Mr. Garrett Blaney:

Deputy Moynihan's comments about prices and profits were echoed by other Deputies.

I will take the profits question first, if I may. I am unsure how useful it is to say this but in terms of legislation regardless of whether a company is public or private we cannot treat it any differently. I wish to be clear about that. This comes partially from the European Union framework. Under our statute we are bound to regulate the ESB or Bord Gáis in exactly the same way as we would any privately-owned company. It is simply the way the legislative framework works.

The profits earned by ESB include significant aspects that do not come from areas to do with regulation. Having said that, I accept that it is an important area. I put it to the Deputy that I would be horrified if the ESB had full-year profits of €500 million. I am not trying to justify the ESB or explain its actions. Ultimately, the committee may wish to discuss this with the ESB, but my understanding is that it expects its full-year profits be no greater than, and possibly less than, its half-year profits. While I accept that there has been an increase in profits in this half-year I do not expect it to be in any sense replicated in the second half of the year. I do not believe the €500 million profit will materialise. I can offer some reasons for this, if the Deputy so wishes. The ESB manages its own accounts but two reasons likely include the following. The first relates to the ESB Networks business, that is, the wires. It is a monopoly and most of the expenditure it will incur will be in the second part of the year. The company pays salaries throughout the year but most of its expenditure will arise in the second half of the year. It will have higher costs in the second half of the year but the same revenues. The ESB will not have profits in that area in the second half of the year.

The other area is generation. There are several large generation plants and, by their nature, they need to be refitted and production must stop for two or three weeks. My colleague, Garrett Blaney, once ran a plant. The ESB has informed me that it expects two of its largest stations, Moneypoint and Synergen, will basically be turned off for a time in the second half of the year. They will be refitted and something will be done to them - I am not precisely sure what. This happens to all generation firms. The ESB does not expect to make any profit from those stations. These were the reasons offered.

Let us consider past ESB profits. They have always tended to be higher in the first half of the year. The ESB has informed me that this will be the case particularly this year. I am keen to give a full answer to the Deputy and I will try to explain why I believe profits have increased in this half-year compared to the corresponding half-year last year because it may be interesting. One reason has to do with a financial swop. I wish I could explain all the details but I probably cannot. ESB bought the Northern Ireland network business one or two years ago. This was a major financial transaction of more than €1 billion and I understand there is an accounting profit included in the first half-year figures to do with a related financial transaction. I cannot explain any more of the detail although I wish I could. If necessary I will try to follow up if the Deputy seeks further information.

There are two other points and the second is especially interesting. ESB's power generation profits are earning more in the first half-year this year than last year. Why is that? There are two reasons. The first is interesting in the sense that coal prices have not risen but gas prices have. Coal is more in merit than gas. In other words, coal stations, effectively this amounts to the Moneypoint plant, with which the Deputy is probably familiar, is running a good deal more than it was last year and consequently it is earning more profits. Gas is earning less. We have seen that total generation profits throughout the entire sector are approximately the same but those relating to coal stations are higher and those relating to gas stations are lower. The ESB has almost all the coal on the island. There is a coal plant in the North of Ireland but it does not run very often. Moreover, ESB has less than half the gas and it has earned more relatively because of its coal while other generators have earned less.

The second issue is interesting because it shows the potential impact of European Union policy on Ireland and Irish prices. Some five years ago the price of carbon was included in all electricity generation in Europe. A specific decision was made at European Union level to reflect the fact that it is carbon-intensive to generate electricity. One of the purposes was to establish the true cost of generation using coal and gas. These are dirty fuels and they are harming the planet and the view was that this should be priced in to give producers an incentive to use them less and to use renewables more. The point of the exercise at European Union level was that the price of carbon would be included in the price of electricity. However, for reasons that are difficult to explain but involving political compromise in terms of getting the bargain through, all generators were given the cost of carbon free for five years. Basically this amounted to windfall profits for generators using carbon for a five-year period. They were getting 90% of the cost of carbon which they should have had to pay for free. This was a windfall profit that accrued to all generators throughout Europe. It will come to an end at the end of this year and at that point there will be no more windfall profits. Generators have benefited from these profits during the past five years, some more and some less. In France there has been little benefit because they do not use carbon; power generation is all nuclear fuelled while in Ireland there has been a great deal of benefit. To make the story even more complex, the profit ESB was earning five years ago was especially high because of carbon. The carbon price was higher five years ago that it is today. At the time this led to the Commission for Energy Regulation and the Department negotiating an agreement such that the ESB should give a rebate of €250 million in 2008 to all electricity consumers. That was when prices had gone particularly high.

