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Caribbean Utilities Company, Ltd.

2014 First Quarter Report
March 31, 2014
Caribbean Utilities Company, Ltd.

About the Company

Caribbean Utilities Company, Ltd., (“CUC” or “the Company”) commenced operations as the
only electric utility in Grand Cayman on May 10, 1966.

The Company currently has an installed generating capacity of 131.65 megawatts (MW) and a
record peak load of 102.086 MW was experienced on June 3, 2010.

CUC is committed to providing a safe and reliable supply of electricity to over 27,000
customers. The Company has been through many challenging and exciting periods but has
kept pace with Grand Cayman’s development for over 45 years.

The Company’s registered office address is 457 North Sound Road, P.O Box 38, Grand Cayman
KY1-1101 and employs 193 employees.

About the Cayman Islands

The Cayman Islands, a United Kingdom Overseas Territory with a population of approximately
54,000, are comprised of three islands: Grand Cayman, Cayman Brac and Little Cayman.
Located approximately 150 miles south of Cuba, 460 miles south of Miami and 167 miles
northwest of Jamaica, the largest island is Grand Cayman with an area of 76 square miles.

A Governor, presently Her Excellency Mrs. Helen Kilpatrick, is appointed by her Majesty the
Queen. A democratic society, the Cayman Islands have a Legislative Assembly comprised of
representatives elected from each of Grand Cayman’s five districts as well as two
representatives from the Sister Islands of Cayman Brac and Little Cayman.

All dollar amounts in this Quarterly Report are stated in United States dollars unless otherwise indicated.

Readers should review the note, further in this Quarterly Report, in the Management Discussion and
Analysis section, concerning the use of forward-looking statements, which applies to the entirety of this
Quarterly Report.

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Caribbean Utilities Company, Ltd.

Table of Contents:

Fellow Shareholders 4

Interim Management’s Discussion and Analysis 7

Consolidated Financial Statements:

Consolidated Balance Sheets 29
Consolidated Statements of Earnings 30
Consolidated Statements of Comprehensive Income 31
Consolidated Statements of Shareholders’ Equity 32
Consolidated Statements of Cash Flows 33

Notes to Interim Consolidated Financial Statements 34

Shareholder Information 47

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Caribbean Utilities Company, Ltd.

Fellow Shareholders,

The Company recorded an increase in net earnings and an increase in sales for the first three
months of 2014, when compared to the same period for 2013.

Net earnings for the three months ended March 31, 2014 (“First Quarter 2014”) totalled $3.4
million, an increase of $0.5 million when compared to $2.9 million for the three months ended
March 31, 2013 (“First Quarter 2013”). This increase was due primarily to higher electricity
sales revenues and lower depreciation costs. These items were partially offset by higher
consumer service costs and finance charges.

After the adjustment for dividends on the preference shares of the Company, earnings on
Class A Ordinary Shares for the First Quarter 2014 were $3.3 million, or $0.11 per Class A
Ordinary Share, an increase of $0.5 million from the $2.8 million, or $0.10 per Class A
Ordinary Share for the First Quarter 2013.

Sales for the First Quarter 2014 totalled 130.7 million kilowatt-hours (“kWh”), an increase of
5.2 million kWh, or 4%, in comparison to 125.5 million kWh for the First Quarter 2013. First
Quarter 2014 kWh sales were positively impacted by growth in customer numbers and warm
weather conditions that affected customer air conditioning load during that period more
significantly than when compared to the same period last year. The average monthly
temperature for the First Quarter 2014 was 80.0 degrees Fahrenheit as compared to average
monthly temperature of 79.3 degrees for First Quarter 2013.

During the First Quarter 2014, there was an increase in the number of customers connected to
the CUC grid. The total number of customers as at March 31, 2014 was 27,438, an increase
of 352 customers, or 1.3%, when compared to 27,086 customers as at March 31, 2013.

According to the 2013 Third Quarter Economic Report from the Cayman Islands Economics
and Statistics Office (“ESO”) that was issued in March 2014, overall economic activity in the
Cayman Islands grew by an estimated 1.0% in the first nine months of 2013. The report
confirmed that construction indicators continued to improve in the first nine months of 2013
with the value of building permissions increasing. The uptick in permit values reflects the
impact of multi-million dollar projects, such as the Health City Cayman Islands facility which
opened in 2014. The tourism industry is also a key contributor to economic and electricity
sales growth. Air arrivals increased by 5% for the First Quarter 2014 when compared to First
Quarter 2013.

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Caribbean Utilities Company, Ltd.

The Company remains ready to invest in the growth and ongoing development of Grand
Cayman as the economy steadily improves. Capital Expenditures totalled $6.5 million and
reliability of service, as measured by the average service availability index, was 99.98% for
the First Quarter 2014.

The Electricity Regulatory Authority (“ERA”) cancelled the solicitation process for firm
generation in July 2013. This process had been initiated by a Certificate of Need (“CON”)
issued by CUC in November 2011. The CON was driven primarily by the upcoming retirement
of some of the Company’s generating units due to begin this year.

The ERA has since restarted the process and announced the listing of qualified bidders
resulting from its solicitation for Statements of Qualifications. Bids are due in mid-May and an
announcement of the winning bidder is expected to be made in July 2014 for 36 MW of firm
capacity to be on-line by June 2016.

In the meantime, the ERA and CUC have agreed to a temporary generation plan which will
allow CUC to meet the expected reserve margin requirements for the peak periods, and until
the firm capacity needs can be met.

CUC has secured the rental supply of approximately 7.5 MW of mobile generation for this
summer. This will complement existing generation and satisfy ongoing customer needs and
help to ensure a continued reliable supply of power to consumers.

The Company is also constantly evaluating technologies that will reduce the cost of electricity
and it is committed to bringing them to the business as and if they make economic sense and
provide benefits to Grand Cayman. Wind and solar are non-firm power and will continue to be
supported with firm power such as diesel generation.

In August 2011 CUC sought expressions of interest from developers and subsequently
selected two companies, International Electric Power (“IEP”) and New Generation Power
(“NGP”), to provide 13 MW of renewable generation capacity. Technical interconnection
studies are now being undertaken for proposed generation sites and CUC anticipates
connecting the projects by the end of 2015.

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Caribbean Utilities Company, Ltd.

The Company remains committed to serving the people of Grand Cayman and is focused on
providing a safe and reliable electricity service to its customers in an efficient and effective
manner while meeting stakeholder expectations.

J.F. Richard Hew

President & Chief Executive Officer

May 6, 2014

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Caribbean Utilities Company, Ltd.

Interim Management’s Discussion and Analysis

The following management’s discussion and analysis (“MD&A”) should be read in

conjunction with the Caribbean Utilities Company, Ltd. (“CUC” or “the Company”) audited
consolidated financial statements and notes thereto for the year ended
December 31, 2013. The material has been prepared in accordance with National
Instrument 51-102 - Continuous Disclosure Obligations (“NI 51-102”) relating to
Management’s Discussion and Analysis.

Additional information in this MD&A has been prepared in accordance with United States
Generally Accepted Accounting Principles (“US GAAP”), including certain accounting
practices unique to rate-regulated entities. These accounting practices, which are
disclosed in the notes to the Company’s 2013 annual financial statements, result in
regulatory assets and liabilities which would not occur in the absence of rate regulation.
In the absence of rate regulation the amount and timing of the recovery or refund would
not be subject to regulatory approval.

Certain statements in this MD&A, other than statements of historical fact, are forward-
looking statements concerning anticipated future events, results, circumstances,
performance or expectations with respect to the Company and its operations, including its
strategy and financial performance and condition. Forward looking statements include
statements that are predictive in nature, depend upon future events or conditions, or
include words such as “expects”, “anticipates”, “plan”, “believes”, “estimates”, “intends”,
“targets”, “projects”, “forecasts”, “schedule”, or negative versions thereof and other
similar expressions, or future or conditional verbs such as “may”, “will”, “should”, “would”
and “could”. Forward looking statements are based on underlying assumptions and
management’s beliefs, estimates and opinions, and are subject to inherent risks and
uncertainties surrounding future expectations generally that may cause actual results to
vary from plans, targets and estimates. Some of the important risks and uncertainties
that could affect forward looking statements are described in the MD&A in the section
labelled “Business Risks” and include but are not limited to operational, general
economic, market and business conditions, regulatory developments and weather. CUC
cautions readers that actual results may vary significantly from those expected should
certain risks or uncertainties materialize, or should underlying assumptions prove
incorrect. Forward-looking statements are provided for the purpose of providing
information about management’s current expectations and plans relating to the future.
Readers are cautioned that such information may not be appropriate for other purposes.
The Company disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise
except as required by law.

Financial information is presented in United States dollars unless otherwise specified.

The consolidated financial statements and MD&A in this interim report were approved by
the Audit Committee.

2014 First Quarter Report l March 31, 2014 7

Caribbean Utilities Company, Ltd.

Financial and Operational Highlights

($ thousands, except basic earnings per ordinary Three Three Change % Change
share, dividends paid per ordinary share and Months Months
where otherwise indicated) Ended Ended
March 31, March 31,
2014 2013

Electricity Sales 16,905 15,946 959 6%

Fuel Factor Revenues 36,600 36,579 21 0%
Operating Revenues 53,505 52,525 980 2%
Fuel and Lube Costs 36,600 36,579 21 0%
Other Operating Expenses 11,967 11,835 132 1%
Total Operating Expenses 48,567 48,414 153 0%
Earnings for the Period 3,448 2,898 550 19%
Basic Earnings per Class A Ordinary Share 0.11 0.10 0.01 10%
Dividends paid per Class A Ordinary Share 0.165 0.165 - 0%
Peak Load Gross (MW) 93.4 88.6 4.8 5%
Net Generation (millions of kWh) 140.1 134.4 5.7 4%
Kilowatt-Hour Sales (millions of kWh) 130.7 125.5 5.2 4%
Total Customers 27,438 27,086 352 1%
System Availability (%) 99.98 99.97 0.01 0%
Customers per Employee (#) 143 138 5 4%
Sales per employee (millions of kWh) 0.68 0.64 0.04 6%

Corporate and Regulatory Overview

The principal activity of the Company is to generate, transmit and distribute electricity in its
licence area of Grand Cayman, 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 2013 was 7.6%
(2012: 6.9%). CUC’s RORB for 2014 is targeted in the 7.00% to 9.00% range (2013: 6.50%
to 8.50%).

CUC’s base rates are designed to recover all non-fuel and non-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. In June 2013, following review and approval by
the Electricity Regulatory Authority (“ERA”), the Company increased its base rates by 1.8% as
a result of the 2012 RORB and the increase in the applicable United States and Cayman
Islands consumer price indices, adjusted to exclude food and fuel, for calendar year 2012. 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: fixed assets less accumulated depreciation, plus the allowance for
working capital, plus regulatory assets less regulatory liabilities.
The ERA has the overall responsibility for regulating the electricity industry in the Cayman
Islands in accordance with the ERA Law. The ERA oversees all licencees, establishes and

2014 First Quarter Report l March 31, 2014 8

Caribbean Utilities Company, Ltd.

enforces licence standards, enforces applicable environmental and performance standards,

reviews the proposed RCAM, and sets the rate adjustment factors as appropriate.
The ERA also annually reviews and approves CUC’s capital investment plan (“CIP”). $143.0
million of proposed non-generation installation expenditures in the 2014 to 2018 CIP was
approved by the ERA. The remaining $74.0 million of the CIP relates to new generation
installation, which is subject to a competitive bid process and would only be incurred if CUC
were the successful bidder.
A Certificate of Need (“CON”) for generation capacity was issued to the ERA by the Company
in November 2011, driven primarily by the upcoming retirements of some of the Company’s
generating units due to begin in 2014.

