Cayman Water has asked government to withdraw and rewrite a proposed bill investing a new utilities regulation office with broad unilateral powers to control the firm’s activities. The company says it was not consulted on the bill.
Calling the proposed legislation “incomplete at best,” company president and CEO Rick McTaggart, in a four-page, six-point letter, delivered last week to the Ministry of Planning, Lands, Agriculture, Housing and Infrastructure, said, “at worst, the bill turns the clock back more than 30 years” by rejecting “successful and effective water-sector legislation” without consultation and “without providing an equal or better replacement.”
The ministry had not responded to requests for comment by press time.
In his letter, Mr. McTaggart said Consolidated Water, which owns Cayman Water, “a significant stakeholder” and “essential services provider,” had “for reasons unknown to us,” been excluded from consultation as the new law replaces separate agencies overseeing telecommunications, electricity, fuel and water with a unified Utility Regulation and Competition Office.
Published Sept. 12, the bill is under scrutiny by the Legislative Assembly as part of efforts to streamline administrative functions, saving government $250,000 per year as recommended in a 2014 Ernst & Young report.
The new “URCO” legislation will create a nine-member board of directors, meeting at least six times per year and including a chief executive officer, executive directors of information energy and the Chief Petroleum Inspector. The board will wield broad powers regarding prices, sharing of infrastructure, terms of business, service level guarantees and compensation payments to retail customers.
Mr. McTaggart observed that three bills accompanying the URCO legislation dissolve telecommunications overseer the Information and Communications Technology Authority; Caribbean Utilities Company overseer the Electricity Regulatory Authority; and fuel industry overseer the Petroleum Inspectorate.
However, he said, no similar legislation had resolved the conflict of interest that government’s statutory Water Authority-Cayman oversees Consolidated Water, its supplier and competitor.
“No equivalent bill has been published to amend The Water Authority Law,” he said, transferring its “regulatory powers, functions and responsibilities to URCO or to make the consequential amendments to The Water (Production and Supply) Law and The Wastewater Collection and Treatment Law” that would mandate URCO, rather than Water Authority-Cayman, to issue licenses to Cayman Water.
As such, he said “the legislation does not transfer real power to that new URCO office, so it [the legislation] is not complete.”
He told the Cayman Compass that URCO would “govern regulation for years to come,” and that Cayman Water had been expecting consultation, “but we did not receive anything – and we have not had an official response yet from government.
“Cayman Water feels strongly that we would have been able to provide meaningful and constructive input to the minister during the development of this legislation.”
Cayman Water supplies water to Seven Mile Beach and West Bay and is a wholly owned subsidiary of Consolidated Water.
Government had been eager to regulate the fuel sector, Mr. McTaggart said, “and we were swept up in it,” with the result that “we don’t think this reflects” the reality of Cayman Water’s long-standing and “highly developed regulatory scheme for water utility companies.”
Mr. McTaggart also argued the bill “gives URCO the power to unilaterally modify all existing licenses granted under the sectoral legislation … in respect of fixing rates and services.”
Under the new law, he said, URCO could require licensees to change their rates and service standards despite “the general rule of law” that contracts cannot be changed without the consent of both parties.
Nor does the bill recognize that “one regulatory regime does not fit every market and sector,” he wrote. “It does not make any distinction between regulating an essential service provider such as a water utility and a fuel supplier.”
The bill appears to extend without discrimination rules applying to competitive markets such as telecommunications and fuel to what he called “natural monopolies” such as water and electricity, which “already have a dominant position,” and whose licenses have long governed pricing structures.
Finally, he wrote, “the appeals process is grossly unbalanced … counter to principles that have been enshrined in water and electricity regulation for many years.
“This is one of the most important parts, and counter to existing legislation,” he said. “This says URCO can make a decision and does not have to take any information – including objections from the licensee – into account.
“It leaves only a judicial review process,” Mr. McTaggart said, “and that is like taking a sledgehammer to a mosquito.”
“We believe that sweeping regulatory changes to essential services sectors in the country need to be carefully considered, and certainly need to take the country forward by incorporating the best of the past while addressing the needs of the future. This bill falls considerably short of this goal and requires a major rewrite,” he said.