This debate was taking place throughout Europe. After one or two years, the Government moved to introduce a carbon windfall tax. I am unsure if Deputies remember that but it went through the Oireachtas. It lasted for approximately 20 months. Another generator took a legal case against the State, arguing that this was against Europe and against various other things and that it wanted to pass on this cost. The Commission for Energy Regulation defended the case successfully in the High Court but, unfortunately, we lost by a three to two decision in the Supreme Court, for which I apologise, but such is the nature of decisions. As a result, the carbon windfall tax was ended in May of this year but it had only a few months to go in any case. It collected more than €140 million for the Exchequer during that period.

I realise I have been long winded but I am keen to give a full explanation. Last year the ESB did not have all these carbon windfall profits because it was paying tax but for a period during the first six months of this year it did. The ESB has informed me that this amounts to approximately €15 million or €20 million. Unfortunately the ESB will have these windfall profits for the remaining part of this year and, frankly, as the regulator, there is nothing we can do about that. We have no power to take those profits. However the windfall profits for the ESB and for all producers in Europe will end at the end of this year and that is a positive step.

I apologise for taking so long and I can discuss the profits issue further with the Deputy and, if he so wishes, provide any further information. We have done some comparison on ESB profits compared with other vertically integrated companies, that is, companies that have networks, generation businesses and supply businesses. In a study over a four or five-year period the average ESB profit in terms of various measures – I can provide any detail that the committee wishes - have been average or less than average compared with general profit throughout Europe despite carbon windfalls. I accept the point about profits. I would be horrified if profits were doubled but I do not believe they will be, and if they are I expect to be dragged back in here. In any case some of the profits during the recent period have been driven by the windfall profits and they will be ending at the end of the year.

Some of the Deputies have raised issues with regard to prices generally. This gives me the opportunity to discuss the vulnerable consumer issues raised by the Deputy. Prices have risen a good deal. I can provide details on this as required but the latest comparison relates to prices at the end of 2011. Our electricity prices are slightly higher than the average throughout Europe but not a great deal higher. They are approximately 105% where 100% is the average for residential customers. For some business customers the cost is slightly cheaper than the average. We face serious disadvantages compared to most of the rest of Europe. We are largely dependent on fossil fuels. The average European dependence on fossil fuels is 40% whereas ours is 80%. We have one of the most dispersed populations in Europe and only limited interconnection.

The Deputy said that prices were below the European average in the 1990s. I can provide two reasons for that. First, oil and gas were remarkably cheap at that time. Unfortunately, as the price of gas and oil increases we get clobbered while other countries do not. France has almost no dependence or only a 5% dependence on oil and gas while Sweden has 3% dependence. The increase has occurred during the past two years. About one half years ago we were below the European average generally for electricity prices. However, there has been a 50% rise in gas prices during this two year period and this has made it worse.

On gas prices and Deputy Moynihan's second point about abuse of the gas market in the UK, we buy roughly 95% of our gas from the UK. Most of it comes from the North Sea and some from other aspects. As stated by Dr. Motherway, we are price takers and have no ability to influence price. I was horrified by the allegations a week and a half ago to which I will try to give context. It is being alleged that the six big energy companies of gas in the UK, where the liquid market is very large, have been attempting to manipulate gas prices over time. Ironically, the incident identified is a point in time where it was argued they were manipulating the gas price below the true cost. People are asking if they manipulated gas prices below the true cost once, what is happening the remainder of the time and are gas prices higher than they should be? Unfortunately, to be blunt, we have no powers in this regard. We have been in touch with Ofgem, the UK regulator, which is investigating the matter. It is also being investigated by the Financial Services Authority in the UK. We are in touch with both organisations in this regard and hope it will be dealt with. Unfortunately though, as I said, we have no powers in this regard. While I do not like saying it, there is nothing we can do. We are price takers on gas. It relates back to our dependence on gas, which I will comment on again later.

I will try now to address some of Deputy Moynihan's questions in regard to vulnerable customers. Obviously, prices have increased considerably. On the question of whether customers are in difficulty the answers is "Yes, they are". We deal with many queries from customers in difficulty through our helpline. In terms of disconnection numbers, we regularly publish the statistics in this regard but will provide further figures if necessary. From my recollection, the number of disconnections has increased significantly over the past two years. They peaked in the summer of 2010. In the first quarter of this year almost 5,000 electricity and 1,600 gas customers were disconnected, which is a lot of disconnections. We will publish figures next week which indicate the number of disconnections reduced in the second quarter.

I will now speak about some of the protections we have put in place for customers in difficulty and in regard to what we believe is happening in terms of the people being worst hit. We interact fairly regularly with the Society of St. Vincent de Paul and the Money Advice and Budgeting Service, who work with people experiencing difficulty paying their energy bills. I would say - I am not trying to be controversial about this - the biggest difficulties are faced by families with children. The majority of senior citizens' energy bills are paid by the Department of Social Protection by way of the free electricity allowance. By and large, it is families with children rather than senior citizens who are experiencing difficulty paying their energy bills. The committee might like to engage with the Society of St. Vincent de Paul on this issue because it is not one on which we have direct empirical information. There are various protections in place.

