Chris Thomas

You might be right, but note that CURA did not actually mention any specific Manx Gas statement in its second press release 20211215_information-notice_gas-articles-clarification.pdf (cura.im), and Manx Gas does not seem to have commented since. Some important elements in the second notice are: "There is also opportunity to trigger additional reviews if market conditions are such that earnings before interest and tax are to increase or decrease by 10% or more from the previous year, which is the basis for the most recent tariff review." CURA would like to clarify that "the purpose of this mechanism is to trigger a review of tariffs, it is not to restore profits to that previous year’s level, nor does it guarantee that an adjustment would be applied. The Authority will consider the impact on all of its stakeholders in any assessment before making a Decision. It has been reported that Manx Gas has a minimum profit level of 10% that was agreed with the Regulator, this is not the case; there is currently no regulated return in place. The Authority is currently consulting on, but has not yet determined a suitable regulatory return for Manx Gas there is therefore no obligation to consider restoring Manx Gas’ profitability to a particular level as part of any tariff review process. The Authority is concerned that inaccurate information in this regard." CURA's "primary concern in the short term is that Manx Gas remains solvent, can support and maintain the network, and can continue to deliver supplies to its customers. The Authority is also considering the social impact on customers as well as the wider implications for the economy such as inflation should prices increase, as part of its review." CURA "accepts that the current situation where Manx Gas is operating with little to no profit is not sustainable in the long term, however it must be acknowledged that gas markets are in the midst of an unprecedented global crisis and therefore the current situation could not be reasonably considered ‘normal' or even as reflective of future regulatory frameworks."

There remains about 30 years in the gas network extension lease I think, but the annual payment has always been a fixed amount including interest and capital, so the only difference now is that this payment is less than half of what it was until recently, Fair points about how it was "sold to us". For instance three.fm in November 2011 put it like this Gas Network Extension Project running to schedule - 3FM Isle of Man (three.fm): "The project which will see natural gas introduced as an alternative to LPG \'towns gas' is progressing to schedule and within budget. The Gas Network Extension Project is being carried out to allow households access to a much wider variety of household appliances, whilst allowing Manx Gas to introduce an 'all Island' heating tariff. For it to happen the MEA had to install 43 km of gas pipe during last winter, with the works teams contending with the heavy snow in December. The first phase will see supplies of natural gas for 9 areas including Ramsey, Peel, Castletown and Port St Mary. For it to happen a survey of over 6,800 households had to happen, this pre conversion work is now complete in Ramsey and the South, and presently taking place in Peel, Kirk Michael and Ballaugh. The conversion works will begin in Ramsey in March of next year." I think Tynwald approved around £23 million at the time, with more than £20 million often cited. Actual figures were provided in appendix 3 in the Gas Committee review report 2019-02-15-chief-ministers-gas-regulatory-review-committee-report-final-approved-1822019.pdf (gov.im). Sorry for the lengthy quote from pages 6 and 7, but you asked : " Network Extension Charges 22. Two separate arrangements were put in place for the funding of the project in its entirety: (i) A normal Government Capital Project between Treasury and MEA, with the full capital value of the project repayable to Treasury over 40 years, following the normal formula of declining payments using Treasury’s standard means for managing the Capital Fund; (ii) An agreement between Manx Gas and MEA, with Manx Gas paying MEA for the entire value of the project (less £1.5m ‘betterment’ as agreed, see para. 14) on a fixed equal payments basis at an agreed rate of interest. 23. Manx Gas sought a fixed interest rate for the life of the agreement in order to give it certainty on its payments over the 40-year term. Manx Gas also sought equal annual payments to avoid the recovery of large front-end loaded payments from customers, which might have led to higher tariffs and had a negative impact on gas usage and growth in the short-term. The interest rate set by Treasury was 6.0%. Manx Gas pays a tariff of £1.2m per annum which effectively recovers the capital costs of the project and interest of 6% over the 40 year expected life of the asset. 24. The total final funded project cost, including project management, design, payments for wayleaves, gas pipeline materials, construction and testing, Above Ground Installations (AGIs), and conversion of customers to natural gas from LPG/air was £20,055,249. 25. Of this, £12,113,141 was for the actual physical infrastructure in the ground (the pipelines themselves and AGIs and associated works) and the remaining £7,942,108 for the conversion project (carried out by Manx Gas but funded by MEA). 26. Manx Gas has an agreement with Manx Utilities to pay back £10,613,141, being the cost of the pipelines less £1.5m ‘betterment’ (see above), at 6.0% over 40 years for the pipelines (equating to £705,774 p.a. – the "Offtake Charge"). This would rise to £805,524 p.a. should the whole of the additional incremental capacity associated with ‘betterment’ be utilised in full at any point (by any user). At the moment Manx Gas use about half of the initial ‘unimproved’ capacity in the system (i.e. the amount of capacity that would have been available in the original 180mm pipeline design). 27. Manx Gas also has an agreement with Manx Utilities to pay back the £7,942,108 associated with the conversion costs, also at 6.0% over 40 years (equating to £528,150 p.a. – the "DSO Charge"). Payments made by Manx Gas to Manx Utilities in respect of these charges are paid to Treasury on a pass-through basis. Manx Gas effectively pays a fixed interest rate. 28. Finally, as part of the Offtake Charge, Manx Gas also pays on a cost pass through basis for any annual wayleaves that were not capitalised as part of the project, i.e. where landowners elected to take annual wayleaves payments rather than a single one-off payment.

