OfReg and Cayman Water resume talks

Cayman Water is back in talks with regulator OfReg about its license.

After the Utilities Regulation and Competition Office (OfReg) rejected Cayman Water’s most recent proposal for a licensing deal to serve customers in the Seven Mile Beach and West Bay areas, the two parties have resumed negotiations.

Frederick McTaggart, CEO of Cayman Water parent company Consolidated Water, told the Cayman Compass that he met with the regulator on Tuesday to provide more “information relating to the negotiations.”

Mr. McTaggart declined to go into details about the negotiations, but said he’s confident that Cayman Water and OfReg will reach a deal that is beneficial for Cayman consumers and is fair to the company.

“I don’t want to speculate, other than to say I think we’ll ultimately reach an agreement with [OfReg],” he said. “In every negotiation, there’s some rough patches you go through. But we’ll get it resolved, I think.”

He added that customers are in no danger of having their services interrupted.

“Nobody would even consider that – on either side of the table,” he said.

Earlier this month, OfReg rejected Cayman Water’s most recent proposal.

“Further, OfReg indicated that if the Company is unwilling to submit a new proposal offering certain additional concessions, then OfReg will have to consider its other available options,” stated Consolidated Water’s third quarter financial report.

Mr. McTaggart said he does not know what OfReg meant when it said it may have to “other available options.”

Gregg Anderson, who is the executive director of OfReg’s energy and utilities office, also declined to comment on the negotiations. He did, however, send the Compass a portion of the Water Section Regulation Law, which outlines some of the regulator’s powers.

The powers in that law include “setting, monitoring and regulating the tariffs, rate structures, and terms and conditions for water and wastewater services charged to consumers … ; reviewing and approving other rates offered by service providers … ; and establishing, monitoring, reviewing or amending service standards provided for under this Law or in any licence granted or administrative determination issued by the Office under this Law.”

Cayman Water’s retail license was originally set to expire in July 2010, but has been extended several times over the years so that government and the company could reach a new deal.

The most recent license extension expired on Jan. 31 this year, but Consolidated Water stated in its report that it continues to provide water on the assumption that the license has been further extended to allow negotiations to continue without interrupting an essential service. The company began negotiating with OfReg in July last year.

Under its current license regime, Cayman Water pays a 7.5 percent royalty to the government of its gross retail water sales revenues – excluding energy cost adjustments. The selling prices of water sold to its customers are determined by the license and vary depending upon the type and location of the customer and the monthly volume of water purchased, according to Consolidated Water’s annual report.

Previous financial reports from Consolidated Water state that government is looking to restructure its water supply deal in a manner that could significantly reduce the company’s income.

“The resolution of these license negotiations could result in a material reduction of the operating income and cash flows we have historically generated from our retail operations,” Consolidated Water stated in a previous report.

The report added that one of the likely outcomes to the negotiations will be that Consolidated Water will no longer receive tax breaks on its imports related to the retail license. Under the existing license agreement, Consolidated Water does not pay duty on supplies imported into the Cayman Islands under its retail water license.

According to a 2010 filing, the Cayman Islands government is looking to lower water rates for residents.

“Depending upon the terms included in such new license, the company’s water rates to customers could be reduced, thereby resulting in a corresponding reduction in the company’s operating income as compared to operating income that the company has historically generated under the license,” Consolidated Water stated in a 2010 filing.