Most companies generate profits by delivering goods or services and reselling them for the highest price the market will pay. At Jersey Electricity, things are not that simple. Our business model does not seek to drive up profits by charging the highest prices we can.
Instead, we take a long-term view of our business and the service we provide to our customers. We seek to deliver a ‘return on assets’ consistent with the rate of return of typical regulated entities in the UK and a return that enables the Company to continue to borrow and invest for the future; to operate and maintain the network, and also generate fair returns for shareholders. This is important to enable us to secure financing in the future.
We believe in fair prices for all our customers
Jersey Electricity has a privileged position as the Island’s sole supplier of low carbon power. We recognise our role in providing good value and fair prices for all consumers while also delivering safe, reliable, and sustainable electricity.
The network effect
As a network operator, a significant portion of our costs is fixed. That is they are costs we have to bear however much electricity is distributed across the network. The more units that are distributed across the network, therefore, the more efficient it becomes to operate due to economies of scale. This helps us to maintain competitive prices and is one of the reasons why our prices compare very favourably with other islands.
This is the price at which we buy and import supplies from France, the price we purchase electricity from the Energy from Waste Plant, or the cost of generating on Island.
Maintenance and distribution costs
There is a cost to maintain and run the transmission and distribution networks that transport the energy to homes and businesses. This is very important and is something many people forget. These are fixed costs.
Return on assets
The retail unit price includes a fair ‘return on assets’ to provide dividends to shareholders who enable us to finance, acquire and maintain assets, such as La Collette Power Station in the mid-1960s and our three multi-million pound supply cables to France, by investing their capital in the Company. Rightly, they expect returns on their capital investments from a stable well-run organisation.
Breaking down the cost
The retail price of a unit of electricity in Jersey is made up of the following components:
- Production costs
- Network maintenance and distribution costs
- Return on assets
How we compare with the UK
Our ‘return on assets’ has typically been between 6% and 8%. This level is in line with how gas and electricity utilities operate in the UK, overseen by Government regulator Ofgem.
The rates each utility can charge include a return on the physical assets they build, operate and maintain.
It is essential to have the confidence of both shareholders and lenders to raise investment for the long term. Our pricing model provides stable, low-risk returns on capital for our shareholders who know and understand the risk profile they are buying into through share ownership.
This confidence of investors – both shareholders and lenders – enables us to make long-term strategic decisions and considerable investments in infrastructure like those we have made recently in building new cables under the sea to France. This, in turn, ensures we can deliver a robust, reliable network, now and for the future.
Fair, affordable pricing
Once we have covered our costs, including taxes, any surplus returns from higher sales are passed back to customers in the form of lower prices.
We measure supply reliability in Customer Minutes Lost. This represents the total supply interruption time in minutes experienced by each customer on average in a year. In 2019/20 our CMLs were just five, our lowest for ten years, compared with 80 CMLs* in the UK.
Investing for the future
In the last decade, we have invested around £150 million in infrastructure projects that would not have been possible without the investor confidence our pricing model provides.
Our third 100MW undersea cable to France installed in 2016 serves around a third of the Island’s total annual power consumption with low-carbon electricity.Learn more
St Helier West Substation
Opened in December 2018, the St Helier West Substation secures electricity supply to 80 per cent of St Helier homes and businesses.Learn more
How we measure up
We continually monitor our pricing against other jurisdictions and employ independent consultants to benchmark our tariffs. Jersey’s electricity prices for most customers are typically 10%-20% lower than Guernsey, Isle of Man and the average over the 15 largest countries in the EU. Our standard tariff is also around a third less than the UK price cap set by Energy Regulator Ofgem.* This is a significant achievement for an island of our size.
We also work hard to keep our prices more stable. Since 2014, the price of electricity in Jersey increased by 10% compared with inflation rises at 16%. UK electricity tariffs increased by 32% over the same period.
*Standard tariff based on domestic single-rate customer using 3,750 kWhs per annum including all taxes
Though JE is a relatively small utility compared with those in the UK, we have been able to create discounted off-peak tariffs for space and water heating that have been very popular with our customers. It means we sell roughly twice as much electricity per customer as in the UK. This helps us to keep prices more competitive despite being a small island where many things cost more.
Other factors that keep our costs down and retail prices affordable are low transmission losses due to continued infrastructure investment, the cost-effectiveness of our joint French power purchase agreement we share with Guernsey Electricity Limited and the scale and effectiveness of our operation.
A flexible two-rate tariff offering 20 hours of cheaper electricity for approved space and water heating.Learn more
Economy 20 Plus
A flexible two-rate tariff with 20 hours of cheaper electricity for approved space and water heating. Suitable for central heating systems, underfloor heating, electric flow boilers or heat pumps, providing heat and hot water when you need it.Learn more
Providing fair value
Two Government initiated reviews have been completed in the last 10 years and confirmed that we had priced fairly and with the public’s long-term interests in mind.
In December 2012, CICRA (the Channel Islands Competition and Regulatory Authorities) found that Jersey prices compared favourably with those charged in Guernsey and the Isle of Man.
‘Taking into account a range of factors in Jersey that play a role in contributing to total household electricity bills, we concluded that electricity prices in Jersey broadly represented fair value,’ the review report said.*
*Electricity Market study (Jersey)
Factors that keep our costs down and retail prices affordable are:
- Low transmission losses due to continued infrastructure investment
- The cost-effectiveness of our joint French power purchase agreement we share with Guernsey Electricity Limited
- The scale and effectiveness of our operation
A typical customer in Jersey consumes twice as much electricity as in the UK due to the popularity here of low-cost electric home heating.