Electricity prices to rise three times

Thursday 04 June 2020

Electricity prices will go up three times in the next 18 months, as it was revealed that the States-owned utility faces "severe problems" with its financial covenants and has over £40m drawn down in debt.

The information about Guernsey Electricity was revealed by Deputy Peter Ferbrache, who heads up the States' Trading Supervisory Board, which is GEL's shareholder.

Deputy Ferbrache told the States during debate on the Energy Policy that shareholders had been updated on the utility's precarious financial position earlier this week. 

As of April this year, he said Guernsey Electricity had £44m of debt drawn down.

"That’s made up of £33m of commercial borrowings, comprising, and this is fully drawn down, an £18m rolling credit facility and a 10-year, £15m commercial loan for the recent [electricity] cable," said Deputy Ferbrache. "And in addition it has borrowed £11m from the States of Guernsey Bond."

"Their latest capital financial forecast for the period April 2020 to September 2021 indicate that even with reduced capital expenditure spend, they are going to have severe problems with their financial covenants."

Pictured: Deputy Ferbrache is the President of the STSB, which is Guernsey Electricity's shareholder.

The financial forecasts suggest that Guernsey Electricity customers are facing increasing electricity bills through three separate tariff rises. 

Firstly, there is set to be a 4.8% "cost passthrough due to uncontrollable commodity and foreign exchange costs" in November 2020.

There will be a second tariff increase linked to capital cost recovery for the new electricity cable to France. This has been calculated to be 2.2% based on final project costs.

There is also likely to be a further cost passthrough in 2021 to compensate for debt incurred in 2020.

Last month, it was revealed that a substation that supplies a third of the island's energy supply will need to be replaced next year, which Deputy Ferbrache said could cost in the region of £3.2m.

While that project will have to go ahead, he warned anyone who thinks GEL is financially well-off to think again. 

"They will be unable to service all their capital requirements over the next 12 months to two years, and I am not talking anything to do with a new French cable," he said. 

"They are going to have to underinvest in capital projects because they do not have the money."

Pictured: The new underwater electricity cable, from France via Jersey, was installed last year after the previous one was irreparably damaged. 

GEL CEO Alan Bates told the STSB earlier this week that while the network had been well-invested in during the 1950s and 1960s, it was generally "neglected thereafter", meaning they will have spending requirements in the not-too-distant future.

"The idea that Guernsey Electricity has millions and millions of pounds sloshing around which it can just delve into, and the competition will be good and it will cut the costs of energy, is rubbish, it is misguided and misleading," said Deputy Ferbrache. 

Despite that, Deputy Ferbrache said GEL was working hard to keep price increases as "modest as it reasonably can".

"Guernsey Electricity is not there to be a cash cow for the revenue, to charge people every penny it can charge," he said. 

"Because if it did so, we would be bringing to the regulator massive tariff increases for the consumer to bear and it has no intention of doing that. It will have to bring some but it’ll be as modest as it reasonably can be."

Debate on the wider States energy policy will continue today. 

Pictured top: Guernsey Electricity and inset, Deputy Peter Ferbrache.