UTILITY REGULATION AND COMPETITION OFFICE 

ANNUAL PLAN 2019 

Date of Publication: 08 April 2019 

TABLE OF CONTENTS 

1 .   INTRO

2.   Why OfReg?

• Why Do We Exist?
• What Do We Do?
• How Do We Deliver?

3.   The Plan for 2019

• Commonalities
• Sector Plans :
• Energy
• Fuels
• ICT
• Water
• Operations

4.   Measuring Success

• Key Performance Indicators
• Quarterly Objectives

5.    Appendices

• Abbreviations
• 2019 Budget
• Legislative Agenda

Our aim with this document is to produce an informative guide to OfReg’s strategic plans for the year and to present details on how we will deliver. The Plan includes common strategic objectives which the Board seeks to implement across all sectors. It also seeks to deliver a Plan which is consumer-focused and creates alignment across all areas of OfReg’s regulatory responsibilities. In addition, the Annual Plan should enable the Board, through the CEO, to cascade key objectives to staff. We hope you find this document informative and useful. 

– Alee Fa’amoe 

Acting CEO, 

OfReg February 2019 “

INTRODUCTION

OfReg’s Strategic Plan drives the specific deliverables for each year, as documented in the Annual Plan.

Annual priorities are then set, along with deliverables and Key Performance Indicators.

These then become objectives for the CEO and are cascaded to management & staff.

Why OfReg? 

+ Why Do We Exist? 

+ What Do We Do? 

+ How Do We Deliver? 01 

WHY DO WE EXIST? 

There are three main elements that drive why OfReg was created. They form the basis of the OfReg strategic objectives.

Consumers :- The Office seeks to deliver benefits to consumers by ensuring the availability, reliability, quality, and safety of utilities.Because utilities are often delivered by just one provider in any given area (as is the case with water and electricity), or only a few providers (as is the case in the fuels sector), the regulator has a role to ensure consumers are protected from harm.

The Office protects consumers in several ways using rules, regulations, license conditions and other mechanisms. For example, electricity and water rates must be approved by the Office, we set fuel quality standards, and we measure quality of service (QoS) in the telecommunications sector.

Infrastructure :- Utilities services are delivered to consumers over very specialized equipment. Think of the transformers on power poles for your electricity, the underground pumping stations for your water supply, and the submarine cables that enable you to connect to the internet.

This infrastructure is critical not only to the service providers, but the economy as a whole. Without it, no modern economy can function.

OfReg is mandated by law to take steps to protect this Critical National Infrastructure (CNI). 

Growth & Innovation :- In all but one case, the utility service providers are private entities, either privately held or publicly traded. Gone are the days when the Government would provide utility services.

But investors demand a return on their investments. The regulator must ensure there is an environment that is wellregulated, but which also is stable and fair and can thereby remain attractive to the ongoing investments needed to maintain quality services.

A part of this regulatory remit is to foster and encourage innovation across the sectors. Whether it is through policies to encourage renewable energy technology, or licensing frameworks that attract experimental networks, OfReg will continue to keep innovation a high priority

THE LAWS 

These are the various laws that created OfReg and which the Office is expected to operate under and to enforce.

Beyond these specific regulatory functions, there are many other laws which place obligations on the Office. For example, the Public Authorities Law, Labour Law, Freedom of Information Law, National Archives Law, and many more. These are not addressed in the Annual Plan, but fall under a Compliance Plan which the Office manages. 

1. Dangerous Substances Law (2017 Revision) (“DSL”) 
2. Electricity Sector Regulation Law (2019 Revision) (“ESR”) 
3. Electronic Transactions Law (2003 Revision)
4. The Fuel Market Regulation Law, 2017 (“FML”)
5. Information and Communications Technology Law (2019 Revision) (“ICT Law”)
6. Utility Regulation and Competition Law (2019 Revision) (“URC Law”)
7. Wastewater Collection and Treatment Law (2019 Revision) (“WCT Law”) 
8. Water (Production and Supply) Law (2018 Revision) (“WPS Law”)
9. The Water Sector Regulation Law (2019 Revision) (“WSRL”)

Nine main laws give OfReg its powers and also speak to the specific responsibilities the Office has to regulate and enforce its Strategic Objectives.*

