Price rise despite Manx Utilities hedging 111.6% of gas

By Gemma Nettle   |   Reporter   |
Thursday 5th May 2022 4:17 pm
@twitter.com/GemmaNettle
[email protected]
Share
Portrait of Chris Thomas MHK (Isle of Man Newspapers )

Subscribe newsletter

Subscribe to our email and get updates right in your inbox.

Manx Utilities is estimated to have forward purchased about 111.6% of gas for the 2021-22 year.

A forward purchase, or hedging, is when a quantity and price is agreed in advance for a commodity (natural gas) that will be delivered and paid for at a future date, sometimes up to three years’ in advance.

In this case, Manx Utilities has bought this gas to generate electricity to meet island demand.

Despite this, electricity bills rose 30% last month.

According to Manx Utilities, the purchaser of gas receives certainty of price (whether this is subsequently better or worse than the market price on the future day when the gas is delivered) and the seller receives certainty of the quantity being purchased.

‘Manx Utilities therefore has to predict how much gas we expect to consume and this can be affected by factors outside of our control,’ a spokesperson said. ‘Manx Utilities forward purchases natural gas for electricity generation to meet its expected need, not to make a profit or loss as a result.’

For 2018-19, it bought 100.4%, in 2019-20 it bought 97.5% and in 2020-21 it bought 98.4%, which Manx Utilities described as ‘accurate’.

It said: ‘It can be seen that our estimates of natural gas that we would need for generation were very accurate for 2018-19, 2019-20 and 2020-21. The year 2021-22 was affected by a rescheduled outage of the Combined Cycle Gas Turbine (CCGT) power station at Pulrose due to factors outside our control (e.g. Covid) and so the power station was operating for fewer days than we had expected, and so ultimately we had purchased more natural gas than we were able to use for generation, leading to the forward purchase quantity exceeding the quantity of natural gas actually consumed (by 11.6%).’

It was explained that any surplus is sold back to the market.

The spokesperson continued: ‘Natural gas is forward purchased in quantities per day.

‘Any surplus gas for a given day is sold back to the market at the market price, and a profit or a loss may arise for Manx Utilities as a result.’

In terms of hedging on behalf of Manx Gas, Manx Utilities is estimated to have forward purchased 25.8% for 2021-22.

This is in comparison to 62.8% in 2018-19, 66.3% in 2019-20 and 66.2% in 2020-21.

This hedging of gas hasn’t affected gas prices as they continued to soar at the end of March.

It was announced that gas customers would see bills rise by 58% due to high wholesale prices, which was reviewed at the time by the Communications and Utilities Regulatory Authority, ensuring Manx Gas was meeting its new legal obligations to charge a price for its gas that reflects the cost of supplying it.

It came into force on April 1 and followed a 27.5% hike at the end of last year.

The Manx Utilities spokesperson added: ‘Manx Utilities’ agreements with Manx Gas and its operating powers sales to Manx Gas to be at market prices, without any uplift or discount.

‘Manx Gas therefore buys any natural gas it consumes at the market price on any given day, other than where it has asked us to forward purchase natural gas on its behalf and we have been able to complete the forward-purchase request.

‘Where Manx Gas forward purchases natural gas, this is done at market forward prices.’

Gas hedging was also addressed in the Tynwald sitting this week.

Douglas Central MHK Chris Thomas asked Manx Utilities Authority chairman Rob Callister what the policy was regarding the forward-purchasing and hedging of gas prices for Manx Utilities and Manx Gas.

Mr Callister said that the MUA buys natural gas for Manx Gas on a daily and forward basis.

He said there were significant ‘risks attached to forward-purchasing’ and that once gas has been purchased the buyer is liable for it if anyone doesn’t pay the hedging contracts.

The MUA looks at its own hedging policy annually and it is able to buy and hedge gas for Manx Gas under its terms and conditions. In October, Manx Gas asked Manx Utilities to forward-purchase and it asked for more financial information, which Manx Gas did not provide.

Mr Callister said there had been no time when Manx Utilities has refused to forward-purchase gas on behalf of Manx Gas.

Comments

To leave a comment you need to create an account. |

All comments 0