Glidden condemns CUC advantage in power bids

| 30/10/2008

(CNS): The decision to allow CUC to compete with potential new companies bidding to supply Grand Cayman’s additional electricity needs has been severely criticised by Clyne Glidden, Opposition United Democratic Party MLA and former Chairman of the Electricity Regulatory Authority. Glidden said the RFP which invites companies to bid to supply an additional 32 Mega Watts of power generation by 2012 encourages CUC to utilise its inherent advantages.

“The Government has not displayed a serious commitment to competition in the long run. By allowing CUC to bid and control the process, it encourages CUC to utilise its inherent advantages to fend off potential competitors,” the West Bay member said.“In the long run this will only ensure that we are held hostage by a single provider and that cannot be good for the Caymanian consumer."

CUC currently supplies roughly 100 Mega Watts of power to Grand Cayman so this additional capacity covered by the bid represents roughly a 30 percent growth in power generation on the island.

Glidden argued that in the coming 10 to 15 years given the current pace of economic growth it is possible that the electricity needs could be nearly doubled and the country would still be left with only one provider for delivery of this additional electricity if the Government does not introduce competition in power generation in the country. He also warned that there are other issues within the RFP that provides an inherent advantage to CUC in being the ultimate winner of the bid. 

“There is no point telling the public that we are offering competition in power generation if the conditions of the RFP do not explicitly encourage that” he said.

Referring to one of the provisions in the RFP he explained that even if the Electricity Regulatory Authority were to select a new company as the top bidder, the agreement requires that the bidder then enter into a separate negotiation with CUC for the Power Purchase Agreement (PPA) before the new company can proceed.

Glidden explained that due to the way the RFP is written, it means that if those negotiations were unsuccessful CUC would then start new negotiations with another firm and so on. CUC could essentially use this as leverage to have an unfair advantage in negotiating the PPA.

 “To prevent this unfair competitive advantage the ERA should firstly licence the new provider and then act as an arbitrator to ensure that the PPA is equitable for all parties. The ERA role is crucial in ensuring that CUC as the incumbent does not abuse its monopoly position as a generator as well as distributor of electricity,” he added. “There is no incentive for CUC to work out its negotiations with the selected bidder, assuming that winner bidder is not CUC. And what happens if CUC decides that it cannot come to an agreement with any of the firms? Do we end up with the status quo with CUC as the provider?”

Print Friendly, PDF & Email

Category: Business

Comments (11)

Trackback URL | Comments RSS Feed

  1. Olivaire Watler says:

    On 5th November I wrote the following:

    "tThe high electricity bills consumers have been experiencing for the past several months are obviously not the result of some failure by the Team in the negotiations but instead of high oil prices which inflated energy costs everywhere, not simply in Cayman. Conversely, the steep decline in oil prices that the market has seen recently will be reflected in a substantial reduction in electricity bills once the two month accounting delay is taken into account".

    Oil prices have continued to fall and the two month accounting delay has now been taken into account. Can the concerned consumers say whether they have experienced a "substantial reduction in electricity bills" since we are quick to speak if there is something negative to say but slow when it is positive. It should now be clear that the high electricity bills were indeed due to high oil prices. Imagine what you would be saying now had a long term diesel supply contract  locked in the oil price of a year ago (when agreement in principle was reached with CUC) when it was $95 per barrel (and analysts were predicting that it would reach  $200 by the end of this year) . Today it is $40 per barrel.   That is not to say that oil prices cannot increase again, but to say that prices are inherently uncertain and it is only in retrospect that we can say what price would have been best to lock in.  

  2. Anonymous says:

    If the negotiating team led by Mr. Walter wants to show the country how good the agreement is for the consumer then I would encourage the team to make available under FOI act all the meeting minutes prior to the signing of the agreement.  Additionally and perhaps more important would be for Mr. Walter to state explicitly whether any member of the negotiating team had any pecuniary interest (shares or stock) in CUC prior to the commencement or during the period of the negotiations with CUC.

