Cayman Water, which provides piped water to West Bay and parts of Seven Mile Beach, has to continue its license negotiations with the Water Authority rather than directly with government, following a ruling on the licensing process.
The subsidiary of Consolidated Water has been in negotiations first with the government and subsequently with the Water Authority over the renewal of the license in its service area since July 2010.
The water company filed for judicial review in 2012 seeking to quash a decision by the Water Authority to impose a new pricing model as a condition for the renewal of the license.
In the filing, Cayman Water also questioned the dual role of the Water Authority as a regulator with the ability to grant licences and a competing water utility that provides water to the districts of Grand Cayman and Cayman Brac that are not serviced by Cayman Water, saying it put the authority “in a position of hopeless conflict.”
However, in its June 19 decision published on Wednesday, the Grand Court denied the water company the right to enter into negotiations exclusively with government for the renewal of its license without the intervention of the Water Authority and without the need for a license from the authority.
The question of which entity Cayman Water should negotiate with resulted from a change in legislation.
While the duty to issue, record and administer licenses had been imposed on the Water Authority under the old Water Authority Law enacted in 1982, the power to grant, modify or renew licenses had only been conferred to the authority in an amendment of the Water Authority Law in 2011.
The Water Authority had been responsible for advising the Governor in Cabinet on the issuance of concessions under the Water (Production and Supply) Law since 1982. Following the legislative amendments in 2011, the Water Authority issues a license once a concession has been granted by the government.
In his ruling, the Chief Justice Anthony Smellie stated that concerns about a potential conflict of interest for the Water Authority as regulator and competitor are misplaced, given that the Governor [in Cabinet] remains the body responsible for the grant of a concession under the repealed and the new Water (Production and Supply) Law.
This responsibility can be delegated to the Water Authority under the law and it may be the only practicable way of meeting the requirement that government shall seek the advice of the Water Authority before granting a concession, the ruling said.
“It follows that it should be in the interest of all parties to the tripartite arrangement that the negotiations for the concession which would lead to the grant of a license, should take place between [Cayman Water] and the Authority on behalf of the Governor.”
In the context of this statutory arrangement a regulatory body like the Water Authority would not be allowed to “act arbitrarily or capriciously,” the chief justice stated.
Both parties and the judge agreed that no tendering process is required for the renewal of the license.
The Grand Court did not rule on the proposed rate cap adjustment mechanism as the pricing model for the new license, after the Water Authority had assured Cayman Water that it had not advised government on imposing the RCAM model of pricing and that Cayman Water’s position would be heard before such a decision is taken.
Cayman Water has argued against a change in the rate structure and the suggested rate of return on invested capital model, saying it would lead to higher water rates for the company’s customers and larger regulatory costs for government to establish the rates.
The RCAM model is employed to the sale of water in many U.S. municipalities but Cayman Water maintains that the U.S. model cannot be simply transferred to the Cayman Islands, where potable water has to be produced using a more capital intensive desalination process from sea water.
In its quarterly report filing with the Securities and Exchange Commission on Aug. 11, Consolidated Water said it expects that as a result of the judgment the company will recommence license negotiations with the Water Authority in the near future.
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