In March 2012, the ERA solicited Request for Proposals (“RFP”) for an additional 36 megawatts
(“MW”) of generation capacity from qualified bidders, including CUC. In February 2013, the
Company was advised that another local company, DECCO Ltd., had won the bid.

In April 2013, the ERA announced that it would be engaging an independent party to conduct
an investigation into the 36 MW bid process following public statements being made by its
former managing director concerning alleged irregularities with the process. In July 2013, the
ERA announced that, in its view, as a result of unavoidable and unforeseen delays, the
timetable and various milestones provided for in the solicitation cannot now be achieved and
that it had taken the decision to cancel the solicitation process.

In October 2013, the Company issued a new CON for generation capacity. The CON listed a
requirement of 36 MW of generating capacity, in two 18 MW instalments to be operational
April 2016 and May 2016.

In November 2013, the ERA issued a solicitation for Statements of Qualifications from
prospective bidders. In January 2014, the ERA announced the parties selected as qualified
bidders and released the request for proposal document to all qualified bidders. Bids are due
in mid-May, 2014 with a decision from the ERA on the top ranked bidder to be published in
July 2014.

A licence fee of 1%, payable to the Government, is charged on gross revenues, then prorated
and applied only to customer billings with consumption over 1,000 kWh per month as a pass-
through charge. In addition to the licence fee, a regulatory fee of ½ of 1% is charged on
gross revenues, then prorated and applied only to customer billings with consumption over
1,000 kWh per month.

In the event of a natural disaster as defined in the T&D Licence, the actual increase in base
rates will be capped for the year at 60% of the change in the Price Level Index and the
difference between the calculated rate increase and the actual increase expressed as a
percentage, shall be carried over and applied in addition to the normal RCAM adjustment in
either of the two following years if the Company’s RORB is below the target range. In the
event of a disaster the Company would also write-off destroyed assets over the remaining life
of the asset that existed at time of destruction. Z Factor rate changes will be required for
insurance deductibles and other extraordinary expenses. The Z Factor is the amount,
expressed in cents per kwh, approved by the ERA to recover the costs of items deemed to be
outside of the constraints of the RCAM.

In March 2012, CUC’s wholly owned subsidiary, DataLink, Ltd. (“DataLink”), received its
licence from the Information and Communications Technology Authority (“ICTA”) which
permits DataLink to provide fibre optic infrastructure and other information and
communication technology (ICT) services to the ICT industry. The term of the licence is 15
years and expires on March 27, 2027.

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Caribbean Utilities Company, Ltd.

The ICTA is an independent statutory body which was created by the enactment of the
Information and Communications Technology Authority Law on May 17, 2002 and is
responsible for the regulation and licensing of Telecommunications, Broadcasting, and all
forms of radio. The ICTA sets the standards under which ICT networks must be developed
and operated.

Consolidation Accounting Policy

The consolidated financial statements include the accounts of the Company and its wholly
owned subsidiary DataLink. All significant inter-company balances and transactions have been
eliminated on consolidation.

Earnings

Net earnings for the three months ended March 31, 2014 (“First Quarter 2014”) totalled $3.4
million, an increase of $0.5 million when compared to $2.9 million for the three months ended
March 31, 2013 (“First Quarter 2013”). This increase was due primarily to higher electricity
sales revenues and lower depreciation costs. These items were partially offset by higher
consumer service costs and finance charges.

After the adjustment for dividends on the preference shares of the Company, earnings on
Class A Ordinary Shares for the First Quarter 2014 were $3.3 million, or $0.11 per Class A
Ordinary Share, an increase of $0.5 million from the $2.8 million, or $0.10 per Class A
Ordinary Share for the First Quarter 2013.

Sales

Sales for the First Quarter 2014 totalled 130.7 million kWh, an increase of 5.2 million kWh in
comparison to 125.5 million kWh for the First Quarter 2013. First Quarter 2014 kWh sales
were positively impacted by warm weather conditions that affected customer air conditioning
load during that period more significantly when compared to the same period last year. The
average monthly temperature for the First Quarter 2014 was 80.03 degrees Fahrenheit as
compared to average monthly temperature of 79.30 degrees for First Quarter 2013.

Total customers as at March 31, 2014 were 27,438, an increase of 352 customers, or 1%,
compared to 27,086 customers as at March 31, 2013.

The following tables present customer and sales highlights:

Customers (#) March 31, 2014 March 31, 2013

Residential 23,454 23,098

Commercial 3,984 3,988

Total Customers 27,438 27,086

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Caribbean Utilities Company, Ltd.

Sales (thousands kWh) Three Months Three Months Change % Change

Ended March Ended March
31, 2014 31, 2013

Residential 59,992 56,761 3,231 6%

Commercial 68,994 67,075 1,919 3%
Other (street lighting, etc.) 1,687 1,619 68 4%
Total Sales 130,673 125,455 5,218 4%

Operating Revenues

Total operating revenues were as follows:

Revenues (thousands $) Three Months Three Months Change % Change

Ended March 31, Ended March
2014 31, 2013

Residential 8,045 7,493 552 7%

Commercial 8,729 8,343 386 5%
Other (street lighting, etc.) 131 110 21 19%
Electricity Sales Revenues 16,905 15,946 959 6%
Fuel Factor Revenues 36,600 36,579 21 0%
Total Operating Revenues 53,505 52,525 980 2%

Operating revenues for the First Quarter 2014 were $53.5 million, an increase of $1.0 million
from $52.5 million for the First Quarter 2013. Increases in operating revenues for the three
months ended March 31, 2014 were due primarily to higher electricity sales revenues.

Other (street lighting, etc.) revenue for the First Quarter 2014 increased by 19% when
compared to the First Quarter 2013 due to an increase in the number of street lights.

Electricity sales revenues were $16.9 million for the First Quarter 2014, an increase of $1.0
million from $15.9 million for the First Quarter 2013. Electricity sales revenues for the First
Quarter 2014 increased when compared to electricity sales revenue for the First Quarter 2013
due to a 4% increase in kWh sales period over period, in addition to a 1.8% base rate increase
effective June 1, 2013.

Fuel factor revenues for the First Quarter 2014 totalled $36.6 million, comparable to fuel
factor revenues for the First Quarter 2013. The average Fuel Cost Charge for the three
months ended March 31, 2014 was $0.26 per kWh, compared to the average Fuel Cost Charge
rate of $0.28 per kWh for the three months ended March 31, 2013. CUC passes through all
fuel costs to consumers on a two-month lag basis with no mark-up.

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Caribbean Utilities Company, Ltd.

Operating Expenses
Operating expenses were as follows:
Operating Expenses ($ thousands) Three Months Three Months Change % Change
Ended March 31, Ended March
2014 31, 2013

Power Generation Expenses 37,339 37,323 16 0%

General and Administration 2,266 2,080 186 9%
Consumer Service 974 409 565 138%
Transmission and Distribution 497 601 (104) -17%
Depreciation 6,113 6,376 (263) -4%
Maintenance 1,293 1,546 (253) -16%
Amortization of Intangible Assets 85 79 6 8%
Total Operating Expenses 48,567 48,414 153 0%

Operating expenses for the First Quarter 2014 totalled $48.6 million, a $0.2 million increase
from $48.4 million for the First Quarter 2013. This increase was due primarily to higher
consumer service and general and administration expenses which were partially offset by
lower depreciation, maintenance and transmission and distribution costs for the First Quarter
2014 when compared to the First Quarter 2013.

Power Generation

Power generation costs for the First Quarter 2014 were comparable to the First Quarter 2013
as higher net generation was partially offset by lower fuel costs.

Power generation expenses were as follows:

Power Generation ($ thousands) Three Three Change %

Months Months Change
Ended Ended
March 31, March 31,
2014 2013

Fuel costs (net of deferred fuel charges) 36,015 35,996 19 0%

Lubricating Oil costs (net of deferred lubricating oil charges) 585 583 2 0%

Other generation expenses 739 744 -5 -1%

Total power generation expenses 37,339 37,323 16 0%

The Company’s average price per imperial gallon (“IG”) of fuel for the First Quarter 2014
decreased 3% to $4.75, compared to $4.90 for the First Quarter 2013. Net generation was
140.1 million kWh for the First Quarter 2014 a 4% increase when compared to 134.4 million
kWh for the First Quarter 2013. Net fuel efficiency for the First Quarter 2014 of 18.44 kWh
per IG decreased when compared to net fuel efficiency for the First Quarter 2013 of 18.69
kWh per IG.

The Company’s average price per IG of lubricating oil for the First Quarter 2014 declined 6%
to $12.30 when compared to $13.12 for the First Quarter 2013.

The Fuel Tracker Account (see Note 5 in the Notes to Interim Consolidated Financial
Statements) is comprised of total diesel fuel and lubricating oil costs to be recovered from
consumers.

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Caribbean Utilities Company, Ltd.

In March 2011, the ERA approved the Fuel Price Volatility Management Programme. The
objective of the 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. Contracts initiated in March 2014 utilize call spreads to promote transparency
in pricing. The monthly hedging costs and returns are also included within the Fuel Tracker
Account.

Other generation expenses for the First Quarter 2014 of $0.7 million were comparable to other
generation expenses for the First Quarter 2013.

General and Administration (“G&A”)

G&A expenses for the First Quarter 2014 totalled $2.3 million, a $0.2 million increase
compared to $2.1 million for the First Quarter 2013. This increase was due primarily to the
Company’s short term incentive plan and the introduction of the Company’s Performance
Share Unit (“PSU”) plan (see Note 12 in the Notes to Interim Consolidated Financial
Statements).

General Expenses Capitalised (“GEC”) totalled $1.0 million for the First Quarter 2014, an
increase of $0.1 million compared to $0.9 million for the First Quarter 2013.

Consumer Services (“CS”)

CS expenses for the First Quarter 2014 totalled $1.0 million a $0.6 million increase compared
to $0.4 million for the First Quarter 2013. This increase is attributable to an adjustment to the
provision for bad debt and increased transaction fees associated with customer payments.

In accordance with its Allowance for Doubtful Accounts (“AFDA”) policy, the Company
maintains an accumulated provision for uncollectible customer accounts receivable that is
estimated based on known accounts, historical experience and other currently available
information, including the economic environment. During the First Quarter 2014, the
Company commenced a full review of its outstanding Accounts Receivables balance and the
reasonableness of its methodology of applying a flat percentage to total receivables in
calculating AFDA. This review has initially indicated an increase in days outstanding for
receivable balances and management has determined the estimation process related to the
AFDA would be refined to include a risk element for aging of accounts receivable. The effect of
this change in estimate was to increase the provision by $0.5 million.

Trade and other accounts receivables ($ thousands) As at March 31, 2014 As at December 31, 2013
Current 9,698 11,914
Past due 31-60 days 1,326 2,018
Past due 61-90 days 477 594
Past due over 90 days 4,242 4,314
Total Accounts Receivables 15,743 18,840

Less: allowance for doubtful accounts (705) (195)

Less: Consumer Deposits (5,133) (4,998)
Net Exposure 9,905 13,647

Transmission and Distribution (“T&D”)

T&D expenses for the First Quarter 2014 totalled $0.5 million, a decrease of $0.1 million
compared to T&D expenses for the First Quarter 2013 of $0.6 million. T&D expenses for the

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Caribbean Utilities Company, Ltd.

First Quarter 2013 were impacted by maintenance projects that led to higher labour costs than
were seen in the First Quarter 2014.

Depreciation
Depreciation expenses for the First Quarter 2014 totalled $6.1 million, a decrease of $0.3
million, from $6.4 million for the First Quarter 2013. This decrease in depreciation is related
to the book retirement of a 7.59 MW generating unit during 2013.