    These new CUC agreements are for 25 years and will therefore affect the country for a very long time; therefore I think it is important that the government review these agreements immediately to ensure that consumers and indeed the country is not adversely affecting for the next 25 years. I would encourage the government to make the long-term cost of electricity a priority as based on empirical and anecdotal evidence every household is being affected. This government if they are for the Caymanian people as they have also stated they should immediately state what they are going to be doing to ensure that the price of electricity will not continue to adversely affect the cost of living
     

    • Olivaire Watler, former Chairman - CIG-CUC Negotiating Team says:

      It is quite remarkable that the various antagonistic responses have essentially evaded any engagement on the issues and have opted instead for personal attack on the Negotiating Team although they have not explained how they conclude that the Agreement reached with CUC was not in the interests of the consumer.  The fact that the critics have not made the slightest effort to study and understand the new licence arrangements is immediately exposed by basic mis-statements of the facts like "these CUC Agreements are for 25 years".  In fact, the T&D Licence is for 20 years and the non-exclusive Generation Licence is for 21 1/2 years. There is simply no reason to suggest bias in favour CUC vs. the consumer. However, it is clear that they have made up their minds and do not wish to be confused by the facts. It is very sad when this happens as it often discourages able and willing Caymanians whose only desire is to make a meaningful contribution to their community from doing so for fear of petty, unwarranted attacks.  

      However, just to clear the air, like many Caymanians (including the chairman of the previous Negotiating Team,  Mr. Glidden) I held a minor shareholding in CUC before negotiations commenced. This was declared as required to the Government who were satisfied that it would not affect my judgement. They were of course correct in their assessment. Nonetheless, shortly after negotiations commenced I sold that shareholding in order to remove any reason, for those who do not know my character and reputation, to suggest bias in CUC’s favour.  In any event, the dividend from such a shareholding was a mere pittance compared to my electricity bill and would hardly be the motivation for bias in CUC’s favour. Certainly no one in the room at any Team or Negotiation meeting can suggest that there was a shred of evidence of bias on my part.  

      I would invite those who are interested in being informed on the issue and developing constructive policy initiatives to address our common concerns, as opposed to using it as a political football, to attend the Chamber of Commerce Energy Forum on 18th November.  It is time that we as a people rise above this sort of pettiness.

         

    • Anonymous says:

      What Mr. Watler has said makes sense. It doesn’t make any sense to accuse the team of bias and then demand that they disprove it, or to insist that the agreement is bad for the consumer but still haven’t read it. If you can’t tell us how the agreement is bad by reading it how are you going to tell us by reading the minutes?  Sounds like Mr. Bridger’s fishing expedition. 

  3. Anonymous says:

    I have no doubt that Mr. Walter is convinced that he and the negotiating team have negotiated the best agreement possible for the country. I applaud Mr. Walter and the entire negotiating team for their efforts and long hours that I am sure they spent working on this agreement. However, based on feelings expressed by everyone that I have spoken on the new CUC agreement they are not convinced that the negotiating team was representing the consumer and indeed the country. From the common man’s perspective these agreements with CUC are all biased towards CUC and will only benefit them or those closely aligned or that have a close relationship with them. 

    This perception of bias is extremely important and quite troubling to all. While this perception is only based on information, which is currently available in the public domain, I am sure that the negotiating team can refute the apparent bias nature of the agreement by being totally transparent on the processes and strategies that the team implemented to arrive at an agreement.
     

    • Anonymous says:

      It is cowardly to write under cover of anonymity and make unsupported charges of bias. If you have information to support this allegation then you should have stated it and put your name to it. Otherwise, your post appears to be malicious and politically motivated.  The ‘common man’  has not of course read the licences and has little idea what they say. Instead, by playing on people’s concerns about the effect of the price of diesel on their electricity bills, you are seeking mislead the public in the hope of political gain. 

      Since you apparently do not have the wherewithall to understand the licences, how are you going to understand the Minutes?

      It is not up to the team to refute charges of bias; it is a matter for you to substantiate them which you have failed to do. In your world, the team is guilty simply by allegation until proven innocent. I am suprised that CNS would publish such anonymous, defamatory posts.       

