20 Caribbean Utilities Company, Ltd.  2011  Annual Report Management’s Discussion and Analysis Weather Environmental Matters Economic Conditions Regulation Insurance - Terms and Coverage Cayman Islands; this framework aims  to reduce Greenhouse Gas (“GHG”)  emissions produced by certain  industries. Specific details on the  regulations have yet to be released  by the Government and are required  to assess the financial impact of  compliance by the Company with the  framework.  Through the EMS, CUC has  determined that its exposure to  environmental risks is not significant  and does not have an impact on  CUC’s financial reporting including  the recording of any Asset Retirement  Obligations (“ARO’s”). The Company renewed its  insurance policy as at July 1, 2011  for one year under similar terms and  coverage as in prior years. Insurance  terms and coverage include $100  million in property and machinery  breakdown insurance and business  interruption insurance per annum  with a 24-month indemnity period  and a waiting period on Non-Named  Wind, Quake and Flood of 60 days.  Any named Wind, Quake and Flood  deductible has a 45-day waiting  period. All T&D assets outside of  1,000 feet from the boundaries of  the Company’s Power Plant and  substations are excluded, as the cost  of such coverage is not considered  economical. There is a single event  cap of $100 million. Each “loss  occurrence” is subject to a deductible  of $1.0 million, except for windstorm  (including hurricane) and earth  movement for which the deductible  is 2% of the value of each location  that suffers loss, but subject to a  minimum deductible of $1.0 million  and maximum deductible of $4.0  million for all interests combined.  The 2010/2011 insurance policy had  a deductible of $0.5 million for each  loss occurrence. CUC’s operations are subject to  local environmental protection laws  concerning emissions to the air,  discharges to surface and subsurface  waters, land use activities, and the  handling, storage, processing, use,  emission and disposal of materials  and waste products. In 2004, CUC was initially  registered to the ISO 14001, which  is the international standard for the  Environmental Management System  (“EMS”). The Company continuously  adheres with the standard and  renewal of the registration occurred  in May 2010. The next scheduled  renewal is 2013. Renewals occur  every three years. In March 2007 the  Kyoto Protocol was signed by the  The general economic condition of  CUC’s service area, Grand Cayman,  influences electricity sales as with  most utility companies. Changes in  consumer income, employment and  housing are all factors in the amount  of sales generated. As the Company  supplies electricity to all hotels and  large properties, its sales are therefore  partially based on tourism and related  industry fluctuations. The Company operates within  a regulated environment. As such  the operations of the Company are  subject to the normal uncertainties  CUC’s facilities are subject to the  effects of severe weather conditions  principally during the hurricane  season months of June through  November. Despite preparations for  disasters such as hurricanes, adverse  conditions will always remain a risk.  In order to mitigate some of this risk,  the Company maintains insurance  coverage which Management  believes is proper and consistent with  insurance policies obtained by similar  companies facing similar risks. faced by regulated companies. Such  uncertainties include approval by  the ERA of billing rates that allow a  reasonable opportunity to recover  on a timely basis the estimated costs  of providing services, including a  fair return on rate base assets. The  Company’s capital expenditure  plan requires regulatory approval. There is no assurance that capital  projects perceived as required by the  management of the Company will be  approved. of power generation, customer  service interruptions, and could result  in injury to employees and the public.  Accordingly, to ensure the continued  performance of the physical  assets, the Company determines  expenditures that must be made to  maintain and replace the assets. The Company continually  develops capital expenditure, safety  management and risk controls  programs and assesses current and  future operating and maintenance  expenses that will be incurred in the  ongoing operation of its systems. The Company also has an insurance  programme that provides coverage  for business interruption, liability  and property damage, although the  coverage offered by this programme  is limited. (See  “Insurance”  for  discussion of insurance terms and  coverage). In the event of a large  uninsurable loss, the Company would  apply to the ERA for recovery of these  costs through higher rates. However,  there is no assurance that the ERA  will approve any such application  (See  “Regulation”  for discussion of  regulatory risk).