In accordance with its PP&E policy, the Company reviews the estimated useful lives of its fixed
assets on an ongoing basis. A review concluded during the First Quarter 2014 indicated that
the actual lives of certain transmission and distribution (“T&D”) and generation assets were
longer than the estimated useful lives used for depreciation purposes in the Company’s
financial statements. As a result, effective January 1, 2014, the Company changed its
estimates of the useful lives of these assets to better reflect the estimated periods during
which these assets will remain in service. The affected assets previously averaged useful lives
of 20 years which were increased to an average of 25 to 35 years. The effect of this change in
estimate was to reduce First Quarter 2014 depreciation expense by $0.4 million.

Maintenance
Maintenance expenses for the First Quarter 2014 totalled $1.3 million, a decrease of $0.2
million when compared to $1.5 million for the First Quarter 2013. This decrease was due to a
decline in maintenance costs associated with the generating units as this group remains
focused on capital activity. This decline was partially offset by increased maintenance on the
information technology (“IT”) systems. These IT systems have increased productivity and
efficiencies throughout the organisation.

Amortization
Amortization of intangible assets for the First Quarter 2014 totalled $0.09 million, an 8%
increase when compared to $0.08 million for the First Quarter 2013. The increase in
amortization is attributable to software purchases made in prior periods.

Amortization represents the monthly recognition of the expense associated with software
purchases as well as other intangible assets such as the costs associated with the licence
negotiations. The negotiations for the Company’s electricity licence ceased in 2008 and the
costs associated with the negotiations are being amortized over 20 years on a straight-line
basis. The negotiations associated with DataLink's ICT licence ceased in 2012 and these costs
are being amortized over 15 years on a straight-line basis.

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Caribbean Utilities Company, Ltd.

Other Income and Expenses

Net Other Expenses for the First Quarter 2014 totalled $1.5 million, an increase of $0.3 million
from $1.2 million for the First Quarter 2013.

Other Income & Expenses ($ thousands) Three Months Three Months Change % Change
Ended March Ended March
31, 2014 31, 2013
Total interest costs (3,030) (3,032) 2 0%
AFUDC 543 789 (246) -31%
Total finance charges (2,487) (2,243) (244) 11%

Foreign exchange gain 491 472 19 4%

Other income 506 558 (52) -9%
Total Net Other Expense (1,490) (1,213) (277) 23%

Finance charges for the First Quarter 2014 totalled $2.5 million, a $0.3 million increase from
$2.2 million for the First Quarter 2013 as a result of lower capitalization of financing costs in
2014.

Under the T&D Licence there is a provision for an Allowance for Funds Used During
Construction (“AFUDC”). This capitalisation of the Financing Cost is calculated by multiplying
the Company’s Cost of Capital rate by the average work in progress for each month. The cost
of capital rate for 2014 is 8.0% as agreed with the ERA, in accordance with the T&D Licence,
and will be reviewed annually. The cost of capital rate for 2013 was 7.5%.

The AFUDC amount for the First Quarter 2014 totalled $0.5 million, a $0.3 million decrease
from $0.8 million for the First Quarter 2013. This decrease is attributable to a decreased work
in progress value for First Quarter 2014 when compared to First Quarter 2013. Work in
progress balances will vary depending upon the nature and longevity of projects.

Foreign exchange gains and losses are the result of monetary assets and liabilities
denominated in foreign currencies that are translated into United States dollars at the
exchange rate prevailing on the Balance Sheet date. Revenue and expense items
denominated in foreign currencies are translated into United States dollars at the exchange
rate prevailing on the transaction date.

Foreign exchange gains for the First Quarter 2014 totalled $0.5 million, comparable to the
First Quarter 2013.

Other income is comprised of pole rental fees, income from pipeline operations, sale of meter
sockets, sale of recyclable materials and other miscellaneous income.
Other income totalled $0.5 million for the First Quarter 2014, a $0.1 million decrease when
compared to other income of $0.6 million for the First Quarter 2013.
In March 2012 the ERA acknowledged the creation of DataLink, CUC’s wholly owned
subsidiary. Subsequently the ICTA granted DataLink a licence to provide fibre optic
infrastructure in Grand Cayman. Revenues from DataLink for the First Quarter 2014 are
recorded in Other Income in the amount of $0.2 million, compared to $0.07 for the First
Quarter 2013.

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Caribbean Utilities Company, Ltd.

CUC and DataLink have entered into three agreements;

1. The Management and Maintenance agreement

2. The Pole Attachment agreement, and
3. The Fibre Optic agreement

All three agreements have been approved by the ERA. The ICT licence allowed DataLink to
assume full responsibility for the existing Pole Attachment Agreements and Optical Fiber Lease
Agreement with third party information and communications technology service providers.
The novation and reassignment of existing contracts was completed in 2012.

The Economy
In March 2014, the Government released the 2013 Consumer Price Index (“CPI”) Report, the
average CPI for 2013 increased by 2.2% from the average CPI in 2012. This increase was the
result of increasing inflation in all quarters of 2013, the highest being seen in the third quarter
at 2.8%. Of the 12 divisions monitored in the CPI calculation all saw an increase for 2013
with the exception of three: Housing and Utilities, Health and Recreation and Culture.

According to the 2013 Third Quarter Economic Report from the Cayman Islands
Economics and Statistics office (“ESO”) that was issued in March 2014, overall economic
activity in the Cayman Islands grew by an estimated 1.0% in the first nine months of
2013. GDP growth for 2013 is forecasted at 1.5%.

The Cayman Islands have two main industries; financial services and tourism. In December
2013, Moody’s Investors Service issued a credit analysis of the Cayman Islands, rating the
country overall at Aa3. The Moody’s report notes that in relation to the finance industry the
country has a well established offshore centre, one of the largest in the world. The report
goes on to note that the Cayman Islands is one of the world’s largest banking centres in terms
of assets. The report states that international scrutiny on tax transparency is likely in the
future and asserts that Cayman’s authorities have proven adept at satisfying all such
requirements and indicates a belief that such compliance will continue.

The table below itemises trends in some of the key financial areas.

As at As at As at As at As at
March December December December December
2014 2013 2012 2011 2010
Bank Licences 212 213 222 234 246
Mutual Funds * 11,205 11,379 10,841 9,258 9,438
Mutual Fund Administrators 120 121 124 129 134
• The Cayman Islands Mutual Funds (Amendment) Law, 2011, dated December 22, 2011, amended the Mutual Funds
Law (2009 Revision) to require all Master Funds, as defined therein, to become registered by the Cayman Islands
Monetary Authority (“CIMA”). Registration for these funds was required for the first time in 2012, previously
registration of any such funds was voluntary in nature. As at December 31, 2013 there were 2,635 registered
Master Mutual Funds (2012:1,891) and nil as at December 31, 2011 and prior periods.

The other major industry in Cayman is tourism. The tourist demographic is largely comprised
of visitors from the United States of America (“US”). For the first three months of 2014, 77%
of air arrivals to the country were citizens of the US. As such the US economy largely impacts
that of the Cayman Islands. First quarter 2014 air arrivals were up 5% when compared to
2013 and cruise arrivals increased by 2% when compared to 2013. Air arrivals have a direct
impact on the Company’s sales growth as these visitors are stay-over visitors who occupy
local accommodation services. Cruise arrivals have an indirect impact as they affect the
opening hours of the establishments operating for that market.

2014 First Quarter Report l March 31, 2014 16

Caribbean Utilities Company, Ltd.

The following table presents statistics for tourist arrivals in the Cayman Islands for the three
months ending March 31:

Arrivals 2014 2013 2012 2011 2010

By Air 109,406 104,029 96,187 93,822 87,841
By Sea 543,017 532,263 553,347 510,648 472,036
Total 652,423 636,292 649,534 604,470 559,877

All data is sourced from the Cayman Islands Government, Cayman Islands Economics & Statistics Office, Cayman Islands
Monetary Authority, Cayman Financial Review, Cayman Islands Department of Tourism and Health City websites;
www.gov.ky; www.ESO.ky; www.cimoney.com.ky; www.caymanfinancialreview.com; www.caymanislands.ky;
www.healthcitycaymanislands.com.

Liquidity and Capital Resources

The following table outlines the summary of cash flows:

Cash Flows ($ thousands) Three Months Three Months Change % Change

Ended March 31, Ended March
2014 31, 2013

Beginning cash 1,215 694 521 75%

Cash provided by/(used in):
Operating activities 13,688 15,333 (1,645) -11%
Investing activities (6,555) (6,402) (153) 2%
Financing activities (6,153) (6,675) 522 -8%
Ending cash 2,195 2,950 (755) -26%

Operating Activities:

Cash flow provided by operations, after working capital adjustments, for the First Quarter
2014, was $13.7 million, a decrease of $1.6 million from $15.3 million for the First Quarter
2013.

This decrease is attributable to the movement in non-cash working capital balances and
regulatory deferrals in the First Quarter 2014 when compared to the same period last year.

Investing Activities:

Cash used in investing activities for the First Quarter 2014 totalled $6.6 million, an increase of
$0.2 million from $6.4 million for the First Quarter 2013. This increase is attributable to
expenditures related to property, plant and equipment for the period.

Financing Activities:

Cash used in financing activities for the First Quarter 2014 totalled $6.2 million, a decrease of
$0.5 million compared to cash used in financing activities of $6.7 million for the First Quarter
2013. This decrease in cash used in financing activities is attributable to a lower bank
overdraft utilised in the First Quarter 2014.

2014 First Quarter Report l March 31, 2014 17

Caribbean Utilities Company, Ltd.

Transactions with Related Parties

Miscellaneous payables to Fortis Inc., the Company’s majority shareholder, totalling $0.013
million were outstanding at March 31, 2014 ($0.010 million as at December 31, 2013) for
labour, software subscriptions and travel expenses and are included within the Related Party
Payables on the Balance Sheet.

Contractual Obligations
The contractual obligations of the Company over the next five years and periods thereafter, as
at March 31, 2014, are outlined in the following table:
($ millions) Total < 1 year 1 to 3 years 4 to 5 years > 5 years

Total debt 219.0 17.0 28.0 27.7 146.3

Defined benefit pension 0.1 0.1 - - -
Total 219.1 17.1 28.0 27.7 146.3

The Company executed a primary fuel supply contract with Rubis Cayman Islands Limited
(“Rubis”) in September 2012 upon the expiration of its previous fuel supply contracts. Under
the agreement the Company is committed to purchase approximately 60% of its diesel fuel
requirements for its generating plant from Rubis. The approximate quantities per the contract
on an annual basis are, by fiscal year in millions of IGs: 2014 – 11.3.

The Company also has a secondary fuel supply contract with Sol Petroleum Cayman Limited
(“Sol”) (previously Esso Cayman Limited) executed in September 2012 and is committed to
purchase approximately 40% of the Company’s diesel fuel requirements for its generating
plant from Sol. The approximate quantities per the contract on an annual basis are, by fiscal
year in millions of IGs: 2014 – 7.6. Both contracts expire July 2014 with the option to renew
for two additional 18 month terms. Renewal cannot occur more than six months in advance of
the current contract expiry date.

2014 First Quarter Report l March 31, 2014 18

Caribbean Utilities Company, Ltd.

Financial Position
The following table is a summary of significant changes to the Company’s balance sheet from
December 31, 2013 to March 31, 2014:

Significant changes in Balance Increase Explanation

Sheets between December 31, (Decrease)
2013 and March 31, 2014
($ millions)
Cash and Cash Equivalents 1.0 Increase due to cash provided by operating activities of $13.7
million offset by cash used in financing activities of $6.1 million
and by cash used in investing activities of $6.6 million.

Accounts Receivable (3.6) Increased collection efforts led to a reduction in Accounts

Receivable. The estimation process for the doubtful debts
provision was amended and led to an increased provision (see
“Consumer Services” section for greater detail).