  4. Anonymous says:

    I am very concerned as a consumer who has had pay CUC’S exorbitant rates that a senior member of the PPM negotiating team is willing to write extensively about how great the agreement that he negotiated is for the consumer (I wouldn’t expect him to point out the areas of the agreement that would be detrimental to the consumer). I am sure that all of the consumers would not agree with him, that this agreement is best for them. Perhaps instead of defending the current agreement the ERA and the Government should re-look at the agreement to ensure that consumers are getting the best possible deal.

    Political rhetoric is great however; it shouldn’t be used when consumers are struggling to keep up with the rising cost of electricity. What the government should do is ensure that new providers with better technology, cheaper fuel and cleaner burning fuels are given an opportunity to provide power to the consumers. If competition is encouraged and promoted consumers will see cheaper rates in the short and long term as well as enjoy new more environmentally friendly energy solutions. It would be very interesting to hear from the negotiating team, the government or the ERA whether the agreement with CUC or the new law creates special incentives for new companies to enter the market with newer and more efficient technologies.

    Also it is very interesting to see that the government/ the negotiating or the ERA didn’t make it obligatory for CUC to enter into long-term fuel contract based on the forecast demand for electricity. If CUC had the interest of the consumers they would have developed strategies that could have prevented them from having to pay such high prices for fuel. The main reason why CUC did not implemented any long-term purchase agreements with the local fuel suppliers is because CUC DOESN’T have to pay for the fuel. Consumers are the ones that have had to take on this burden and CUC has not shown any desire to assist the consumers. They are number of examples to show that hedging on fuel can lead to lower prices if it is done correctly. CUC however has chosen to undertake this strategy because they don’t have to pay, and the government has not even asked them to look at it.

    This is a very sad a worrying situation, when the persons that we have elected to represent our interest have decided to neglect the very people that they are supposed to serve. Minister McLean appears to the more loyal to his previous employer CUC than to the people of East End and Grand Cayman. It is incumbent on Minister McLean to immediately make a statement as to what he and the Government is going to be doing to allow for increase competition in the generation of electricity. Monopolies have never ever benefited consumers in the long run.

    As the Minister responsible for CUC– Mr McLean should do more, he was very vocal during the election about protecting the people of Cayman, but it appears that he has very quickly forgotten his promises to the electorate and instead has shifted his loyalty very quickly. This shows a lack of integrity and is extremely disingenuous and I am sure the voters of East End will keep this in mind when they cast their vote in May 2009.
     

    • Olivaire Watler, former Chairman - CIG-CUC Negotiating Team says:

      Dear ‘concerned consumer’,

      My purpose is to ensure that consumers understand the true nature of the new regime and are not misled by partisan rhetoric. Since it is apparent that this conflicts with your objective it is understandable that you would be concerned.  Clearly, we would not have negotiated an agreement that we did not consider to be in the interests of the consumer as the majority of the Team were consumers. It has invariably been the case that those who have spoken to me with a view to understanding the new arrangements have appreciated its merits. Unfortunately, there are those whose aim is to criticise rather than to understand.  While there is no negotiation in which one side achieves every wish, I am justifiably proud of the accomplishment of the Team.  There are of course a number of policy matters that the Government and the ERA will need to work through as the new regime is implemented.

      The high electricity bills consumers have been experiencing for the past several months are obviously not the result of some failure by the Team in the negotiations but instead of high oil prices which inflated energy costs everywhere, not simply in Cayman. Conversely, the steep decline in oil prices that the market has seen recently will be reflected in a substantial reduction in electricity bills once the two month accounting delay is taken into account. As a hedge fund lawyer, I can tell you that hedging fuel prices carries its risks and it is the consumer who wouldbear those risks.

      Starting now we clearly need to lessen our dependence on fossil fuels are a source of energy over time. Renewable energy is a part of the medium to long term answer and provision has been made for renewables to be introduced.  Incentives to do so will be a function of ERA and Government policy.  However, do not be misled into thinking that this will lead to an immediate drastic reduction in electricity prices since given current technology they do not provide firm power and therefore cannot totally replace diesel generation.

      I have already outlined how the new regime provides for competition in generation.  Apparently, there are four pre-qualified bidders for the 32 MW increment of capacity.  There does not appear to be any reason to be concerned about lack of competition.

