OfReg rejects water company rate hike

| 16/07/2019 | 49 Comments
Cayman News Service
Abel Castillo Water Works

(CNS): The utilities regulator has rejected an application by the private sector water company to increase its rates. Cayman Water Company Ltd supplies water to residents in West Bay and Seven Mile Beach and it already charges more than the government-owned Water Authority – Cayman, which supplies the rest of the Cayman Islands. In a press release issued Tuesday, OfReg said that it had refused a request to raise the price in line with inflation because there was no justification for it.

The request by Cayman Water to increase its rates was made during ongoing licence negotiations, which meant that the request was without legal basis, Of Reg said. Despite this absence of a licence and the ongoing talks, which have lasted for a decade, the regulator said it had nevertheless considered the request in good faith.

Gregg Anderson, OfReg Executive Director of Energy and Utilities, said he made the decision based on regulatory principles, including fairness to both the consumer and provider. But having examined the financial statements of Consolidated Water Co. Ltd, the parent company of Cayman Water Company, he refused the request.

“In a competitive market, providers battle for market share which raises standards and lowers prices. In this instance, consumers do not have a choice of water supplier, so it is the job of the regulator to ensure that the rates are fair to the consumer, whilst also providing a sufficient return on investment for the provider,” he said. “There was no justification for Cayman Water to be granted their request to increase the water rates. I now look forward to focusing on getting the best deal for both consumers and Cayman Water, in the ongoing licence negotiations.”

The private sector water company’s permanent licence elapsed in 2010 and since then it has been extended several times to give the previous regulator, the Water Authority, and Consolidated Water time to negotiate a new deal. OfReg took over those talks when it became the regulator in 2017, but there is still no deal.

OfReg has said that the talks will conclude when it is satisfied that the agreed licence conditions, including the rates, strike the right balance between the legitimate commercial interests of the company, and the consumers who do not have a choice.

The regulator rejected the most recent proposal from Consolidated late last year. In its financial report for 2018 Consolidated said that it has continued to supply water in good faith in Cayman on the basis that the licence will eventually be renewed. But the company said it had been informed that the Cayman Islands government wants to restructure the terms of the licence “in a manner that could significantly reduce the operating income and cash flows we have historically generated”.

Highlighting the potential “material reduction (or the loss) of the operating income and cash flows” in the annual report, it said this could have an adverse impact on the bottom line. “The company cannot make any assurances that it will be able to reach an agreement with OfReg for a new licence or that the terms of any licence agreed to will be on terms as favorable to the company as the terms of the licence that expired Jan. 31, 2018,” it stated in the report.

CNS understands that the main stumbling block is that the rate the private water company wants to charge its West Bay customers is simply too high.

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Comments (49)

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  1. Anonymous says:

    It seems to me that OfReg is using this denial to try to look good and cover up all the excessive traveling, spending and wasting of the public’s money they have been doing since they came into being. They need to justify their existence and cover up their wastage so they reject an increase request by CWC that was inflation based to try to look good. How much was the increase in percentage? What would the effect be on my bill? $3.00 for the month? They should try to make some changes where it would actually help like with CUC and the internet and fuel companies. Why did they just approve CUC’s rate increase? Was that not inflation based as well?

    • Anonymous says:

      If we want to criticize OfReg it would be easy to fill the pages here, so I will just skip that part and say that it looks to me that it was a good decision and probably the only way they can get Cayman Water to the bargaining table with serious attempts to complete the negotiations for a new license.

      Since Cayman Water has gone 9 years without being able to come to an agreement, then they are more than willing to continue “negotiating” indefinitely as long as they are able to increase their rates while negotiations are ongoing.

  2. Anonymous says:

    CWC gives rate concession to “high volume” customer(s)…

    WAC water rates are cheaper than CWC’s, so why can’t WAC buy out CWC and provide the service for less, why should only those living outside of WestBay and SMB have access to cheaper water?