CoMin was wrong to give up on proper gas regulation in 2013 (economic regulation) and to require OFT, DED and Treasury to sign bad 2015 Gas Agreement (voluntary regulation). I agree, but the consultants at the time did not seem to agree (OXERA). Nearly all Ministers who stayed in politics subsequently claimed they were against it at the time, but I only ever saw evidence of Juan Watterson's objections. I argued against this bad agreement as OFT Vice Chair and resigned from board when it was signed in April 2015. Neither OFT nor Treasury got their regulatory responsibilities and activity right when the 2015 agreement applied. That was shown clearly by the consultants engaged in the procurement I led for the Gas Regulatory Committee review. In June 2020 Tynwald forced government to give notice. OFT could also have done more at the end of the agreement, but didn't; DoI could also have done much more, but was hardly aware of the powers it had, these powers being those subsequently transferred to CURA, including with some enhancements through legal amendment. Manx Gas did push to the limit the possibilities of the situation they were in and probably earned around 13% return on capital employed per year using standard regulatory and accounting methodology during the life of the 2015 agreement, although OFT and Treasury were of the view they were capping the return at 9.99% per year. Treasury, and thus Government, has also charged gas customers more for infrastructure than electricity customers, for instance. Manx Gas was also forced to subsidize mostly rural gas consumers at the expense of Douglas customers during the last decade after the establishment of an all-round tariff. But I prefer the Nelson Mandela or Abraham Lincoln approach to the past - truth and reconciliation and moving on in a better way - to the approach you and many others seem to prefer, i.e. sometimes going back decades to past wrongs on which they dwell. Thanks for comments.

"£30 mil for that western link" - you will have to help me more. The capital costs of the Bord Gais extension to the Island will no longer be payable from September 2023, and the on-Island gas network extension cost around £14 million (in addition there was about £5 million financed for conversion to natural gas), from memory.

Profiteering? In the last decade more accurately they were just regulated using a bad approach. The rebate for 2020 and 2021 will be paid. The persistent reduction of the lease interest cost becomes just another cost from 1/1/2022 and it will be handled by Manx Gas and CURA as that. Honour? Treating bygones as bygones is often helpful for a better future!

Gas consumers will receive the entire benefit of the lease interest rate reduction. That is agreed. There is no guarantee of 10% return on capital employed for Manx Gas. CURA will fix gas prices in relation to a much lower return on capital employed by Manx Gas. This reduction in costs incurred by Manx Gas allows this one-off rebate and continuing lower gas tariffs than would otherwise have been the case.

Fair question. The press release sentence is slightly ambiguous - "The arrangement has been established following a decision to reduce the amount Manx Gas pays Manx Utilities each year in relation to infrastructure payments, with £1.4m savings being passed on to consumers in full" - in that the £1.4 million saving is the total of the saving from two complete calendar years (2020 and 2021) at around £700,000 each year.

Chief negotiator for Isle of Man people and public service!!!? Just think what I could have achieved negotiating with Peel Ports and previous Steam Packet owners if I got all that out of Manx Gas and Ancala

Yes. All agreed and Government and Manx Gas issued a joint press release Isle of Man Government - Rebate for gas customers following loan adjustment by Isle of Man Government. 2020/2021 rebate of £58 will be paid with bills from February 2022 onwards. Manx Gas's accounting year starts on 1st January and from this New Year Manx Gas costs will have been reduced by around £700,000 per year because of this particular lease interest rate reduction. CURA will see those reduced costs in Manx Gas accounts and will take them into account when it fixes price cap or regulates otherwise.