Consumers :-

DSL Section 9D, 10.F.(1)(b) and 13
ESR Sections 9(2) and (5), 23(4), 26, 66, 67, 68, 69, 70 and Schedule 
FML Sections 5 and 10
ICT Law Section 9 
URC Law Sections 2, 6, 45, 50, 52, 55, 57, 60 and 61
WCT Law Section 14 
WPS Law Section 13 
WSRL Sections 3, 6 and Schedule 

Infrastructure :- 

DSL Section 15 
ESR Sections 31, Part VII, 74, 89 and Schedule
FML Sections 5 and 6 
ICT Law Sections 9, 23, Part VII and Part XI
URC Law Sections 6, 45, 62, 63 and 111 
WCT Law Sections 11 and 13 
WPS Law Section 11 
WSRL Sections 3, 11, 19 and 20 

Growth & Innovation  :- 
DSL Sections 9B and 15 
ESR Sections 9, 89 and Schedule 
FML Section 5 
ICT Law Section 9 
URC Law Sections 6, 34, 38 and 62 
WSRL Section 3 

WHAT DO WE DO? 

1. Who
• Who is allowed to operate?
• Licences
• Permits
• Due diligence (“fit & proper persons”)

2. How
• Licence conditions / obligations
• Rules & Regulations
• Guidelines
• Standards

3. Compliance
• Reporting
• Mystery Shopping
• Monitoring by OfReg
• Consumer Complaints

4. Enforcement
• Warnings
• Penalties & fines
• Revoke Licence

HOW DO WE DELIVER? 

Consumer Protection & Benefit 

Consumer Protection Regulations
Truth in Advertising Rules
Quality of Service (QoS) standards
Public Safety
Sector-Specific Initiatives

Protecting Infrastructure

Critical National Infrastructure (CNI)
Disaster Preparation
Setting Standards
Sector-Specific Initiatives

Promoting Economic Growth & Innovation

Creating Incentives to Invest
Supporting and Encouraging Innovation
Ensuring Stable & Competitive Markets
Sector-Specific Initiatives

The 2019 Plan 

COMMONALITIES

All sectors within OfReg, Energy, Fuels, ICT, and Water, will address common areas under the three Strategic Objectives.

Consumers :- Consumer protection initiatives across all sectors during 2019 include:
o  Consumer Protection Regulations
o  Truth In Advertising Rules
o  Quality of Service standards
o  Public Safety initiatives

Infrastructure :- Infrastructure initiatives across all sectors during 2019 will include:
o Protecting utility infrastructure
o Identification of CNI
o Protecting buried infrastructure: ClickB4UDig
o Cross sectors disaster preparedness plans

Growth & Innovation :- G&I initiatives common to all sectors in 2019 will include:
o New licensing frameworks
o Compliance monitoring
o Investigation procedures
o Enforcement processes
o Establish Anti-Competitive Practices rules

SECTOR PLANS: ENERGY 

These are the main deliverables for the Energy sector for 2019. 

Consumers :-

• Electricity Consumer Protection Regulations - set standards by end of Q2
• Electricity QOS - set standards by end of Q2
• Electricity QOS – set measurement processes by end of Q3
• Electricity QOS – implement measurements by end of Q4

Infrastructure :- 

• Electricity Infrastructure Protection Regulations - set standards by end of Q3.

Growth & Innovation  :- 

• New License for Cayman Brac Power & Light by Q2
• New Consumer Renewables programme to replace Customer Owned Renewable Energy (CORE) programme by end Q4
• Deploy additional renewables on the grid, per the National Energy Policy (NEP).
• Develop RFP process for large scale commercial renewable licensing

SECTOR PLANS: FUELS 

These are the main deliverables for the Fuels sector for 2019. 

Consumers :- 

• Fuels Consumer Protection - set standards by end of Q2.
• Fuels QOS - set standards by end of Q1.
• Fuels QOS – set measurement processes by end of Q2
• Fuels QOS – implement measurements by end of Q3

Infrastructure :- 

• Fuels Infrastructure Protection - set standards by end of Q3

Growth & Innovation  :-

• New Fuels licensing framework.
• Fuels compliance monitoring.
• Fuels investigation & enforcement processes
• Implement remedies to address market dominance per FMR Law* - end Q4.

SECTOR PLANS: ICT 

These are the main deliverables for the ICT sector for 2019. 

