Regulatory: OfReg battles 18 months of challenges

When the Utility Competition and Regulation Office, known as OfReg, was formed in early 2017, it was touted as a “one-stop shop” regulator for telecommunications, electricity, petroleum and water.

By combining individual legacy regulators into one entity, OfReg was expected to have a clearer mandate and the ability to protect Cayman consumers.

“This is a good day for the Caymanian consumer and for the sectors. The new multi-sector regulator has clear and unambiguous powers to discharge its regulatory duties in a transparent and impartial manner,” then-Infrastructure Minister Kurt Tibbetts said when OfReg was launched last year. “Perhaps more importantly, it also has a clearly outlined duty to protect local consumers, facilitate economic development and promote innovation in the sectors for which it has responsibility.”

However, the recently formed regulator has been dogged with legal, financial and staffing woes since its inception.

It was barely six months into OfReg’s existence when Premier Alden McLaughlin spoke out against the idea of the regulator potentially requiring licenses for businesses that provide wireless internet access to customers on their premises.

The issue was raised publicly a number of times since February 2017, when OfReg indicated that a number of businesses charging customers to use their wireless internet service should be paying licensing fees to government. Government officials told the Cayman Compass in May 2017 that at least nine companies were “illegally” charging customers for Wi-Fi access.

But in August 2017, McLaughlin said his coalition government would not support any effort to charge licensing fees to businesses that provide wireless internet access to customers on their premises.

“We campaigned on reducing bureaucracy and to reduce the cost of doing business in this country,” McLaughlin said at the time. “This proposal runs completely counter to the government’s policy.”

Days after the premier’s rebuke, OfReg was met with a legal challenge against one of its first major decisions in the telecommunications sector. The challenge was made by Caribbean Utilities Company subsidiary Datalink, the entity that is responsible for the roughly 15,000 telephone poles in Cayman.

Datalink filed for judicial review against OfReg’s decision to prohibit Datalink from continuing to charge reservation fees for telecommunications companies to hang their fiber wires from the telephone poles, and its order for Datalink to refund fees that have been charged in the past.

Datalink’s challenge was heard by the Grand Court in June of this year, and a decision has yet to be made. To date, the legal case has cost OfReg some $243,000 in legal fees.

Along with legal fees, OfReg has also spent more than $1 million on professional and consulting fees, claiming that such expenses are necessary to make up for a skills gap with its staff.

OfReg’s 2017 annual report states that it is “endowed with a small group of enthusiastic, willing and dedicated staff” but that “the organization currently lacks, in house, the range of requisite skills to perform its regulatory work.” Therefore, OfReg “must rely on consultant help,” states the report, which also shows that in 2017 OfReg spent $2,228,992 on salaries and benefits for a “total full-time equivalent staff” of 22 people – about $100,000 per employee.

The report explains that OfReg is working to train its staff to be “the best of the best,” and is also committed to recruiting economists, engineers and lawyers who have the skills to succeed at the office.

“The expectation is that in the short- to medium-term, consulting and training costs will be high,” the report states, “but consulting costs will trend downwards as the effects of the training and development initiatives are realized.”

OfReg has also spent at least $387,000 on travel-related expenses through May of this year. The expenses have been used to carry OfReg officials far and wide, to places such as Brussels, Dubai, Singapore, Copenhagen, London and Barcelona.

Highlights in the travel records include $8,066 spent to send OfReg CEO J. Paul Morgan to Brussels from Oct. 6-15 for “Communications Policy and Regulation Week 2017;” $10,269 spent on “EU Competition Law Summer School” in London from Aug. 6-11; and $23,121 spent to send telecommunications officials to Copenhagen, Denmark, from March 8-17, 2017 for the “Internet Corporation for Assigned Names and Numbers 58 Conference.”

Regulatory officials have said the expenses are going toward training staff so that OfReg can better serve Cayman.

“About 44 percent of the travel expenditure for last year was directly related to training and education of staff, and we make no apologies for that,” OfReg Deputy Director Alee Fa’amoe said on the radio show Cayman Crosstalk last month. “These aren’t courses you [can] just drive to UCCI to do … These are very technical courses on how network infrastructure works … this isn’t gallivanting across the world.”

Fa’amoe added that some of his staff were sent to Texas for “fuels and emergency services” training, while others were sent to accredited universities, such as the University of Florida – Gainesville.

The rest of the expenses went to sending OfReg officials to regulatory meetings, he said.

“Part of our responsibilities is representing the [country] at international forums like the [Internet Corporation for Assigned Names and Numbers] meetings where the international domains are represented,” Fa’amoe said.

Despite the hundreds of thousands of dollars spent on legal, professional, travel, and other fees, OfReg officials claim to be underfunded.

According to OfReg, it was assumed when it was being created that the regulator’s budget would include funding provided via the territory’s water and fuel licensees. But that was not sorted out for 2017, contributing to OfReg’s operating deficit. OfReg announced last month that funding from the fuels sector is now in place, and arrangements for revenue from the water sector are still being discussed with Cabinet.

The fuels sector revenue will go toward funding OfReg’s roughly $5.6 million in operating expenses for 2018, which is some $1 million more than the regulator spent last year.

Despite running a nearly $1.5 million operating deficit in 2017, OfReg’s 2018 budget shows increases in staff payroll, directors’ fees, training and other operating expenses.

OfReg is still projected to run a small operating deficit this year, but is trying to offset that by implementing a number of fee increases across the sectors it regulates, including the removal of the $600,000 cap charged to telecommunications companies based on their revenues, and the introduction of a “registration fee” regime in the fuels sector. OfReg said last month that the changes to the fee structures are “in development.”

By the end of the year, OfReg plans to be self-sufficient and will not require revenue from central government.

“It is common practice for Government to provide initial funding to get regulatory bodies organised and functioning efficiently so that they can become self-sustaining. This means covering initial staffing costs, training and development and other operational costs such as office rental and equipment,” OfReg CEO Morgan stated in a press release from the regulator’s public relations company, Fountainhead. “Although OfReg ran a loss in its first year of operation because it did not receive this initial funding, the ICT and electricity sectors are already self-sustaining, proving that the model does work as the regulator ramps up its activities in providing the consumer protection services which it is mandated to provide without being a drain on the public purse.”