Oireachtas Joint and Select Committees
Thursday, 17 January 2013
Public Accounts Committee
Commission for Aviation Regulation - Financial Statement 2011
Commission for Communications Regulation - Financial Statement 2011
Commission for Energy Regulation - Financial Statement 2011
10:15 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We are now dealing with No. 8, financial statements for 2011 for the Commission for Aviation Regulation, the Commission for Communications Regulation, and the Commission for Energy Regulation. Before we begin I remind members, witnesses and those in the Public Gallery to turn off their mobile phones because the interference from the phones affects the sound quality of the transmission of the meeting.
I wish to advise witnesses that they are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given. They are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the Houses, or an official by name or in such a way as to make him or her identifiable.
Members are reminded of the provision within Standing Order 163 that the committee shall also refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy.
I welcome Mr. Cathal Guiomard, commissioner for aviation regulation, and Mr. Alex Chisholm, chairman of the Commission for Communications Regulation. I ask Mr. Chisholm to introduce his colleague.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I ask Mr. Dermot Nolan, chairman of the Commission for Energy Regulation, to introduce his colleague.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I call on Mr. Andy Harkness, secretary and director of audit at the Office of the Comptroller and Auditor General, to introduce the accounts.
Mr. Andy Harkness:
The quality of economic infrastructure is a strong determinant of the level of economic productivity growth. Achieving the right governance structure, including when and how to regulate, is central to the performance of each regulated sector. The financial statements before the committee today are those of the regulators for the aviation, communications and energy sectors, which affect many key aspects of the economy.
Sector governance arrangements need to be tailored to market conditions. Where free market conditions exist, private contracts may often be sufficient to protect both private and public interests, subject to oversight by competition authorities and safety and environmental inspectors. Where markets are weak, or fail in one or more key areas, it may be necessary and cost-effective to implement a system of economic regulation. In many cases, this is done through an independent regulator or commission with a range of functions or powers. Depending on the nature of the market, these may include powers to intervene through control over access to the market, directed divestment of assets to reduce market concentration, directed or controlled investments in infrastructure, price control for supplies or services generally aimed at ensuring sustainable development of the sector while avoiding excess profit taking, and monitoring of service standards and performance by market participants, including service access provision for social groups and households in different circumstances.
Because market and economic conditions are constantly changing, regulators should have the capacity to be flexible and responsive to the appropriate degree. There needs to be confidence that regulation can respond to external shocks. Transparency about the performance of regulators is a key element in underpinning that confidence.
Most regulators are funded through the imposition of levies on market participants, who may have an opportunity from time to time to comment on the level of charges imposed. A key risk to be avoided is a situation where a regulator loses its independence and becomes captured by market participants.
I will now briefly outline the key financial results for 2011 for each of the regulators appearing as witnesses today. The Commission for Aviation Regulation is funded through levies on aviation undertakings and licence fees from the travel industry. These generated income of €2.7 million in 2011. The main elements of the commission’s expenditure of €2.4 million comprised payroll and pension costs of €1.4 million, with schedules facilitation and consultancies costing around €450,000. In accordance with the legislation establishing the commission, any surplus of income over expenditure arising in a financial year is taken into account in setting future levies.
The Commission for Communications Regulation generated €54 million in income comprising €10.9 million from levies on certain providers of electronic communications, postal services and premium rate services to fund the cost of regulation, and €42.6 million from licensing fees for wireless telegraphy, together with licence income arising from the right to use radio spectrum. The commission’s operating costs amounted to €22.3 million with staff and pension costs accounting for nearly half of that total. Some €6.4 million was spent on technical advice and legal expenses. The excess of income over the cost of operations is payable - under the direction of the Minister for Communications, Energy and Natural Resources - to the Exchequer. This amounted to €30.8 million for 2011.
The Commission for Energy Regulation finances the cost of its regulation of the electricity and gas sectors through levies on energy undertakings. In 2011, the income from these levies amounted to €9 million. The commission was assigned functions under the Petroleum (Exploration and Extraction) Safety Act 2010 with regard to the regulation of petroleum safety activities and has financed the costs incurred to the end of 2011 of €1.6 million through a short-term commercial loan. It intends to recover these costs through the imposition of a levy. Over half of the commission’s expenditure in 2011 of €9.8 million was made up of payroll and pension costs. Some €2.3 million was spent on legal, professional and consultancy fees. The commission is required under legislation to apply any surplus of income over expenditure in setting the levy.
The financial statements of each of the three regulators received an unqualified audit opinion in respect of the 2011 financial year.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will now take the opening statements from the aviation regulator, followed by ComReg, and then from the Commission for Energy Regulation. We will deal with the lead questioners who will each concentrate on one of the utility regulators. Thereafter, we will leave it open to members to raise issues as they wish. I ask Mr. Cathal Guiomard, commissioner for aviation regulation, to make his opening statement.
Mr. Cathal Guiomard:
The Commission for Aviation Regulation welcomes the opportunity to talk to the Committee of Public Accounts today. We have provided a short background note on the work of the office and the challenges ahead. In this opening statement I will limit myself to three points: the work that the CAR carries out, the expenditures we have incurred for the purpose of carrying out that work over the last ten years, and how we measure our own performance.
The roles we carry out fall under four groups. We set a ceiling on charges at Dublin Airport for aeronautical charges the airlines pay to the DAA. Likewise, we set a ceiling on air traffic control charges the Irish Aviation Authority sets for Dublin, Cork and Shannon airports, which are also paid by the airlines. We enforce certain air passenger rights under EU laws. All of our functions, bar one, fall under EU legislation. In 2012, we received about 3,000 inquiries under this heading. About 400 of those were matters for ourselves to investigate. We license three parts of the aviation industry: airlines, travel agents and tour operators, and a class of firm at airports known as ground handlers. There are 62 airline and ground-handling licences in force at the moment, and about 280 travel trade licences. There is a more technical role, the last one, whereby under EU law we must choose the runway slot scheduling regime at Dublin Airport and, if required, select a professional services firm to do the actual slot allocation.
That brings me to a distinction we make in our costs, which are presented in the next slide. Between core and non-core costs, we class as core costs those which are substantially under our own control. Non-core costs are those which are essentially driven by the decisions of others. Those include scheduling, legal expenses and some of the administrative costs that arise when a travel agency or tour operator closes, and we refund customers or, if required, repatriate customers who are abroad. These expenditures are paid for by a levy on the industry.
I became commissioner in mid-2006 and the cost of the office has not increased since that date despite the boom time conditions that were in force in the early years. Since the downturn began, the costs of the office have been cut substantially. In 2012, they were one third below the costs of 2006, and our staffing was close to one fifth below the level of 2006. All of these figures are audited accounting information, except for 2012 which are our own estimates. They will fall to be audited by the Office of the Comptroller and Auditor General in the course of this year, beginning shortly.
