Hours after big electricity price rises were announced, consumers have to brace themselves for a further rise in the price of gas.

But what that will be has yet to be announced.

This week Tynwald effectively agreed to remove the current price freeze.

The key changes are that the revenue that Manx Gas may earn from regulated activities is capped and the introduction a formal process for tariff reviews and adjustments.

The price freeze had kept tariffs at 9.1p per kWh for consumers since the price went up 27.5% in October.

Manx Gas asked for another price rise in December but was turned down by the Communications and Utilities Regulatory Authority.

However, the changes this week have paved the way for the cost to rise on April 1.

The new regulations allow the CURA to introduce what it has determined to be a ‘fair permitted return’ to be generated by Manx Gas – namely a 5.45% weighted average cost of capital and a 2.1% retail margin.

The return is to be used to reinvest in and maintain the gas network and also to finance business operations as well as give a reasonable return to shareholders and investors.

The permitted return represents only a small percentage of the tariff that consumers pay.

At the moment, due to the high wholesale cost of gas, a large proportion of the tariff will represent the cost of the gas itself.

As the cost of gas consumed is a ‘pass-through’ cost, as markets return to more normal levels the tariffs will also be reduced.

In practice this should mean that if and when wholesale prices fall, gas customers’ bills should go down too.

Manx Gas will set its own tariffs and submit its proposals to the authority prior to implementation.

Manx Gas must set its tariffs in such a way that the revenue cap is not exceeded.

The authority expects to receive Manx Gas’s tariff proposals over the next few days and once these have been reviewed the new tariffs will be announced publically.

The authority’s chief executive officer, Ivan Kiely, said: ‘The introduction of these regulations is the result of a many months of hard work by the authority and they are vitally important to ensure the ongoing viability of the gas network at such a volatile time for the energy market globally.

‘Had they not been introduced, it is likely that our island’s gas supply would have been put at significant risk and that would have had wide reaching consequences for not only gas consumers but for many businesses also.

‘All of us at the authority recognise that the upcoming tariff increase will be worrying for many gas consumers, especially given the rising cost of living more generally.

‘These next few months will likely be difficult for many whilst prices remain at these unprecedented high levels, however, I can assure all gas customers that the authority closely monitors wholesale prices and will ensure that whatever tariff is charged by Manx Gas will be reflective of actual costs.’

The key changes that will be introduced with the new regulations:

The authority’s final determinations on an appropriate regulatory return for Manx Gas will come into effect.

This regulatory return is not a ‘guaranteed profit’, but it is a return that will be used to service the cost of its debt and equity, and continue to invest and maintain the gas network infrastructure.

Tariffs will be fair and transparent and will move up and down in line with wholesale costs. The authority will be publishing further information on its website in relation to clearly show how tariffs are made up.

The authority will be capping the revenue that can be earned by Manx Gas. Any earnings above this amount must be repaid back to its tariff customers in the following period in the form of a tariff adjustment and vice versa.

There will be two tariff reviews each year, which will help to keep Manx Gas’ revenue at the allowed level. This should also give gas consumers peace of mind in regards to when tariffs are likely to change.

A triggered tariff review process has also been built into the regulations, so gas consumers can be assured that if tariffs need to change by 10% or more (either up or down) a review can be undertaken outside of the scheduled reviews.

This is an important part of guarding against bill shock and to ensure that as market prices reduce, consumers benefit in a timely manner.

Costs have been proportionately allocated between customer categories.

This guards against any unfair cross subsidisation between consumer categories, all consumers should only being paying for the cost of their service.

The introduction of these regulations is in line with the authority’s Roadmap to Regulation2 which it set out early in 2021.

The new framework that the regulations introduce provides the authority with more tools to deal with risks to the island’s gas supply in a manner that balances the needs and interest of consumers, Manx Gas, and the wider public interest.

There are also mechanisms built into the framework that ensure adjustments are made over time to ensure that any over or under recovery is repaid back to, or recovered from consumers.

In December 2020, the Communications and Utilities Regulatory Authority Order 2020 was approved by Tynwald and came into force immediately. This had the effect of establishing the Communications Commission as the Communications and Utilities Regulatory Authority.

The Gas Regulation (Amendment) Act 2021 progressed at the same time through the legislative branches and introduced new powers into the Gas Regulation Act 1995 for the Authority to set .