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Proposals will limit future price increases for utilities

Thursday, 5 October 2017

Tynwald Members will be urged to support proposals aimed at improving the financial stability of Manx Utilities while restricting future price increases for consumers.

A motion signalling a fresh approach to Manx Utilities long-term financial plan will be presented to the October sitting of Tynwald by Treasury Minister Alfred Cannan MHK.

The recommendations, which include the restructuring of the company’s debt, will provide greater certainty for households and businesses in respect of charges for electricity, water and sewerage.

They will also pave the way for the introduction in 2018 of a new long-term pricing framework to improve fairness and transparency.

The intention is to protect customers from the significant increase in charges that would be required under Manx Utilities existing financial plan to ensure it repays its debts of £540million on time.

The proposals reflect the Programme for Government commitment to limit the impact of utility charges on economic activity and the cost of living.

Tynwald Members will be called upon to endorse action to reduce the amount that Manx Utilities needs to repay to Treasury by £95million, freeze water and sewerage rates for 2018-19 and establish a pricing structure that more accurately reflects the cost of delivering services.

The motion follows an independent review conducted by National Economic Research Associates (NERA), a global economic and financial consultancy with vast experience of working with utility providers.

NERA confirmed that Manx Utilities current financial plan would keep the company on track to meet its borrowing commitments when they fall due. However, the review also identified concerns about the potential burden of charges on customers and recommended that Government reduce part of the historic debt in exchange for a lower level of long-term price increases.

The Treasury Minister said:

‘Utility charges have a major impact on household budgets, business costs and the wider Manx economy. This Government is committed to ensuring the Isle of Man remains a special place to live and is an attractive proposition for industry. Treasury’s proposals will shield consumers, including low-income households, from big increases in charges for electricity, water and sewerage, improve business confidence and strengthen the regulation around utilities pricing.’

He added:

‘Reducing the debt owed to Government by a third will improve the financial health of Manx Utilities, but the pressure will remain on the board to operate efficiently. Also, based on Treasury’s projections, the impact the proposed reduction of £95m in the Consolidated Loans Fund debt can be accommodated within the five-year financial plan.’

Manx Utilities, which was created by the merger of the Manx Electricity Authority and Water and Sewerage Authority, carries historical debt comprising £260m in bonds and £278m in Treasury loans. The borrowing has been used to fund investment in essential infrastructure, including the construction of Pulrose power station, the sub-sea cable and gas pipeline, improvements to the gas and electricity networks, new sewage processing facilities, pumping stations, water treatment plants and transmission mains.

As a result, the Isle of Man has benefitted from efficient and resilient electricity generation, a safe and reliable water supply and progress towards eliminating the discharge of raw sewage into the sea.

Dr Alex Allinson, Chairman of Manx Utilities, said:

‘The Treasury proposal is a realistic, affordable and pragmatic way of dealing with the high level of historical debt borne by Manx Utilities. It will cement the long-term financial future of the business, protect people from sudden increases in their bills and ensure that any future price rises reflect the cost of providing the service. We intend to start work on rebalancing the water and sewerage elements of people’s rates bills and on making these charges clearer and simpler to understand.’

He added:

‘Price increases will still be required in future to reflect any changes to wholesale gas costs and to support the maintenance of our infrastructure. However, because of the debt relief proposed by Treasury those increases will be more modest and gradual than projected in the original financial plan.’

Subject to approval of the Treasury motion, Manx Utilities will return to Tynwald with a new long-term pricing strategy within the next 12 months. This will allow time to take into account any proposed changes resulting from Government’s review of the rating system.

Additional information is available via the Frequently Asked Questions document at the side of this page.

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