The final slide deals with performance. We measure and publish a total of 19 indicators of our performance. These were produced as a consequence of a Government statement in 2009 dealing with economic regulation. We developed those 19 measures in 2010 covering licensing, consumer protection, the travel industry and trends and costs of the office. We published them with the 2011 report and will continue to publish them. A selection are presented in the small table in the slide.
There is more information available about the office from our corporate website. We also have a dedicated passenger rights website, in a more user-friendly form, to inform members of the public as to what their entitlements are in the event of a flight being cancelled or delayed. Moreover, we would be happy to respond to any questions the Chairman or members may have.
10:25 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I invite Mr. Alex Chisholm, chairperson of the Commission for Communications Regulation, to make his opening presentation.
Mr. Alex Chisholm:
I thank the Chair and members for the opportunity to appear before the committee today to discuss our accounts and activities. As chairperson, together with my fellow commissioner, Mr. Kevin O'Brien, I will be very happy to answer any questions members may have in the course of the morning session. I will provide members with a brief overview of our work and in particular on key financial and governance aspects.
The Commission for Communications Regulation, known as ComReg, is the national regulatory authority for the electronic, communications and postal sectors. We were established in 2002, taking over the functions of the Office of the Director of Telecommunications Regulation set up in 1997. ComReg also manages Ireland's radio frequency spectrum and the national numbering resource and regulates the emergency call-answering service, among other activities. Our overall responsibilities are to promote competition, protect consumers and encourage innovation. Members may recall that ComReg recently held a successful auction of radio spectrum for next-generation mobile telephone licences. This will raise €854 million for the Exchequer between now and 2030 and the auction also will allow mobile companies to roll out high-speed mobile communication services from this year. I also wish to inform members, and I am aware the Chairman tabled a parliamentary question on this subject before Christmas, that €450 million of these auction fees were forwarded to the Exchequer on 14 December last year.
In terms of our overall mission, the successful spectrum project illustrates in part the kind of work in which ComReg is engaged daily. Our overarching aim is to facilitate the development of a competitive communications sector in Ireland that attracts investment, encourages innovation and empowers consumers to choose and use communications services with confidence. To do this, we set regulatory frameworks and we undertake regulatory projects, which often are lengthy and complex, as well as making regulatory interventions, for example, to enforce rules. I will outline our four principal goals, as set out in our strategy statement for the period 2012 to 2014. First, our aim is to safeguard the interests of the consumers of communications services by protecting and empowering them. Second, we apply effective and proportionate regulation to facilitate dynamic and sustainable competition. Third, we provide regulatory certainty that facilitates innovation and supports investment in communications infrastructure and services. Fourth, we aim to be a highly effective and innovative organisation ourselves and to provide a centre of excellence that supports and enables all the people who work in our organisation to achieve the objectives set.
Turning now to funding and operations, ComReg does not receive any funding from the State. We receive, as members heard from the Comptroller and Auditor General's introduction, levy income from the electronic, communications, postal and premium rate services industries that we regulate and, in addition, we receive licensees and spectrum access fees from firms and individuals, mainly firms, using radio spectrum licensed under the Wireless Telegraphy Acts. Income in excess of our costs is treated as surplus and handed over to the Exchequer. Since the establishment of the organisation in 1997, we have passed over more than €820 million in surplus to the Exchequer. At present, ComReg has a staff of 107 persons. This is comprised mainly of professionals, engineers, accountants, legal staff, economists and analysts who have the skills and qualifications needed to undertake economic regulation. Where necessary, we complement the efforts of our own staff with specialist technical advice from suitable external agencies. Staff costs, technical advice and outsourced services make up the majority of our cost base, which we have been able to reduce in each of the last two years.
Our income for the year to 30 June 2012 was €57 million, while expenditure was €22 million, leaving a surplus of €35 million. Members have just heard the figures for the previous year and the surplus in that year was approximately €30 million. Consequently, our income continues to grow and our expenditure to fall and that obviously expands the surplus as a consequence. I should mention that the figures for 2012 are subject to ongoing audit at this time by the Comptroller and Auditor General. In addition, I should highlight that this improvement in income and reduction in expenditure is for the second year running.
Our costs are kept under continual review to ensure we are achieving value for money. We have achieved savings through initiatives and plans that have been identified in accordance with ComReg's Croke Park agreement action plan. Based on this and on audited figures for the year to 30 June 2012, we reduced our total costs, excluding legal costs, by 6% and this represents a decrease of approximately 14% from the comparable figure in 2008. We continually review and update as necessary policies and procedures in respect of expenditure, procurement and risk management.
In respect of governance, it is ComReg's policy to comply with the code of practice for governance of State bodies and it reports on its compliance with relevant sections of the code either by annual reports or separately by a letter to the Minister for Communications, Energy and Natural Resources. Moreover, we have an extensive internal audit programme in place. It is overseen by the audit committee, which has a majority of external members and which met four times during 2012. Accountability and transparency obviously are central to the work of economic regulators, as again we heard in the introduction. We are keenly aware of this and we make sure that we fully comply with the extensive accountability provisions in the Communications Regulation Acts 2002 to 2011, which lay down specific requirements, for example, to conduct open consultations prior to making decisions, to report to Ministers and the Oireachtas on various matters and to bring certain other matters before the courts.
In 2012, just to highlight a couple of activities, overall it was a very productive year for our agency and members may have seen our written submission, which included a review of that year. I will highlight some of the projects we have completed which have had significant economic value, such as the multiband spectrum auction, which I mentioned earlier. However, of almost equal importance, I bring to members' attention the new regulatory frameworks we have put in place for next generation broadband, which is the basis on which companies are investing extensively at present to improve the level of broadband service here. In addition, I refer to the pricing of bundles and the pricing of both fixed and mobile termination rates, which again make a considerable impact on the market and will collectively, in our view, help to reshape the market towards an even more competitive and high performance future. Last year was also the year in which ComReg brought into force a new code of conduct for providers of premium rate services to give more protection to users of such services, including for the so-called double opt-in, which has been addressing an area of significant concern.
In 2013, obviously some of these activities will continue but we also have some new ones. We must make a firm decision in respect of spectrum trading and we must introduce a price control for universal postal services over the next five years. We must develop further our plans for various new spectrum assignments, including valuable bands, such as the 2.6 GHz band, and we have a number of consumer initiatives in respect of broadband speeds. As ever, we continue to refine and, importantly, to enforce existing regulations. I thank the committee for giving ComReg the opportunity to outline its activities and I am happy to answer any questions members may have.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I invite Mr. Dermot Nolan, chairperson of the Commission for Energy Regulation, to make his opening statement.
