3 minute read
Investors
Vision Pillar – INVESTORS: ‘We provide fair returns to our investors over the medium to long term.’
As the sole provider of electricity in Jersey, with a 41%* share of the energy market, we are acutely aware of our responsibility to our community and we seek to deliver high quality services to our customers and community whilst creating value for our shareholders in a transparent, fair and sustainable manner. We do this by developing and innovating the Island’s electricity network, investing in it and operating it as efficiently as possible.
Our business model does not seek to maximise profits by driving up prices. Instead, we take a long-term view of our business and the service we provide to our customers – focusing on being cost effective and efficient whilst at the same time managing risk. We seek to deliver a sustainable ‘return on assets’ that is 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. Our target return on assets employed continues to be in the 6%7% range over the medium-term and was 5.9% in 2021 against 6.8% in 2020.
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 demand for electricity varies significantly within each day and from month to month and season to season. Those fixed costs need to be borne to meet a given winter peak demand. The more units of energy that are distributed across the network, therefore the more efficient it becomes to operate due to economies of scale and the unitisation of fixed costs. This helps us to maintain competitive prices.
The retail price of a unit of electricity in Jersey is made up of the cost of producing electricity, whether that be procured from France, the Energy from Waste plant or by our own on-Island generation, the cost to maintain and run the transmission and distribution networks, and thirdly, the retail unit price includes a fair ‘return on assets’ to provide dividends to shareholders who enable us to finance, acquire and maintain assets.
Our ‘return on assets’ has typically been between 6% and 7%. This level is in line with utilities in other jurisdictions. The rates each utility can charge include a return on the physical assets they build, operate and maintain.
Once we have covered our fixed and variable costs, including the costs of financing any investment in the grid and other assets, payment of dividends and taxes, any surplus returns from higher sales are passed back to customers in the form of lower prices. This is a major benefit of the electrification of Jersey and Carbon Neutral 2030.
It is essential to have the confidence of both shareholders and lenders to raise investment for the long term. Our pricing model seeks to provide stable risk-adjusted returns on capital for our shareholders who know and understand the risk profile they are buying into through their share ownership.
Robust, reliable network
This confidence of investors – both shareholders and lenders – enables us to make long-term strategic decisions and considerable investments in infrastructure. This, in turn, ensures we can deliver a robust, reliable network, now and for the future.
Dividends paid this year, net of tax, rose by 5%, from 16.05p in 2020 to 16.90p in 2021. The proposed final dividend for this year is 10.20p, a 5% rise on the previous year. The final dividend will be paid on 24 March 2022 to those shareholders registered on 18 February 2022.
We seek to deliver a sustainable ‘return on assets’ that is consistent with the rate of return in the UK and enables the Company to continue to borrow and invest for the future.
*Government of Jersey Energy Trends 2020 published August 2021
