CUC COUNTS THE COST OF COVID

The extent to which the COVID-19 pandemic is impacting Cayman is noted in the pattern of electricity consumption since the crisis hit here in March, as well as being reflected in the earnings and share value of the electricity provider, Caribbean Utilities Company (CUC).

President and CEO, Richard Hew, has stated: “The COVID-19 pandemic severely impacted Grand Cayman’s economy throughout the second quarter with the airport remaining closed, the tourism industry shuttered and significant numbers of residents unemployed.”

In the company’s second quarterly report for this year, he also said that “throughout the period CUC continued to deliver safe and reliable electricity service to its customers even to those who experienced difficulties paying their bills.

EARNINGS DOWN BY A THIRD

For Quarter Two of 2020 covering April to June, CUC reports that its operating income dropped by over 30% - a third - compared to the same period in 2019.

Operating income plummeted to $5.6 million, a decrease of $2.6 million when compared to operating income of $8.2 million for the same period in 2019.

CUC says that’s a reflection of the impact COVID-19 has had on its business and Grand Cayman’s economy, adding that “the decrease is primarily attributable to lower electricity sales revenues and higher depreciation, maintenance and consumer services expenses.”

The net earnings were $4.5 million, a decrease of $3.4 million from $7.9 million for the second quarter of last year.

While the decline in earnings was largely attributed to the COVID crisis, CUC notes that net earnings were also negatively impacted by several factors including higher finance charges driven by higher long-term debt and lower Allowance for Funds Used During Construction (“AFUDC”).

Across the first six months of 2020, CUC’s operating income for the six months totalled $10.4 million, a decrease of $2.8 million when compared $13.2 million for the six months ended June 30, 2019.

Over that period, which reflects data before COVID-19, the electricity supplier attributes the decrease in turnover to mainly to higher depreciation, maintenance and transmission and distribution expenses.

Net earnings for the six months ended June 30, 2020, totalled $8.3 million, a decrease of $4.2 million when compared to net earnings of $12.5 million for the six months ended June 30, 2019.

In addition to the items impacting operating income, net earnings were also negatively impacted by higher finance charges driven by higher long-term debt.

The decline in earnings has also impacted CUC’s share value.

Earnings on its Class A Ordinary Shares for the six months ending June 30, were pegged at 0.24 cents per share on earnings of $8.1 million compared to the 0.37 cents a share yield for the first half of 2019 on earnings then of $12.3 million.

LESS POWER TO THE PEOPLE

Electricity usage dropped significantly in the second quarter of this year.

Output was down to 165.5 million kWh, a decrease of 7.5 million kWh in comparison to 173.0 million kWh for the second quarter of 2019.

Reflected across the first six months of this year, it shows output at 317.9 million kWh, a decrease of 1.5 million kWh in comparison to 319.4 million kWh for the six months ended June 30, 2019.

CUC puts this down to primarily a decrease in the average consumption of large and general commercial customers due to the Covid-19 pandemic.

It says the decrease was partially offset by an increase in the average consumption of residential customers as air conditioning usage increased with more persons working from home.

Interestingly, second-quarter data for 2020 also shows an increase in CUC’s customer base.

Total customers at the end of June were 30,704, an increase of 604 customers, or 2%, compared to 30,100 customers at June 30, 2019.

It's not clear what has driven that increase considering the departures due to the COVID outbreak and resulting lockdown during that period.

CUC was among utility companies which recently gave evidence to the Cayman Islands Parliamentary Public Accounts Committee inquiry into the Utility Regulation and Competition Office (OfReg) following a critical report by the Office of the Auditor General (OAG).

The PAC was probing not only OfReg but practices within the utilities sector and how they affect consumers.

SUPPORT FOR CUSTOMERS

CUC says in it just-released quarterly report that “as part of its COVID-19 Customer Relief Programme, it has proposed to OfReg to defer the required rate increase until January 1, 2021.

It also says that “for the period June 1, 2020 to December 31, 2020 the Company will track the difference between billed revenues and revenues that would have been billed from the required rate increase as an amount due from customers.”

The amount that would have been recorded for June this year was $500,000.

CUC reports that it has also applied for recovery of various COVID-19 related expenses, including potential bad debts resulting from the suspension of disconnections during the pandemic.

If approved by OfReg, CUC says these amounts would be recorded as Regulatory Assets and recovered through future rates.

OfReg’s response to the proposed Customer Relief Programme is expected during the Third Quarter 2020.

In its report, CUC explains that all fuel, lubricating oil and renewables costs are passed through to customers without mark-up as a per kWh charge.

THE COVID COMPONENT

According to the power company, at this point, the extent to which COVID-19 may impact CUC’s financial condition or results of operations remains uncertain.

CUC says this will depend on certain developments, including the duration and spread of the outbreak, curfew restrictions, impact on customers, employees, and vendors all of which cannot be predicted.

The company says it continues to monitor the rapidly evolving situation and guidance from the Cayman Islands Government and local public health authorities and indicates that it may take additional actions based on their recommendations.

Regarding its infrastructure, CUC says as necessary, it will prioritize capital expenditures to mitigate supply chain risk and other potential impacts of the pandemic “to ensure the delivery of safe, reliable service while supporting public health”.

It says the uncertainty surrounding the evolution of the pandemic makes it difficult to predict the ultimate operational and financial impacts on the company.

However, it does say that depending on the severity and length of the pandemic, such impacts could have material adverse effects “and affect the Company’s ability to execute business strategies and initiatives in the expected time frames”.

CUC reports that it has experienced an increase in accounts receivable during the period resulting in the company increasing its provision for doubtful accounts.

“The ongoing economic impact of the pandemic may affect customers' ability to pay their energy bills and therefore it has instituted various customer relief initiatives, including the suspension of non-payment disconnects and late fees, and payment deferral programs to help ease the financial burden on customers," the company said in its report.

However, disconnections and late fees on unpaid bills resumed in July.

Given the uncertainty, CUC says it is too early to assess the full impact of potential credit losses associated with the pandemic.