Regulatory Assets 2.2 In accordance with regulatory treatment the fuel tracker account is
classified as a regulatory asset. This amount represents fuel costs
incurred by the Company that are recoverable from the customer.
Prepayments (0.8) Decrease due to recognition of the Company's property and
machinery breakdown insurance policy

Property, Plant and Equipment 0.6 Net increase is comprised of capital expenditures of (1) $6.5
million (2) depreciation expense of $6.1 million (3) $0.2 million in
accrued capital expenditure
Bank Overdraft (1.3) Repayment of bank overdraft.
Share Premium 0.5 The Company issued 46,009 shares through its share purchase
plans.

Capital Resources

The Company’s principal activity of generation, transmission and distribution of electricity in

Grand Cayman requires CUC to have ongoing access to capital to build and maintain the
electrical system for the community it serves.

To help ensure access to capital, the Company targets a long-term capital structure containing
approximately 45% equity, including preference shares, and 55% debt. The Company’s
objective is to maintain investment-grade credit ratings. The Company sets the amount of
capital in proportion to risk. The debt to equity ratio is managed through various methods
such as the rights offering that occurred in 2008 and through the Company’s Share Purchase
Plans.

Certain of the Company’s long-term debt obligations have covenants restricting the issuance
of additional debt such that consolidated debt cannot exceed 65% of the Company’s
consolidated capital structure, as defined by the long-term debt agreements. As at March 31,
2014, the Company was in compliance with all debt covenants.

2014 First Quarter Report l March 31, 2014 19

Caribbean Utilities Company, Ltd.

The Company’s capital structure is presented in the following table:

Capital structure March 31, 2014 % December 31, %

($ millions) 2013
($ millions)

Total debt 219.0 55 219.0 55

Shareholder’s equity 177.4 45 178.3 45
Total 396.4 100 397.3 100

The Company’s credit ratings under Standard & Poors (“S&P”) and the Dominion Bond Rating
System (“DBRS”) are as follows:

S&P A-/Negative
DBRS A (low)

The S&P rating is in relation to long-term corporate credit and unsecured debt while the DBRS
rating relates to senior unsecured debt.

Following Fortis Inc.’s December 2013 announcement of a proposed $4.3 billion acquisition of
UNS Energy Corp., an Arizona-based holding company that wholly owns Tucson Electric Power
Co. (TEP), S&P affirmed the Company’s A- rating and revised its outlook on the Company from
Stable to Negative.

The negative outlook on CUC reflects the application of S&P’s group rating methodology and
an expectation that Fortis Inc.’s credit metrics would materially weaken due to convertible
debentures used to finance the acquisition. The S&P report also indicates their belief that
there are insufficient ring-fencing mechanisms between Fortis and its subsidiaries, including
CUC, to allow for further rating separation.

The A- rating reflects S&P’s positive view of the Company’s current position as the sole
provider of generation services, and the Company’s licenced position as the sole provider of
T&D services. The rating also reflects S&P’s positive view of regulatory support and stable
cash flows offset by the economic uncertainty and the limited history of the regulator.

In February 2014, DBRS affirmed the Company’s ‘A’ credit rating while maintaining the
categorisation of low with a Stable trend. Considerations for the rating were a supportive
regulatory regime, solid credit metrics and a stable island economy and the demand for
electricity. Impacting the rating were such factors as hurricane event risk and small size of
customer base.

Liquidity Risk

The Company’s financial position could be adversely affected if it failed to arrange sufficient
and cost-effective financing to fund, among other things, capital expenditures and the
repayment of maturing debt. The ability to arrange such financing is subject to numerous
factors, including the results of operations and financial position of the Company, conditions in
the capital and bank credit markets, ratings assigned by ratings agencies and general
economic conditions. These factors are mitigated by allowances in the Licences for review of
the RCAM by the ERA in order to enable the Company to maintain sound credit ratings.

2014 First Quarter Report l March 31, 2014 20

Caribbean Utilities Company, Ltd.

Credit Facilities

The Company currently has $47.0 million of unsecured credit financing facilities with the Royal
Bank of Canada (“RBC”). The financing facilities are comprised of:

Credit Facilities ($ millions)

Corporate Credit Card Line $0.4
Letters of Credit $0.6
Operating, Revolving Line of Credit $7.5
Catastrophe Standby Loan $7.5
Demand Loan Facility- Interim Funding of Capital Expenditures $31.0
Total $47.0

Of the total above, $46.0 million was available at March 31, 2014.

Capital Expenditures
Capital expenditures for the three months ended March 31, 2014 were $6.5 million a $0.1
million increase when compared to capital expenditures of $6.4 million for the three months
ended March 31, 2013. The capital expenditures for the three months ended March 31, 2014
primarily relate to:

 Distribution System Extension and Upgrades - $2.9 million

 Generation Replacement Cost - $2.3 million

 Facility Asset Replacements and Upgrade – Structural & Mechanical – $0.2 million

 AFUDC of $0.5 million was capitalized in the three months ended March 31, 2014

Capital expenditures Three months ended Three months Ended

($ Millions) March 31, 2014 March 31, 2013

Transmission 0.0 0.0

Distribution 3.1 3.4

Generation 3.2 2.9

Other 0.2 0.1

Total 6.5 6.4

Off Balance-Sheet Arrangements

Disclosure is required of all off-balance sheet arrangements such as transactions, agreements

or contractual arrangements with unconsolidated entities, structured finance entities, special
purpose entities or variable interest entities that are reasonably likely to materially affect
liquidity of or the availability of, or requirements for, capital resources. The Company has no
such off-balance sheet arrangements as at March 31, 2014.

2014 First Quarter Report l March 31, 2014 21

Caribbean Utilities Company, Ltd.

Business Risks

The following is a summary of the Company’s significant business risks:

Operational Risks

Operational risks are those risks normally inherent in the operation of generating,
transmission and distribution facilities. The Company’s facilities are subject to the risk of
equipment failure due to deterioration of the asset from use or age, latent defects and design
or operator error, among other factors. These risks could lead to longer-than-forecast
equipment downtimes for maintenance and repair, disruptions of power generation, customer
service interruptions and could result in injury to employees and the public. Accordingly, to
ensure the continued safe and efficient 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
program that provides coverage for business interruption, liability and property damage,
although the coverage offered by this program 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 the “Regulation” section for
discussion of regulatory risk).

Economic Conditions

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 and seasonal fluctuations.

Regulation

The Company operates within a regulated environment. As such the operations of the
Company are subject to the normal uncertainties 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.

Weather

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.

Environmental Matters

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.

2014 First Quarter Report l March 31, 2014 22

Caribbean Utilities Company, Ltd.

In 2004, CUC was initially registered to the ISO 14001:2007 which is the international
standard for Environmental Management Systems (“EMS”). Under the ISO 14001 standard
CUC is required to adhere to all applicable local legislation to prevent pollution to the
environment as well as any self determined procedures, practices, and policies. The Company
continuously adheres with the standard, and recertification must occur every three years. The
Company has most recently received a recertification audit in March 2013, and zero non-
conformances were identified, allowing CUC to be eligible for recertification.

In March 2007, the Kyoto Protocol was signed by the Cayman Islands; this framework aims to
reduce Greenhouse Gas (“GHG”) emissions produced by certain industries. As an overseas
territory the Cayman Islands are required to give available national statistics on an annual
basis to the UK which will be added to its inventory and reported to the United Nations
Framework Convention on Climate Change (UNFCCC) Secretariat. Under the Convention
governments are obligated to gather and report information on GHG emissions through the
preparation of a national greenhouse gas inventory. The inventory primarily requires the
Cayman Islands Government to quantify as best as possible the country’s fuel consumption
across a variety of sectors, production processes and distribution means. CUC has been in full
cooperation with the Cayman Islands Government with supplying information requested for
our industry to address this inventory.

Through adhering to local environmental legislation, cooperating with the Cayman Islands
government departments and authorities, and by registering our EMS with an international
standard CUC has determined that its exposure to environmental risks is not significant and
does not have an impact on financial reporting including the recording of any Asset Retirement
Obligations (“ARO’s”).

Insurance – Terms and Coverage

The Company renewed its insurance policy as at July 1, 2013 for one year under similar terms
and coverage as in prior years. Insurance terms and coverage include $100.0 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 main 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.

In accordance with the T&D Licence when an asset is impaired or disposed of, within the
original estimated useful life, the cost of the asset is reduced and the net book value is
charged to accumulated depreciation. This treatment is in accordance with rate regulated
accounting and differs from the GAAP treatment of a loss being recognized on the statement
of earnings. The amount charged to accumulated depreciation is net of any proceeds received
in conjunction with the disposal of the asset. Insurance proceeds are included within the
criteria.

In addition to the coverage discussed above, the Company has also purchased an excess layer
of an additional $100.0 million limit on property and business interruption (excluding
windstorm, earth movement and flood).

The Company’s insurance policy includes business interruption which covers losses resulting
from the necessary interruption of business caused by direct physical loss or damage to CUC’s
covered property and loss of revenues resulting from damage to customers’ property.

2014 First Quarter Report l March 31, 2014 23

Caribbean Utilities Company, Ltd.

Defined Benefit Pension Plan

The Company maintains a defined benefit pension plan. There is no assurance that the
pension plan assets will be able to earn the assumed rate of returns. The assumed long-term
rate of return on pension plan assets, for the purposes of estimating pension expense for 2014
is 5%. This compares to assumed long-term rates of return of 5% used during 2013. The
gain on pension plan assets during 2013 was 7% (2012: gain of 9%).

Market driven changes impacting the performance of the pension plan assets may result in
material variations in actual return on pension plan assets from the assumed return on the
assets causing material changes in consolidated pension expense and funding requirements.
Net pension expense is impacted by, among other things, the amortization of experience and
actuarial gains or losses and expected return on plan assets. Market driven changes
impacting other pension assumptions, including the assumed discount rate, may also result in
future consolidated contributions to pension plans that differ significantly from current
estimates as well as causing material changes in consolidated pension expense. The discount
rate assumed for 2014 is 4.9% compared to the discount rate assumed during 2013 which
was 3.7%.

There is also measurement uncertainty associated with pension expense, future funding
requirements, the accrued benefit asset, accrued benefit liability and benefit obligation due to
measurement uncertainty inherent in the actuarial valuation process.

A discussion of the critical accounting estimates associated with pensions is provided in the
“Critical Accounting Estimates” section of this MD&A.

Changes in Accounting Estimates

Property, Plant and Equipment (“PP&E)

In accordance with its PP&E policy, the Company reviews the estimated useful lives of its fixed
assets on an ongoing basis. A review concluded during the First Quarter 2014 indicated that
the actual lives of certain Transmission and Distribution (“T&D”) and Generation assets were
longer than the estimated useful lives used for depreciation purposes in the Company’s
financial statements. As a result, effective January 1, 2014, the Company changed its
estimates of the useful lives of these assets to better reflect the estimated periods during
which these assets will remain in service. The affected assets previously averaged useful lives
of twenty years which were increased to an average of twenty-five to thirty-five years. The
effect of this change in estimate was to reduce First Quarter 2014 depreciation expense by
$0.4 million, increase First Quarter 2014 net earnings by $0.4 million, and increase First
Quarter 2014 basic and diluted earnings per share by $0.01.

Allowance for Doubtful Accounts (“AFDA”)

In accordance with its AFDA policy, the Company maintains an accumulated provision for
uncollectible customer accounts receivable that is estimated based on known accounts,
historical experience and other currently available information, including the economic
environment. During the First Quarter 2014, the Company commenced a full review of its
outstanding Accounts Receivables balance and the reasonableness of its methodology of
applying a flat percentage to total receivables in calculating AFDA. This review has initially
indicated an increase in days outstanding for receivable balances and management has
determined the estimation process related to the AFDA would be refined to include a risk
element for aging of accounts receivable. The effect of this change in estimate was to
increase the provision by $0.5 million, decrease First Quarter 2014 net earnings by $0.5
million, and decrease First Quarter 2014 basic and diluted earnings per share by $0.02.

