I Want to See Your Bills Drop Too

The boss of Manx Gas has told Gef she wants to see prices brought down as soon as possible while defending the business being allowed to make a profit as islanders worry about bills.

CEO of Island Energy Group Jo Cox spoke to Gef in the week that gas prices rose 58%. Prices for households have increased by 101% since last summer. She said anyone who is struggling to pay should contact the company to see what can be arranged.

The current prices of gas is fluctuating daily, on Friday The BBC reported that the price per therm was 280.00, but that it had reached 539.53 back earlier in the month.

Under the new framework, a large swing in prices, either resulting in big profits or losses for Manx gas, there will be an automatic review of prices in July, followed by another a few months down the line. However, there is also the possibility that Manx Gas can move them up or down depending on the state of the market as well. 

Ms Cox explained: ‘This doesn’t mean I’m not reviewing the prices daily, because I am, what it means is I can, if I want to, drop my prices earlier than an auto review by CURA. As long as I’m working within the framework, I’m allowed to say ok my profits have shifted by 2% for the better, so I’m therefore I’m going to automatically do a price decrease without it having to go through CURA.

‘In July though and December though, I have to submit my accounts, but if I can see the market stables, come down for a period of time and I can pass that through to the consumer, I can do that without checking with CURA if I’m allowed. However, if I don’t do that and it goes up or down 10% then it triggers an automatic review in the framework.’

She added: ‘None of this passes me by, I’m living with higher prices too, I sincerely hope that this is a short period of pain and that I will come out the other side and drop the prices and show up much better than anyone has seen us show up before because I recognise I’ve got a lot of years of pain to fix and I’ve only been here eight months’

Profits?

There has also been criticism of Manx Gas being allowed to make a profit at a time when people are struggling to heat their homes. They are not alone in this by any means, some businesses in the UK stand to make tidy profits given the massive increases in price caps there too. But Ms Cox said the company needs to make a profit to allow for any further shocks that could come down the pipeline (no pun intended). 

She said: ‘We have to have a certain amount of profit in the business because otherwise if something awful happens, we can’t respond to it.’

Three Days Notice

A lot of people were quite angry that they were left with just three days’ notice of the latest hike in gas prices when they were announced last week. Ms Cox said there was unfortunately little that could be done over that as it had to be seen if Tynwald would pass the new framework and that if it had been done sooner, islanders could have faced even higher bills.

She said: ‘Frankly, thank god it didn’t go a week earlier because the price increase would’ve been higher. When we modelled it two weeks ago, the commodity price was so high, that it would’ve been a 78% increase. So it’s almost been better for the consumer that the commodity market has settled, just a little bit, because it’s been volatile with it going up and down like a yo-yo. So we had to wait until Tynwald said yes and then we had to put forward our calculation to CURA and then they had to sanitise it with Ernst and Young and say yes these are the correct figures, we confirm your accounts are correct and so that’s why it’ll all been last minute.’

Spikes and Hedging

Ms Cox said: ‘It’s generally sitting around 265 mark, for the last week it’s been about £2.90, or just under the 300 mark, it really hasn’t dropped under 225 for about seven months now. When we put in that original price increase request in August, it was sitting at 169, so that was what triggered the 27.5%, on average it is usually at around 48p, at peak time, at maximum, it’s only ever reached about 60p.’

The CEO said that five separate events came together to create the current market conditions, the hangover from Covid, which saw domestic usage surge while commercial usage plummeted as more people worked from home. At that time, Russia was making threats regarding its pipeline into Europe, there were large floods across Asia and America, which meant there was a panic oversupply in the three main areas of supply into the UK. Further flooding in the USA in the winter also then contributed to a spike in prices when they rose above 600p per therm in December. Since then, the war in Ukraine began, which saw a further spike up to above 800p per therm earlier this year. 

While Manx Utilities says it has been able to hedge to keep increases down, Ms Cox said the company has ‘hedged 35% of our volume’. This was done in August for the next six months up to the end of March.

She added: ‘We hedge for six months and use a model to try to see if there is a pattern because, if you forward buy too much volume, you may as well throw your money out the window, because what you’re doing is buying gas you didn’t use. If you don’t use it, then you’re still having to purchase it.

‘When October was a warm month, we saw consumption 37% less than the previous year, so you can’t say I am going to buy that much volume in October because you don’t know how much volume is going to be needed because it’s based on weather. So even though we hedged 35% month to month, actually what happened was we got cover of 87% for October because we’d hedged 35% and volume was lower.’