Manx Gas – increases in tariffs

Following a request for additional information made by the Office of Fair Trading, Manx Gas Limited has supplied additional financial data including its management accounts and written explanations in support of its decision to increase its tariffs with effect from 8th October 2010.

Examination of that information makes it clear that the company believes an increase of 3.5% in the standing charge levied is necessary to recover increased capital expenses relating to the maintenance of the gas infrastructure and the company’s rising staff costs.

With regard to the 5.5% increase in the natural gas tariff and the 7.6% increase in the price charged for Liquid Petroleum Gas (LPG) and Town Gas the company state that this is necessary to offset increases in the wholesale price of gas over the last 12 months and the forecasted continued upward trend in prices, whilst maintaining its level of profitability and the rate of financial return expected by its shareholders.

Analysis of the figures provided by Manx Gas Limited to the Office does confirm that the wholesale gas purchase prices incurred by the company have increased by over 20% in the last 12 months. With regard to the projected upward trend in wholesale prices the Office has examined the latest forecasts published by the UK government regulator Ofgem who anticipate that there will be a 13% rise in the wholesale price paid by gas distribution companies by Spring 2011.

Based on a typical household consumption of 20,000 kilowatt hours per year the increase in gas prices will mean that a natural gas consumer will pay an additional £61.40 per year and LPG/Town Gas consumers will pay an additional £115.60 per year.

OFT Chairman Bill Henderson stated “It is very disappointing that at a time when people are suffering wage freezes and inflation is high the company feels it must increase its prices.

I must emphasise that the Office is not condoning or supporting Manx Gas price increases. It is our job on behalf of the public to try and obtain explanations for any price increases and as far as possible ensure that any price hikes can be reasonably justified. We can’t stop anyone from increasing prices but we try to ensure that the public are provided with all the information and the reasons behind it.

These increases illustrate the growing need for effective regulation of our energy suppliers. Government is currently considering energy regulation legislation which is something the Office supports and has highlighted to Government”.

NOTES

The last investigation report into gas prices undertaken by the OFT was published in March 2008 and at that time the level of profitability of Manx Gas Limited was 10% (Return on Capital Employed). The full investigation report conducted under section 19A of the Fair Trading Act 1996 and the 2007 Section 19 investigation report can be found on the OFT website www.gov.im/oft

Ofgem is the Government body set up to regulate the UK electricity and gas markets details of its last report can be found at http://www.ofgem.gov.uk/Markets/RetMkts/ensuppro/Documents1/Electricity%20and%20Gas%20Supply%20Market%20Report%20September%202010.pdf

Energy saving advice can be found locally at:-

Manx Electricity Authority’s website www.gov.im/mea

The Office of Fair Trading’s website www.gov.im/oft

Manx Gas Limited website www.manxgas.com

Age Concern provide an “Energy Doctor Service’ for those over 50 where the “Energy Doctor” can call at a consumers home to give individual advice on saving energy. The “Energy Doctor” can be contacted at Age Concern at 613044.