Consumers :- 

• ICT Consumer Protection - set standards by end of Q2.
• ICT QOS - set standards by end of Q2
• ICT QOS – set measurement processes by end of Q3
• ICT QOS – implement measurements by end of Q4

Infrastructure :- 

• ICT Infrastructure Protection - set standards by end of Q3.

Growth & Innovation  :- 

• Develop submarine cable application processes by end Q2
• Create KY Domain registration programmes to grow the registry by end Q3.
• Create a new ICT Licensing Framework by end Q2.
• Re-license all CSPs* and FM radio broadcasters by end of Q4
• Set minimum standards for broadband service in the Cayman Islands.

SECTOR PLANS: WATER 

These are the main deliverables for the Water sector for 2019. 

Consumers :- 

• Consumer Protection - set water standards by end of Q2
• Water QOS - set standards by end of Q1
• Water QOS – set measurement processes by end of Q2
• Water QOS – implement measurements by end of Q3

Infrastructure :- 

• Water Infrastructure Protection - set standards by end of Q3.

Growth & Innovation  :- 

• New CWC Licence
• New WAC Licence
• License all private water producers

OPERATIONS

Office administration and operations provide a critical support function for the mission of the Office. There are a number of initiatives in each support function during 2019 to improve efficiency and effectiveness across the Office.

Operational Excellence :- 

• Legal & Policy
• Finance
• Operations
• IT
• HR
• Corporate Communications
• Administrative Support

OPERATIONS, CONT’D 

The five main functions report into the COO. These are their main objectives for 2019. 

The Finance and Legal functions report directly to the CEO 

Finance :- 

Audit preparation & support.
Migration from IFRS to IPSAS
Evaluate and reconfigure accounting system to support IPSAS
Support sector teams with financial reviews of relevant licensees.

Legal & Policy :- 

Consultations & Determinations: provide support and advice for planned activities in each sector.
Legal Support: Provide ongoing legal support to each sector.
Legislative Agenda: lead the effort to amend laws as needed.

Measuring Success 

MEASURING SUCCESS IN ENERGY 

MEASURING SUCCESS IN FUELS 

MEASURING SUCCESS IN ICT 

MEASURING SUCCESS IN WATER 

Appendices

Appendix A - ABBREVIATIONS AND ACRONYMS 

CIRT-KY - Cyber Incident Response Team, Cayman Islands
CNG - Compressed Natural Gas
CNI - Critical National Infrastructure
CSP - Communications Service Provider
CUC - Caribbean Utilities Company
CORE - Customer-Owned Renewable Energy programme
CWC - Cayman Water Company
DER - Distributed Energy Resource
DNSSEC - Domain Name System Security Extensions
DS - Law Dangerous Substances Law
ENS - Emergency Notification System
ERA - Electricity Regulatory Authority
EAS - Emergency Alert System
EPC - Energy Policy Council
ESR - Law Electricity Sector regulation Law
FMR - Law Fuels Market Regulation Law
ICT - Information and Communications Technology
ICTA - Information and Communications Technology Authority
ICT - Law Information and Communications Technology Law
IRP - Integrated Resources Plan
ITU - International Telecommunication Union
KPI - Key Performance Indicator
LNG - Liquefied Natural Gas
LPG - Liquefied Petroleum Gas
MW - Mega Watt
NEP - National Energy Policy
NRA - National Roads Authority
OFREG - Utility Regulation and Competition Office
PAL - Public Authorities Law
PI - Petroleum Inspectorate
QOS - Quality of Service
RE - Renewable Energy
RFP - Request for Proposal
URC - Law Utility Regulation and Competition Law
WAC - Water Authority Company
WSR - Law Water Sector Regulation Law

Budget and ensuring value for money

a. The Office’s financial year is aligned with the calendar year. 

