By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Supreme Court judge has ruled it is virtually impossible for the Grand Bahama Port Authority (GBPA) to act as independent regulator for the water monopoly it owns as he backed the need for third-party oversight.

Justice Loren Klein, in a March 31, 2025, verdict “declared” that the Grand Bahama Utility Company and/or the GBPA “may only impose such fees and charges as are reasonable” in accordance with the 1966 reforms to the Hawksbill Creek Agreement, Freeport’s founding treaty.

His ruling, made in the context of a dispute between Grand Bahama Utility Company and the troubled Lucayan Towers South condominium complex over an allegedly unpaid $418,541 water bill, also criticised both the GBPA’s failure to give its Hawksbill Creek Agreement responsibilities legal “footing” through enacting bye-laws and the Government for not “pressing” Freeport’s quasi-governmental regulator to do this.

Justice Klein ruled that such inaction, in failing to give statutory effect to the GBPA’s power to charge Freeport businesses and households “reasonable rates” for the provision of water and other utility services, is contrary to the “principles of good management and administrative law” especially given that Grand Bahama Utility Company holds a monopoly.

The ruling, over an action begun more than six years ago in December 2018, immediately sparks questions over whether the Supreme Court declaration that utilities charges in Freeport must be “reasonable” has broader application to the rates charged by the likes of the Grand Bahama Power Company.

The provision of electricity services, which was also the GBPA’s responsibility under the Hawksbill Creek Agreement, has since been privatised and outsourced via GB Power’s spin-off and sale to private interests, with the utility now 100 percent owned by Canadian electrical giant, Emera.

Complaints that GB Power’s rates are too high, and that businesses and Grand Bahama residents are paying too much for their energy, have frequently erupted over the years. And Justice Klein’s ruling has arrived at an especially sensitive time for multiple reasons, including GB Power’s continued wait for the GBPA to approve its tariff proposal for the three years through end-2027.

For it also coincides with the Utilities Regulation and Competition Authority (URCA) initiating Supreme Court legal action to determine whether itself, or the GBPA, has the authority to regulate Freeport’s energy sector. URCA is arguing that the Electricity Act 2024 vests such powers in itself as a national regulator, while the GBPA is countering that such authority belongs to itself through the Hawksbill Creek Agreement.

Justice Klein, in his ruling, did not define what are “reasonable” charges for Freeport utility services such as water and electricity. Nor did he set out a process to determine whether they are “reasonable”, or who would be responsible for doing so. But Lucayan Towers South, which has been locked in a separate long-running battle with the GBPA over alleged building violations and safety hazards, had raised “novel questions of law”.

“The plaintiff is the Lucayan Towers South Condominium Association, a licensee of the GBPA and the body corporate responsible for management of the condominium. It has been embattled since 2013 in litigation concerning its management Board, which has financially crippled the Association and deeply divided its membership,” Justice Klein recalled.

“Among its debts are arrears in excess of $400,000 owed to the first defendant, the Grand Bahama Utility Company,  for the supply of water and sewerage services accumulated from 2014. The plaintiff does not in principle dispute the obligation to pay for the utility services.

“Rather, it says it should not be made to pay charges that are ‘arbitrary, unregulated and unreasonable’ and, therefore, contrary to the scheme of the Hawksbill Creek Agreement. Consequently, it commenced this action by writ filed on December 17, 2018.” Lucayan Towers South was described as a “relatively large condominium” complex featuring 12 storeys and 137 units.

The Association, in its claim, sought a number of Supreme Court declarations including that GB Utility Company was providing water and sewerage services in Freeport as the GBPA’s “alter ego”. And, more critically, it also sought a declaration that GB Utility Company “is not entitled to unilaterally set rates, or impose fees and charges, and/or that any such fees and charges must be reasonable and proportionate”.

While “undisputed evidence” showed that it was the GBPA, and not GB Utility Company, that set the latter’s water and sewerage rates, Justice Klein found that it “can only be providing these primary obligations of the GBPA under the Hawksbill Creek Agreement as its agent” - albeit not its “alter ego”.

“Thus, in essence, the real question posed by the declaration sought is whether the GBPA and/or the GB Utility Company can unilaterally set rates, or impose fees and charges, for the provision of the utility service,” the judge added.

Given that proposed rate increases have to be approved by the GBPA’s ‘regulatory committee’, and that GB Utility Company is owned by GBPA affiliates, Freeport’s quasi-governmental regulator is - in effect - regulating and supervising itself. Justice Klein also noted that GB Utility Company’s last rate increase in 2023 was opposed by the Government.

