Caribbean Utilities Company, Ltd.  2011  Annual Report Management’s Discussion and Analysis 12 Operating Expenses ($ thousands) Twelve Twelve  Change  Change  months ended months ended  % December 31, 2011 December 31, 2010  Power generation expenses  151,714 113,214  38,500  34% General and administration  9,254 8,418  836  10% Consumer service and promotion  1,616 1,718  (102)  (6%) Transmission and distribution  1,998 2,178  (180)  (8%) Depreciation  20,570 20,034  536  3% Maintenance  7,622 8,284  (662)  (8%) Amortization of intangible assets  308 336  (28)  (8%) Total operating expenses  193,082 154,182  38,900  25% oil for Fiscal 2011 increased to $14.12  from $11.01 for Fiscal 2010.  The Fuel Tracker Account (see Note  6 of the Notes to Financial Statements)  is comprised of total diesel fuel and  lubricating oil costs to be recovered  from consumers. In March 2011 the ERA approved  the Fuel Price Volatility Management  Programme. The objective of this  hedging programme is to reduce  the impact of volatility in the Fuel  Cost Charge paid by the Company’s  customers for the fuel that the  Company must purchase in order  to provide electric service. The  programme utilises call options  creating a ceiling price for fuel costs at  pre-determined contract premiums. The programme as it is currently  structured covers 40% of expected  fuel consumption. The call options  were purchased in an effort to assist  consumers and promote certainty in  pricing, as such the monthly hedging  costs and returns are also included  within the Fuel Tracker Account. The  current options expire in March 2012. Other generation expenses for  Fiscal 2011 totalled $3.2 million, a  $0.6 million increase when compared  to $2.6 million for Fiscal 2010. This  difference is primarily due to an  increase in waste oil disposal costs. Diesel fuel and lubricating oil costs  are recovered from consumers within  the line items of fuel factor revenues. The Fuel Tracker Account (see Note 6  of the Notes to Financial Statements)  is comprised of total diesel fuel and  lubricating oil costs to be recovered  from consumers. G&A expenses for Fiscal 2011  totalled $9.3 million, an increase  of $0.9 million, or 10%, from  $8.4 million for Fiscal 2010. This  increase is the result of higher legal,  administrative payroll and insurance  expenses. The increased legal and  payroll costs are expected to be  temporary in nature. Fortis Inc.  owns a controlling interest in CUC.  The increase in insurance costs in  2011 was tempered as the Company  purchases insurance collectively  with the Fortis group of companies,  which leads to efficiencies and more  competitive rates. These increases were partially offset  by an increase in General Expenses  General and Administration  (“G&A”) Power Generation Expenses ($ thousands) Twelve Twelve  Change  Change  months ended months ended  % December 31, 2011 December 31, 2010  Fuel costs (net of deferred fuel charges)  145,550 108,301  37,249  34% Lube costs (net of deferred lube charges)  2,919 2,278  641  28% Other generation expenses  3,245 2,635  610  23% Total power generation expenses  151,714 113,214  38,500  34%