Cayman law gives fuel and utility providers an entitlement to profits | Loop Cayman Islands

The content originally appeared on: Cayman Compass

Cayman consumers have seen the recent ads from utility providers explaining how to cut costs, conserve energy, etc., in contemplation of planned price increases. This is all very useful information. The guidance is helpful because, on the one hand, it lets consumers know that there is a level of personal accountability to the extent that factors are under the consumer’s control and, on the other hand, the notices educate the general public about what goes into pricing which, at a second glance, is more complex than it seems.

Water rates illustration

For example, if you look at the Water Authority Regulations, there is complex formulae to calculate rates for the purpose of dealing with fluctuations in the cost of electricity in providing and processing desalinated water and in collecting and treating sewage and septage. This is known as an energy factor adjustment.

The Water Authority Regulations also deal with inflation. In connection with inflation, Water Regulations state that, for the purpose of dealing with inflation, the sewerage charges, septage charges and water charges shall be adjusted annually on July 1 of each year, using another complex formulae, of course. These calculations must be submitted by the provider to the Office of the Auditor General for independent verification no later than May 15 of each year and, in the absence of any corrections or response, the adjustments shall be deemed to be correct.

While the provider may exercise its powers to fix charges by reference to such matters, and may adopt such methods and principles for the calculation and imposition of the charges as appear to the provider to be appropriate, the rates and charges for the provision of water supply and wastewater services shall not be fixed or imposed without the prior written approval of the OfReg.

Electricity rates illustration

Regarding electricity rates, the principal functions of OfReg under the Electricity Sector Regulation Act include to monitor and regulate the tariffs, rate structures and terms and conditions for electricity transmission and distribution charged to consumers and to review and approve other rates offered by transmission and distribution licensees outside of the rate cap and adjustment mechanism for determining and modifying prices for electricity delivered by a transmission and distribution licensee to consumers.

In monitoring and regulating all licensees, OfReg is required by the Electricity Sector Regulation Act to do so in a manner that

promotes sustainable competitive practicesprovides an opportunity for a fair and reasonable return to licenseesprotects the economic interests and well-being of consumers by keeping tariffs and rate structures as low as can reasonably be achieved

When OfReg carries out its functions and exercises its powers, OfReg must do so in a manner which is reasonable, does not discriminate unfairly between applicants for licences or licensees, protects the interests of consumers, protects the security and public interests of the Cayman Islands and is consistent with the General Regulatory Principles.

Section 3(1) of the General Regulatory Principles state that “in return for efficiently providing services to an acceptable quality and at a fair price to consumers, licensees shall receive the opportunity to recover appropriate costs and earn a fair and reasonable return for their investors.”

Fuel rates illustration

Under the Fuel Market Regulation Act, OfReg is responsible for supervising persons engaged in business in the fuel market and such business includes importing, exporting, re-exporting, shipping, transporting, processing, refining, storing, distributing, marketing and selling of fuel.

In doing so, OfReg’s functions include implementing policy objectives set out in directions issued by the Cabinet, promoting fair competition in the fuel sector, providing consumer protection in the fuel sector and conducting investigations required under the Fuel Market Regulation Act.

In doing its part, the Cabinet must establish and maintain policies designed to ensure that relevant activities are carried out in a manner that is consistent with the public interest, so as to attain certain objectives and purposes. These objectives and purposes include ensuring that the fuel sector operates under conditions of orderly, economic, efficient and fair competition, ensuring the provision to the public of fuel at reasonable prices which accord with international price levels, while ensuring that persons in the fuel sector obtain fair and reasonable returns and preventing collusive practices in the fuel sector, particularly as to prices.

Illustrations complex

These illustrations, while complex, demonstrate that, not only are the Acts and regulations difficult to understand, but the provisions contained in the Acts and regulations require the regulator to consider the fair and reasonable returns of fuel and utility providers, not only consumer interests like many in the public might believe. If consumers want a change in this area, consumers must get their members of parliament to make such changes after discussions with relevant stakeholders. Otherwise, the regulator will, no doubt, have to stick to the law and work within the limitations of the law.