Cayman Water has yet to reach an agreement with the Utilities Regulation and Competition Office to serve customers in the Seven Mile Beach and West Bay areas, according to the 2018 annual report from Cayman Water’s parent company, Consolidated Water.
Cayman Water’s retail licence 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 licence extension expired on Jan. 31, 2018, but Cayman Water has continued to provide water on a month-to-month “good faith” basis under the terms of the expired licence to allow for the continuation of negotiations without interruption to an essential service, Consolidated Water stated in its annual report.
Cayman Water sent a proposal to the Utilities Regulation and Competition Office, known as OfReg, for a new agreement last year, but the regulator rejected it.
“The Company began license negotiations with OfReg in July 2017 and such negotiations are continuing. On Nov. 2, 2018, the Company received a letter from OfReg in which OfReg rejected the Company’s most recent commercial proposal,” Consolidated Water stated in its third quarter of 2018 financial report. “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.”
Consolidated Water added in its 2018 annual report released Monday that the company proposed to OfReg to adjust its rates in January 2019 consistent with the terms of the previous licence.
“However, OfReg has communicated that they have deferred any such adjustment until further notice,” Consolidated Water stated.
At a company conference call on Monday, an investor asked Consolidated Water CEO Rick McTaggart about the ongoing negotiations. McTaggart was tight-lipped about details, but said talks continue.
“Slowly but surely, we’re making progress there,” he said. “We had meetings and we continued to negotiate with OfReg on the new licence.”
Under its current licence 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 delivered to its customers are determined by the licence 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.
Consolidated Water’s financial reports do not go into detail about the negotiations, but state that government is looking to restructure its water supply deal with Consolidated Water 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 licence. Under the existing licence agreement, Consolidated Water does not pay duty on supplies imported into the Cayman Islands under its retail water licence.
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.