Gov gas warning: back down or we'll step in

Wednesday 29 April 2020

The Economic Development Minister has declared war on Jersey Gas, warning that the government will step in if it doesn’t urgently rethink an “insensitive” 6.5% customer price hike.

In an announcement on Wednesday, the privately-owned utility company said it was left with “no choice” but to increase prices from 1 May after allegedly being refused access to the government’s co-funded payroll scheme.

Aiming to protect local jobs throughout the virus crisis, the scheme sees the government step in to help businesses pay their employees if they can prove they have suffered a drop in turnover of at least 30% compared to the previous year. 

However, the government says that Jersey Gas has not proven this – and accuses it of failing to disclose “vital financial information” to see if it would be eligible despite many requests.

But Jersey Gas maintains that it has seen a 50% drop in revenue.

Pictured: Ian Plenderleith, Managing Director of Jersey Gas.

Speaking to Express about the reasons behind the price hike this morning, Managing Director Ian Plenderleith said that Jersey Gas supplies 6,000 domestic properties as well as 400 businesses in the island. Among the latter are 70% of the Island’s hotels, restaurants and leisure facilities within the commercial sector.

Due to the lockdown, the majority of them have temporarily closed leading to what Jersey Gas described as “a severe negative impact on gas usage locally”.

Even with islanders working from home, Jersey Gas said they hadn’t seen an increase in domestic gas use.

“Since the beginning of April, we have lost 50% of gross sales overall,” Mr Plenderleith said, explaining later that this represented a 50% drop in revenue. 

“Over the past three weeks Jersey Gas has proactively engaged with the Jersey government to try to access short-term support packages, including the payroll co-funding scheme to protect the company and our employees,” Mr Plenderleith said. 

“In spite of the statements made in the States Assembly to provide short and long-term support packages for Jersey Gas, no short-term support has been offered by the Government, leaving us very concerned for the impact this will have in delivering our critical service moving forward.”

Pictured: Jersey Gas said the Government's support had not been forthcoming.

When asked, Mr Plenderleith could not confirm if Jersey Gas would cancel the price rise if the government starts supporting them. 

“It depends on the level of support as soon as it comes through, we will review the situation,” he said.

“Any contribution will be most welcome to support Jersey Gas and its critical infrastructure.  We made the request as it helps stabilise the situation for the business, so that we can take more informed decisions knowing that we have the support of the government.” 

While no other utility company is included in the scheme, the Managing Director says Jersey Water or Jersey Electricity are not in the same situation as Jersey Gas due to being States-owned. 

“They have the implied support of the States and that implicit support puts them in a more secure situation,” he said.

“We are a critical industry on the island, it’s very important that we maintain a safe and secure supply to all customers.”

Pictured: The Government said Jersey Gas had“chosen” not to provide “vital financial information”.

However, in a critical statement released this afternoon, the government hit back at Jersey Gas, noting Ministers' "disappointment that Jersey Gas continue to conduct discussions on financial support through the media rather than directly with the government".

The government hit back at the suggestion they have refused support, saying Jersey Gas had “chosen” not to provide “vital financial information” on their business and their parent company despite several requests to do so.

“This information is a necessity to progress any applications for government support during this crisis,” the government's statement read.

“Jersey Gas is owned by Isle of Man based International Energy Group, which is in turn owned by a private equity fund,” it added.

“Before committing taxpayer support, the Government needs to understand what investor or lender support has already been sought by IEG and its owners, and why Jersey Gas does not have access to sufficient working capital of its own. This information has also not been received from Jersey Gas.”

The Minister for Economic Development, Senator Lyndon Farnham, called on Jersey Gas to halt the increase and instead get in touch.

Pictured: Senator Lyndon Farnham, the Economic Development Minister, said he was not prepared to see islanders “suffer added hardship during this difficult time”.

“I ask Jersey Gas to engage constructively with Government and to show transparency of financial information and transactions, so a full and considered response can be provided to them as soon as possible,” he said.

“I would urge Jersey Gas not to follow through with the planned increase while discussions are taking place. 

“A price increase of this magnitude comes at a time when many Islanders are experiencing financial insecurity and is particularly insensitive.”

He also warned he would consider “all steps available to Government” – including those provided for under the Jersey Gas Company (Jersey) Law 1989 – to ensure the utility company acts appropriately towards all of its stakeholders, saying he was not prepared to see islanders “suffer added hardship during this difficult time”.

The law cited by Senator Farnham allows the government to force price changes on Jersey Gas if deemed necessary.

It also allows the government to take shares in the company or take it over entirely with 12 months' notice.

Pictured: The law cited by the Economic Development Minister allows the government to force price changes.

It's not the first time Jersey Gas has faced questions over its prices in recent years.

In 2015, Deputy Geoff Southern asked the government to make the company lower its prices by 5% following a global drop in oil and gas prices.

The company defended itself at the time, however, saying that it forward-purchases stock.

The Channel Islands competition authority, CICRA, then stepped in to investigate the price structures. In the end, it concluded that the company wasn't operating with unreasonable profit margins.

However, amid continuing questions from States Members about why gas prices appeared to be higher than other forms of fuel, a review was commissioned in 2017.

Penned by Oxera, the report again said that profit levels were not outside of the 'reasonable' category, but that it couldn't be guaranteed this would remain the case going forward without further reviews. In the end, Ministers decided not to impose regulation, as resulting costs may have been borne by consumers.

Today's price rise announcement came following another hike starting on 1 September last year. Gas prices rose 3.8%, adding approximately £35 per annum to the average gas bill. However, the company emphasised that this was still lower than 2014 prices.

Customers did not appear to take today's news lightly, with several sharing their annoyance at the decision on a post in the ‘Good or Bad Jersey Businesses’ Facebook group.

Pictured: Some customers criticised the company on Facebook.

Some described the move as a “rip-off”, “out of order” or "disgusting".

Next month, States Members will be asked to vote on whether Jersey Gas should be included in the co-funded payroll scheme or provided with "similar financial assistance".

Deputy Geoff Southern, who is bringing the motion, described Jersey Gas as a business that appeared to have "fallen through the cracks" in a report accompanying his proposals.

Justifying his idea, he continued: "The underlying rationale of the Payroll scheme is that it is better to have people in work rather than risking them being made redundant, which would be more expensive to the public purse, and put additional pressure on Income Support (and Customer and Local Services) at a time when they are already busy."

"In addition, it would be difficult for some companies to resume normal business when we start to come out of lockdown if some of their key staff are no longer available for work. This would be the case for Jersey Gas, which relies on a trained workforce with specialist technical knowledge of the industry."

Pictured: Deputy Geoff Southern, who is asking for the government to support Jersey Gas.

The debate is currently scheduled for 12 May.

Pictured top: Economic Development Minister Senator Lyndon Farnham, and Jersey Gas Managing Director, Ian Plenderleith.