is complete, URCO has no lawful discretion to “block” an adjustment that the licence requires. To do so would be to disregard the licence conditions, invite successful legal challenge and undermine the rule of law.

Regulators must operate within the legal instruments they inherit. Any change to the way electricity rates are set requires amending the licence itself through a lawful process led by the Government and conducted in consultation with CUC.

3. The political history should be acknowledged honestly

It has been suggested that the current government and URCO should explain “why CUC was allowed” to increase its rates. That is a fair question - but it cannot be answered honestly without acknowledging that:

• the RCAM mechanism was agreed and put into CUC’s licence by the PPM government in 2008;
• The licence, and its automatic annual adjustment mechanism, have been allowed to continue in force;
• Mr Hew himself held responsibility for the portfolio covering planning and infrastructure between 2017 and 2021. During which time the RCAM remained in place and was applied annually, without any move to amend or replace the mechanism.

The current government and URCO are therefore not introducing a new policy of rate increases; they are applying an existing licence regime that was established and maintained under previous governments, including the PPM lead administration.

It is entirely legitimate for the Opposition to call for a more coherent long‑term strategy to reduce electricity costs and protect consumers from global fuel shocks. On that point, there is significant common ground. But public debate should be grounded in the reality that:

The RCAM mechanism was created under a previous administration;

• No minister responsible for utilities between 2008 and today has yet brought forward a lawful amendment to remove or replace it;
• URCO cannot act outside the four corners of a licence simply because the political winds have shifted.
• However, URCO’s current administration has signalled to CUC and the public that the licence needs to be updated and has initiated talks along these lines. This includes automatic rate adjustments.

 4. The way forward

The route is not for the regulator to ignore a binding licence, but to amend that licence and the wider regime in a lawful, transparent and consultative way. URCO has already indicated that, in light of the National Energy Policy, technological change and efficiency imperatives, it believes the time is right to review and update the existing licence regime. That work can only be done in partnership with the support of the government and within the constitutional and legal framework. The current government and, in particular, Hon. Minister Anglin have already signalled support in this area.

In the meantime:

• URCO will continue to scrutinise any discretionary proposals from licensees and resist changes that would impose unjustifiable or unfair burdens on consumers.
• The current government has implemented measures such as fuel duty reductions and targeted subsidies to help cushion the impact of high global fuel prices on households.

Families and businesses deserve more than convenient amnesia about who agreed to the present arrangements. They deserve a regulator and a government that explain the legal reality clearly, that act within the law, and that work seriously on the structural reforms needed to deliver a more affordable, modern and resilient energy system for the Cayman Islands.