More completely Manx Gas is an Isle of Man public gas supplier, and is the major part of a group that supplies natural gas here, and LPG here and in the Channel Islands. Its shareholder is an infrastructure investor, Ancala Partners. I would contend that the real narrative for gas regulation since 2017 is not at all what you suggest and is a success for public policy here. For instance in recent years: Banded standing charges were abolished; Statutory economic regulation of the gas natural monopoly has been introduced and the remit of the Communications Commission has been extended as it became the Communications and Utilities Regulatory Authority, the Island's professional and de-politicized economic regulator; The return on capital employed in wholesale gas provision seems likely to perhaps halve from the guaranteed 9.99% per year which was prescribed in the flawed 2015 gas agreement until 2020, and the accounting for intragroup activity and investments is being brought into line with standard practices; and From 1st January 2020 the loan interest rate on the lease for Manx Gas is now in line with state loans for other utilities and infrastructure.

It's not really 'fees', rather the interest rate in lease. In 2011/12 Manx Gas agreed to pay 6% per year for the gas network extension when MEA, for instance, was paying 0% per year on its consolidated loans fund borrowing. The change is to bring gas customers to the same financing rate as, for instance, electricity customers. CURA will have had very little to do with this change. Of course Manx Gas costs now reduce which CURA will see. The real counterparts are Treasury and Manx Gas, with MUA as the intermediary for cash flows; but I doubt MUA was involved very much in arrangements as lease money is received by Treasury and rebate is paid to gas customers by Manx Gas.

Around £700,000 each year, not £1.4 million. A Keys question which I asked to chair MUA a month or so ago is background and trigger for this rebate now. Council of Ministers made the decision to reduce the interest on the gas network extension lease from 6% per year to the normal consolidated loans fund rate of 2% per year in July 2020 and also agreed to backdate change to 1st January 2020.

The payment Manx Gas make to MUA to pass through to Treasury for use of the on-Island gas network has reduced from just over £1.2 million per year to just over £0.5 million per year, a reduction in the interest rate in the multi-year lease from 6% per year to 2% per year. This reduction is ongoing so will continue to benefit gas customers. This £58 rebate is a single fixed-amount rebate to all gas tariff customers for the calendar years 2020 and 2021, and was arranged as the Isle of Man Government's contribution to the rebate 'promised' by Manx Gas and Government if a voluntary gas agreement was put in place. It was not of course and we now have statutory economic regulation of gas. Effectively it is the total of two years of that interest reduction divided equally between gas tariff customers. The £58 will be a huge proportion of the gas bill of the smallest user, perhaps even a refund, but a tiny proportion of the largest tariff customer users' bills. Non-tariff customers do not get the rebate. That's my understanding, and I have played important role through motions and questions to get this rebate. Hope helpful?

The House was not blind; and I disagree that regulation should be political. I cite OECD principles. I think I link to some that are relevant The Governance of Regulators | READ online (oecd-ilibrary.org). and see below. Mrs Poole-Wilson explained it succinctly this October Tynwald during the debate before I summed up along similar lines, whilst making other points of course! "People today have rightly talked about the importance of acting in the best interests of our constituents and this Island. My view is that in having decided, this Hon. Court having previously decided, that it is the right move to move towards independent regulation of our gas supply, it would not be in the best interests of our constituents or this Island for this Hon. Court to today cast doubt on this model and I believe, even by voting for the adjournment, that we would be casting doubt. I also think there has been some very helpful input from Mr Speaker in his contribution that has made the point that we should not waste the opportunity of a good crisis and make sure that in the full implementation of our regulatory model we do address in the entirety making sure that that independent regulation works for us, works for our constituents and works for this Island. But I would be hesitant about disturbing the journey today by this Hon. Court apparently casting doubt on the route forward so far."

Thanks, and you are right about the Tynwald decision. CURA has a board. It was formerly the Communications Commission regulating telecoms etc. and became the Communications and Utilities Regulatory Authority in December 2020 assuming the responsibility to regulate gas earlier this year. I have provided a few links in a post above. Tynwald approves CURA board appointments on the proposal of Council of Ministers now. Mrs Corlett is proposed as the non-voting political board member. CURA has more power than OFT, although OFT had powers which it did not use after the 2015 agreement when it agreed not to use them. CURA is an economic regulator which means it regulates natural monopolies when there is no competition in the market etc. CURA will have more powers under proposed new legislation which will establish a new gas regulatory regime in 2022. Consultation about this has now closed and I await publication of response document. Will you phone in tomorrow?

Manx Gas has forward purchased around 1/3rd of its estimated exposure in coming months, and the actual amount covered will depend on consumption, price etc.. That provides room. Most importantly CURA fixes maximum prices on a 12 month basis so there is a lag. MHKs were led to believe that it is unlikely that the current regulations will be amended again for a few months. In UK - which has longer experience - fixes each six months. You are completely right that inflation is hitting those on lower incomes hardest and the price of energy will cause inflation to rise both directly and indirectly. Tynwald will consider Minister Ashford's proposals announced this October in December, we were told. I am very worried about the impact on the many thousands of people who do not get winter bonus.

