Manx Electricity Price Increases of 16 Percent

The MEA has today released an update of electricity charges that will apply from 1 September 2008 for domestic and commercial customers.

As agreed in Tynwald in June 2005, an increase of 16.32% is now due to be applied to all unit charges which comprises of Inflation (as at June 2008) plus 2.0%, in addition to a fuel cost adjustment of 1p per unit.

Chairman, Quintin Gill MHK said, “No one can be surprised at the requirement to increase the tariffs during these unprecedented times of global fuel increases.

We are always mindful that we have a duty to provide electricity and we are very aware of the burden this price increase may place on our customers; we will continue with our work to maintain the most efficient service possible in the challenging times ahead.”

Mr Gill further commented, “It is unavoidable that we see our Island being placed under pressure to raise its energy prices due to extreme global fuel bills however, I would like to re-emphasise that the Authority will continue to apply and reap the benefits of the MEA’s fuel hedging policy

Background on prices in energy markets

MEA constantly monitors price trends on UK energy markets and other information in order to make informed decisions when buying natural gas, oil and electricity.

Prices for energy in the UK reflect prices on world energy markets and these have reached levels which were entirely unforeseen a year ago. The price of crude oil has increased sharply and this increase has passed through to gas and electricity prices. In addition, the price of electricity in the UK has also increased due to supply restrictions as power stations taken offline for planned maintenance or due to unplanned outages.

A major concern of energy users around the world is whether the current energy price increases are temporary or represent a permanent shift to higher fuel costs. Most commentators agree that reduced supply and high demand for oil around the world have caused the oil price to rise. Oil prices are expected to fall once supply and demand come back into balance: prices for gas and electricity should then also follow downwards. However, there is no certainty when this will happen and in the short term energy markets are expected to remain highly volatile.

As a small buyer in a large global energy market, MEA will always be strongly influenced by global fuel prices. However, MEA tries to mitigate the impact of the fuel price volatility and price increases by fixing the price of gas needed to generate electricity in the future. MEA has developed this approach into a procurement strategy which considers fuel prices up to 3 years forward. It is intended that this forward view on fuel prices will help the MEA to smooth the impact on Isle of Man customers of sudden price rises. However, it is simply not possible to avoid increasing costs altogether. Even with the steps being taken, MEA’s fuel costs for the current financial year (2008/09) are now expected to be 34% more than the previous year (2007/08). If energy prices remain at their current levels, fuel costs are expected to increase in 2009/10 by another 37%.