Mr. Dermot Nolan:
I thank the Chairman and members for the invitation to be present today. I will give a brief overview on the Commission for Energy Regulation, CER, and will then deal with any questions members might wish to ask. The CER is Ireland's independent national energy regulator. It has broad functions in economic energy issues, in safety issues, as well as in customer protection issues. These comprise its current set of activities. These activities have changed over the years. When the CER was set up in 1999, it originally only had responsibilities for economic regulation of the electricity area. A few years later, it was given responsibilities in respect of gas regulation and in recent years, it has been given enhanced safety responsibilities in the energy area as well, to the point where at present, approximately a quarter to a third of our staff are generally working in safety areas. In that sense, we have changed and have been given further responsibilities over the last few years. Obviously, further details may be found on our website, if anyone wishes to examine that. The Government has made known its intention, I believe the draft Bill has recently been published, to give the CER, subject to Oireachtas approval, responsibilities for water regulation from approximately 2014 onwards. That will further change the organisation and give it further responsibilities. At present the CER has two commissioners, namely, myself and my colleague, Mr. Garrett Blaney.
I will turn briefly to key CER activities and will go through them relatively quickly. The first is what we call the wholesale market, which essentially is the electricity generation market.
That is jointly regulated. We regulate it in an entity known as the single electricity market committee. We do that jointly with Northern Ireland. It is an all-island initiative. We have joint functions with an independent member as well in case we disagree. The committee regulates the generation sector for the entire island.
We then regulate the electricity and gas networks. They are monopoly networks perhaps similar enough to aviation. We do price reviews every five years where we directly regulate the sectors. We investigate how efficient they are, make sure they are efficient and set the level of prices they can charge for the next five years. That is pure monopoly regulation.
We oversee the Irish smart metering programme as well and it is planned to put energy meters in every house and business in the country in the coming years. I hope that will stimulate innovation in and of itself, apart from giving considerable consumer benefits.
In terms of the size of the sector; the single electricity market and network sector are large in economic extent and vital to Ireland’s electricity security with an annual turnover in electricity of more than €3 billion. We also monitor energy retail markets, engage in customer protection measures and we resolve customer complaints on the energy sector that come to the CER.
I spoke earlier about safety regulation. That role has been greatly enhanced in recent years. In particular, we regulate general gas safety in gas undertakings and businesses. We also regulate gas and liquid petroleum gas installers – people who put gas into houses and businesses - and electrical contractors as well. In recent years we were given a new function in upstream petroleum safety, which makes the CER responsible for regulating safety in the offshore petroleum sector, including Kinsale Energy and the potential Corrib field. It is envisaged that we will have a function for water regulation in the future as well.
In terms of our financial data, we have included details on expenditure in recent years. It peaked around 2006 and 2007 when the single electricity market was being set up and it has fallen somewhat since then. As is the case with the other two regulators, we levy industry every year in December. We have an arrangement whereby we levy and then spend and if there is a shortfall, we levy less the next year, as is set out specifically in legislation. We must apportion the levy to specific areas. We have divided it into electricity, gas and, in recent years, petroleum safety. The increase in petroleum safety has driven the increase in 2012, as set out in the unaudited accounts, plus legal costs. As is clear to the committee, there will be greater expenditure in the next two to three years if we take on water functions in addition to the safety functions. That is all I have to say for the moment but I am happy to take any questions the committee might have.
10:35 am
Derek Nolan (Galway West, Labour)
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I wish to question Mr. Guiomard. I wish to return to the key performance indicators outlined in his opening statement. How would he rate them himself? I understand that it was a new process to introduce them. The Department asked for them in 2009 and Mr. Guiomard implemented them. The performance indicators on consumer protection do not seem particularly impressive.
Mr. Cathal Guiomard:
Certainly the performance is better on the licensing side than on the consumer protection side. The reason for that is that in 2010 there was both the volcanic ash episode and extremely bad weather around Christmas time which resulted in a large spike in the number of complaints we received to be dealt with. We had a constant staffing complement to deal with that and consequently there were longer delays than prior to that or since then.
Derek Nolan (Galway West, Labour)
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Are these figures not for 2011?
Derek Nolan (Galway West, Labour)
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How many licences were issued in 2011?
Derek Nolan (Galway West, Labour)
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It was 65. One is talking about single digits that were not done within the key performance indicator, KPI, guidelines. If one takes it that 80% to 85% of applications were dealt with, that means approximately 12 were not done on time.
Derek Nolan (Galway West, Labour)
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Key performance indicators by their nature are kept on a monthly basis in order that one can track how one is doing. Is Mr. Guiomard saying that the figures to hand for today or last December are better than the figures he showed us today?
Derek Nolan (Galway West, Labour)
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Could he give me a flavour of what they are?
Derek Nolan (Galway West, Labour)
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Is there a significant difference between 2011 and 2012?
Derek Nolan (Galway West, Labour)
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It appears that 50% of complaints were not being dealt with within seven months. It is unsatisfactory for a person to have to wait seven months and not to have had a response to a complaint. Does the commission have the resources to manage the complaints?
Derek Nolan (Galway West, Labour)
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If 400 complaints was a normal amount in a year, what number was there at the peak that caused such difficulty?
Mr. Cathal Guiomard:
We have figures in the annual report. In the year we are talking about it is a subset of the inquiries we get that are matters for us to investigate. There are also other inquiries that we get from the public on aviation related matters or passenger complaints that we might have to direct to a foreign enforcement body or a different body altogether. The volcanic ash and bad weather affected not so much the specific complaints we had to investigate but resulted in a large increase in other related telephone inquiries.
Derek Nolan (Galway West, Labour)
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Was it a case of non-relevant complaints?
Derek Nolan (Galway West, Labour)
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What were the comparable figures? I am just trying to get an idea of why the figures were so poor in 2011. Could Mr. Guiomard give a flavour of what the exceptional figure was?
Derek Nolan (Galway West, Labour)
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Consumer regulation is one of the commission’s three major functions.
Derek Nolan (Galway West, Labour)
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I am asking for figures that I expect the Commission for Aviation Regulation would know when coming before the committee, namely, the top line figures for the past three years. I would appreciate if Mr. Guiomard would provide the information to the committee.
Kieran O'Donnell (Limerick City, Fine Gael)
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The commission’s levy income and licence fee income has dropped since 2009 when it was €4.2 million. It reduced to €2.5 million in 2011. What is the combination of reasons for the decline?
Derek Nolan (Galway West, Labour)
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Was that a deliberate strategy to reduce the activity of the office?
Derek Nolan (Galway West, Labour)
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Why was the decision made?
Derek Nolan (Galway West, Labour)
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What I am asking is whether the reduced levy is related to the decline in activity in the aviation sector which took place over that period.
Mr. Cathal Guiomard:
Some of our work is cyclical. The largest single project on which we are engaged over a five-year horizon is a review of charges at Dublin Airport. The last time we had such work to do was in 2009 and it will recur in 2014. Certainly, there are resourcing implications for the office reflective of that.
Derek Nolan (Galway West, Labour)
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Will we see an increase in levy income in order for the commission to cover its costs for 2014?