We have no role or ability to bring price below cost. As a regulator we set the price at an efficient level of cost. While I wish we had power over fossil fuels, we do not. As I stated, we are price takers. I am confident that regardless of how unpleasant the price increases have been - I know that they are extremely unpleasant - given our dependence on fossil fuels they represent an efficient cost. I will discuss that further if the committee wishes. I know that fuel poverty is a major issue for some people. What we have tried to do is to give people further options and information to try to prevent disconnection. The rules of disconnection are that no senior citizen can be disconnected during the winter months, although as I said earlier - I am not trying to be hard on them - they are often not the worst hit, and a person dependent on electricity for life saving equipment, which is a small fraction of people, can never be disconnected. Beyond this, disconnections have occurred. We have put in place a set of clear procedures that must be followed by an energy company wishing to disconnect. They must have issued a specified number of letters and had various types of contact with the customer. They must give the person every opportunity to pay, in particular he or she must be offered a prepayment plan. The customer must also be offered a plan to get him or her out of debt over time, with no requirement to pay the full amount up front but over an extended period. These are all actions that must be taken by the energy companies. We have and continue to audit this process.

Also, before disconnection, the customer must be offered a prepayment meter. This involves a visit from an employee of the energy company who will remove the existing meter and replace it with another one. While this may seem like something out of the 1950s and 1960s, the Society of St. Vincent de Paul and the Money Advice and Budgeting Service say it is a genuinely valuable tool in helping people to manage their bills. It stops that running up huge amounts of debt. As such, prepayment meters are a reasonably good idea. Many people have had prepayment meters installed. They were used in respect of gas prior to their use in respect of electricity. Approximately 30,000 gas and 13,000 electricity meters have been installed. We have found - we have no empirical way of doing this but I base my information on what we learn from talking to people, the supply companies and Society of St. Vincent de Paul - that one of the biggest problems is the reluctance of people to accept installation of a meter. Some people will accept disconnection rather than have a meter installed. People seem to think - this is a personal opinion - that having a meter installed says something about them. The Society of St. Vincent de Paul and Money Advice and Budgeting Service are working to make them more acceptable. Anecdotal evidence shows that only one in four of people offered prepayment meters accepted them, with the remainder opting for disconnection. Anything that can be done to make meters more acceptable would be welcomed. They are a positive step in trying to assist people with their bills. I can provide any further detail on this issue, as necessary.

Deputy Ellis spoke about privatisation of State companies. Much of this is as a result of a European framework. For good or ill, the European framework is that energy should not be directly regulated and there should be greater competition. The promotion of competition is a major statutory objective given to the Commission for Energy Regulation, CER. We cannot ignore that and must take it seriously. We are not permitted to distinguish between State and non-State companies. Were the statute in this regard changed, Europe would have a serious problem. Personally, I believe that privatising the networks would not be a good idea. However, I do not believe there are any plans to do so. That is all I can say on that issue.

On smart metering, they will not be a panacea and will not be perfect. Nonetheless, we have engaged in a fairly extensive trial of them which suggests that consumers while initially resistant of them have accepted them because they enabled them have more power over their electricity usage. Most important, the ESRI engaged in a lengthy cost-benefit analysis which indicated there will be benefits, although those benefits will not be substantial. I am not talking about the price of electricity falling by 10% or 15% but there will be benefits. We would expect electricity prices to be on average lower because of smart metering. Also, consumers would be more empowered and interested.

Mr. McGowan will comment later on safety issues. While the idea behind export is a good one, a key factor is that our export of renewable energy should not result in an increase in prices here. In terms of what is going on, Britain has its own energy targets. It will have to pay a substantial amount to achieve them, in particular using the offshore wind in the North Sea, which is very expensive. A number of private firms believe they can produce the energy more cheaply here and that they should do so and then sell it to others who will then achieve their targets more cheaply. To me, that appears very sensible. Without being controversial, coalition policy on renewables in Britain is slightly difficult but they are committed to reaching their targets. Work in this area is likely to be privately funded. Spirit of Ireland and a number of other companies believe they can do this. This means generation would be undertaken here. Discussions on the issue are taking place with people in Britain. It is possible that Britain might pay for the construction of an interconnector. In some sense, this is a policy matter rather than one for the Commission for Energy Regulation. My understanding is that conversations on the issue are going on and that a memorandum of understanding may be signed before the end of the year. As to how this will play out, I do not know. It could be a good outcome. While it will obviously be good for Ireland Inc if this happened our main focus will be to ensure that it does not lead to an increase in electricity prices in Ireland.

I will now hand over to Mr. McGowan who will address the safety issues.