Caribbean Utilities Company, Ltd.  2011  Annual Report Management’s Discussion and Analysis 9 The principal activity of the  Company is to generate, transmit  and distribute electricity in its  licence area of Grand Cayman (the  “Island”), Cayman Islands pursuant  to a 20-year exclusive Transmission  & Distribution (“T&D”) Licence and  a 21.5 year non-exclusive Generation  Licence (“the Licences”) granted by  the Cayman Islands Government  (the “Government”), which expire  in April 2028 and September 2029  respectively. The Licences contain the provision  for a rate cap and adjustment  mechanism (“RCAM”) based on  published consumer price indices.  CUC’s return on rate base (“RORB”)  for 2011 was 7.6% (2010: 7.9%). CUC’s RORB for 2011 was targeted  in the 7.75% to 9.75% range (2010:  CUC’s base rates are designed to  recover all non-fuel and regulatory  costs and include per kilowatt-hour  (“kWh”) electricity charges and  fixed facilities charges. Fuel cost  charges and regulatory fees are  billed as separate line items. Base  rates are subject to an annual review  and adjustment each June through  the RCAM. Base rates were last  adjusted in June 2009. In early May  2011, after the requisite review, the  Company confirmed to the Electricity  Regulatory Authority (“ERA”) that the  RCAM yielded no rate adjustment for  June 2011 as the slight inflation in the  applicable United States price index,  adjusted to exclude food and fuel,  was offset by deflation in the Cayman  Islands consumer price index, also  adjusted to exclude food and fuel,  for calendar year 2010. All fuel and  lubricating oil costs are passed  through to customers without mark- up as a per kWh charge.  Rate Base is the value of capital  upon which the Company is  permitted an opportunity to earn a  return. The value of this capital is the  average of the beginning and ending  values for the applicable financial  year of completed fixed assets less  accumulated depreciation, plus the  allowance for working capital, plus  regulatory assets less regulatory  liabilities. The ERA has the overall  responsibility of regulating the  electricity industry in the Cayman  Islands in accordance with the ERA  Law. The ERA oversees all licencees,  establishes and enforces licence  standards, enforces applicable  Corporate and Regulatory Overview  7.75% to 9.75%). (in $ thousands except basic earnings per Class A Ordinary Share, dividends paid per Class A Ordinary Share and where otherwise indicated) Financial and Operational Highlights Twelve Twelve  Change  Change  months ended months ended  % December 31, 2011 December 31, 2010  Electricity sales  69,630 69,517  113  0% Fuel factor revenues  148,469 110,579  37,890  34% Operating revenues  218,099 180,096  38,003  21% Fuel and lube costs  148,469 110,579  37,890  34% Other operating expenses  44,613 43,603  1,101  2% Total operating expenses  193,082 154,182  38,900  25% Earnings for the period  20,390 19,879  511  3% Basic earnings per Class A Ordinary Share  0.68 0.67  0.01  2% Dividends paid per Class A Ordinary Share  0.660 0.660  -  0% Peak load gross (MW)  99.0 102.1  (3.1)  (3%) Net generation (millions kWh)  594.0 593.5  0.5  0% Kilowatt-hour sales (millions kWh)  554.0 553.8  0.2  0% Total customers  26,636 26,151  485  2% Customers per employee (#)  138 136  2  1% Sales per employee (millions kWh)  2.87 2.88  (0.01)  0%