    For 9 years CWC has been able to kick the “license renewal” can down the road and charge their customers prices significantly higher than WAC, how has the government let this happen? CWC have the best part of Grand Cayman’s water utility area, SMB, with a high density of very large customers and yet they still try to justify higher rates? WAC has the rest of the island, the sparsely populated eastern end, and they still provide cheaper water? I would venture to say that if WAC had the entire water utility their rates would be cheaper even than their current rates as they will have all those large SMB customers included, economies of scale.

    Private entities are supposed to be able to provide the same or better services more efficiently than government entities and thereby offer water for less, otherwise why would you let them provide that service with an exclusive monopoly area license.

    Cayman has had a 35+ year experiment going on in the water sector between Private-CWC and Government run-WAC water provision, and CWC’s rates are significantly higher. Who is the main beneficiary of all that “efficiency”, certainly not the customers?

    With respect to the large SMB customer(s) are they ALL paying the same posted rates or have some negotiated lower rates as stated in their SEC filings for the reason for lower revenues. See their 10k filing for 2017 on their website, it states…

    “The slight decrease in revenues for 2017 is attributable to the execution in mid-2017 of an amended contract with a high volume customer in Grand Cayman which expanded its ability to utilize a concessionary rate that was originally negotiated in 2002.”

    If this is the case then we are ALL SUBSIDIZING these large commercial customer(s). Must be large if it materially affected CWC’s accounts when they give them a rate concession!!!

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    • Anonymous says:

      For once Ofreg did something, congrations

    • Anonymous says:

      CBC makes all the water for wac so who would make the water if they got bought out? On the other hand, CFC is a public company so I, you and anyone else who wants to own it, or any part, can buy shares. Cig and was could buy them all if they really wanted to take them over….

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  3. Anonymous says:

    OfReg please tell us when the new licence for Cayman Brac Power & Light will be made public. This licence expired in Dec 2018!!

  4. Anonymous says:

    Thanks OfReg! Hope you stand firm on that for at least another year! Utility companies just want to rape us!!

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  5. SSM345 says:

    Who wants to bet that the OfReg BOD have shares in CUC?

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    • Anonymous says:

      Yep. They always approve cuc rate increases, despite them publicly stating they are making increasing profits.

      • Anonymous says:

        Cud are guaranteed a certain profit margin. If costs go up they just ask for a rate increase to keep that margin. Of course it means they have no reason to be frugal as they can spend away then come back to the cayman cow trough and pig out on our pockets to keep their margins. Probably not in the best interests of the cayman people. OfReg should be scrutinizing their books and expenses and any excesses should be discounted from the formula to keep their spending in line with reasonable business practice, if it isn’t happening…

        • Anonymous says:

          That’s not actually how the agreement is written… there is no guaranteed profit or ability to spend without oversight.
          There is a target return on capital investment as part of the license, coupled with changes in CPI. Capital investments are scrutinized by the regulator, as are other costs and performance metrics.

  6. Anonymous says:

    Ever notice how the OffReg guys drive big ass gas guzzling carbon spewing SUVs. 🤔. Pretty much says it all.

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  7. Anonymous says:

    Given the power of those who have financial interests in CUC, it ain’t ever going down!

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    • Anonymous says:

      CUC has a customer share purchase plan. Any customer can buy shares for a few dollars each month and watch their investment grow. Don’t complain when there is no obstacle in your way.

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      • Anonymous says:

        Please do not expect to retire off those shares. Very little growth there. Much better if you take your extra dollars and buy some mutual funds.

  8. Anonymous says:

    “Cayman Water Company Ltd supplies water to residents in West Bay and Seven Mile Beach and it already charges more than the government-owned Water Authority – Cayman”

    Cayman Water Company also pays a 15% tax (royalty) to the Water Authority -Cayman. Cayman Water Company customers subsidize Water Authority customers.

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    • Anonymous says:

      Can you provide a link to that info?

    • Anonymous says:

      The actual tax is 7.5%. Result is a 15% difference. -7.5% for Cayman Water +7.5% for Water Authority

      Link to Compass article..https://www.caymancompass.com/2019/05/13/9-years-later-still-no-licensing-deal-for-cayman-water/

      • Anonymous says:

        That says 7.5% to government, not Water Authority. Cayman Water does not subsidize Water Authority customers any more than the beer importers, food importers, oil companies etc.

