The States’ Trading Supervisory Board has given approval for Guernsey Electricity to increase revenues by 10% from July.
It follows an application from the company for a 12% increase, to meet rising import and generation costs and fund essential investment in maintaining the local network.
The increase will be split between the charge per unit of electricity and the fixed standing charge, so the difference customers see in their bills will depend on how much they use.
Local electricity customers continue to benefit from pricing agreements under Guernsey Electricity’s (GEL’s) import contract, which has sheltered them from much higher increases seen in the UK and other jurisdictions. A benchmarking exercise last year found that electricity bills in Guernsey were among the lowest in the British Isles in 2022.
Had the current contracts not been in place, electricity imports in 2023 would have cost around £9.7m more on the wholesale energy markets. This would equate to an additional tariff increase of 16%, over and above the agreed rise.
However GEL’s forward pricing contracts are starting to expire, so the cost of import did rise last year.
The States’ Trading Supervisory Board (STSB) President Deputy Peter Roffey said the increases were being driven by rising costs and an urgent requirement for investment. This followed years of under-funding, and if tariffs were kept artificially low that risked creating more issues in the future.
“It is a regrettable that Guernsey Electricity had to apply for such a significant increase in tariffs, but this is a nettle that had to be grasped,” he said.
“We have fortunately avoided the crippling increases in energy bills that have been seen elsewhere. However we are still playing catch up after years when there was no increase in base tariffs under the previous regulatory regime. It kept bills artificially low, and starved Guernsey Electricity of the funds to adequately invest in the network. Customers now are having to pay the price of that, so we do not repeat that mistake and burden future consumers.
“The STSB has therefore acted responsibly in approving an increase, although not to the level that Guernsey Electricity had requested. We have also set an efficiency target, requiring the company to continue to focus on reducing costs and passing those savings on to customers.”
The lower than requested revenue increase will extend the company’s plan to reduce its borrowing requirement to fund its capital investment programme. Between 2021 and 2024, the company will have spent more £30 million in maintaining and upgrading the local network, much of which has been financed through borrowing.
In its decision notice, the STSB said reducing debt remained “a commercial imperative”, but any increase in tariffs had to be balanced against the impact on consumers during a period of relatively high inflation.
“The Board has decided that a revenue cap of 10% should form the basis of this year’s changes to tariffs, rather than the 12% originally proposed by GEL. This will be sufficient to enable GEL to deliver its ‘base-case’ capital investment programme and continue on a trajectory whereby it no longer has to take on additional debt to fund that programme, albeit a year later than the company initially proposed.”
In considering GEL’s application, the STSB commissioned an independent review of the company’s financial modelling, and a separate efficiency benchmarking review. It also considered the results of a consultation carried out by Guernsey Electricity with groups representing islanders who can be more impacted by cost increases.
Although the efficiency review found GEL performed well compared to providers, the company will have to identify costs savings as part of any future tariff application. The STSB has set an efficiency target that is expected to save customers more than £1.65 million over the next four years.
Under the STSB’s zero dividend policy for Guernsey Electricity, any surplus generated by the company will be reinvested in the long-term interest of islanders.