Mr. Cathal Guiomard:
I would expect the costs of the office in 2014 to be higher than they are currently, perhaps not a great deal but certainly higher by some hundreds of thousands of euro. What we have done is sought to have a small buffer which would be capable of financing extra costs of that nature or legal actions which might be costly without requiring an immediate substantial increase in the levy given current economic conditions.
Derek Nolan (Galway West, Labour)
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That was my question. Does Mr. Guiomard not anticipate significantly increasing the commission’s levy income to cover the 2014 review of charges?
10:45 am
Derek Nolan (Galway West, Labour)
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Is the commission's licence fee decrease also due to its reduction in fees as opposed to a fall off in passenger numbers?
Derek Nolan (Galway West, Labour)
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Is that the same as the levy income? Has the fee not changed?
Derek Nolan (Galway West, Labour)
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Explain to me how the levy is collected.
Derek Nolan (Galway West, Labour)
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Has the levy rate changed in the past number of years?
Derek Nolan (Galway West, Labour)
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I understand that. The levy is per passenger. Has the amount charged per passenger changed? I accept the number of passengers has fallen, and therefore income has fallen, but has the amount charged per passenger increased or decreased in the period of the reduction?
Derek Nolan (Galway West, Labour)
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Yes, the amount has reduced.
Derek Nolan (Galway West, Labour)
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That is what I wanted to find out.
Salaries have also dramatically decreased, from €1.76 million to €1.3 million. That was achieved through a reduced head count. Is that correct?
Mr. Cathal Guiomard:
It was achieved through a reduced head count and compositional effects. An unchanged head count might involve a substitution of a person paid a relatively high salary with a person paid less. Changes in the professional composition of the staff can change the average even if the numbers do not change. There has been a decline in numbers and a decline in the average cots.
Derek Nolan (Galway West, Labour)
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Was that a deliberate strategy or was it is a result of people leaving? Were people let go with packages?
Mr. Cathal Guiomard:
Our ceiling was reduced from 22 to 18 people. For the most part, we sought to preserve our capacity to do the work of the office by being selective in retaining the people who were absolutely essential for the work of the office and, consequently, even though numbers are well down, we are continuing to do the work.
Derek Nolan (Galway West, Labour)
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How was the reduction from 22 to 18 achieved? Were there redundancies or were temporary contracts ended?
Mr. Cathal Guiomard:
It involved some non-renewal of fixed term contracts but it also involved people who were on secondment from the Department of Transport, Tourism and Sport being returned to the Civil Service.
Derek Nolan (Galway West, Labour)
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Consultancy costs account for a lot of expenditure. For an organisation that is very specialised, I imagine those working for the commission would be very focused on aviation regulation but a lot of money is being spent on consultancy. Can the commissioner explain the €484,000 spent on consultancy costs in 2009?
Mr. Cathal Guiomard:
Currently, the lion's share of consultancy costs are legal fees. We have had eight judicial reviews of decisions of the office in the past ten years. We have defended the office's decisions successfully in seven of those eight cases. Substantial legal costs arose from that, most to the greatest extent in the early years of the office, as would have been seen on the chart distinguishing core and non-core costs. There are fewer legal actions now with less in costs arising as a result. That accounts for the bulk of the money. There were some economic consultancy costs in years where we were carrying out price reviews and we needed engineering advice that was not available to us within the office. The classification also includes slot scheduling. We pay a professional services firm to do the slot scheduling role at Dublin Airport.
Derek Nolan (Galway West, Labour)
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Is that the Dublin Airport schedules' facilitation heading?
Derek Nolan (Galway West, Labour)
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That is separate in my table. I am looking at the figure for 2009, which states non-core costs were less in that year than in 2008, 2007 or 2006. They are quite low as a proportion of other costs. Is the commission confident then that the €500,000 was mainly legal costs?
Derek Nolan (Galway West, Labour)
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What would be the nature of the economic consultancy?
Derek Nolan (Galway West, Labour)
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In 2011, consultancy costs amounted to €173,000. Were those legal costs?
Derek Nolan (Galway West, Labour)
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In 2010, bonuses were paid to eight staff, totalling €16,000. Why were those bonuses paid in 2010?
Mr. Cathal Guiomard:
We moved three of the administrative functions of the office, passenger complaints, airline licensing and travel trade licensing, to the Internet in recent years. Half of the staff of the office were involved in the work with the IT firm to allow what is now possible, that the public or licence applicants can make an on-line application to the office. That is a large part of why we can continue to do the work of the office with much lower staffing levels. A substantial amount of work was involved for the staff and to reflect that I made a performance-related payment to the people who had been involved at the end of the entire project. That accounts for the expenditure the Deputy mentioned.
Derek Nolan (Galway West, Labour)
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Was work done that was not remunerated by overtime and so on?
Derek Nolan (Galway West, Labour)
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Were hours worked that were unremunerated? Dealing with change management within an organisation is part of the commissioner's job. It is not something he gets bonuses for, especially in 2010, a time when every State agency and the entire public service were undergoing pay cuts and freezes. For a public organisation to pay a bonus that year seems very out of kilter.
Mr. Cathal Guiomard:
The work on those IT projects had occurred over a number of years so the timing, I must concede, was not great, given economic conditions at the time. I had waited until the end of the project to make the payment and 2010 was when that happened. Pointing to the chart, despite those payments, we have nonetheless managed to bring about a substantial reduction in the total expenditure of the office, which is the main point of interest, rather than individual budget lines.
Derek Nolan (Galway West, Labour)
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Sometimes we must go into individual budget lines.
Derek Nolan (Galway West, Labour)
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Have bonuses been paid since then?
Derek Nolan (Galway West, Labour)
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There is an issue with pensions. The commission has been waiting since 2002 for the Department of Finance to approve a pension scheme. Has that been resolved?
Derek Nolan (Galway West, Labour)
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Is there a reason it has taken ten years?
Derek Nolan (Galway West, Labour)
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Has there been an issue with the Department of Finance? Has the commission communicated with the Department about this?
Derek Nolan (Galway West, Labour)
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No idea?
Derek Nolan (Galway West, Labour)
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Surely the commissioner should be engaged in discussions with the Department of Finance to ask what is causing the delay as opposed to not getting any communication from it.
Mr. Cathal Guiomard:
We have been in regular contact. We have pressed the Department hard to find out what was required from our side to conclude on this.
For the best part of a decade, the Department has received everything it has sought from us. If it wants something further, we will provide it. I am at a loss to know why we have not been able to conclude on the issue but it is not-----
10:55 am
Derek Nolan (Galway West, Labour)
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Has the Commission for Aviation Regulation asked the Department the reason?
Derek Nolan (Galway West, Labour)
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Given that this relates to the pensions of the Commissioner for Aviation Regulation and his staff, has the Department not been asked the reason for the delay of ten years? The position is highly unsatisfactory for the commission and its staff.
Derek Nolan (Galway West, Labour)
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The Department has not told Mr. Guiomard what is causing the delay.
