The concept of the mutual or company limited by guarantee (“CLG”) is not new. For many decades it was the preferred business model for Building Societies and other financial institutions, where in effect the company was owned by its members for the benefit of members.
A more recent and directly comparable model is Welsh Water which is owned by Glas Cymru, a single purpose company with no shareholders which is run solely for the benefit of customers. The Glas Cymru business model aims to reduce Welsh Water’s asset financing cost, the water industry’s single biggest cost, and improve service delivery by employing the best contract partners for each distinct activity of the business.
This was seen by the directors of Mutual Energy as an appropriate model to help address high energy prices in Northern Ireland. It also brings ownership of key infrastructure assets into the hands of Northern Ireland people, and was seen as part of regeneration following the peace process.
How Mutualisation Works
For the mutual model to work it requires strong support from the principal stakeholders, namely financiers and energy consumers. The financiers require a secure revenue stream and a high level of assurance that bond payments will be made in full and on time. Energy consumers require their energy to be supplied safely, reliably and at lower cost than would otherwise be possible. Finally of course, where existing infrastructure assets are to be acquired, there needs to be a willing seller and buyer of those assets.
The mutual model works best for capital intensive assets, where the benefits of lower cost capital are most marked. Due to the highly technical nature of the assets we manage, we engage experienced engineers and have put in place maintenance, operation and emergency response contracts.
Benefits and Potential
The benefits of mutualisation of Moyle, Premier Transmission and Belfast Gas Transmission have been substantial and have kept energy prices lower than they would otherwise have been.
The savings associated with the reduced cost of capital provided by mutualisation are locked in and provided to customers as a reduction in costs compared to what they would otherwise be. In deciding to mutualise the assets the regulatory authority assessed the net present benefits for consumers to be £19 million for Moyle, £42 million for Premier Transmission and £20 million for Belfast Gas Transmission. These benefits are being delivered year on year.
For example Premier Transmission tariffs were reduced by some 30% upon mutualisation in 2005, saving £6m to gas and electricity customers.
Ongoing operational savings are also for the benefit of Northern Ireland customers and the gas businesses annually rebate any savings made.
Moyle sells its capacity in the market and any surplus income earned beyond what is required to pay its costs is also for the benefit of Northern Ireland consumers. Economic theory suggests that the surplus arises from a reduction in supply company profits because the price at which they can sell power is somewhat independent from their activity on Moyle. This surplus is returned to consumers via a reduction in electricity tariffs.
Mutual Energy and Consumers
Everything we do is intended to be in the long term interests of all energy consumers in Northern Ireland. Due to the nature of the infrastructure businesses we operate, we have limited direct contact with the final energy consumers. However we work in close cooperation with our direct customers, members, government, regulator and the Consumer Council to ensure our operations are understood and that our actions and objects fit with overall consumer policy for the long term benefit of energy consumers.