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    • Anonymous says:

      The Royalty is only 7.5% for the regulation of the privately owned public service. WAC is responsible for checking all of CWC’s operations and making sure the water quality is safe and customers are being serviced according to their license. Looking at the current rates online CWC charges about 12-15% more than WAC. It should not matter where you live on Cayman Islands the cost of water, a basic need, and the level of service, should be the same for all. I would encourage readers to look through CWCO’s annual reports and see how much compensation the top 4 execs are making annually, compared to the Elec utility, this has a lot to do with why the rates are so high. Maybe WAC should be providing water for the entire island if they can do it cheaper?

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      • Anonymous says:

        This comparison is ridiculous. on both sides. CWC pays WAC a 7.5% royalty. So take 7.5% off from CWC’s rates. Add 7.5% to WAC’s rates as they ultimately collect that money and then compare rates and see what you get.

        CWC is a subsidiary of CWCO just like CUC is a subsidiary of Fortis. So if you want to compare executive compensation of CWCO then compare the executives of CWCO with those of Fortis not with CUC.

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      • Anonymous says:

        Executive compensation is something for the shareholders to take up, but I fail to see what good argument they have for increasing rates when SMB operations bringing in 39% of revenue but accounting for 54% of the profit.

        In 2018 and 2017 we generated approximately 39% and 39%, respectively, of our consolidated revenues and 54% and 54%, respectively, of our consolidated gross profit from the retail water operations conducted pursuant to Cayman Water’s exclusive license.
        https://www.sec.gov/Archives/edgar/data/928340/000114420419014413/tv515310_10k.htm

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  9. Anonymous says:

    Now allow a “Competitive Market” to rival CUC so we can all benefit. The yearly summer price hikes by this monopoly need to be kept in check to stabilize the cost of living.

    For example, grocery store A now has to pay a higher light bill as they have to keep their freezers on continuously. With no cheaper solution the overhead is passed on to the consumer.

    The same is true of every business.

    We need a sustainable model for fair competition, tired of being gouged with no other alternative.

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    • Anonymous says:

      Grocery stores easily install solar panels on roof…that should able lower the prices for food. Fosters can afford to install solar panels on all stores.

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      • Anonymous says:

        Fosters barely makes enough of a margin to break even. Ever been in the food business?

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        • Anonymous says:

          That’s because they don’t make their money from the food they sell. It’s always been about the ‘shipping business’ and the margins on the money transfers/exchange rates.

      • Anonymous says:

        I believe they (Fosters) have installed solar panels, geothermal and led lights throughout most stores only to be hit last year with CUC commercial demand rates.

        People have no idea what the overheads are for a supermarket and how much is invested to cut them down in order to get the best prices to customers.

        People also have no idea what the overhead costs and process is to bring in food – by ship – to a small island. Honestly, its a miracle that ALL the eggs arent broken by time they get here!

  10. Anonymous says:

    I dont know how CWCo isnt making enough profit already. I have a cistern but in order to stay connected in case I run dry, I pay 23$ a month for 1000 gallons of water that I dont even use. I may use city water 2 or 3 months a year max. They are making money off me for not even providing water for 9 months of the year!!!

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  11. Anonymous says:

    CWC is not Lodge Affiliated.

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  12. Anonymous says:

    Sounds like OfReg simply making a token gesture to try and justify all the public money they’ve been wasting recently. They’re a sick joke!

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  13. Anonymous says:

    It’s a pity they didn’t reject CUC’s request for their price increase. My bill for this month is $536.00 The highest it has been in 25 years of living at this same residence.

    CUC is always bragging about the profits the company makes at the expense of their consumers. They don’t have no competition – so the consumers have to pay it or go back to burning lamps or candles if they don’t pay their bill.

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    • Anonymous says:

      Did you check how many kWh you consumed.

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      • Anonymous says:

        Same kwh, same fuel cost as previous months yet 20+% higher bill. Explain that

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        • Anonymous says:

          Have appliances & A/C been replaced during that time? Replaced inefficient lights/bulbs?