Derek Nolan (Galway West, Labour)
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Perhaps Mr. Guiomard will write to the Department stating that the Committee of Public Accounts is interested to ascertain the reason it is taking so long to finalise the pension arrangements.
Derek Nolan (Galway West, Labour)
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The cash balance of the commission is approximately €1.8 million. Is this the buffer to which Mr. Guiomard referred when he spoke of trying to create a buffer rather than increasing levies?
Mr. Cathal Guiomard:
For a number of years, our expenditure has been less than our income and our cash balance has accumulated. We are reducing future levies accordingly to reflect this position, while still keeping a buffer to avoid a situation where we would have to increase the levy sharply under current economic conditions if there was an increase in our costs.
Derek Nolan (Galway West, Labour)
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How would Mr. Guiomard describe the commission's relationship with the airlines and Dublin Airport Authority?
Derek Nolan (Galway West, Labour)
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I asked the question based not on reports in the press but correspondence from the commission, which does not reflect Mr. Guiomard's statement. While Mr. Guiomard certainly shows professionalism, the wording of the responses one receives from the commission show a certain lack of professionalism. This seems to stem from the 2009 price review. I will not question that process given that it included an appeal and a judicial review. However, the argument made by the airlines, especially Ryanair, is that when passenger numbers at Dublin Airport were declining significantly - ultimately by approximately 25% - the decision to increase charges disincentivised use of the airport and further compounded the decline in passenger numbers. Why was the decision taken to increase charges?
Mr. Cathal Guiomard:
The Dublin Airport Authority published architectural plans and business plans for a second terminal on the October bank holiday weekend of 2006. The Commission for Aviation Regulation carried out a study of the T2 project which concluded in June 2007. We were keen to have an early investigation of the matter because the T2 project, in terms of its costs and the size of the building, was very substantial. We were also very mindful that commitments would be made once the building had been completed that would have to be funded over subsequent decades and the implications for airport charges could be considerable. We sought to establish that the users of the airport wished to have this facility built and that the construction costs were reasonable. We published a report on our website in June 2007 containing considerable analysis related to that matter. We expressed concerns from as early as January 2007 that the building was very large, even relative to the passenger traffic forecasts the Dublin Airport Authority published to accompany the plan. These have turned out to be too ambitious and, even relative to that much higher level of traffic that was forecast, the building was still large.
The commission engaged with the industry, including Aer Lingus, and the Dublin Airport Authority. There was also a Government direction at the time. All of them were supportive of the building of T2 and I have to say that Ryanair's position, although it did not wish the T2 that was subsequently built to proceed, was supportive of a second terminal being built. It, too, believed, that traffic would warrant additional capacity at the airport. As it has turned out, the increase in passenger traffic that was envisaged has not materialised to date and passenger numbers have declined substantially. The implications for the charges at the airport have been considerable.
The commission backloaded the cost of T2 and the terminal's full costs have not fed their way into airport charges thus far. Our plan would be that this will happen as the building is more intensively utilised. Nonetheless, the traffic decline and cost increase resulted in a substantial increase in charges in 2009. As the Deputy noted, this has given rise to controversy and complaint then and since.
Derek Nolan (Galway West, Labour)
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What increase in charges was passed on to the airlines?
Derek Nolan (Galway West, Labour)
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From what level did the charge increase?
Derek Nolan (Galway West, Labour)
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Has it decreased in recent years or remained flat?
Derek Nolan (Galway West, Labour)
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The cap is basically a fixed sum and the manner in which it is achieved depends on passenger traffic. Is that correct?
Derek Nolan (Galway West, Labour)
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On the correspondence between the commission and Ryanair, the latter has asked the committee to investigate a number of issues and it would be remiss of me not to put the questions raised by Ryanair to Mr. Guiomard while he is before us. My questions on the DAA price increases and declines in passenger traffic have been answered. Ryanair maintains that the commission is overstaffed. It states that licensing work is a simple function that is repeated every year and that most of the 3,000 to 4,000 complaints received by the commission are referred elsewhere, with only approximately five per week being investigated by the commission. It states the workload of the commission does not warrant the level of staffing in its office, specifically since it outsourced the scheduling work for the airport. How does Mr. Guiomard respond to Ryanair's position?
Mr. Cathal Guiomard:
Mr. O'Leary's correspondence is very explicit, particularly in his first letter which asserts that we do not have any work to do and asks why our staff are required. In his summing up of the minor functions, as he sees them, that the commission has to carry out, he claims there was no airport price regulatory work required in the year he was examining, even though Ryanair had itself taken a High Court judicial review about airport charges which had consequences for us in preparing materials to defend the case in question. He also stated he had asked the Minister for Transport to establish a review body to look at the airport charges. We were also engaged with this during the year in question. Ryanair had itself, therefore, given rise to work in the airport regulatory side which we were required to do and which is omitted from the letter. The whole air passenger rights function is also omitted.
In the correspondence I sent in reply to that letter, I elaborated on what was the work of the office. If we are to maintain a small team of people to do the licence renewal in the travel trade area, be familiar with what are the entitlements of member of the public in passenger complaints and do the price regulatory functions on airport charges and some of the intervening work, we need the numbers of staff we currently have.
Derek Nolan (Galway West, Labour)
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How many people work in the commission's passenger rights section?
Derek Nolan (Galway West, Labour)
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If the section is very busy, do staff from other sections assist?
Derek Nolan (Galway West, Labour)
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Mr. O'Leary is very critical of the commission's decision to license Aer Arann as a financially fit company when it was in financial trouble. How does Mr. Guiomard respond to that criticism?
Mr. Cathal Guiomard:
We have to be careful in scrutinising engagement from the industry.
Mr. O'Leary has written to us and has made public statements a number of times on the area of air carrier licensing, all of which is oriented towards the fact that he thinks the licensing system should permit fewer companies to hold licences in the industry. Our perspective on this and on other work is that we need to be mindful of the interests of the public at large, rather than of other companies in the business which might, for entirely different reasons, not favour new entry into the industry or companies remaining in the industry.
11:05 am
Derek Nolan (Galway West, Labour)
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I take that point but it is specific instance. He said that the commission licensed as financially fit an airline which was not financially fit.
Mr. Cathal Guiomard:
There was a period in early 2009 when all the Irish registered airlines, including Ryanair briefly, were losing money. It was when the downturn in the economy was very severe. Most of them, and certainly Ryanair and Aer Lingus, have returned to profitability since then. Others are taking longer to do that. We have engaged with the airlines that hold licences and we monitor them closely in terms of the steps they are taking to come back to profitability.
Derek Nolan (Galway West, Labour)
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One issue on which I have particular sympathy with him is the commission's offices on St. Stephen's Green. It is suggested that the commission should move to the airport at a much cheaper rent. It would also be nearer its customers and the industry it is regulating. There appears to be logic to that.