“It appears that the GBPA approved the 2023 rate increase application on or about 1 May, 2023, despite Government’s protestations,” he wrote. “In my view, the provisions of the Hawksbill Creek Agreement, as well as the Water bye-laws, all are pointers that the GBPA or any licensee providing utilities are empowered to charge for those services.

“The Hawksbill Creek Agreement is silent as to the process for determining those rates, fees or charges. There can be no gainsaying that it would certainly be in keeping with the tenets of good administration and public law principles that there should be independent oversight and regulation of a body that has authority to impose fees and charges on the public for the provision of essential services, especially where there is a monopoly undertaking.

“And it hardly seems possible that this independence can be achieved by the GBPA purporting to regulate the very company that it licensed to carry out a primary obligation and function of the GBPA itself.” Justice Klein said the 1966 amendments to Freeport’s founding treaty provided for water rate increases but stipulated that these had to first be vetted by the then-Price Waterhouse or an independent accounting firm.

“In other words, the agreement provides for water supplied outside Freeport to be subject to increase based on independent oversight as agreed between the parties,” he added. “I can find nothing in the agreements, however, that requires that the determination of the fees and charges should be by some consultative process, or that they should be subject to oversight.

“Thus, there is no impediment in the Hawksbill Creek Agreement itself to the GBPA/GB Utility Company setting the rates as long as they comply with the requirement of clause 13 [in the 1966 Hawksbill Creek Agreement amendments] to be ‘reasonable’ - a point to which I will return.

“As discussed, the primary argument of the first defendant [GB Utility Company] that it has an unqualified right to set fees and charges is anchored on clause 2(21), and the principle that the court should not imply any qualifications on terms in a commercial contract that purport to give a party an unqualified discretion,” Justice Klein added.

“For the reasons which I give below, I am of the opinion that the first defendant does not have an absolute discretion to set rates, and that rates set must be reasonable. I say so for the following reasons.” He asserted that GB Utility Company’s position is “based on a clear misconstruction” of Freeport’s founding treaty, because the initial “absolute discretion” to set utility rates was altered by the 1966 amendments.

Justice Klein said “it cannot be doubted” that the effect of these changes “plainly provides for only ‘reasonable fees or charges for services’ to be levied”. He added: “To contend that the first defendant or the GBPA still has an absolute discretion to set rates would be to pretend the Agreement stood still since 1955, and to ignore the plain meaning of the 1966 reforms.

Given that the GBPA had agreed to assume responsibility for providing water, electricity and other utility services, and the clause requiring fees for these to be “reasonable”, the judge added: “Thus, the concept of an absolute discretion to set rates or charges for utility services was consigned to the dustbin of history once the 1966 agreement was statutorily authorised and executed.

“In my view, the first defendant’s argument... overlooks the fact that these were not strictly commercial contracts between commercial parties, but a ‘Governmental’ agreement that also purported to confer benefits on eligible members of the public; that is, licensees of the Port....

“In this scenario, the 1966 amendment would have repealed the 1955 prescription, because an ‘absolute right’ to charge rates is incapable of standing together with a right to charge rates that are ‘reasonable’, and the 1955 provision in this regard must be considered repealed.

“I therefore find that the parties to the Hawksbill Creek Agreement agreed that the charges and rates for the supply of utilities would be ‘reasonable’, and that the plaintiff is entitled to the benefit of ‘reasonable’ rates as a licensee of the GBPA. To find otherwise would deprive clause13 of any effective content.”

However, Justice Klein conceded that it was “more troublesome” to determine what is reasonable, the “standard” for working this out and who would be responsible for this. And neither he, nor the Supreme Court, had jurisdiction to address the issue because the Hawksbill Creek Agreement mandates that any dispute between the Government and GBPA go to arbitration first.

The judge added: “The Hawksbill Creek Agreement clearly contemplates, pursuant to clause 13 of the 1966 amendment, that the GBPA would seek to put its ability to discharge its responsibilities as a provider of water and sewerage services, including its power to collect or recover from owners or occupiers of premises reasonable rates, on a statutory footing by the promulgation of bye-laws.

“It cannot be doubted that the failure to seek to transform these obligations and powers into statutory powers does not align with the principles of good management and administrative law, especially in respect of the operation of a monopoly.

“For whatever reason, more than 50 years onward, the GBPA has not thought it necessary to fill these administrative and legislative lacunae in its operations, nor has the Government pressed them on the point.”