Tariffs have remained frozen for four years despite inflation running at around seven percent over the same period.
‘Prices have therefore effectively fallen in real terms, which I suspect will be a surprise to most people. Since the last tariff change in October 2012, the underlying cost drivers of wholesale price, investment and fixed costs have changed considerably but Guernsey Electricity has worked hard to provide stability and certainty around its tariffs,’ said chief executive officer Alan Bates.
He added that the investment in infrastructure and the introduction of new risk mitigation and standby procedures had considerably improved reliability with the average number of customer minutes lost being 26 minutes in 2015-16 compared to 84 minutes in 2011-12.
‘Reliability and cost are what concerns our customers the most and we know that the recent and considerable fluctuations in the wholesale energy markets is of great interest and so we want to ensure our customers have a greater understanding of the factors which influence tariffs,’ said Mr Bates.
He said the factors broadly fit into three areas; wholesale costs which includes foreign exchange rates, investments in new assets and finally overheads and fixed costs.
Guernsey Electricity estimates wholesale costs of both crude oil and imported electricity equates to approximately 40% of the average tariff.
‘We have seen a volatile period for crude oil and to avoid constant fluctuations, we like many power suppliers, forward purchase our requirements to ensure that we are not impacted,’ he said.
‘There has however been stability in terms of imported electricity which we believe is the more affordable and stable supply and our goal is to supply at least three-quarters of Guernsey’s electricity demand through importation. 77 percent of the island’s electricity demand was met with imported lower-carbon electricity in 2015-16, a 33percent rise on the previous 12-month period.’
The company’s annual report also revealed that it’s now possible to import almost all of Guernsey’s power needs if required, other than during the coldest parts of the winter.
But he said the UK’s decision to leave the EU was likely to have an impact.
‘It’s been well documented that Brexit is already causing issues and concerns and we have to anticipate that we will be affected. Our management team operates a foreign exchange hedge programme and monitor exposures on a daily basis to ensure that we can manage that effect.’
‘Significant investments in the island’s electricity infrastructure were made in the 50s, 60s, 70s and 80s. However, since that time, whilst we have enjoyed the use of those investments, the level of reinvestment has not been at a level required to sustain the assets and allow the growth required for our security and environmental aspirations. As it continues to upgrade and improve the island’s electricity infrastructure, investment costs will become a larger proportion of the tariffs. The board needs to continue balancing these investment needs against the affordability of electricity to our customers,’ said Mr Bates.
He added the third element of the tariff was made up of the running costs of the business, including operational and maintenance activity.
‘We have focused on controlling these costs and where economies of scale are such that further reduction is not possible, we are looking at where additional value can be added. In this regard, we will be working actively with our new shareholder to identify opportunities and synergies across the state-owned utility sector,’ said Mr Bates.
‘We are currently reviewing the guaranteed and overall service standards we provide as a business and expect to publish a revised set of standard within the next 12 months, which will demonstrate the additional value we aim to deliver as a business.’
Ian Hardman, chairman of Guernsey Electricity, said Guernsey Electricity’s proactivity had allowed it to manage costs, make considerable investments and return to profit without customers being financially impacted.
‘A return to profitability has allowed tariff levels to remain unchanged for the fourth year in a row and for further investments to be made in the island’s electricity supply infrastructure. The company remains focused on its goal of secure, reliable, sustainable and affordable electricity supplies for the island.’