      In conclusion, it is very easy to be an armchair expert, feverishly search for things to criticise and focus upon one or two issues which you deem of utmost importance. It is far more difficult to understand and balance a vast array of complex issues, and with skill and determination throughout tough negotiations accomplish a positive outcome for the consumer. This is what the Team has achieved, your election campaign narrative notwithstanding.      

  5. MB Ebanks says:

    As ever, Mr. Watler is directly on point in this regard:

    Unfortunately the UDP and PPm have now taken such entrenched positions on every subject that it is almost as though each party feels obliged to deliberately take a contrary position – even an incorrect one –  to confuse the public and jsut to have something to say.

     

  6. Olivaire Watler, former Chairman - CIG-CUCNegotiating Team says:

     

    As Mr. Glidden knows, the previous Heads of Agreement (which he negotiated) provided that there would be a Power Purchasing Agreement (“PPA”) between CUC as the T&D Licensee and any other Generation Licensee. Indeed, it should be obvious that a legally binding contract covering the rights and obligations of each party to the other must exist where the T&D Licensee and the Generation Licensee are two separate legal entities. There is nothing odd about this since it is in fact standard in a vertically dis-integrated electricity sector. A PPA will cover such matters as the point of interconnection, dispatch procedures, and the rights of each party in the event of default by the other, in addition to the amount of electricity to be supplied and the price at which it will be supplied which must be consistent with the Certificate of Need that triggered the solicitation process and the bid that won the competitive solicitation process, respectively.
     
    Contrary to what Mr. Glidden apparently believes, the ERA must approve any PPA and is therefore involved in that process.  Allowing CUC to bid does not mean that CUC controls the process.  What it does mean is that we avoid a possible situation where, late in the day, we discover there are no other credible bidders and we are obliged to accept whatever price CUC is minded to offer in light of that fact. The corollary of allowing CUC to bid is that it has default responsibility for adequate supply of power.     
     
    As Mr. Glidden ought to know, since as an MLA he voted to pass the ERA Law, 2008 (now the ERA Law (2008 Revision), Part V of the Law contains various remedies against anti-competitive practices should CUC or any other licensee engage in them.
     
    Finally, competition should not be an end in itself but instead a means to an end. Mr. Glidden is apparently concerned that CUC may underbid outside bidders. I am not sure why since CUC will be bound by that price and it is clearly in consumers’ interest to accept the lowest price, all other things being equal. Mr. Glidden’s approach would allow outside bidders to come in with bids higher than CUC could supply electricity, and because CUC was not bidding, the ERA would be obliged to accept such an outside bid.  
     
    Clearly, CUC will have certain inherent advantages such as existing land, plant and personnel and it makes sense for CUC to take utilize these in order to keep its bid low (which translates into lower electricity prices).  However, Mr. Glidden does not  favour competition for the sake of lower prices but would prefer that CUC’s costs be artificially increased to ‘level the playing field’ simply so an outside bidder can be competitive. This is the tail wagging the dog.  While I see how Mr. Glidden’s approach would favour a potential bidder, I fail to see how it benefits the consumer.  I must therefore ask whether it is the consumer Mr. Glidden is really concerned about.             
  7. Anonymous says:

    This is insane.  These islands are blessed with atleast 95% sun year round making the conditions perfect for alternative methods of producing electricity.  If CUC is going to be given the upperhand, in the bids due to "fine Print" in the RFP stance, then they should be forced to make the necessary adjustment to move a certain percentage of the electricity generation to solar power as opposed to fuel.  Currently the only benefit of using fuel is in favor of CUC who constantly use it as what feels like a reason/excuse to increase the costs to the consumer.

    I understand that the inital move to solar is expensive but have they not retained enough assets by now to be able t omake this change gradaully over maybe the next few years.

    Cost of living in tese islands are increasing at a rate that soon will not be able to be sustained by those who live here….it is clear that matters need to be addressed now.  It is ridiculous when youare paying more to CUC than you areto your landlord.

    We need alternate interest, alternate electricity generation and we need this now.