When Guernsey Electricity asked for permission to put its customer charges up, to bring in an extra 9.5% of revenue over the coming year – it was told, no.
The States Trading Supervisory Board allowed it to up rates by 8% instead, and it told the utility that it’s got to save £1.8million over the next couple of years.
STSB billed this as “electricity customers to benefit from £1.8m efficiency savings target”.
That’s despite customers having to pay more in both unit and standing charges in the meantime.
Increases
The bill increases that are coming our way in July will be split between the charge per unit of electricity and the fixed standing charge, so the difference that bill payers will see will depend on how much is used.
STSB said one of the main drivers for the looming tariff increases is GEL’s long-term import price agreements coming to an end.
STSB said those agreements have shielded usfrom much higher increases in energy costs seen in the UK and elsewhere in recent years.
A previous benchmarking exercise found electricity bills in Guernsey were among the lowest in the British Isles in 2022, but since then the cost of both importing and generating electricity has risen significantly. And, the UK has seen a decrease in its electricity tariffs.
STSB President Deputy Peter Roffey said the 8% revenue increase reflected additional costs the company is incurring, and the need to keep investing for both the short and long term.
He said GEL is still having to address an extended period of under-funding, as tariffs had been kept artificially low for most of the last decade. While bill increases were never good news, not addressing this risked creating bigger issues in the future, he added.
“Islanders have been relatively fortunate to have been largely shielded from the massive hikes in energy bills we saw happening elsewhere in recent years. That is thanks to the fixed price agreements that were in place for the electricity that we import. Those are ending so we are having to adjust to wholesale market prices,” said Deputy Roffey.
“At the same time, we have to face up to the fact that for years bills were kept artificially low, which starved Guernsey Electricity of the funds to adequately invest in the network.
“Unfortunately customers are now having to pay the price of that, and we do not want to 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. This follows an independent assurance review of its application. There is also an efficiency target that will require them to focus on reducing costs and passing those savings on to customers.”
The extra revenue that will be generated by the 8% increase will be used by GEL to cover rising import and generation costs, while also funding essential maintenance work on the local network, said STSB.
GEL will also start to invest ahead of future developments as part of the island’s Electricity Strategy.
Those investments will lead to the potential roll-out of new metering technology that will allow different quarterly standing charges based on electricity usage, and a mobile app and customer portal to enable households to better manage their power consumption.
Investments
GEL already invests in the network but it and STSB say much more needs to be spent on essential maintenance and upgrades.
Between 2021 and 2024, the company spent more £30 million in maintaining and upgrading the local network, much of which was financed through borrowing.
GEL plans to increase this investment to around £12 million this year, and £13 million in 2026. In addition, the company has identified around £10m expenditure between now and 2029, as its contribution towards the replacement of Normandie 2 cable, between France and Jersey.
In its decision notice, the STSB said its primary consideration was “to balance the need to continue correcting the historic under-investment in the electricity network against the impact on tariffs and affordability for customers.
“It is not commercially sustainable for GEL to continue borrowing to maintain its existing infrastructure. It should be moving to a position where further borrowing is only contemplated for capital investment to support the growth of the business, in accordance with the Electricity Strategy.
“The Board has to balance the case put forward by GEL with the impact of the agreed increases on consumers during the current economic environment. Against this background, the Board has decided that a revenue cap of 8% should form the basis of this year’s changes, rather than the 9.5% originally proposed by GEL.”
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.
Looking to the longterm, GEL’s efficiency savings will reduce the need for future tariff increases, STSB said.
If it can save £1.8m by the end of 2027, that means we should all see the benefit of the utility’s own cost cutting measures.
How it will make those savings has been laid out by STSB.
Savings
Last year, STSB introduced a requirement for the company to identify cost reductions as part of future tariff applications. The target set, which is equivalent to around £276,000 per annum in recurring efficiency savings each year, came into effect during 2024.
It will result in cumulative savings by end of 2027 totalling around £1,794,000, with the benefit being passed on to customers.
The target followed detailed efficiency studies carried out in both 2023 and 2024, which compared Guernsey Electricity to its counterparts in Jersey and Isle of Man.
Based on data between 2019 and 2023, these studies concluded that Guernsey Electricity’s efficiency compared well with Jersey Electricity and Manx Utilities in the Isle of Man, and described it as ‘particularly efficient’ in a number of measures.
The review compared the three utilities and the costs they incur per customer, per unit of electricity supplied, and for every kilometre of network, including subsea cables.
The review found:
• When energy import and generation costs are excluded, Guernsey Electricity had the lowest net operating expenditure of all three companies, across all three measures.
• Based on length of network:
- Guernsey Electricity was considered ‘particularly efficient’.
- When import and generation costs are excluded, its spending was around half that of the other two utilities.
- Expenditure was also lower when import and generation costs and capital investment were included.
• Based on units of electricity supplied:
- Guernsey Electricity again had the lowest operating costs when import and generation were excluded. Expenditure was below Jersey’s, and less than half that in the Isle of Man.
- When capital investment and import and generation costs were included, Guernsey Electricity was still well below Manx Utilities, but slightly higher than Jersey Electricity.
• On a per customer basis:
- Guernsey Electricity still had the lowest costs excluding import and generation.
- When import and generation was included, and capital investment, Guernsey Electricity was more in line with Isle of Man, and higher than in Jersey.
• When all factors were combined:
- Guernsey Electricity was classed as ‘particularly efficient’.
- Excluding import and generation, its cost were nearly 30% below the average for all three companies.
- Total expenditure and overall operating costs, including capital investment and import/generation, was below average, but slightly higher than for Jersey Electricity.
However the review also concluded: “Even the most efficient company can be expected to make productivity improvements over time, for example by improving processes and adopting new technologies.”
As a result, following a study that included a review of efficiency targets adopted by regulators in other jurisdictions, the STSB established a continuing target for GEL to deliver efficiencies in its controllable costs.
This will amount to a reduction of £552,000 in its next financial year, compared to 2023/24.