The regulatory agreement that controls Manx Gas prices is fair.

That’s the view of Office of Fair Trading chairman Martyn Perkins, who came under sustained questioning in the House of Keys on Tuesday.

It follows an above-inflation increase in gas prices announced last month.

A regulatory agreement on gas supply was introduced in 2015 and is due to run until at least the end of next year - although Mr Perkins said he was keen for the review process on that agreement to begin ’sooner rather than later’.

He said the agreement fixed the maximum level of profits of Manx Gas - currently that maximum profit level is 9.99 per cent.

’It fixes the profits at a level which is fair,’ Mr Perkins said. ’Fair to the company and, most importantly, fair to consumers.

’Manx Gas has a contractual duty under the agreement to set its tariffs to achieve that fixed level of profit each year. When setting its tariffs, Manx Gas considers a range of data; including its forward purchasing contracts, customer usage projections and market pricing assumptions. ’

It must give eight weeks’ notice of price changes to the OFT and wait at least four weeks to allow for any representations.

Mr Perkins said the latest increase of 3.5 per cent in tariffs and 2.4 per cent in standing charges met the criteria of being based on fair analysis supported by information to show the increases would fit in with the set profitability parameters.

’The OFT estimates that for the typical central heating customer using 10,000 kWh, the changes announced will increase the annual bill by around £25,’ Mr Perkins added.

’The increase does need to be put in the context of the fact that, during 2016, Manx Gas reduced tariffs on three occasions by a total of almost 10 per cent. This would have saved the same average customer around £63 per year.’

Those reductions were required to ensure Manx Gas complied with the regulatory agreement.

Even with the latest increase, an average customer is £38 per year better off than in 2015, the OFT chairman said.

’Because of the regulatory agreement there is currently a regulatory adjustment in place which will save that same average customer around another £12 per year.’

Last month, Manx Gas said the bulk of the latest price increase was because the cost of gas was above budgeted levels, while inflation was putting pressure on fixed costs.

Asked whether he believed the regulatory agreement ensured prices were fair and reasonable, Mr Perkins said: ’The overriding policy view of the OFT is that any regulation needs to achieve a balance of fair prices for the consumer and no more than fair returns for the supplier.

’It needs to do that in a manner which is sustainable in the long term. It also needs to do so with the minimum possible intervention in a private sector business.

’Based on the evidence of the first two years, the regulatory agreement is achieving those outcomes.

’The agreement casts the OFT in the role of the referee to ensure fairness and I believe that we are successfully achieving that.’