2014 First Quarter Report l March 31, 2014 24

Caribbean Utilities Company, Ltd.

Critical Accounting Estimates

The preparation of the Company’s financial statements in accordance with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period. Estimates
are based on historical experience, current conditions and various other assumptions believed
to be reasonable under the circumstances. Due to changes in facts and circumstances and the
inherent uncertainty involved in making estimates, actual results may differ significantly from
the current estimates. Estimates are reviewed periodically and, as adjustments become
necessary, are reported in earnings in the period in which they become known. The
Company’s critical accounting estimates relate to:

Revenue Recognition
Revenue derived from the sale of electricity is taken to income on a bills-rendered basis,
adjusted for unbilled revenues. Customer bills are issued throughout the month based on
meter readings that establish electricity consumption since the last meter reading. The
unbilled revenue accrual for the period is based on estimated electricity sales to customers
since the last meter reading. The estimation process for accrued unbilled electricity
consumption will result in adjustments of electricity revenue in the periods they become
known when actual results differ from the estimates. As at March 31, 2014, the amount of
unbilled revenue recorded in Electricity Sales was $3.5 million (March 31, 2013: $3.7 million).

Kilowatt-Hour (“kWh”) Sales

Kilowatt-hour sales throughout the month are based on meter readings that establish
electricity consumption since the last meter reading. The kWh accrual for the period is based
on estimated electricity sales to customers since the last meter reading. The estimation
process for electricity consumption will result in adjustments of kWh sales statistics in the
periods they become known when actual results differ from the estimates. As at March 31,
2014, the amount of estimated kWh sales was 24.8 million kWh (March 31, 2013: 26.4 million
kWh).

Employee Future Benefits

The Company’s defined benefit pension plan is subject to judgments utilised in the actuarial
determination of the expense and related obligation. There are currently two participants in
the Company’s defined benefit pension plan. The main assumptions utilized by Management in
determining pension expense and obligations were the discount rate for the accrued benefit
obligation, pension commencement date, inflation and the expected rate of return on plan
assets. As at March 31, 2014, the Company has a long term liability of $0.3 million
(December 31, 2013: $0.3 million).

Property, Plant and Equipment Depreciation

Depreciation, by its very nature is an estimate based primarily on the estimated useful life of
the asset. Estimated useful lives are based on current facts and historical information and take
into consideration the anticipated physical life of the assets. As at March 31, 2014, the net
book value of the Company’s PP&E was $379.9 million compared to $379.3 million as at
December 31, 2013, increasing as a result of the Company’s generation and T&D capital
expenditures. Depreciation expense for the First Quarter 2014 was $6.1 million ($6.4 million
First Quarter 2013). Due to the value of the Company’s property, plant and equipment,
changes in depreciation rates can have a significant impact on the Company’s depreciation
expense.

2014 First Quarter Report l March 31, 2014 25

Caribbean Utilities Company, Ltd.

Quarterly Results

The table “Quarterly Results” summarises unaudited quarterly information for each of the
eight quarters ended June 30, 2012 through March 31, 2014. This information has been
obtained from CUC’s unaudited interim Financial Statements which, in the opinion of
Management, have been prepared in accordance with US GAAP. These operating results are
not necessarily indicative of results for any future period and should not be relied upon to
predict future performance.

Quarterly results Operating Net Income Earnings Diluted earnings

($ thousands, except Revenue earnings applicable to per ordinary per ordinary
basic and diluted ordinary shares share share
earnings per ordinary
share)
March 31, 2014 53,505 3,448 3,335 0.11 0.11
December 31, 2013 58,801 5,760 5,169 0.18 0.18
September 30, 2013 59,547 6,048 5,935 0.21 0.21
June 30, 2013 55,346 5,716 5,603 0.19 0.19
March 31, 2013 52,525 2,898 2,785 0.10 0.10
December 31, 2012 59,087 4,061 3,468 0.12 0.12
September 30, 2012 58,870 6,582 6,469 0.22 0.22
June 30, 2012 53,940 5,146 5,033 0.18 0.18

March 2014/March 2013

Net earnings for the three months ended March 31, 2014 (“First Quarter 2014”) totalled $3.4
million, an increase of $0.5 million when compared to $2.9 million for the three months ended
March 31, 2013 (“First Quarter 2013”). This increase was due primarily to higher electricity
sales revenues and lower depreciation costs. These items were partially offset by higher
consumer service costs and finance charges.

After the adjustment for dividends on the preference shares of the Company, earnings on
Class A Ordinary Shares for the First Quarter 2014 were $3.3 million, or $0.11 per Class A
Ordinary Share, an increase of $0.5 million from the $2.8 million, or $0.10 per Class A
Ordinary Share for the First Quarter 2013.

December 2013/December 2012

Net earnings for the three months ended December 31, 2013 (“Fourth Quarter 2013”) were
$5.8 million, a $1.7 million increase when compared to $4.1 million for the three months
ended December 31, 2012 (“Fourth Quarter 2012”). This increase is attributable to a 6%
increase in kWh sales, higher other income and lower non-fuel operating expenditure. These
items were partially offset by higher finance charges and lower foreign exchange gains for the
Fourth Quarter 2013 when compared to the Fourth Quarter 2012.

After the adjustment for dividends on the preference shares of the Company, earnings on
Class A Ordinary Shares for the Fourth Quarter 2013 were $5.2 million, or $0.18 per Class A
Ordinary Share, as compared to $3.5 million, or $0.12 per Class A Ordinary Share for the
Fourth Quarter 2012.

September 2013/September 2012

Net earnings for the three months ended September 30, 2013 (“Third Quarter 2013”) totalled
$6.0 million, a decrease of $0.6 million when compared to $6.6 million for the three months
ended September 30, 2012 (“Third Quarter 2012”). This decrease was due primarily to higher
depreciation and finance charges, while electricity sales revenues were flat. These items were

2014 First Quarter Report l March 31, 2014 26

Caribbean Utilities Company, Ltd.

partially offset by lower general and administration and maintenance costs. Maintenance costs
declined as a result of the Company’s focus in 2013 on capital-related upgrade projects that
improve the efficiency of its generating units.

After the adjustment for dividends on the preference shares of the Company, earnings on
Class A Ordinary Shares for the Third Quarter 2013 were $5.9 million, or $0.21 per Class A
Ordinary Share, a decrease of $0.6 million from the $6.5 million, or $0.22 per Class A
Ordinary Share for the Third Quarter 2012.

June 2013/June 2012

Net earnings for the three months ended June 30, 2013 (“Second Quarter 2013”) totalled $5.7
million, an increase of $0.6 million when compared to $5.1 million for the three months ended
June 30, 2012 (“Second Quarter 2012”). This increase was due primarily to a 3% increase in
kWh sales and lower financing costs. Maintenance costs also declined as a result of the focus
in the Second Quarter 2013 on capital-related upgrade projects that improve the efficiency of
the Company’s generating units. These items were partially offset by higher depreciation
costs.

After the adjustment for dividends on the preference shares of the Company, earnings on
Class A Ordinary Shares for the Second Quarter 2013 were $5.6 million, or $0.19 per Class A
Ordinary Share, an increase of $0.6 million from the $5.0 million, or $0.18 per Class A
Ordinary Share for the Second Quarter 2012.

Disclosure Controls and Procedures

The President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”),
together with Management, have established and maintained the Company’s disclosure
controls and procedures, to provide reasonable assurance that material information relating to
the Company is made known to them by others, particularly during the quarter ending March
31, 2014 and information required to be disclosed by the issuer in its annual filings, interim
filings or other reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in securities legislation.

Internal Controls over Financial Reporting (“ICFR”)

The CEO and CFO of the Company, together with Management, have established and
maintained the Company’s internal control over financial reporting (ICFR), as defined in
National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings,
to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with US GAAP.

The design of CUC’s internal controls over financial reporting has been established and
evaluated using the criteria set forth in the original Internal Control-Integrated Framework by
the Committee of Sponsoring Organisations of the Treadway Commission (COSO). There was
no material weakness relating to design existing as of March 31, 2014. There has been no
change in the Company’s ICFR that occurred during the period beginning on January 1, 2014
and ended on March 31, 2014 that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.

Outlook

In October 2013 the Company issued a Certificate of Need (“CON”) for generation capacity
driven primarily by the upcoming retirements of some of the Company’s generating units due
to begin in 2014. The CON listed a requirement of 36 MW of generating capacity, with 18 MW

2014 First Quarter Report l March 31, 2014 27

Caribbean Utilities Company, Ltd.

to be operational no later than April 2016 and the remaining 18 MW to be operational no later
than May 2016.

The ERA issued a solicitation for Statements of Qualifications from prospective bidders in
November 2013. The deadline for submissions was December 20, 2013. In January 2014 the
ERA announced the listing of qualified bidders and issued a request for proposals. Bids are
due in May 2014 and a decision on the top ranked bidder is expected in July 2014.

Outstanding Share Data

At March 31, 2014 the Company had issued and outstanding 29,105,771 Ordinary Shares and
250,000 9% cumulative Participating Class B Preference Shares.

Additional information, including CUC’s Annual Information Form, is available on SEDAR at

www.sedar.com and on the Company’s website at www.cuc-cayman.com.

Letitia T. Lawrence
Vice President Finance & Chief Financial Officer
May 6, 2014

2014 First Quarter Report l March 31, 2014 28

Caribbean Utilities Company, Ltd.

Consolidated Balance Sheets

(expressed in thousands of United States Dollars)

Unaudited Note As at March 31, As at December

2014 31, 2013

Assets
Current Assets
Cash and Cash Equivalents 2,195 1,215
Accounts Receivable 4 15,038 18,645
Regulatory Assets 5 26,643 24,373
Inventories 6 4,055 5,185
Prepayments 1,899 2,703
49,830 52,121

Property, Plant and Equipment 7 379,936 379,329

Other Assets 8 1,465 1,509
Intangible Assets 9 2,879 2,791

Total Assets 434,110 435,750

Liabilities and Shareholders' Equity

Current Liabilities
Bank Overdraft - 1,258
Accounts Payable and Accrued Expenses 10 32,048 31,633
Related Party Payables 21 13 10
Regulatory Liabilities 5 218 242
Current Portion of Long-Term Debt 17,000 17,000
Consumers' Deposits and Advances for Construction 5,133 4,998
54,412 55,141

Defined Benefit Pension Liability 17 285 283

Long-Term Debt 14 202,000 202,000
Other Long-Term Liabilities 12 63 34
Total Liabilities 256,760 257,458

Shareholders' Equity
Share Capital 1,982 1,980
Share Premium 81,512 81,023
Additional Paid in Capital 12 486 479
Retained Earnings 93,604 95,064
Accumulated Other Comprehensive Loss (234) (254)
Total Shareholders' Equity 177,350 178,292

Total Liabilities and Shareholders' Equity 434,110 435,750

See accompanying Notes to Interim Consolidated Financial Statements

2014 First Quarter Report l March 31, 2014 29

Caribbean Utilities Company, Ltd.

