net growth in residential customer numbers from 22,311 to 22,731 in 2011 has therefore not produced overall growth in sales as the average kWh consumption for this class has decreased. 

With the Government projecting modest Gross Domestic Product gains for 2011, we remain cautiously optimistic about future growth in the economy. We also see the most recent Government reports on the slow- down in the decline of work permit holders as a positive sign. 

In an effort to maintain a safe and efficient service, the Company continued to invest in infrastructure and equipment during 2011. 

Excluding capital expenditures related to the repair of three generating units damaged in 2010 and early 2011 and for which the cost was covered by insurance proceeds net of a deductible, major capital expenditure initiatives for 2011 totalled $33.4 million, a $12.2 million or 58% increase from $21.2 million. These initiatives included the beginning of the Advanced Metering Infrastructure (“AMI”) project roll- out and completion of the Eastern Transmission Loop. 

By the First Quarter 2012, the AMI project will bring efficiencies in meter reading and services such as disconnects and reconnects directly from CUC’s offices, provide real-time electricity consumption information and a prepaid payment option to aid consumers in monitoring and controlling their electricity 

consumption. 

The Eastern Transmission Loop project will also bring customer benefits through an increase in the reliability and operational flexibility of the Transmission and Distribution (“T&D”) system serving all areas of the Island from South Sound, east to the districts of East End and North Side. 

The series of generating unit mechanical failures in the First Quarter 2011 left the Company without its normal generation reserve capacity. The margin was restored by the leasing of temporary mobile generation until the out-of-service generating units could be repaired. Despite some outages related to the loss of generation, overall reliability of service to customers in 2011, as measured by the Average System Availability Index, remained high at 99.94%. We believe reliable electricity supply is critical in supporting the established financial services and tourism industries as well as to attracting new development to Grand Cayman. 

In November 2011 CUC issued a certificate of need to the ERA for 18 megawatts (“MW”) of new generating capacity to be installed in 2014 and for an additional 18 MW of generating capacity to be installed in either 2015 or 2016 contingent on growth over the next two years. The primary driver for the new generating capacity in 2014 is the upcoming retirements of several of CUC’s generating units which are reaching 

the end of their useful lives. As a result of CUC expressing its need for replacement capacity, the ERA will be conducting a competitive solicitation in 2012 in accordance with CUC’s licences which will allow all interested and qualified parties, including CUC, to submit bids to fill the Company’s firm capacity requirement. 

CUC submitted its 2012 - 2016 CIP, totalling approximately $192.0 million, during the fourth quarter of 2011 for ERA approval. $131.0 million of the submission is proposed non- generation installation expenditures. Generation needs are subject to a competitive bid process as described above. The 2012 - 2016 CIP has been prepared in-line with the Certificate of Need that was filed with the ERA in November 2011. ERA approval of the 2012 - 2016 CIP is expected during the first three months of 2012. 

We also conducted a competitive bidding process to fill 13 MW of non-firm renewable energy capacity. There are currently no viable renewable energy sources in Grand Cayman which meet CUC’s reliability requirements for firm capacity; however, CUC expects that there are third parties that can build and maintain renewable energy plants on the Island and sell energy to CUC at a more competitive price than diesel. 

There have been numerous responses to the August 2011 solicitation and the Company is now in the process of analyzing all of the proposals in an effort to select those offers which meet all of our criteria 