Mr. Cathal Guiomard:
There have been a number of proposals in recent years regarding mergers of our office. Currently, we are expecting to be merged with the safety part of the Irish Aviation Authority. We believe, in that context, it will be possible to consider what economies it might be possible to make in that area. Until we know for sure who we are merging with, because there have been a number of ideas, and what other offices those other bodies might have, it could be premature to make a change and then find that requirements were otherwise. In that context, however, we would certainly be open to anything of that nature.
Derek Nolan (Galway West, Labour)
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When is the lease up?
Derek Nolan (Galway West, Labour)
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Is it possible to break the lease? Is there a break clause?
Derek Nolan (Galway West, Labour)
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The merger with the safety division of the Irish Aviation Authority has been announced and according to the commission's report it is happening. What engagement has there been and what type of planning has been done? What structures are in place to facilitate that merger?
Mr. Cathal Guiomard:
The Department of Transport, Tourism and Sport set up a three way working party involving the Department, the Irish Aviation Authority and ourselves. That group has been meeting to make the preparations and to consider what is required in legislation and other changes to allow the merger to happen.
Derek Nolan (Galway West, Labour)
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How is that progressing?
Derek Nolan (Galway West, Labour)
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Who is the steering party?
Derek Nolan (Galway West, Labour)
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Absolutely. However, the witness said that most of the commission's functions are now European Union based legislation, aside from one. He is very familiar with the legislative basis on which he is operating.
Derek Nolan (Galway West, Labour)
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The Irish Aviation Authority must be in a similar position.
Derek Nolan (Galway West, Labour)
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As the expert on the legislation that governs his area, the commissioner would have to feed into that legislative process. What interaction has he had in helping the Department of Transport, Tourism and Sport to push this forward and get that legislation on the Statute Book to get the efficiencies and savings as soon as possible? It takes quite a long time to pass legislation and the preparatory work must happen quickly. As a major stakeholder in that, what actions has the commissioner's office taken to facilitate that?
Mr. Cathal Guiomard:
Our legislative role is straightforward. What would primarily be involved is simply transferring the functions already in law to the new body. The story is certainly more complicated for the Irish Aviation Authority, although the authority can speak for itself. However, it must split the commercial air traffic control activity from the safety functions. It must separate all of that and then transfer the safety part into the merged office. I am aware that its legislation extends back over many decades so the untangling and knitting together of that into the new law, on its side, would be much more complicated than for our side. In our case, I do not foresee that the legislative revision would be a terribly difficult thing to achieve, nor do I foresee that any of the other work required to bring this about will be particularly complicated.
Derek Nolan (Galway West, Labour)
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I acknowledge that the commission's costs have been reducing dramatically. That is easy to see and it is very welcome. The pension issue must be resolved and the key performance indicators for customers, as they have been presented, are extremely poor. I expect to see something much better than that in the next report.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy Paul Connaughton has questions for ComReg.
Paul Connaughton (Galway East, Fine Gael)
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I welcome the witnesses. What are the staff numbers for ComReg over the last number of years?
Mr. Alex Chisholm:
The current number is 107. The authorised number would have been up to 125. That was when we took over responsibility for the regulation of premium rate services. Up to then there was a cap of 120. They had seven staff when they came in so we were given a new cap of 125. Since then it has been going down quite dramatically.
Paul Connaughton (Galway East, Fine Gael)
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Is there a target for next year or is it hoped to stay at 107?
Paul Connaughton (Galway East, Fine Gael)
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Have there been any pay increases for people working in ComReg over 2010, 2011 and 2012?
Paul Connaughton (Galway East, Fine Gael)
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Who set the initial salaries when ComReg started in 2002?
Mr. Alex Chisholm:
As I mentioned in the introduction, we inherited an organisation from the Office of the Director of Telecommunications Regulation, which was set up in 1997. Initially, that office was staffed mainly by people who transferred there from the Department of Communications at that time. There were also people recruited from the private sector. The pay structures that were set up at the time were determined back in 1996-97. As a consequence, the people going into the organisation were assured that they would be on no worse terms and conditions than were negotiated at that time. It is obviously historical at this stage. ComReg was given its new responsibilities in 2002 under the Communications Regulation Act 2002. It was obliged to take on the people who had worked in the previous organisation, or the legacy body, again on terms that were no worse than those in effect. That structure of pay and conditions has remained in place until the present day.
Paul Connaughton (Galway East, Fine Gael)
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Is the chairman or any of the commissioners due a pay increase or any type of bonus for the last 12 months and the next 24 months? How will that work out?
Paul Connaughton (Galway East, Fine Gael)
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In 2011, ComReg spent over $4.5 million on technical advice. On what area was ComReg seeking that advice? Is ComReg short staffed and would it be better to employ people in that area? Is that a regular yearly cost?
Mr. Alex Chisholm:
It varies a certain amount from year to year according to the projects we undertake. There are two main brackets within the technical advice. One is consultancy and the other is outsourcing.
I will give some examples under each heading to help the Deputy understand the make-up of it.
From the consultancy point of view, the most typical scenario would be where we buy in very specialised economic consultancy and sometimes engineering and other technical consultancies. In the case of a project like the multi-band spectrum auction, for example, the types of skills necessary to design that auction, such as the very high-level economics and very sophisticated software coding required, are held by perhaps six firms in the world, We needed those with expertise to advise us on how to get it exactly right. That particular project proved very successful. It would not be economic for us to employ those types of people ourselves. In fact, it is more efficient to secure the required skills on a consultancy basis. Having said that, we did a huge amount of work ourselves in managing that process, with our own economists, lawyers and spectrum engineers all working on the project. There was, however, still a need to buy in some element of specialised advice. It is the most economic way to proceed.
In the case of outscourcing, the services we have tended to outsource are those which are more efficiently done externally. We have, for instance, outsourced certain types of information technology work, our payroll function and our customer care function. Another outsourced function is the so-called drive test, where technicians go around with specialised equipment monitoring the strength of mobile telephone signals up and down the country. We always take the view that we can either do it ourselves or do it externally and what determines which side of the frontier we are on is primarily a value-for-money consideration. The only exception to that is where certain types of work are actually required to be done externally. In the case of quality-of-service measures, for example, which apply in regard to both electronic communications and post, it is a requirement of the legislation that they are done by an independent body. That is a case of compulsory outsourcing.
11:15 am
Paul Connaughton (Galway East, Fine Gael)
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Moving on to the 4G mobile licence auction, will Mr. Chisholm give a brief outline of the steps involved in that process?
