The head of the Office of Fair Trading says the calculations used by Manx Gas to support its latest price hike ‘make sense’.
But Mike Ball admits it is ironic that an OFT investigation report that aimed to protect customers from profiteering has been used by the utility to justify the tariff increase.
There has been widespread criticism of Manx Gas’s announcement of a 2.9 per cent increase in all tariffs - which will cost the average domestic customer with gas central heating an extra 6.05p a day from September 12. There will also be a 3 per cent or 0.48 pence a day increase in the standing charge, taking the total increase to 6.53p a day or an extra £23 a year.
Tony Nicholls, group managing director of parent company International Energy Group, blamed the increases on ‘warmer than average weather patterns’ which meant that customers had been using less gas.
‘The business has struggled to achieve the necessary levels of output over recent years and this small price increase will go some way to returning the business towards the average of the acceptable returns,’ he said.
OFT chief officer Mike Ball explained that a 2008 OFT investigation into gas prices had concluded that Manx Gas was not making excessive profits, with an acceptable range of return on capital employed deemed to be between 8.8 per cent and 12.4 per cent.
He said Manx Gas had voluntarily adopted a mid-range point of 10.6 per cent as its target.
Mr Ball said: ‘What we are clear about is that the numbers for the coming year make sense.’
But he pointed out these calculations were based on predictions of gas use for the coming year, and if those projections proved ‘off beam’ and Manx Gas was running above its 10.6 per cent target it would have to factor that in to bring the price back down.
Asked about the 2008 report being used to justify the tariff increase, he said: ‘Of course there is an irony there.’ He accepted price as well as weather was a factor in how much energy some people use.