Consolidated Statements of Earnings

(expressed in thousands of United States Dollars, except basic and diluted earnings per ordinary share
and the Weighted Average of Class A Ordinary Shares issued and fully paid)

Unaudited Note Three Months Three Months

Ended March Ended March
31, 2014 31, 2013

Operating Revenues
Electricity Sales 16,905 15,946
Fuel Factor 36,600 36,579
Total Operating Revenues 53,505 52,525
Operating Expenses
Power Generation 37,339 37,323
General and Administration 2,266 2,080
Consumer Services 974 409
Transmission and Distribution 497 601
Depreciation 6,113 6,376
Maintenance 1,293 1,546
Amortization of Intangible Assets 85 79
Total Operating Expenses 48,567 48,414

Operating Income 4,938 4,111

Other (Expenses)/Income:
Finance Charges 16 (2,487) (2,243)
Foreign Exchange Gain 18 491 472
Other Income 506 558
Total Net Other (Expenses) (1,490) (1,213)

Earnings for the Period 3,448 2,898

Preference Dividends Paid- Class B (113) (113)
Earnings on Class A Ordinary Shares 3,335 2,785

Weighted-Average Number of Class A Ordinary Shares Issued and

Fully Paid (in thousands) 13 29,062 28,806
Earnings per Class A Ordinary Share 13 0.11 0.10
Diluted Earnings per Class A Ordinary Share 13 0.11 0.10
Dividends Declared per Class A Ordinary Share 0.165 0.165

See accompanying Notes to Interim Consolidated Financial Statements

2014 First Quarter Report l March 31, 2014 30

Caribbean Utilities Company, Ltd.

Consolidated Statements of Comprehensive Income

(expressed in thousands of United States Dollars)

Unaudited Three Months Three Months

Ended March Ended March
31, 2014 31, 2013
Net Earnings for the Period 3,448 2,898

Other Comprehensive Income/(Loss):

Amounts arising during the period

Defined Benefit Pension plans:
Net actuarial (loss)/gain - -
Reclassification to net income
Defined Benefit Pension plans:
Amortization of prior service costs 20 62
Amortization of net actuarial loss - 33
Total Other Comprehensive Income 20 95
Comprehensive Income 3,468 2,993

See accompanying Notes to Interim Consolidated Financial Statements

2014 First Quarter Report l March 31, 2014 31

Caribbean Utilities Company, Ltd.

Consolidated Statements of Shareholders’ Equity

(expressed in thousands of United States Dollars except Common Shares)

Common Common Preference Share Additional Retained Accumulated Total

Shares (in Shares Shares Premium Paid-in Earnings Other Equity
thousands) Value Capital Comprehensive
($) ($) ($) ($) ($) Loss ($) ($)

As At
January 1,
2014 29,060 1,730 250 81,023 479 95,064 (254) 178,292
Net
Earnings - - - - - 3,448 - 3,448
Common
Share
Issuance &
stock
options
plans 46 2 - 489 7 - - 498
Defined
benefit
plans - - - - - - 20 20
Dividends
on common
shares - - - - - (4,795) - (4,795)
Dividends
on
preference
shares - - - - - (113) - (113)
As At
March 31,
2014 29,106 1,732 250 81,512 486 93,604 (234) 177,350

As At
January 1,
2013 28,806 1,715 250 78,524 450 94,647 (1,720) 173,866
Net
Earnings - - - - - 2,898 - 2,898
Common
Share
Issuance &
stock
options
plans 47 2 - 490 7 - - 499
Defined
benefit
plans - - - - - - 95 95
Dividends
on common
shares - - - - - (4,752) - (4,752)
Dividends
on
preference
shares - - - - - (113) - (113)
As At
March 31,
2013 28,853 1,717 250 79,014 457 92,680 (1,625) 172,493

See accompanying Notes to Interim Consolidated Financial Statements

2014 First Quarter Report l March 31, 2014 32

Caribbean Utilities Company, Ltd.

Consolidated Statements of Cash Flows

(expressed in thousands of United States Dollars)

Unaudited Three Months Three Months

Ended March Ended March
31, 2014 31, 2013

Operating Activities
Earnings for the period 3,448 2,898
Items not affecting cash:
Depreciation 6,113 6,376
Amortization of Intangible Assets 85 79
Non-cash Pension Expenses 22 (87)
Amortization of Deferred Financing Costs 44 49
Stock-based compensation 7 7
9,719 9,322

Net change in non-cash working capital balances related to operations 6,263 7,220
Net Change in Regulatory Deferrals (2,294) (1,209)
Cash flow related to operating activities 13,688 15,333

Investing Activities

Purchase of property, plant and equipment (6,511) (6,399)

Costs related to intangible assets (53) (18)
Proceeds on sale of property, plant and equipment 9 15
Cash flow related to investing activities (6,555) (6,402)

Financing Activities
Decrease in bank overdraft (1,258) (1,822)
Dividends paid (5,387) (5,345)
Net proceeds from share issues 492 492
Cash flow related to financing activities (6,153) (6,675)

Increase in net cash and cash equivalents 980 2,256

Cash and cash equivalents - Beginning of period 1,215 694
Cash and cash equivalents - End of period 2,195 2,950
Supplemental disclosure of cash flow information:
Interest paid during the period 14 62

See accompanying Notes to Interim Consolidated Financial Statements

2014 First Quarter Report l March 31, 2014 33

Caribbean Utilities Company, Ltd.

Notes to Interim Consolidated Financial Statements

Unaudited – March 31, 2014 (expressed in thousands of United States dollars unless
otherwise stated)

1. Nature of Operations and Consolidated Financial Statement Presentation

These consolidated financial statements have been prepared in accordance with United States
Generally Accepted Accounting Principles (“US GAAP”) and reflect the decisions of the
Electricity Regulatory Authority (“ERA”). The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary DataLink, Ltd. (“DataLink”). These
decisions affect the timing of the recognition of certain transactions resulting in the recognition
of regulatory assets and liabilities, which Caribbean Utilities Company, Ltd., (“CUC” or “the
Company”) considers it is probable to recover or settle subsequently through the rate-setting
process.

The principal activity of the Company is to generate and distribute electricity in its licence area
of Grand Cayman, Cayman Islands, pursuant to a 20-year exclusive Transmission &
Distribution (“T&D”) Licence and a 21.5 year non–exclusive Generation Licence (collectively
the “Licences”) with the Cayman Islands Government (“the Government”), which expire in
April 2028 and September 2029 respectively. These consolidated interim financial statements
do not include all of the disclosures normally found in the Company’s annual financial
statements and should be read in conjunction with the MD&A and audited financial statements
and notes thereto for the year ended December 31, 2013, with 2012 comparatives, prepared
in accordance with US GAAP included in the Company’s 2013 Annual Report.

In late March 2012 CUC’s wholly owned subsidiary, DataLink received its licence from the
Information and Communications Technology Authority (“ICTA”) which permits DataLink to
provide fibre optic infrastructure and other information and communication technology (“ICT”)
services to the ICT industry.

The ICTA is an independent statutory Authority which was created by the enactment of the
Information and Communications Technology Authority Law on 17th May 2002 and is
responsible for the regulation and licensing of Telecommunications, Broadcasting, and all
forms of radio. The ICTA sets the standards by which ICT networks must be developed and
operated under.

All significant inter-company balances and transactions have been eliminated on consolidation.

Rate Regulated Operations

CUC’s base rates are designed to recover and earn a return on all non-fuel and regulatory
costs and include per kilowatt-hour (“kWh”) electricity charges and fixed facilities charges.
Fuel cost charges and licence and regulatory fees are billed as separate line items. Base rates
are subject to an annual review and adjustment each June through the rate cap and
adjustment mechanism (“RCAM”). The ERA reviewed and approved a rate increase for June
2013 of 1.8% as a result of the 2012 RORB and the slight increase in the applicable United
States (“US”) and Cayman Islands consumer price indices, adjusted to exclude food and fuel,
for calendar year 2012. All fuel and lubricating oil costs are passed through to customers
without mark-up as a per kWh charge.

For regulatory purposes fixed assets comprise the completed Property, Plant and Equipment
(“PP&E”) and intangible assets acquired or constructed by the Company as reported in the
Company’s consolidated financial statements. The original book value of these fixed assets
include an Allowance for Funds Used During Construction (“AFUDC”)(Note 7) and an allowance
for General Expenses Capitalised (“GEC”) (Note 7). GEC is calculated as a percentage of up to
10% of Non-Fuel Operating Expenses, varying annually depending on the level of capital
activity.

2014 First Quarter Report l March 31, 2014 34

Caribbean Utilities Company, Ltd.

Seasonality

Interim results will fluctuate due to the seasonal nature of electricity consumption. In Grand
Cayman, demand is highest in the summer months due to air-conditioning load.
Consequently, interim results are not necessarily indicative of annual results.

2. Summary of Significant Accounting Policies

The preparation of financial statements in conformity with US GAAP requires Management to

make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

3. Changes in Accounting Estimates

Property, Plant and Equipment (“PP&E”)

In accordance with its PP&E policy, the Company reviews the estimated useful lives of its fixed
assets on an ongoing basis. A review concluded during the First Quarter 2014 indicated that
the actual lives of certain Transmission and Distribution (“T&D”) and Generation assets were
longer than the estimated useful lives used for depreciation purposes in the Company’s
financial statements. As a result, effective 1 January 2014, the Company changed its
estimates of the useful lives of these assets to better reflect the estimated periods during
which these assets will remain in service. The affected assets previously averaged useful lives
of twenty years which were increased to an average of twenty-five to thirty-five years. The
effect of this change in estimate was to reduce depreciation expense by $0.4 million for the
three months ended March 31, 2014 (“First Quarter 2014”), increase First Quarter 2014 net
earnings by $0.4 million, and increase First Quarter 2014 basic and diluted earnings per share
by $0.01.

Allowance for Doubtful Accounts (“AFDA”)

In accordance with its AFDA policy, the Company maintains an accumulated provision for
uncollectible customer accounts receivable that is estimated based on known accounts,
historical experience and other currently available information, including the economic
environment. During the First Quarter 2014, the Company commenced a full review of its
outstanding Accounts Receivables balance and the reasonableness of its methodology of
applying a flat percentage to total receivables in calculating AFDA. This review has initially
indicated an increase in days outstanding for receivable balances and management has
determined the estimation process related to the AFDA would be refined to include a risk
element for aging of accounts receivable. The effect of this change in estimate was to
increase the provision by $0.5 million, decrease First Quarter 2014 net earnings by $0.5
million, and decrease First Quarter 2014 basic and diluted earnings per share by $0.02.

2014 First Quarter Report l March 31, 2014 35

Caribbean Utilities Company, Ltd.

4. Accounts Receivable

As at As at
March 31, 2014 December 31, 2013
Billings to consumers 9,871 12,979
Unbilled revenues 3,531 3,661
Other receivables 2,341 2,200
Allowance for doubtful accounts (705) (195)
Total Accounts Receivable 15,038 18,645

Unbilled Revenues

Revenue derived from the sale of electricity is taken to income on a bills-rendered basis,
adjusted for unbilled revenues. Customer bills are issued throughout the month based on
meter readings that establish electricity consumption since the last meter reading. The
unbilled revenue accrual for the period is based on estimated electricity sales to customers
since the last meter reading. The estimation process for accrued unbilled electricity
consumption will result in adjustments of electricity revenue in the periods they become
known when actual results differ from the estimates. Consumers are billed at the beginning of
each month leading to the accrual of approximately three weeks of unbilled revenue.

Other receivables

Other receivables relate to amounts due outside of the normal course of operations. Items in
other receivables include sale of inventory and machine break-down costs covered by
warranties. Other receivables at March 31, 2014 also include billing adjustments for
commercial customers.

