Dr. Paul McGowan:

I am chairman of the CRU, which is the economic regulator for the energy and public water sectors in Ireland and safety regulator in the energy sector. Our mission is to protect the public interest in water, energy and energy safety. My colleagues and I welcome the opportunity to meet with the committee to discuss our role with respect to the regulation of ESB Networks and, specifically, the CRU's role as regards ESB Networks' environmental obligations. I am joined by my colleagues, Ms Karen Trant, director, and Mr. Robert O’Rourke, regulatory manager within the CRU. I will now provide some background and context to the CRU's role with respect to this issue.

The CRU's role as the economic regulator of ESB Networks and other network companies is to ensure that customers and network users receive value for money while the network companies earn a fair return on their activities to make the necessary network investments. Those investments go towards the efficient operation, development and maintenance of the electricity networks. The mechanism by which the CRU sets revenue allowances for ESB Networks is through a five-year revenue allowance process. For ESB Networks this is called a price review. The process involves an assessment of ESB Networks' expenditure over the previous five years to assess it for efficiency and to ensure the outputs agreed were delivered by the network company. The current price review for electricity, referred to as PR4, runs from January 2016 to December 2020.

In PR3, which ran from 2011 to 2015, ESB Networks requested funding for the replacement of "110kV and 38kV Cables programme" and was allowed a sum of €20.5 million for this programme, which included replacement of high voltage, HV, fluid filled cables. Within the period ESB Networks spent approximately €6.2 million on the overall "110kV and 38kV Cables programme". The CRU notes that a significant level of PR3 capex or capital expenditure was deferred to PR4, primarily due to financial constraints in the PR3 period due to the economic downturn. In PR4, the current price control, ESB Networks requested approximately €28 million capex for the "110kV and 38kV Cables programme". The CRU allowed €25.8 million, which includes an efficiency challenge. As per normal practice, the CRU will review the implementation and efficiencies of this capital expenditure on an ex postbasis in 2020 within the PR5 revenue process. That process is just commencing now.

ESB Networks is the licensed distribution system operator and owner and, as such, takes independent decisions to prioritise infrastructure investment based on its statutory function to operate, maintain and develop the network.

Given the statutory role of the CRU, we do not become involved in the day-to-day decision-making or management of ESB Networks. Our role is to challenge ESB Networks to ensure efficient delivery of capital expenditure and ensure positive outcomes for consumers in continuity and quality of supply. The CRU measures and incentivises its performance on metrics such as customer minutes lost and customer interruptions. We do not specifically measure or incentivise ESB Networks performance in environmental outcomes.

The ESB Networks environmental reports provided by it to CRU, a copy of one of which we have provided to the committee, enable us to ensure that sufficient funding is allocated to ESB Networks to meet its environmental obligations. ESB Networks has obligations which sit outside of the remit of the CRU, such as occupational health and safety and environmental obligations. Our role is to ensure that ESB Networks has the necessary financial resources to meet those obligations. We do not have the legal vires to monitor or enforce obligations that fall under these areas.

My colleagues and I are happy to take the questions of members.