Good spot about newspaper report of contributions in Tynwald debate. I prefer CURA looking at the detailed management and accounting information it has rather than political consideration on the floor of Tynwald. The better gas regulation arrangement will be in place within months. The only reason for an adjournment would have been to learn more of the Treasury social security winter bonus proposal as that was only announced during the debate. But that motion and vote was about the gas tariff regulations, not social security schemes or other measures.

Thanks. I did resign from OFT in 2015 over bad gas agreement, and did spend 8 years campaigning to get to the better regulatory regime we have now. I chaired the committee referenced in the 2019 BBC story you linked. Put in Thomas and gas into detailed business search in Hansard for written answers, questions, motions, statements, legislation changes etc.

No I represent Douglas Central in the House of Keys.

You are right. The 2015 "voluntary! gas agreement created an arrangement which was unfair to the gas consumer. That's why I resigned from OFT when it was signed by DED, OFT and Treasury, why I set up the review of regulation in 2016 when becoming a Minister, and moved successfully in Tynwald in June 2020 that Government give notice under the 2015 agreement thus beginning the move to economic regulation in law. I believe DoI had a power it could have used between 2015 and 2020, and OFT gained a power in 2020, but they did not try to use those powers.

I have added in a link to the December 2020 change Tynwald explanatory memorandum. Here it is as well 2017 01 03 - Government Business - Explanatory Memo Tynwald Members. The actual legislation is available on that order paper or in secondary legislation archives. The primary legislation used for this was Government Departments Act and the economic regulator itself was established in earlier telecommunications legislation which is being replaced by the Communications Act. is that right?

There was no enforceable agreed "rebate", although Treasury/CoMin/Tynwald can still fulfil its part of the promised rebate, and I will always believe there was a way to enforce the 2021 part of the rebate on Manx Gas with the political will, which wasn't there in Government in 2021. I used questions and speeches to suggest this several times earlier this year. The CURA tariff fixing regulations will be reset with lower limit if the commodity price falls. Manx Gas does purchase forward, and the voluntary agreement in place between 2015 and end 2020 only required it to notify OFT of tariff and standing charge changes.

Thanks Gladys. You make fair point. Hope this summary, which I think is accurate, is helpful. "The Communications and Utilities Regulatory Authority (CURA) is a Statutory Board of the Isle of Man Government and has responsibility for the licensing and regulation of telecommunications and broadcasting on the Isle of Man. The Authority also has certain responsibilities in relation to the gas market." The Authority’s remit was changed in 2020 via the Communications and Utilities Regulatory Authority Order 2020 and its name changed from the Communications Commission 2017 01 03 - Government Business - Explanatory Memo Tynwald Members. Then gas regulation was added following Tynwald's resolution in February 2021 as follows: "and requests the Communications and Utilities Regulatory Authority to introduce regulation to cover the tariffs for the public supply of gas for all customers pursuant to s 6 of the Gas Regulation (Amendment) Act 2021 by 30th April 2021." Section 6 of the Gas Regulation Act 1995 was amended to allow embryonic statutory regulation. This allowed the first statutory gas tariff fixing regulations to be made in May 2021 Gas (Tariff Fixing) Regulations 2021 (tynwald.org.im). These were amended this October. I believe CURA now has 5 non-executive board members who are Mrs Shirley Corlett (Chair), Mr Robert Frize, Mr Brian Parkin, Mr J P Donnio, Dr Juan Brown. See Senior Executive and Board Members (cura.im) CURA's gas document library is at www.cura.im/gas Gas (cura.im) .

That isn't fair. Manx Gas, CURA, OFT and others signpost to available support and assistance. Manx Gas has provided an annual grant to the Salvation Army for several years. I understand it has decided in the past not to publicize this.

The explanatory memo was published on the Tynwald order paper 2017 01 03 - Government Business - Explanatory Memo Tynwald Members. The Tynwald members briefing Powerpoint presentation from CURA was also circulated by some members to those who asked for it I think, with CURA permission. The Gas Regulation review report was published a couple of years ago 2019-02-15-chief-ministers-gas-regulatory-review-committee-report-final-approved-1822019.pdf (gov.im) which you might find helpful, particularly the NERA annex and Manx Gas's response which are both full of accounting and other analyses. CURA published its own notice information-notice-33-21_gas-regulation.pdf (cura.im) and is consulting on gas regulation. You might find a read of its roadmap document interesting 20210407_roadmap-to-regulation.pdf (cura.im). Thanks for comment and interest.