Minister answers utility regulation concerns

Cayman Water Company

In an eight-page response to Cayman Water Company CEO Rick McTaggart, government has sought to counter calls to withdraw and rewrite proposed legislation creating a single office regulating Cayman’s utility companies.

Signed by Minister of Planning, Lands, Agriculture, Housing and Infrastructure Kurt Tibbetts, the 3,100-word letter released publicly Wednesday purports to answer Mr. McTaggart’s worries that the bill is incomplete, and leaves his company largely at the whim of a nine-member board governing the new Utility Regulation and Competition Office, to be known as URCO.

The new bill seeks to unify the host of separate regulators that oversee the telecommunications, electricity, water and fuel industries. As part of the proposed bill, three affiliated laws abolish the Information and Telecommunications Office, the Electricity Regulatory Authority and the Petroleum Inspectorate.

Among Mr. McTaggart’s concerns – outlined in a Sept. 30 letter to Mr. Tibbetts’s ministry – was that no similar legislation has been brought to address water-sector laws or address the conflict of interest that has made the Water Authority-Cayman both the regulator and competitor of Cayman Water.

Acknowledging Mr. McTaggart’s concerns, Mr. Tibbetts said he was “mindful of the existing licensing arrangements” for Cayman Water, saying the lack of accompanying legislation was “not an oversight,” and promising that a “Water Supply and Waste Water Services Regulation Bill” would be introduced “simultaneously with the enactment of the relevant water-sector laws.” He said the four bills would be ready in the new year.

“The ministry is of the view that this procedure affords affected parties sufficient opportunity to proffer arguments for ‘reconsideration,’” Mr. Tibbetts said, “and that the logical next step would therefore be judicial review.”

Mr. Tibbetts did not account for the delay, however, saying only that “a number of unexpected circumstances” had prevented the introduction of legislation specific to the water industry.

Mr. Tibbetts also acknowledged the ministry’s failure to consult with Cayman Water while drafting the 82-page URCO bill, but said “the ministry is using the 21-day period [statutorily provided for consultation] diligently, and has considered and responded to all inputs received, of which there have been a few.”

The law allows interested parties three weeks to comment on a bill after publication in the weekly Government Gazette. Mr. Tibbetts did not elaborate on how “inputs received” might affect the legislation.

Responding to Mr. McTaggart’s observation that the URCO board did not include an “executive director of water production and supply,” Mr. Tibbetts said that a single “Executive Director for Energy and Utilities” would be adequate.

“Competent and expert staff support will be needed in all sectors, which will be an organizational matter for the Board of the Office,” he added.

In his four-page letter to Mr. Tibbetts, Mr. McTaggart had said that the legislation appeared to attempt a merger of complex regulatory regimes for each utility into a “one size fits all” scheme, despite, for example, the fuel sector’s competitive – and unregulated – pricing as opposed to government’s close control over water and electricity rates.

While Mr. Tibbetts acknowledged the validity of the observation, he said the four “sector-specific bills” would “address the peculiar sector-specific issues and duties/functions of the office in the respective sectors.”

Mr. Tibbetts promised to review the section on URCO control of mergers after Mr. McTaggart pointed out the potential impediments to open-market share pricing and sales, saying the question went “to the core of the concern for the preservation of competition.” The section allowed URCO to “reflect” on the impact “any such change may have on a competitive market and to make any interventions deemed appropriate to mitigate any negative impacts.”

Mr. McTaggart pointed out the contradiction that URCO had power to halt any initiative it deemed “abuse of dominant position,” but gave, for example, monopoly provider Caribbean Utilities Company “the right to protect their legitimate business interests.”

He could see “no reasonable justification” why all licensees should not have equal treatment.

Mr. Tibbetts admitted that the section was “not a particularly elegant treatment of the particular issue,” but offered no solutions, saying only that any other approach “would be a material change to agreements between the CUC and the government.”

Finally, according to the proposed URCO law, the office allows appeals of any decisions “in its discretion,” including simple requests by “a licensee to be heard.” The bill also would reduce from 28 days to 21 days the period for filing an appeal; it does not allow presentation of additional information which might change an URCO decision, nor does it specify grounds for appeals or the powers of the court to intervene, leaving only, Mr. McTaggart feared, a formal judicial review.

Mr. Tibbetts said the ministry would seek amendments to the new law, increasing the appeals period to 28 days; that the level of fines was consistent with recent amendments to the Information and Communications Technology Authority Law; that a formal URCO decision had to be preceded by a draft of that decision to allow affected companies to comment, providing a “basis for the office to reconsider its position prior to issuing a final decision.”

“The ministry is of the view that this procedure affords affected parties sufficient opportunity to proffer arguments for ‘reconsideration,’” Mr. Tibbetts said, “and that the logical next step would therefore be judicial review.”

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