The Gas (Tariff Fixing)(Parameters) Regulations 2022 were approved by Tynwald in March 2022.
CURA has published answers to Frequently Asked Questions on this topic to help you understand what this means for gas consumers in the Isle of Man.
The new regulatory framework will take effect from the 1st of April 2022. The Regulations will remain in force for a period of five years.
Previously CURA only had the ability to fix gas tariffs and undertake tariff reviews. This was only ever intended to be a short term solution until more detailed Regulations could be brought forward.
The new Regulations will establish a framework that is fair, transparent, and non-discriminatory. The framework being introduced will balance the interests of all stakeholders, which have been identified as gas consumers, IOM Energy and the wider public interest. These Regulations are important for tariff stability and fairness for gas consumers and they also introduce certainty for IOM Energy which encourages investment in the gas network.
These Regulations will make it is clear to all consumers how much of their tariff is going towards maintaining the network, how much is going to the company and how much is being used to pay for gas.
The key changes that the Regulations will bring about are:
- CURA will cap the return that can be earned from regulated tariff customers.
- Any earnings above or below this amount must be repaid or recovered in the following period in the form of a tariff adjustment.
- IOM Energy will set its own tariffs, but must do so within parameters set by the Authority.
- Tariffs will be fair and transparent and will move up and down in line with wholesale costs.
Yes. IOM Energy now has a legal duty to ensure that tariffs are set in a way that will mean it should not earn more than its allowed revenue, which is set by CURA. Although IOM Energy is now setting its own tariffs, these tariffs must be provided to CURA in advance and they will be reviewed to ensure they remain fair and reflective of cost before they can come into effect.
Under the new regulations tariffs can be changed twice a year and additional reviews can be triggered by substantial wholesale price changes.
When IOM Energy wants to set a tariff it will forecast its expected demand and estimate wholesale gas costs by looking at market trends. This will allow it to calculate the tariffs it needs to set in order to generate its allowed return. CURA will review this information to ensure that the tariffs are fair and that IOM Energy is recovering only the costs it is allowed to under the regulation.
The gas tariff covers 4 main components as listed below.
Within the new Regulations, tariffs will be fair and transparent and will move up and down in line with wholesale costs. Approximately 4p of every unit (Kwh) of gas sold covers the fixed costs of the network and 1p is the network return to IOM Energy. The remainder covers the cost of paying for the gas itself.
More information about the new gas tariffs can be found here.
As shown in the graph below, gas prices are extremely volatile. When the international situation improves, the tariffs will change to reflect this. Unfortunately, it is impossible to say with any certainty how long the current crisis will last.
Wholesale gas prices have been rising to record levels over the last few months and this is due to several economic and political factors.
The increases are due to an increase in demand when economies opened up after the pandemic restrictions, alongside a shortage in supply. The current tensions between the EU and Russia has been very impactful as Russia is a major exporter of natural gas. Given the fast moving nature of the current situation between Ukraine and Russia, it is incredibly difficult to know when wholesale prices may begin to stabilise once again.
Gas is sold on commodity markets in units called therms, and in recent years the cost per therm for the Winter period (October to March) has typically been in the range of 40p – 60p. Wholesale rates are now much higher and have ranged from c.£2 per therm up to c£7 per them in recent weeks.
For those that are interested, you can view up to date wholesale gas prices here.
At each tariff review CURA will compare the revenue actually earned by IOM Energy to how much it was allowed to earn. Any difference will then be included in the unit charge of the tariff for the coming period, so any excess earnings will be repaid to consumers and any shortfall can be recovered by IOM Energy.
The adjustment will be added onto the unit charge and not the standing charge. This is a fairer way of apportioning out the adjustment as it means that repayments are in line with gas consumption volumes instead of being spread equally across the customer base.