          • Anonymous says:

            My AC has been changes/ upgrades, and yes I use energy savings bulbs, living the Sam way for years and yes my electric bill has gone up by almost CI One hundred since May. By the way I really hate when CUC put up the rates excessively and then they come with this condescending tripe about replacing AC and using efficient bulbs. I have been doing that for years and every flipping year the rates goes up. You all are just a bunch of thieves and whoever agreed that contract that seems to be written in concrete should have their heads examine. Thst is what happens when the Directors are also shareholders.

        • Anonymous says:

          Prove it. Also, fuel costs are published and clearly are not the same month after month. The rate increase was 0.9%, so 20+% with consumption unchanged doesn’t wash.

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    • Anonymous says:

      You’re right on the competition aspect. I’ve just had friends over from the UK for a visit. Earlier this year their electricity supplier hiked the rates so they changed and the monthly repayments immediately dropped by a third. Three months into the new contract they were so much in credit the payments were again dropped by a third. They’re now paying just under 40% of the quoted rate increase they were given before changing. It’s the same with their phone charges, internet and insurance. They change providers just about every year to get ‘new customer’ discounts.

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      • Anonymous says:

        That works in large countries with nationalized networks/distribution. Would you like 3 sets of utility poles or water pipes down every road? The Cayman Islands is the size of a small town. We cannot get the economies of scale that large countries can.

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        • Anon says:

          4.03pm With 3 sets of utility poles on every road there would be no drivers left.

        • Anonymous says:

          You are confusing size with concept. They don’t duplicate wires and pipes in the UK because it’s inefficient, not because it’s a large country. No one is suggesting multiple distribution infrastructure- but either different providers or distribution agents using the same infrastructure. Just different meters. So if set up a water production company tomorrow I should have access to the pipe network and pay the pipeline owner for every gallon I put through it, get paid for every gallon my customers consume. The regulator determines the transmission cost charged by the pipeline. It’s not rocket science. The biggest problem is not the size of our island it the ability of our regulator to actually regulate the transmission system! Hell they can’t even get the cable providers to provide local content or C&W to allow access to their poles.

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    • Anonymous says:

      CUC can stick their diesel generators where the sun don’t shine!

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      • Anonymous says:

        The generators work well where the Sun doesn’t shine. You are free to buy solar panels, and storage batteries and live off grid if you wish. If you think that is too expensive why do you complain when CUC provides power 24/7 and delivers it to your home on a robust well maintained distribution system.. unlike some small islands that take years recovering from hurricanes.

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        • Anonymous says:

          Spoken like a true CUC employee. It’s easy to speak good thing about an organisation when they employ you and pay your salary. CUC has a government issued license to print money at the expense of their customers. No one is attacking the job you do, it’s about not having another choice for a provider and being forced to pay bills that increase when they feel like, and not by usage.

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          • Jo says:

            People always have choices; it should be noted that we live in a small island, therefore a system of multi-vendor utilities for distribution (electricity or water) cannot be capitalize here due to our small population – I would expect there to be less than 40,000 customers through out all 3 islands since our population is estimated at around 60,000 but I am open to correction. Costs of living in Cayman are part and parcel of the standard of living we have come to expect here given our small population size.

            If someone is not happy with their current utility bill then sounds like they need to reduce their consumption habits by either changing personal habits eg conserving or changing their lifestyle eg moving to a smaller property.

            Of course there is always the choice of relocating to another country, where the standard of living will be different……

            It goes without saying that the costs of service from the utilities can always be less too if consumers are fine with less reliability or lower quality of service which will also lower our standard of living we now enjoy!

            As the cliches say: ‘You can’t have your cake and eat it too’ and ‘You always have choices’.

          • Anonymous says:

            There is meter on the wall and you can read it yourself. Turn off your circut breaker and it stops! Wow!

            • Anonymous says:

              So how do you explain the same KWh usage in two months, but a higher bill? The only explanation is robbery.

            • Anonymous says:

              Just because your meter stops working doesnt mean your bill will reflect!! I was disconnected for over a month but got a bill based on “usage history” which the smart meters are programmed to calibrate.

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