2019 Revenues 

b. The Office was an amalgamation of the ICTA, ERA and PI and its remit has been expanded to include responsibility for regulating the water and fuels sectors.

c. Pursuant to the URC Law and Sectoral Laws and according to best practices in other jurisdictions, it is anticipated that each sector shall as far as possible and reasonable bear the Office’s costs for regulating that sector and all overheads and other common costs should be allocated transparently across the sectors. In allocating costs and expenses, the Office shall use its best endeavours to allocate directly incurred costs and expenses to the regulated sector to which they relate or where relating to a number of regulated sectors, to each of the regulated sectors to which they relate in proportion to the burden from each of the regulated sectors. Indirectly incurred costs and expenses shall be allocated on a reasonable and transparent basis.

d. The guidance from the URC Law and Sectoral Laws as well as practices established by the legacy regulators is that:

1. The Office’s revenues are primarily derived from regulatory fees pursuant to the Sectoral Laws; 
2. The regulatory fees are expected to remain stable over the medium term and should cover the costs of regulating the respective sector; 
3. The level of regulatory fees is prescribed in licences; and 
4. It is intended the Office shall establish and maintain a reserve fund.  

e. The Office believes this is a prudent approach for revenue generation that will allow it to plan with greater certainty over the short to medium term. 

f. In 2019, the following new expenses will have to be covered by revenue: 

a. Establishing an Innovation Group which is prescribed in the Law;
b. Increased Software licensing costs for a new Customer Relationship Management system;
c. Fees for the implementation of Quality of Service Standards (QOS) for the ICT Sector
d. Fees to assess market dominance remedies in the Fuels Sector;
e. Fees to conduct a Cost of Service Study (COSS) for E&U and Fuels Sectors; and
f. Fees to conduct a Spectrum Audit of all three islands.

g. Accordingly, it is anticipated the Office’s revenue requirements from Licences (i.e., regulatory fees in electricity, ICT and water sectors, and regulatory fees and import permit fees in the Fuels sector) for 2019 will be $4.6 million, which is approximately $1.7 million greater than the $2.9 million in revenue forecasted for 2018. The Office projects total revenue of $6,539,014 for 2019, and a budget surplus of $1.3 million. Planned contributions to the Reserve Funds for 2019 is nil. 

h. Table 1 compares the Office’s 2018 forecasted revenue to the 2019 budgeted revenue from Licences while Table 2 compares total budgeted revenue per year per sector:

Table 1: 2018 Forecasted and 2019 Budgeted Revenue from Licences 

(in Cayman Islands Dollars) 

Table 2: 2018 Forecasted and 2019 Budgeted Total Revenue

(in Cayman Islands Dollars) 

i. The only assured revenue streams available to the Office are through the levying of regulatory fees, and more recently, output fees from Cabinet to cover the regulator’s costs in the fuel sector (for 2018). Therefore, in order to ensure sector revenue streams meet requirements, the Office must modify the ICT fee structures and introduce appropriate measures for the water and fuels sectors. The Office intends to adopt the following strategies to meet its medium-term revenue requirements:

a. For the ICT sector, remove the $600,000 cap in regulatory fees;
b. For the water sector, complete negotiations with CWC and the WAC to provide for regulatory fees of $570,000 and $689,000 respectively to be implemented in Q1 2019; and
c. For the fuels sector, work is ongoing for the introduction of long-term sustainable funding to be implemented;
d. For the energy sector, issue a new licence to CBP&L, and levy appropriate licence & regulatory fees;
e. Across all sectors, proactively monitor licencee compliance and vigorously pursue & enforce compliance with licence conditions, regulations, and provisions of the various applicable laws.

2019 Expenses 

Combined Expenditures 

j. Table 3 compares 2018 unaudited actual operating and capital expenditures to the 2019 budgeted operating and capital expenditures for the Office. 

Table 3: Combined 2018 Unaudited Actual and 2019 Budget

(in Cayman Islands Dollars) 

k. The Office’s total combined operating expenses for 2019 will be up CI$312,576 due mainly to higher Staff Payroll, IT Costs and Employee Health Costs. These increases were partially offset by lower Travel and Subsistence and lower legal fees when compared to the unaudited actual for 2018. Explanations of significant changes from Table 3 are set out below:

a. Staff Payroll will increase by 6% as a result of a full year of personnel costs incurred for 2018 staff additions, the addition of a Manager Consumer Affairs and Public Education in 2019 and proposed salary adjustments.
b. Directors’ Fees are up by 21% when compared to 2018 due to the future appointments of an additional Board Member (in accordance with the URC law section 14(3) and the PAL section 9) and a Risk & Audit Subcommittee Chairman.
c. Legal Fees are down by 46% reflecting the conclusion of the Judicial Review in the matter of the decision regarding a telecommunications licencee.
d. Spending on Travel and Subsistence costs is down by 45% based on reductions in planned international travel.
e. Training Costs are up by $47,872 to $141,517 due to the Office’s continued commitment to developing and equipping employees with additional skill sets to meet sectoral regulatory objectives. The average cost of training per employee in 2019 is approximately $5,661 vs $4,131 in 2018.
f. Employee Health Insurance costs are up by 18% when compared to 2018 due to a full year of costs incurred for 2018 staff additions and an anticipated increase in health insurance premiums.
g. Pension Contributions are up by 8% or $21,876 due to a full year of personnel costs incurred for 2018 staff additions and proposed salary adjustments.
h. IT Costs are up by 79% or $62,861 due to upgrades to technology which includes licensing costs for the Customer Relationship Management system.

Budgeted capital expenditures are up $397,973 in 2019. Over 50% of the capital expenditure in 2019 is due to the implementation of QOS for the ICT sector.

Sectoral Expenditures 

l. For the ICT sector, Table 4 shows budgeted operating expenditures down 6% for 2019 to $1,946,977. 

Table 4: ICT Sector 2018 Forecast and 2019 Budget 

(in Cayman Islands Dollars) 

m. Explanations of significant changes in ICT sector expenses from Table 4 are set out below: 

1. Staff Payroll in 2019 is up 10% as a result of a full year of personnel costs incurred for 2018 staff additions, the addition of a Manager Consumer Affairs and Public Education in 2019 and proposed salary adjustments;
2. Consultancy & Professional Fees are down by 53% or 186,354 as a result of a reduction in the dependency on consultants to complete regulatory objectives;
3. Legal Fees are down by 73% or $133,891 as a result of the conclusion of the Judicial Review in the matter of the decision regarding a telecommunications licencee. 
4. Travel and Subsistence is down by 58% or $53,533 based on the reduction in planned international travel;
5. Employee Health Insurance expense is up 24% when compared to 2018 due to a full year of costs incurred for 2018 staff additions, one additional staff member in 2019 and an anticipated increase in health insurance premiums; and
6. Pension Contributions are up 14% due to a full year of personnel costs incurred for 2018 staff additions, one additional staff member in 2019 and proposed salary adjustments.
7. IT Costs are up 85% or $25,117 due to upgrades to technology which includes licensing costs for the Customer Relationship Management system.

n. Table 5 shows budgeted operating expenditures for the electricity sector up 0.5% for 2019 to $1,057,794. 

Table 5: Electricity Sector 2018 Forecast and 2019 Budget 

(in Cayman Islands Dollars) 

o. Explanations of significant changes in electricity sector expenditures are set out below: 

1. Staff Payroll is projected to experience a decrease due to the allocation of staff costs in this sector. While total staff payroll costs have increased for the Office, it is anticipated that staff from the Electricity Sector will dedicate more time to the Water Sector in 2019.
2. Directors’ Fees has increased slightly in comparison to the other sectors, due to the lower allocation of costs to the electricity sector;
3. Consultancy and Professional fees have increased by $72,714 as a result of engaging external expertise to complete a COSS. COSSs are conducted every 5 years;
4. Legal Fees has increased by $16,667. While there is no anticipated litigation for 2019, a contingency has been provided for the electricity sector.
5. Training expense has increased by $12,104 in 2019 due to the continued focus on developing and equipping staff with additional skills to meet the regulatory objectives of the sector.

p. For the fuels sector, Table 6 shows budgeted operating expenditures up 22% for 2019 to $1,286,143. 

Table 6: Fuels Sector 2018 Forecast and 2019 Budget 

(in Cayman Islands Dollars) 

q. Explanations of significant changes in fuels sector expenditures shown in Table 6 are set out below: 

1. Staff Payroll has increased in 2019 by 7% as a result of a full year of personnel costs incurred for 2018 staff additions instead of a partial year, the addition of a Manager Consumer Affairs and Public Education and proposed salary adjustments;
2. Consultancy & Professional Fees are up by $112,767 as a result of engaging external expertise to assess market dominance remedies in the Fuels Sector and a Cost of Service Study (COSS). Market assessments and COSSs for the Fuels Sector are expected to be completed every 3-5 years;
3. Legal Fees has increased by $16,667. While there is no anticipated litigation for 2019, a contingency has been provided for the fuels sector.
4. Training expenses increased by $23,052 due to the continued focus on developing and equipping staff with additional skills to meet the regulatory objectives of the sector;
5. Health Insurance is up by 15% due due to a full year of costs incurred for 2018 staff additions, the addition of one new staff member, and an anticipated increase in health insurance premiums; and
6. IT Costs are up 73% or $15,527 due to higher software licensing costs.

r. Table 7 shows water sector budgeted operating expenditures up by 37% for 2019 to $773,670. 