Mr. Alex Chisholm:
Brevity in this regard is a challenge because it has taken us four years to put the auction together. It was an immense and massively complex project to undertake, but I will attempt to give a brief overview. We received somewhere between 2,500 and 3,000 pages of submissions from interested parties, some of them written by those parties' law firms, others very technical submissions from economists and specialists. The aspiration we set for ourselves at the outset was to make the spectrum available on a very competitive and efficient basis. We sought to conduct a process that was very rigorous and robust and would withstand potential challenge, of which there was a potential risk. The objective was to have a great degree of certainty at the end of the process rather than getting mired in challenges or tribunals. We were anxious to ensure a truly commercial and competitive outcome, not one decided by excessive levels of administrative judgment. That was tremendously important in terms of our desire to ensure that the long-term structure of the mobile industry and the cost of using spectrum would be efficient and manageable. That will make a huge difference both to the quality and the cost of the mobile services on which we all depend so heavily.
We are very pleased that at the end of what was admittedly a drawn-out process which has involved 14 consultations thus far, we had the tremendous auction result which we announced in November. The outturn of €850 million probably exceeded all expectations in terms of financial outcome. Equally positive, and just as important, was that there were four major winners of spectrum, all of which have declared themselves pleased with the results they achieved and have indicated their intention to roll out very fast mobile broadband services with enhanced capabilities to their customers. It is a very positive outcome to what has been a long and painful road for us and for the other parties involved.
Paul Connaughton (Galway East, Fine Gael)
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Will Mr. Chisholm give an indication of the cost accruing to ComReg over the four years spanning the beginning of the process until the auction took place?
Mr. Alex Chisholm:
That is set out in the accounts. The approach we took, with the guidance of the Comptroller and Auditor General, has been to expense the costs as we have gone along and not to anticipate the revenue, which, by its nature, is an uncertain thing. Each year we have been recording the costs of in our accounts. In 2011 there was something in the order of €700,000 or €800,000 in consulting expenses associated with the 4G project. There were also considerable legal costs, both internally and in working with external firms, associated with the requirement to prepare adequately and ensure all of our work, throughout the process, was watertight and capable of withstanding legal challenge. In fact, our aim was to ensure it would not invite legal challenge. One must put these expenses against the end result in terms of what we got from the process, and the proof of the pudding is that there has been no challenge. If there had been, it would have involved not only a huge cost and a long drawn-out court case but also, crucially, a great degree of uncertainty for operators without any benefits for customers.
Paul Connaughton (Galway East, Fine Gael)
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Can Mr. Chisholm explain why the auction was a greater success than some observers apparently expected?
Mr. Alex Chisholm:
We were quite careful not to offer any forecast. Instead we set some minimum prices in accordance with an internationally benchmarked approach. Our advisers provided us with a database of all the results ever obtained in a spectrum auction, to which we made various adjustments for the size of the Irish economy, the amount of spectrum available, the number of firms in the market and so on. From these data we came up with a conservative minimum estimate of what the payments were likely to be for each part of the spectrum that was on sale. That was how we priced it.
What we could not know was how much of an excess there might be. That depended on the firms and their private, never revealed to us valuations of the spectrum, their business strategies and also how many bidders there would be. We could see, for example, that the 800 MHz band, which is the new spectrum that was freed up by the move from analogue services to digital terrestrial broadcasting, was attracting a great deal of interest. There was 30 MHz of paired spectrum available within that band in blocks up to 5 MHz or 10 MHz, with a limit of 10 MHz for each bidder. This meant that if there were three bidders, everything would fit quite neatly, but less so if there were four. Factors like that make a huge difference to the competitive edge.
As it turned out, our minimum estimate was comfortably exceeded. The lesson there is that no matter how much one consults and dialogues with firms, one will not discover their private valuation for the spectrum until a competitive auction is held. This is one of the strongest reasons for having an auction for scarce assets.
Paul Connaughton (Galway East, Fine Gael)
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I assume that when this process began and as it went on, a large number of criteria were set for those parties which wanted to get into the auction. I understand one criterion was that 70% of the population would have to be covered under the 4G licence. Is that 70% coverage to be achieved immediately or over a number of years?
Mr. Alex Chisholm:
The population coverage requirement must be achieved over a number of years. It is important to bear in mind that we are not dealing with an entirely greenfield site here. We have had 17 years of mobile licences and there is a lot of mobile spectrum already being used. Those spectrum provisions are subject to their own rules and regulations as to what level of population coverage must be reached. Under the ordinary voice telephony requirements, for example, the population coverage requirements vary from 80% up to 90% plus. However, in terms of what has actually been achieved, the figures are in the 97% to 99% range. In the case of data services - that is, 3G services - again, there were different requirements, varying between 85% and 90% in different periods of time. When we set new requirements, the existing ones do not fall away instantly as a consequence. In the case of 3G, for instance, the requirements will continue until 2022.
In setting these licence requirements, we had to look at the possibility of an entirely new entrant. We were not setting a competition which was exclusively for the existing players in the market who were already operating with mobile spectrum. We also had to take account of the fact that not all of those operators already had spectrum at this particular level, that is, in the 900 MHz band. Furthermore, we could not specify particular services under the European regime. In other words, we could not specify the provision of 4G but instead had to provide an offering that was technically neutral and could be used for a range of services.
It turns out that it probably will be used for 4G but that is actually up to the firms themselves. With all of those things taken into account, we came up with a 70% level because our primary desire was to ensure that there would not be cherry-picking, with one or perhaps two firms coming in and only providing coverage in the large cities, which we felt might be very destabilising to the overall economics of the industry. That is why we set the 70% level for all licenceholders but in actual fact the levels that will be achieved will be far in excess of that because of ordinary competitive pressures and the requirements under other parts of the legislation.
11:25 am
Paul Connaughton (Galway East, Fine Gael)
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The concern that I and others would have is that a 70% requirement really only includes Dublin, the wider area around it and the bigger cities. I note that there are issues with Saorview in certain very remote parts of Cork, for example. The concern is that companies would not feel obliged to roll out to all areas. There are issues with the national broadband scheme in this regard. How is this policed? What are the ramifications if companies do not step up to the mark on this?
Mr. Alex Chisholm:
There are significant consequences for the companies if they do not achieve the minimum levels set and, ultimately, they put the actual licences at risk. In looking at what the actual achievement will be, we need to bear in mind that a 70% population coverage level takes one down to townlands of around 50 persons. We have said that all licenceholders have to achieve that. In that context, there are four winners of spectrum which means that four different networks will have to duplicate the mobile network infrastructure down to townlands of 50. That is quite a high level of duplication but we believe that it is positive competition. To take the level of duplication beyond that would probably be very wasteful and the consequences of that would be very high levels of charges to consumer and business users. We have to strike a balance here.
What we actually think will happen is that the number of operators in that 30% level, bearing in mind that all must cover up to 70%, will very likely turn out to be less than four. How that emerges will depend on the market dynamics that develop but what we have seen, in observing the market over a number of years, is that all operators have greatly exceeded their minimum requirements because they need to meet the needs of customers. I am sure the members of this House would have experience of that while travelling throughout the country, using mobile phones and other mobile devices. Professional users and the ordinary consumers today want to be able to use their devices wherever they are in the country. They want to have much better data access because they are using their devices more and more for data. They also want faster speeds. That is really what all this spectrum, which has particularly good propagation capabilities and is very good for covering nationwide, should bring in over the course of this year and beyond.
