“Balancing Act” required when considering prices in the fuel sector | Loop Cayman Islands

The content originally appeared on: Cayman Compass

Following the recent rise in global fuel prices that impacted consumers in the Cayman Islands, members of the public were hoping that the government or the Utility Regulation and Competition Office (OfReg) would step in immediately to either introduce new polices to regulate fuel prices or to give consumers a break at the pump. Any such policies, however, if contemplated, would require both the interests of consumers and providers in the fuel sector to be considered.

Balancing interests

The requirement to balance interests is found under the Fuel Market Regulation Act, which stipulates that, on one hand, the Cabinet must establish and maintain policies designed to ensure that the operations and activities of the fuel sector (and any matters considered by the Cabinet to be in the public interest relating to the handling and sale of fuel) are carried out in a manner that is consistent with the public interest. On the other hand, such polices must ensure that persons in the fuel sector obtain fair and reasonable returns.

No definition of “fair” and “reasonable”

The proposed “balancing act” might work if there was clarity in the Fuel Market Regulation Act, for example, by including a definition of “reasonable returns” or determining what is “fair” or setting out measures that are deemed to be in the “public interest.” In the absence of such definitions, consumers are left to speculate what weight the Cabinet places on the plight of the ordinary man or woman (whose cost of living issues are exacerbated by rising fuel prices) versus the importance of profits or reasonable returns for players in the fuel sector.

Consumer Protection

With so much left open for interpretation, consumers are hoping that the ambiguity will begin to disappear when the draft Fuel Sector (Consumer Protection) Regulations appearing on the OfReg website are finalised.

Members of the public cannot just “hope” for these changes, however. Instead, they must provide their feedback to OfReg as to what is required to make the draft Fuel Sector (Consumer Protection) Regulations meaningful i.e., in the public’s best interest. Equally, OfReg cannot rely on consumers to somehow discover on their own that the draft Fuel Sector (Consumer Protection) Regulations are published on OfReg’s website. Instead, OfReg should engage members of the public through more town hall meetings and talk show appearances that facilitate consumer feedback and input. Otherwise, the final form of the Fuel Sector (Consumer Protection) Regulations may not prove to be meaningful for consumers.

Unhappy consumers create political challenge

If consumers are unhappy with the way policies impact them, their feelings will surely be expressed when the time comes to cast their vote in the next elections.

For example, there are those in Cayman who are living so close to the edge financially that higher fuel prices could literally change their cost of living circumstances. The political significance of this is clear when one considers that a substantial number of people in Cayman earn less than $3,000 per month and some of these are voters who may become frustrated with how fuel price hikes have negatively impacted their quality of life. How they “feel” may ultimately determine how they vote.

Recommendations

To create a proper “balancing act” so that the regulation of fuel prices are in the public’s interest, OfReg has to first recommend to the Cabinet that definitions of “fair” and “reasonable returns” be set out in the Fuel Market Regulation Act, the draft Fuel Sector (Consumer Protection) Regulations and the Utility Regulation and Competition Act. In the case of “reasonable returns,” OfReg should disclose the formula used to calculate this or state the percentage of profits that is considered to be a reasonable return for categories of providers in the fuel sector.

In the end, the Cabinet’s policies are only as good as the recommendations that OfReg provides to the Cabinet, following the solicitation of public feedback by OfReg. Of course, OfReg must also do its job, an integral part of which involves hiring the right people in the right places and preventing any collusive practices in the fuel sector (if they exist), particularly as to prices, as required by law.