Table 7: Water Sector 2018 Forecast and 2019 Budgets 

(in Cayman Islands Dollars) 

s. Explanations of significant changes in water sector expenditures in Table 7 are set out below: 

1. Staff Payroll has increased by 23% in 2019 due to the increased allocation of Electricity sector staff members’ costs, a full year of personnel costs incurred for 2018 staff additions instead of a partial year, the addition of a Manager Consumer Affairs and Public Education in 2019 and proposed salary adjustments;
2. Legal Fees has increased by $16,667. While there is no anticipated litigation for 2019, a contingency has been provided for the water sector.
3. Employee Health Insurance expense is up by 49% or $26,134 due to a full year of costs incurred for 2018 staff additions, the addition of one new staff member and an anticipated increase to health insurance premiums.

OfReg Annual Plan, Appendix C – Legislative Agenda 

The Office will ask the Ministry to bring forward various amendments to clarify, enhance and update various provisions in the Utility Regulation and Competition Law (2019 Rev) and the associated sectoral legislation. These may include the enhancement of the confidentiality provisions, the sharing of information with other regulators in region for the better regulation of service providers, and the option to report suspicious transactions when discovered in the accounting records of licensees. Similar provisions are found in the Monetary Authority Law. 

Also, the administrative fine regime would be improved if it was to be expanded to cover those service providers who have neglected to apply for a licence to operate or have not applied for a renewal or reinstatement of a previous licence. It would benefit from clearer due process provisions. Thereafter, an increase in the maximum administrative fine to $2,000,000, and an amendment to the power to enter premises of a service provider with a judicial warrant would assist in enforcement. 

The definition of a key phrase in the URCL, ‘administrative determination’ would benefit from amendment. Currently it is defined in a manner which may include a penal determination or a licensing determination. The unintended consequences are numerous, and include, arguably, a need to consult publicly on a fine to be imposed. An expansion of the definition of ‘licence’ to include ‘permits’ would confirm the application of the powers of enforcement in the Fuels sector.

Clarification of the power of the Board of Directors to delegate administrative and regulatory decisions to the Chief Executive Officer would assist the Board and Executive Team.

Amendments to sectoral legislation which will be brought forward to the Ministry include modernising the suite of financial records which must be kept by licensees and the manner in which they are to be presented to the Office. Additionally, the Office in its mandate to support critical national infrastructure, will recommend amendments which will provide that various service providers make and submit for review long term capacity and production plans. The Electricity Sector Regulation Law would benefit from the addition of specifications for the contents of a Power Purchase Agreement. Regulation in the Fuels Sector would be enhanced with an expansion of current reporting obligations in the Dangerous Substances Law to include operators of regulated premises, marinas and permitted vehicles that provide mobile retail fuels sales. The regulation of all sectors would benefit from a provision that requires the licencing of third parties who operate premises where the licence is held by the first party.

The amendment of the Electronic Transactions Law (2003 Rev) is a multi-agency project which will modernise the legislation to take into account current trends in technology including, but not limited to, digital signature, distributed ledger technology and smart contracts. OfReg’s role as administrator of Information Security Service Providers would remain unchanged. 

Consumer protection remains an important function of the Office. As such the Office will put forward regulations to enhance consumer protection in all sectors. 

Some specific issues may be resolved by the completion of new and revised regulations. These may include regulations governing the process of assignment, disposal, sale or transfer of a licence or permit as required under the URC Law for sector participants and new entrants. The Chief Fuels inspector seeks the approval of Cabinet to amend Schedule 7 of the regulations by correcting item number 8. Item number 8 incorrectly referenced regulation 52. It was intended that item number 8 would reference regulations 62, 63 and 64.

END