As Members of this honourable Court, I think we are all aware of the geopolitical situation leading to the previously unseen extreme levels of Natural Gas Prices across Europe since March 2021.
Therefore, as the Chair of Manx Utilities I will focus my comments on the significant financial impact that these price increases have had on Manx Utilities and its customers.
The Isle of Man purchases between 30 and 40 million therms of natural gas each year for our electricity generation. The cost for supplying electricity to our island has been extremely challenging, and as Manx Utilities is funded by its customers, this ultimately affects all customers’ electricity charges.
Back in March 2021, Manx Utilities was paying an average of 50p for a therm of natural gas, and that price had remained relatively steady for almost 10 years.
Energy prices continued to rise throughout the last financial year, with the wholesale price of natural gas exceeding £1 per therm in August last year.
At the time market sentiment suggested that the high level of energy prices was being driven by temporary factors and the Manx Utilities’ Board at the time considered it was appropriate to hold tariffs through that year.
The invasion of Ukraine in February 2022 has meant gas prices across Europe have increased significantly, and far higher than anyone previously could have predicted. It is not expected that prices will fall back to pre-March 21 levels any time soon.
The financial impact of Manx Utilities holding its tariffs last year is estimated to have cost the business in the region of £20 million, or more importantly it can be better described as £20 million of valuable support for our electricity customers at a time when other utility costs and the general cost of living were increasing significantly.
The Manx Utilities’ Board agreed to increase electricity tariffs by 30% for the current financial year and this was implemented in April and July.
This increase was in accordance with our Pricing Strategy agreed by this Honourable Court in October 2018.
Unfortunately the global wholesale energy prices have continued to rise to an unprecedented level, and on occasion the price for a therm of natural gas has increased nine, ten and eleven fold over the last 12 months.
The Board continued to review Manx Utilities’ financial position and determined that a further significant electricity tariff increase of 70% from October was appropriate, in order to ensure that its statutory responsibilities in respect of managing its financial position and the pricing strategy could continue to be met.
Manx Utilities has kept electricity tariffs below the UK OFGEM Default Tariff Cap levels, and despite all of the difficulties and challenges, the Isle of Man continues to offer some of the lowest electricity tariffs in the British Isles.
At this point I would like to reassure Members that we have been working closely with Government over the last year in respect of energy costs and the implications these could have on our Island.
As such, Manx Utilities have continued to work with central Government to consider how energy costs would impact on our customers.
Last month the Council of Ministers directed that electricity tariffs should not rise again prior to April 2023 as part of the Government’s response to the cost of living crisis, and this decision was fully supported by the Board of Manx Utilities.
The tariff freeze will provide significant benefits for our electricity customers once again during this winter period, and for the Isle of Man economy.
However, it will once again have a significant adverse impact on Manx Utilities’ financial position with a deficit of over £50 million currently expected for the current financial year, a position that is extremely challenging.
I can assure Members that the team at Manx Utilities have worked extremely hard to manage the financial risks facing it, and I want to take this opportunity to put on record my sincere thanks to everyone at Manx Utilities for their hard work and long hours over the past 12 months.
By April next year the gas hedging strategy is expected to have reduced costs by over £70 million, saving an average domestic customer over £800 since April 2021.
The tariff freeze last year and the further freeze until April 2023 is expected to save an average domestic customer over £400 over the 2 years.
We have stood shoulder to shoulder with central Government through this challenging period.
I am pleased with the support we have been able to provide to our customers, whether individuals, households or businesses over what will be another challenging winter period, but it is also appropriate that we acknowledge the very significant impact that this is having on Manx Utilities’ finances and the current situation will not be sustainable unless wholesale energy costs significantly reduce in the very near future.
It simply will not be possible to sustain a position where our electricity tariffs are significantly less than those of the UK, and where the wholesale price of Natural Gas is ten or eleven times the price paid back in March 2021.
I do not propose to speculate on what tariff increases we may require for next April – wholesale energy prices remain highly volatile and it is impossible to know actually where market prices will be next year.
However, Manx Utilities remain highly committed to ensuring the impact on our customers is minimised and the financial integrity of the business is maintained.
Thank you Mr President