Gas prices and profits "reasonable"

Wednesday 04 January 2017

A £25,000 report into gas prices has concluded that actually we’re not being over charged after all, and that Jersey Gas’s profits are reasonable.

It's been published by the Assistant Chief Minister responsible for competition, Senator Philip Ozouf, following concerns that although the wholesale price of gas has steadily dropped, savings weren’t being passed on to customers.

The report's authors, Oxera, agree that wholesale prices have gone down and that you would expect that to be reflected in household bills. But, it says, things aren’t that simple.

It concludes: “While wholesale price trends suggest that prices should perhaps have fallen more quickly than they have done in recent years, the lag appears to be explained by declining volumes and increased investment expenditure, both of which would be expected to drive up retail prices. In addition, hedging policies and the US dollar:pound exchange rate will also influence the relationship between retail and wholesale prices.”

Added to this combination of a drop in sales and having to upgrade its service, Jersey Gas also has fixed costs it has to cover irrespective of the wholesale price of gas.

Using an acknowledged mathematical formula for calculating ‘reasonable’ profits, Oxera concludes “the available evidence suggests that returns to investors have, on average, historically been reasonable.Therefore, our analysis suggests that, on average, historical retail prices appear to have been reasonable.”

Senator Ozouf has previously criticised fuel costs in the island as well, leading to an investigation by the industry regulator in 2015, which concluded that there was no evidence the fuel market wasn't acting in the best interests of consumers.