5. Regulatory Assets and Liabilities

As at As at December 31,
Asset/Liability Description March 31, 2014 2013
Regulatory Assets Fuel Tracker Account (a) 24,523 22,867
Regulatory Assets Derivative contract (b) 463 -
Miscellaneous Regulatory
Regulatory Assets Assets (c) 320 329
Government & Regulatory
Regulatory Assets Tracker Account (d) 1,337 1,177
Total Regulatory Assets 26,643 24,373
Miscellaneous Regulatory
Regulatory Liabilities Liabilities (e) (218) (242)
Total Regulatory Liabilities (218) (242)

a) Fuel Tracker Account – The 2008 T&D Licence established a fuel tracker mechanism to
ensure the Company and the consumers neither gain nor lose from the pass through
of fuel costs. The purpose of the fuel tracker account is to accumulate actual fuel
costs incurred less fuel factor revenues collected. This account represents deferred
accumulated fuel costs to be recovered from or reimbursed to the consumers. The
receivable or payable value represents a regulatory asset or liability. The net position
of the fuel tracker accounts fluctuates monthly and is affected by fuel prices and
electricity consumption.

2014 First Quarter Report l March 31, 2014 36

Caribbean Utilities Company, Ltd.

b) Derivative contract - The Company’s purpose of hedging is to reduce the impact of

volatility in the Fuel Cost Charge paid by the Company’s customers in the face of price
volatility for the fuel that the Company must purchase in order to provide electric
service. This account represents the fair value adjustments for the call options. The
Company’s current call option contracts will expire in February 2015.

c) Miscellaneous regulatory assets represent costs incurred by the Company, other than
fuel and the specifically itemised licence and regulatory fees, to be recovered through
the Company’s base rates on terms as agreed with the ERA.

d) Government and Regulatory Tracker Account - A licence fee of 1% of gross revenues

applies to customer billings for consumption over 1,000 kWh per month as a pass-
through charge on a per kWh basis. Additionally, a regulatory fee of ½ of 1% is
charged on gross revenues then prorated and applied only to customer billings with
consumption over 1,000 kWh per month. The government and regulatory tracker
account is the actual fee incurred less the amount of funds received from consumers.

e) Miscellaneous regulatory liabilities represent costs owed by the Company, other than
licence and regulatory fees, to be recovered through the Company’s base rates on
terms as agreed with the ERA.

6. Inventories

The composition of inventories is shown in the table below:

As at As at
Inventories March 31, 2014 December 31, 2013
Fuel 3,319 4,591
Lubricating Oil 643 499
Line spares 78 79
Other 15 16
Total 4,055 5,185

2014 First Quarter Report l March 31, 2014 37

Caribbean Utilities Company, Ltd.

7. Property, Plant and Equipment (“PP&E”)

Accumulated Net Book Value

Property, Plant and Equipment Cost Depreciation March 31, 2014
Transmission & Distribution (T&D) 286,639 96,928 189,711
Generation 294,437 126,440 167,997
Other:
Land 5,304 - 5,304
Buildings 19,941 10,200 9,741
Equipment, motor vehicles and
computers 21,626 14,825 6,801
Total 627,947 248,393 379,554
DataLink, Ltd. 382 - 382
Property, plant and equipment 628,329 248,393 379,936

Accumulated Net Book Value

Property, Plant and Equipment Cost Depreciation December 31, 2013
Transmission & Distribution (T&D) 283,944 95,368 188,576
Generation 291,459 122,883 168,576
Other:
Land 5,304 - 5,304
Buildings 19,993 10,068 9,925
Equipment, motor vehicles and
computers 21,244 14,676 6,568
Total 621,944 242,995 378,949
DataLink, Ltd. 380 - 380
Property, plant and equipment 622,324 242,995 379,329

Included in PP&E are a number of capital projects in progress with a total cost to date of $25.8
million (December 31, 2013: $29.8 million). These projects primarily relate to various
improvements to the Distribution System. Included in the total cost is an amount of $0.4
million that relates to DataLink capital projects in progress for the construction of fibre optic
assets.

Also included in Generation and T&D is freehold land with a cost of $5.0 million (December 31,
2013: $5.0 million). In addition, line inventory with a cost of $4.4 million (December 31, 2013:
$4.5 million) is included in T&D. Engine spares with a net book value of $15.7 million
(December 31, 2013: $15.7 million) are included in Generation.

The capitalisation of ‘Financing Costs’ is calculated by multiplying the Company’s Cost of

Capital rate by the average work in progress for each month. The cost of capital rate for fiscal
2014 is 8.0% (2013: 7.5%) and will be adjusted annually. As a result, during the three month
period ended March 31, 2014, the Company recognised $0.5 million in AFUDC. The Company
recognised an amount of $0.8 million for the three month period ended March 31, 2013 under
the provision for AFUDC.

GEC is calculated as a percentage of up to 10% of Non-Fuel Operating Expenses, varying

annually depending on the level of capital activity. GEC totalled $1.0 million for the three
months ended March 31, 2014, compared to GEC for the three months ended March 31, 2013
of $0.9 million.

2014 First Quarter Report l March 31, 2014 38

Caribbean Utilities Company, Ltd.

In accordance with the Licences, when an asset is impaired or disposed of before the original
estimated useful life, the cost of the asset is reduced and the net book value is charged to
accumulated depreciation. This treatment is in accordance with the rate regulation standard
under US GAAP and differs from non-regulatory treatment of a loss being recognized on the
statement of earnings. The amount charged to accumulated depreciation is net of any
proceeds received in conjunction with the disposal of the asset. This amount within
accumulated depreciation is to be depreciated as per the remaining life of the asset based on
the original life when the unit was initially placed into service.

8. Other Assets

As at As at
Other Assets March 31, 2014 December 31, 2013
Deferred debt issue costs 1,440 1,483
Miscellaneous other assets 25 26
Total 1,465 1,509

Deferred debt issue costs relate to transaction costs incurred in respect of financial liabilities.
These costs are deferred on the balance sheet and are being amortized over the life of the
related note using the effective-interest rate method.

9. Intangible Assets

Accumulated Net Book Value

Intangible Assets Cost Amortisation March 31, 2014
Deferred licence renewal costs 1,890 558 1,332
DataLink, Ltd. deferred licence renewal costs 200 27 173
Computer Software 5,083 3,909 1,174
Other Intangible Assets in progress 125 - 125
Trademark Costs 75 - 75
Total 7,373 4,494 2,879
Accumulated Net Book Value
Intangible Assets Cost Amortisation December 31, 2013
Deferred licence renewal costs 1,890 534 1,356
DataLink, Ltd. deferred licence renewal costs 200 23 177
Computer Software 4,877 3,819 1,058
Other Intangible Assets in progress 125 - 125
Trademark Costs 75 - 75
Total 7,167 4,376 2,791

Deferred licence renewal costs relate to negotiations with the Government for licences for the
Company. Amortization of deferred licence renewal costs commenced upon conclusion of
licence negotiations in April 2008 and extends over the life of the T&D Licence. Amortization of
DataLink’s deferred licence renewal costs commenced upon conclusion of licence negotiations
in March 2012 and extends over the life of its ICTA licence.

2014 First Quarter Report l March 31, 2014 39

Caribbean Utilities Company, Ltd.

10. Accounts Payable and Accrued Expenses

As at As at
March 31, 2014 December 31, 2013
Fuel Cost Payable 22,683 25,478
Trade Accounts Payable & Accrued expenses 2,580 2,246
Accrued Interest 3,910 938
Dividends Payable 113 592
Other Accounts Payable 2,762 2,379
Total Accounts Payable 32,048 31,633

Included in Other Accounts Payable is an amount related to the fuel option contracts (see Note
14) of $0.4 million at March 31, 2014 (nil at December 31, 2013).

11. Short-Term Financing

The Company has $47.0 million of unsecured credit financing facilities with the Royal Bank of
Canada (“RBC”). The total available was $46.0 million at March 31, 2014 ($44.7 million at
December 31, 2013).

Total Credit Financing Total Utilised Total Available

Facilities March 31, 2014 March 31, 2014 March 31, 2014
Corporate Credit Card Line* 400 400 -
Letter of Credit 602 602 -
Operating, Revolving Line of Credit 7,500 - 7,500
Catastrophe Standby Loan 7,500 - 7,500
Demand Loan Facility- Interim Funding
of Capital Expenditures 31,000 - 31,000
Total 47,002 1,002 46,000
*. Included in Accounts payable and accrued expenses

A stand-by fee of 1/5 of 1% per annum in arrears is applied to the unused portion of the capital
expenditure and catastrophe lines of the facility. A review fee of 1/8 of 1% of the total credit
facilities is incurred annually in arrears.

12. Share Based Compensation Plans

Share Options:
The shareholders of the Company approved an Executive Stock Option Plan on October 24,
1991, under which certain employees and officers may be granted options to purchase Class A
Ordinary Shares of the Company.
The exercise price per share in respect of options is equal to the fair market value of the Class
A Ordinary Shares on the date of grant. Each option is for a term not exceeding ten years, and
will become exercisable on a cumulative basis at the end of each year following the date of
grant. The maximum number of Class A Ordinary Shares under option shall be fixed and
approved by the shareholders of the Company from time to time and is currently set at
1,220,100. Options are forfeited if they are not exercised prior to their respective expiry date
or upon termination of employment prior to the completion of the vesting period.

2014 First Quarter Report l March 31, 2014 40

Caribbean Utilities Company, Ltd.

Share Options March 31, March 31, 2014 Weighted Aggregate

2014 Weighted average Average Intrinsic Value
Number of exercise price per Remaining ($ millions)
options share Contractual
Term (Years)

Outstanding at beginning of period 332,950 10.49 - -

Granted - - - -

Exercised (5,600) 8.76 - -

Forefeited/Cancelled - - - -

Expired - - - -

Outstanding, end of period 327,350 10.52 6.23 0.09

Vested, end of the period 242,600 10.82 5.60 0.14

Under the fair value method, the compensation expense was $0.01 million for the three month
period ended March 31, 2014 (March 31, 2013: $0.01 million), resulting in a corresponding
increase of Additional Paid in Capital.

Performance Share Unit (“PSU”) Plan:

In September 2013, the Board approved a PSU plan under which officers and certain
employees of the Company would receive PSUs. Each PSU represents a unit with an
underlying value which is based on the value of one common share relative to the S&P/TSX
Utilities Index.

In September 2013, 21,500 PSUs were granted. In March 2014, 26,000 PSU’s were granted.
The vesting period of the grant is three years, at which time a cash payment may be made to
plan participants after evaluation by the Board of Directors of the achievement of certain
payment criteria.

PSU Compensation expense was $0.01 million for the three month period ended March 31,
2014 (March 31, 2013: nil), resulting in a corresponding increase to Other Long-Term
Liabilities.

13. Earnings per Share

The Company calculates earnings per share on the weighted average number of Class A
Ordinary Shares outstanding. The weighted average Class A Ordinary Shares outstanding were
29,061,629 and 28,805,956 for the three month period ended March 31, 2014 and March 31,
2013 respectively.

The weighted average of Class A Ordinary Shares used for determining diluted earnings were
29,070,883 and 28,882,691 for the three month period ended March 31, 2014 and March 31,
2013 respectively. Diluted earnings per Class A Ordinary Share was calculated using the
treasury stock method.

As at March 31, 2014 the outstanding options are not materially dilutive as the market price of
common shares is below or marginally higher than the exercise price.

2014 First Quarter Report l March 31, 2014 41

Caribbean Utilities Company, Ltd.

