The pending merger of the MEA and Water Authorities will avoid the need to raise electricity prices by 7 per cent each year for the next three years.
But with the three year freeze on tariffs ending this year, bills will go up from April, by about 3 per cent.
And a fuel cost adjustment could be reintroduced to bills if there are further hikes in the price of gas to fuel Pulrose power station.
Tynwald last week voted overwhelmingly to support a radical streamlining of government which will see one department scrapped and two others merged.
Under the reforms the debt-ridden Manx Electricity Authority will be merged with the Water and Sewerage Authority to create a single Manx Utilities Authority, a move which Chief Minister Allan Bell said will save more than £1 million a year after five years.
Using the Water Authority’s £65m cash surplus will help tackle the MEA’s massive debts, he said, allowing the merged authority to be in profit by the end of the decade, removing the need for government subsidy and enabled combined external debts totalling £260m to be repaid in full by 2034.
MEA chairman Howard Quayle told Tynwald that the three year tariff freeze had resulted in a cash flow issue - and the board had drawn up plans to increase bills by 7 per cent a year over the next three years.
This was ready to be implemented from April 1 - until the government’s Business Change Support Group came forward with the idea for the merger.
But he said the idea of merging the MEA and WSA would allow tariffs to be pegged to inflation.
He told the court: ‘This solution will rely on a cross subsidy from the WSA’s cash surpluses but will ensure WSA’s sinking fund remains intact, and that indeed there is sufficient funds to pay off both bonds, WSA’s of £75m in 2030 and MEA’s of £185m in 2034, as well as fund any new water infrastructure.’
Mr Quayle said the MEA had absorbed energy cost increases totalling £5m but if there were additional hikes in costs, a fuel cost adjustment would have to be reintroduced in bills. He said a 10 per cent increase in gas costs equates to £2.3m which would require a 4 per cent increase in the price to customers.
Treasury Minister Eddie Teare said that the merger would allow the combined authority to pay off the external debts of £260m and still be left with £121m cash in hand.
Tynwald was told that the MEA had a deficit of about £11m in its 2012/13 accounts and has a negative position of £70m overall. On top of that its internal and external debts falling due between now and 2034 amount to some £400m. WSA’s internal and external debts total about £200m.
Of the combined debts of £600m, half is external and owed by government.
Mr Bell said the merger ‘will remove the requirement for Treasury subvention and. subject to fuel cost adjustments, enable tariff increases to be no higher than inflation.’
He said the introduction of a £50 per property sewerage charge would have been introduced with or without the merger.