Manx Utilities 5 Year Strategy Delivering Life’s Essential Services for our Island Municipal Association Presentation 25th October 2018

Manx Utilities Established April 2014. Provides water, sewerage and electricity plus natural gas supplies to the island. Now single organisation with common Board and management structure. Integrated business plan for organisation. Co-location of staff, where appropriate. Planned amalgamation of all terms and conditions

Priorities Remained on track with financial plan, including delivery of £1.2 million annual cost savings through consolidation of services. Current debt £470 million (£260 million due by 2034) following debt reduction of £95 Million in 2017. Long term financial plan designed to pay off all debt in 2030’s.

Debt Reduction

Current Indebtedness March 2018: £470 million Target: zero net debt 2034. £260 million due by 2034.

Future Strategies Pricing review Final stages merger of separate components especially water and sewerage. Maintain infrastructure Complete RSTS by the end of this administration as per programme for Government Look at transition to low carbon economy

Background to Pricing Review Need to increase Manx Utilities’ charges to offset reduction in sewerage grant. Concern about impact of Manx Utilities’ prices on customers – ability to sustain payment. NERA review of Manx Utilities’ finances. £95m reduction in Manx Utilities’ debt – to provide greater pricing flexibility to reduce impact of price increases on customers.

Direction of Travel Deliver reliable, good quality and efficient utilities services. Maintain revised financial plan (investment grade) – repay the Bonds. Grow electricity consumption to spread historic costs more widely (substitute liquid fuels for electricity). Alignment with Government objectives: Pricing Strategy (P4G). Regional Sewage Treatment Strategy completion (P4G). Emissions reduction strategy (P4G). Prepare for alternative generation mid-2030s. Flooding, bathing water quality, Brexit, etc.

Direction of Travel Opportunities to increase revenues National Grid future projections reducing

Pricing Review Objectives Requirement for multi-year pricing framework covering electricity, sewerage and water: Reflects costs; Repays Bonds. Customers to benefit from debt reduction. Pricing Strategy Challenge: How best to set a framework for Government policy? Conflict between policy objectives and cost reflectivity.

Charging Principals Proposed principles Charges should: be simple and transparent (as should the approach to setting charges) be stable (as should the approach) be non-discriminatory encourage efficient consumption be cost-reflective be consistent with government’s policy ensure recovery of (efficiently incurred) costs

Cost reflective tariff design

Social tariffs? Universal water meters?

How do Isle of Man Electricity tariffs compare? Domestic Small Industry Electricity System Reliability – Ranks amongst the best of UK/European Operators

Income Projections Two aspects: Overall level of income – considered by NERA; Attribution of income – considered by ECA. Pricing Strategy assumes overall level of income from NERA’s projections for the next 5 years is income target. Ensures Bonds can be repaid; Debt reduction benefits customers, as intended. Intention of the Pricing Strategy is to more fairly collect this level of income from customers.

Strategy Summary Income level within NERA revised projection. Ensures Bonds can be repaid. Pre-agreed increases – certainty for customers. Strategy based on 7 pricing principles: No real-terms1 increases for domestic customers Avoids step changes in sewerage charges. Rebalancing of water/sewerage. Reduction in non-domestic discount. 1 : excluding gas price adjustment, if required.

Customer Impact Electricity projections unchanged. Water/Sewerage rebalancing: Currently Water 341.8p/£ Sewerage 98.0p/£ Total 440p/£ Proposed Water 230p/£ Sewerage 210p/£ Total 440p/£ CPI to be added to above for 2019-20. No domestic customer worse off. Septic tank emptying unchanged (periodic review). Metered water reduced from £2.13/m3 to £1.45/m3. Non-domestic discount of 50% to reduce by 5% per year (25% after 5 years).

Electricity projections unchanged. Customer Impact NERA projections of average domestic customer charges 2021-22: Current: Water £465 + Sewerage £133 = £598. LTFP: Water £527 + Sewerage £283 = £810. NERA: Water £455 + Sewerage £228 = £683 (-£127, -16%). Manx Utilities’ proposed: Water £342 + Sewerage £312 = £654. Reduced increase of £156 per year (-19%). Electricity projections unchanged.

Customer Impact The re-balancing will mean 81% of non-domestic customer bills will have a real-terms increase of less than £500 after 5 years, an increase of less than £100 per year.

Five years Strategy Improve fairness. Reliable, efficient services. Continued commitment to prepay equality. ‘Time of Use’ tariffs – improves choice and decision making. Seek agreement for “Smart meter” programme.

Five year Strategy Single utilities bill for electricity, sewerage and water (initially separate utilities Rate Demands from those for local government). Equalise early payment discount at 1% Legislation changes to extend discount to direct debit customers. Aim towards predominant on-line billing and payment.

Five year Strategy Encourage increased electricity use as transition to generating power from renewables Electric vehicles Heating homes and businesses with air and ground source heat pumps

7.2 kW / 22kW Charger Common place public charger. On the Island we currently have 190 EVs (including vans but excluding motorbikes/scooters) and around 30 CPs giving a KPI of 6.3 ie well ahead of the UK and without their £0.7 billion spend on EV plug in grants and EV charge point financial support. Common place public charger. Fast Charge Classification.

50kW DC Charging Station Commonly found in busy urban areas. Rapid Charge classification.

Manx Utilities Street Lighting Maintain, Develop and Operate circa 6,500 street lights for 19 local Authorities and Government Departments to help keep the islands population safe. Advise our developers and local authorities to create well-lit and appealing neighbourhoods using cutting- edge and exciting technologies that enhance our local environment. Dedicated street lighting team available 24/7

Questions?