Earnings (in $ Weighted average Earnings per

thousands) March shares (in thousands) Common Shares
31, 2014 March 31, 2014 March 31, 2014
Net earnings applicable to common shares 3,335
Weighted Average share outstanding 29,062
Basic Earnings Per Common Share 0.11
Effect of potential dilutive securities:
Stock Options - 9 -
Diluted Earnings per Common Share 3,335 29,071 0.11

Earnings (in $ Weighted average Earnings per

thousands) March shares (in thousands) Common Shares
31, 2013 March 31, 2013 March 31, 2013
Net earnings applicable to common shares 2,785
Weighted Average share outstanding 28,806
Basic Earnings Per Common Share 0.10
Effect of potential dilutive securities:
Stock Options - 17 -
Diluted Earnings per Common Share 2,785 28,823 0.10

14. Fair Value Measurement

Fair value is the price at which a market participant could sell an asset or transfer a liability to
an unrelated party. A fair value measurement is required to reflect the assumptions that
market participants would use in pricing an asset or liability based on the best available
information. These assumptions include the risks inherent in a particular valuation technique,
such as a pricing model, and the risks inherent in the inputs to the model. A fair value
hierarchy exists that prioritizes the inputs used to measure fair value. The Company is
required to determine the fair value of all derivative instruments in accordance with the
following hierarchy:

The three levels of the fair value hierarchy are defined as follows:

Level 1: Fair value determined using unadjusted quoted prices in active markets.
Level 2: Fair value determined using pricing inputs that are observable.
Level 3: Fair value determined using unobservable inputs only when relevant observable
inputs are not available.

The fair values of the Company’s financial instruments, including derivatives, reflect a point-
in-time estimate based on current and relevant market information about the instruments as
at the balance sheet dates. The estimates cannot be determined with precision as they
involve uncertainties and matters of judgment and, therefore, may not be relevant in
predicting the Company’s future earnings or cash flows.

2014 First Quarter Report l March 31, 2014 42

Caribbean Utilities Company, Ltd.

The estimated fair values of the Company’s financial instruments, including derivative financial
instruments, are as follows:

As at March 31, 2014 As at December 31, 2013

Carrying Value Fair Value Carrying Value Fair Value

Long term debt, including
current portion 219,000 221,800 219,000 214,110

Fuel Option Contracts1 463 463 - -

1 Carrying value of fuel option contracts included in Accounts Payable and Accrued expenses

The fair value of long-term debt is determined by discounting the future cash flows of each
debt instrument at an estimated yield to maturity equivalent to benchmark government bonds
or treasury bills, with similar terms to maturity, plus a market credit risk premium equal to
that of issuers of similar credit quality. Since the Company does not intend to settle the long-
term debt prior to maturity, the fair value estimate does not represent an actual liability and,
therefore, does not include exchange or settlement costs.

The Company measures the fair value of commodity contracts on a daily basis using the
closing values observed on commodities exchanges and in over-the-counter markets, or
through the use of industry-standard valuation techniques, such as option modelling or
discounted cash flow methods, incorporating observable valuation inputs. The resulting
measurements are the best estimate of fair value as represented by the transfer of the asset
or liability through an orderly transaction in the marketplace at the measurement date.

The fair value of the fuel option contract reflects only the value of the heating oil derivative
and not the offsetting change in the value of the underlying future purchases of heating oil.
The derivatives’ fair value shown in the below table reflects the estimated amount the
Company would pay to terminate the contract at the stated date. The fair value has been
determined using published market prices for heating oil commodities. The Company’s current
option contracts will expire in February 2015.

The derivatives entered into by the Company relate to regulated operations and any resulting
gains or losses and changes to fair value are recorded in the regulatory asset/regulatory
liability accounts, subject to regulatory approval and passed through to customers in future
rates.

The following table summarizes the fair value measurements of the Company’s long-term debt
and fuel derivative contracts based on the three levels that distinguish the level of pricing
observability utilised in measuring fair value.

Level 1 -
March 31, Quoted Prices Level 3 -
2014 in active Level 2 - Significant
Total Fair markets for Significant unobservable
Financial Liability Value identical assets Other inputs inputs
Long-term debt, including current portion 221,800 - 221,800 -
Fuel Option Contracts1 463 - 463 -
1 Carrying value of fuel option contracts included in Accounts Payable and Accrued expenses

15. Financial Risk Management

The Company is primarily exposed to credit risk, liquidity risk and interest rate risk as a result
of holding financial instruments in the normal course of business.

2014 First Quarter Report l March 31, 2014 43

Caribbean Utilities Company, Ltd.

Credit Risk

The Company is exposed to credit risk in the event of non-performance by counterparties to

derivative financial instruments which include fuel option contracts. If counterparty fails to
perform on its contractual obligation to deliver payment when the market price of fuel is
greater than the strike price, the Company may find it necessary to purchase diesel at the
market price, which will be higher than the contract price. The Company manages this credit
risk associated with counterparties by conducting business with high credit-quality institutions.
The Company does not expect any counterparties to fail to meet their obligations.

There is risk that CUC may not be able to collect all of its accounts receivable and other
assets. This does not represent a significant concentration of risk. The requirements for
security deposits for certain customers, which are advance cash collections from customers to
guarantee payment of electricity billings; reduces the exposure to credit risk. CUC manages
credit risk primarily by executing its credit collection policy, including the requirement for
security deposits, through the resources of its customer service department.

Liquidity Risk

The Company’s financial position could be adversely affected if it failed to arrange sufficient
and cost-effective financing to fund, among other things, capital expenditures and the
repayment of maturing debt. The ability to arrange such financing is subject to numerous
factors, including the results of operations and financial position of the Company, conditions in
the capital and bank credit markets, ratings assigned by ratings agencies and general
economic conditions. These factors are mitigated by the legal requirement per the Licences
which requires rates be set to enable the Company to achieve and maintain a sound credit
rating in the financial markets of the world.

($millions) Total 2014 2015-2016 2017-2018 2019

Onward
Accounts payable and accrued 32.0 32.0 - - -
expenses
Consumer's Deposits and 5.1 5.1 - - -
Advances for Construction
Letter of Credit 0.6 0.6 - - -
Long term debt 219.0 17.0 28.0 27.7 146.3
Long term debt interest 87.5 11.5 20.3 17.2 38.5
Total 344.2 66.2 48.3 44.9 184.8

Interest Rate Risk

Long-term debt is issued at fixed interest rates, thereby minimising cash flow and interest rate
exposure. The Company is primarily exposed to risks associated with fluctuating interest rates
on its short-term borrowings and other variable interest credit facilities. The current amount of
short-term borrowings is nil.

2014 First Quarter Report l March 31, 2014 44

Caribbean Utilities Company, Ltd.

16. Finance Charges

The composition of finance charges were as follows:

Three Months Ended March Three Months Ended March

($ thousands) 31, 2014 31, 2013
Interest costs - long-term debt 3,016 2,884
Other interest costs 14 148
AFUDC * (543) (789)
Total 2,487 2,243

*Refer to PP&E with regards to AFUDC (Note 7) methodology.

17. Defined Benefit Pension Plan

The pension costs of the defined benefit plan are actuarially determined using the projected
benefits method. Compensation expense of $0.02 million was recognised for the three
months ended March 31, 2014 ($0.09 million: three months ended March 31, 2013).

The composition of the expense was as follows:

Three Months Ended March Three Months Ended March

31, 2014 31, 2013
Interest cost 78 67
Expected return on plan assets (75) (75)
Amortization of past service costs 20 62
Amortization of actuarial losses - 33
Total 23 87

This expense has been recorded in general and administrative expenses.

18. Foreign Exchange

The closing rate of exchange on March 31, 2014 as reported by the Bank of Canada for the
conversion of US dollars into Canadian dollars was Cdn$1.1055 per US$1.00. The official
exchange rate for the conversion of Cayman Islands dollars into U.S. dollars as determined by
the Cayman Islands Monetary Authority is fixed at CI$1.00 per US$1.20. Thus, the rate of
exchange as of March 31, 2014 for conversion of Cayman Islands dollars into Canadian dollars
was Cdn$1.3266 per CI$1.00 (December 31, 2013: Cdn$1.2763).

19. Taxation

Under current laws of the Cayman Islands, there are no; income, estate, corporate, capital
gains or other taxes payable by the Company.

The Company is levied custom duties of $0.89 per IG of diesel fuel it imports. In addition, the
Company pays customs duties of 15% on all other imports.

2014 First Quarter Report l March 31, 2014 45

Caribbean Utilities Company, Ltd.

20. Commitments

The Company executed a primary fuel supply contract with Rubis Cayman Islands Limited
(“Rubis”) in September 2012 upon the expiration of its previous fuel supply contracts. Under
the agreement the Company is committed to purchase approximately 60% of its diesel fuel
requirements for its generating plant from Rubis. The approximate quantities per the contract
on an annual basis are, by fiscal year in millions of IGs: 2014 – 11.3.

The Company also executed a secondary fuel supply contract with Sol Petroleum Cayman
Limited (“Sol”) (previously Esso Cayman Limited) in September 2012 and is committed to
purchase approximately 40% of the Company’s diesel fuel requirements for its generating
plant from Sol. The approximate quantities per the contract on an annual basis are, by fiscal
year in millions of IGs: 2014 – 7.6.

Both contracts expire July 31, 2014 with the option to renew for two additional 18 month
terms. Renewal cannot occur more than 6 months in advance of the current contract expiry
date. The point of delivery for fuel billing purposes remains at the Company’s North Sound
Plant compound. The Company is also responsible for the management of the fuel pipeline
and ownership of bulk fuel inventory at CUC’s North Sound Road Power Plant.

As a result of the Company’s bulk fuel inventory, the value of CUC’s closing stock of fuel at
March 31, 2014 was $3.3 million (December 31, 2013: $4.6 million). This amount includes all
fuel held in CUC’s bulk fuel storage tanks, service tanks and day tanks located at the North
Sound Road Power Plant.

21. Transactions with Related Parties

Miscellaneous payables to Fortis Inc., the Company’s majority shareholder, totalling $0.013
were outstanding at March 31, 2014 ($0.010 million as at December 31, 2013) for labour,
software subscriptions and travel expenses and are shown as Related Parties Payables on the
Balance Sheet.

22. Comparative Figures

Certain comparative figures have been reclassified to conform with current year disclosure.

2014 First Quarter Report l March 31, 2014 46

Caribbean Utilities Company, Ltd.

Shareholder Information

Shareholder Plans

CUC offers its Shareholders a Dividend Reinvestment Plan. Please contact one of CUC’s
Registrar and Transfer Agents or write to CUC’s Assistant to the Company Secretary if you
would like to receive information about the plan or obtain an enrolment form.

CUC also has a Customer Share Purchase Plan for customers resident in Grand Cayman.
Please contact our Customer Service Department at (345) 949-5200 if you are interested in
receiving details.

Shareholder Information

Duplicate Annual Reports

While every effort is made to avoid duplications, some shareholders may receive extra reports
as a result of multiple share registrations. Shareholders wishing to consolidate these accounts
should contact the Registrar and Transfer Agents.

Our Registrar and Transfer Agents are as follows:

CST Trust Company

P.O. Box 700, Station B
Montreal, QC
H3B 3K3, Canada
North America toll free: 1-800-387-0825
Direct: (416) 682-3860
Fax: (888) 249-6189
E-mail: inquiries@canstockta.com

Caribbean Utilities Company, Ltd.

Company Secretary
P.O. Box 38
Grand Cayman KY1-1101
CAYMAN ISLANDS
Tel: (345) 949-5200
Fax: (345) 949-4621
E-mail: investor@cuc.ky
Website: www.cuc-cayman.com

If you require further information or have any questions regarding CUC’s Class A Ordinary
Shares (listed in US funds on the Toronto Stock Exchange), please contact:

Caribbean Utilities Company, Ltd.

Assistant to the Company Secretary
P.O. Box 38
Grand Cayman KY1-1101
CAYMAN ISLANDS
Tel: (345) 949-5200
Fax: (345) 949-4621
E-mail: investor@cuc.ky
Website: www.cuc-cayman.com

2014 First Quarter Report l March 31, 2014 47

 Caribbean Utilities Company, Ltd.
457 North Sound Road, P.O. Box 38, Grand Cayman KY1-1101, CAYMAN ISLANDS
Tel: (345) 949-5200 p Fax: (345) 949-4621
E-mail: investor@cuc.ky p Website: www.cuc-cayman.com