The Public Utilities Commission proposed by the Progressives-led government will be given the authority to order petroleum distributors to reveal their “pre-markup” fuel prices, Planning Minister Kurt Tibbetts said Friday.
Minister Tibbetts said he had “given up” the hope of negotiating on this point with the oil companies after years of private talks with Chevron-Texaco and Esso, now Sol Petroleum and Rubis.
“Every time I would meet with these people … there is this fancy word called proprietary that they use and they still use it today,” Mr. Tibbetts said. “While the Cayman Islands is very proud of its free market economy … we take the position that, because we are not totally satisfied that the normal laws of competition prevail in [the fuel sector] here in Cayman … and I hope they’re listening … that I don’t believe a word they tell me about their markup.”
There are two “markups” with regard to retail gas and diesel sold at local petroleum stations. The first occurs between the time the petroleum product leaves the supplier’s shores and arrives in Cayman for storage at the Jackson Point fuel terminal; the second markup occurs when the fuel is loaded into the pumps at the gas stations.
Historically, it has been very difficult for the government to obtain that information from local retailers and impossible to get it from the fuel distributors, so Mr. Tibbetts said the government is left with “the continuing saga of the Petroleum Inspectorate inquiring about prices of fuel and not being able to have any method to verify the information that they receive.”
“The Petroleum Inspectorate will have proper legislation in place which guarantees their ability to get this information,” he said.
Mr. Tibbetts’s comments came during a debate over a private members’ motion filed by Opposition Leader McKeeva Bush. Mr. Bush proposed a motion in January asking government to consider, at least, more specific reporting requirements for the islands’ two major fuel distributors on the “actual costs” of shipments to the territory. The motion also sought to expand the authority of the Cayman Islands Petroleum Inspectorate to include subpoena powers to “ensure market prices are passed on to the general public.”
Mr. Bush said he had noted an average drop in local gasoline prices since last fall – more than $1.50 per gallon in most cases – but that gained oil companies and gas retailers only small favor in the opposition leader’s view.
“One might conclude that our gas and diesel prices are falling and, thus, we should jump for joy,” Mr. Bush said. “That is exactly what our local gasoline and diesel importers would like us to do, sit and be happy for the reduction. But the sad fact is that our local prices are nowhere near what they should be to reflect real market-driven prices. Our gasoline and diesel prices are artificially inflated.”
“We can do better and we must do better to protect our quality of life,” he added.
Minister Tibbetts said the Progressives-led government was reading from “the same page” as Mr. Bush on gas prices, but said government members could not accept his motion as it was written because it asked government to do specific things it was not able to do, such as audit the fuel companies’ costs. Mr. Bush’s motion was ultimately defeated along a party-line vote.
Big Oil’s view
Although Mr. Tibbetts spoke only about obtaining information on base-rate gas prices, not regulation of those prices, local oil companies have warned Cayman Islands politicians about enacting a system of price controls many times in the past.
Earlier this year, Sol Petroleum’s Alan Neesome said Cayman consumers could be left out of retail savings that occur if the market is overregulated.
“Pump pricing here overall [has] decreased substantially, in line with international pricing, whereas prices in other jurisdictions in our region, especially those with regulations, are in many cases higher when compared to the equivalent price per imperial gallon for the same product,” Mr. Neesome said.
Mr. Bush, in introducing his motion, noted that while average per gallon price of regular, unleaded gas was hovering around US$2.25 earlier this month, Cayman Islands fuel prices were averaging close to CI$4.20 – although prices varied substantially among the retail stations.
A system of price controls could ultimately lead to supply problems in a smaller market like Cayman, fuel distribution companies said.
Mr. Neesome said comparing Cayman – with a permanent population of close to 60,000 people – to the U.S. market, which has well over 300 million residents, is simply unfair.
“The USA is a macro market with totally different supply logistics, vast fuel resources, huge fuel storage capacity, a network of pipelines from the refineries to the distribution points, and trucking fleets which deliver fuel 24 hours per day, 365 days per year,” Mr. Neesome said. “The USA’s scale of operations provide efficiencies in fuel distribution that Cayman does not obtain as we have much higher unit infrastructural and operational costs which result in higher prices to consumers than in the U.S.”
Mr. Neesome said Sol Petroleum usually receives fuel shipments about every four weeks, and that cargo received may have loaded on the supply ship several weeks before arriving in Cayman. This delay in shipping creates a lag in pricing compared with current international prices, he said.
“In addition, to ensure security of supplies during hurricane season, we keep fuel inventories at higher levels; with August, September and October typically being the slowest months of the year for fuel sales, it takes longer to consume fuel inventory, which causes additional pricing lag,” Mr. Neesome said.
The Public Utilities Commission is proposed to be the regulator of all local utility industries including electric, telecommunications and water.
Mr. Tibbetts acknowledges there will be a number of issues involved in setting up the commission aside from those dealing with oil prices. For instance, depending on how the entity is set up, the Water Authority, Cayman – which is owned and operated by government – could end up becoming the “regulator” of its competition, Cayman Water Company, which serves the Seven Mile Beach and West Bay areas. Also, there are the standard difficulties of what to do with current regulatory bodies, such as the Electricity Regulatory Authority or the Information and Communications Technology Authority, if all are to be folded into one commission.
To assist in amalgamating all the different regulatory functions, Mr. Tibbetts’s ministry has hired a consultant on a three-month contract to “develop the framework” for the Public Utilities Commission.
“The most arduous task will be doing the necessary legislation,” Mr. Tibbetts said, noting that the Public Utilities Bill would likely serve as “umbrella legislation” that guides each regulatory agency in its existing work.