Paul Connaughton (Galway East, Fine Gael)
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On that point, when I was doing some research into the auction I came across an article in a newspaper which suggested that there was as issue within ComReg with data protection. Is that true?
Paul Connaughton (Galway East, Fine Gael)
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Yes, I am.
Mr. Alex Chisholm:
Last June, one of the operators who obviously had an interest in the auction expressed a concern that we might not be looking after our data sufficiently carefully and that this was going to be a big issue vis-à-vis the upcoming auction because clearly the ability to maintain confidential data through that process was of paramount importance. Obviously, we did not feel that we had an issue with our ability to maintain confidential data and we had taken very careful and elaborate steps to make sure that we would be able to maintain it and said so at the time. Over time, the operator became satisfied with our assurances. What is crucial here is that this concern was expressed before the auction and the auction, which was one of incredible complexity and very high financial value, has been conducted without a single data leakage. That has been absolutely fundamental to the success of the process because if it had been known even who the bidders were, how many bidders were involved or what they were bidding, that would have immediately cut into the whole viability of having an auction of this kind. None of those bad effects or other worries actually materialised and the auction was conducted with complete success from the point of view of information security as well as in terms of its overall results.
Paul Connaughton (Galway East, Fine Gael)
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I think Vodafone raised concerns, as did O2 and Meteor. My understanding is that Meteor simply raised concerns but did not make any specific allegations on 23 May, but the auction went live on 25 May. Is there a gagging order imposed on companies once the process starts so they cannot say anything one way or the other?
Mr. Alex Chisholm:
The auction process was indeed kicked off by the publication of the information memorandum. The Deputy has been doing a lot of research and if he has an appetite for more, he will see that we have published even more of the correspondence that was, at that time, confidential. Indeed, only a few days ago we published another few hundred pages on the subject. The Deputy will see that over time there were no data leakages at all and that ComReg has no data protection problems.
Paul Connaughton (Galway East, Fine Gael)
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Since then, what steps have been taken to put minds at ease that there is no issue?
Mr. Alex Chisholm:
As I say, the operators were concerned beforehand that they would be submitting very confidential data and they wanted to make sure that the confidentiality of that data would be respected and preserved and that there would be no leakage. Our assurances have been tested because obviously during that process if there had been any leakage or any flaw in our procedures, which were specially devised for handling this very sensitive auction, that would have been a problem. They have been tested and there were no leakages and all of the parties are satisfied with that.
Paul Connaughton (Galway East, Fine Gael)
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On the question of An Post and the issue of next-day delivery, I believe the target is 94%.
Paul Connaughton (Galway East, Fine Gael)
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What is the current level the company is achieving?
Mr. Alex Chisholm:
That target, which was set in 2004 after a public consultation, has been in place for a good long while. Going back, if I may, before dealing with the present, An Post made reasonable progress towards that target for a number of years. Initially, from a level of 72% it moved up into the mid-80s over a number of years, with constant encouragement and prompting from ComReg. Then, it seems to have plateaued at that level. The company continued to assure us that it was its top priority and of paramount importance and it put into its annual reports and other public statements that it was going to hit the target. It was originally going to hit the target of 94% in 2007, then in 2008 and then in 2009. Then we gave it a notification on compliance and it said it would hit the target in 2010 and then 2011. In fact, during that period since 2008, its performance in quality of service - next-day delivery - has not improved. It went from 83% to 84% to 85% and then back down to 84%. Currently it is between 83% and 84%.
Paul Connaughton (Galway East, Fine Gael)
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Is there a court case pending with An Post over the failure to meet the next-day delivery targets?
Mr. Alex Chisholm:
Yes, a court action is under way under the legislation passed by the Oireachtas in 2011. The procedure for us in a case like this, where there is continued non-compliance and a failure to satisfy the requirements, is that we make an application to the court effectively to require compliance. That is the next stage in that. We followed that procedure, having given An Post ample time to comply with the quality of service target. That is before the courts at the moment. A preliminary matter was heard before Christmas and the substantive hearing has yet to occur.
Paul Connaughton (Galway East, Fine Gael)
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Has ComReg imposed a fine on An Post?
Paul Connaughton (Galway East, Fine Gael)
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What would ComReg like to see coming out of the court action?
Mr. Alex Chisholm:
The only thing that really matters to us is that the quality of service is improved in the interest of all business users and individual households. The target that was set some time ago, following a public consultation, of 94% is very much in line with the level of next-day delivery that has been achieved right across Europe. It is very disappointing that we have not been able to achieve that here in recent years. The purpose for us in bringing any compliance action is not to uphold a regulation for the sake of it but to uphold the underlying requirement of the regulation which is to make sure that a certain basic level of service is provided. We wish to try to do that through pressure and influence and then by the next step up, which is the notification on compliance. The ultimate action is the court action after repeated failures to meet the required targets and notwithstanding statements by An Post that it was able to and would do it but then not actually reaching that target.
A good outcome of the court action for us would be for An Post to take the necessary corrective measures to address the considerable shortfall of more than ten percentage points between the requirement for 94% and the current performance. This is what we hope to get out of our action.
11:35 am
Paul Connaughton (Galway East, Fine Gael)
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What is the methodology for calculating next-day delivery? Who calculates the 88% or 84% for An Post?
Mr. Alex Chisholm:
That is done according to a standard set on a European level. It is called a CEN standard and applies to all European postal regulators. The method is to create a certain minimum number of postal consumers who effectively act as witnesses or points in a survey of when a particular letter is posted and when it arrives. One uses different measures for services within Dublin, between Dublin and the rest of the country, etc. All of this is done on an entirely independent basis by a fully qualified firm with a panel of people in sufficient numbers and of sufficient quality. A precise, prescribed method is used and the work is subject to an independent audit by a person who is a specialist auditor. It is one of the services I mentioned at the outset that is outsourced independently of the Commission for Communications Regulation, ComReg. As a requirement for us to have an independent survey, the consequences of which we can deal with, we must not mark our own homework, so to speak.
Paul Connaughton (Galway East, Fine Gael)
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I thank Mr. Chisholm.
Kieran O'Donnell (Limerick City, Fine Gael)
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I welcome everyone, in particular Mr. Nolan and Mr. Blaney. I want to keep this discussion at a practical level. I read through the Commission on Energy Regulation's list of duties and functions, one of which is to protect the interests of final customers, including the disadvantaged, the elderly and those living in rural areas. I examined the prices of electricity and gas for recent years. Over a three-year period, the price of electricity increased by nearly 31%. Over a two-year period, the prices of electricity and gas increased by nearly 26% and approximately 31%, respectively.
Last September, Bord Gáis sought an increase of 7.5% and was granted an increase of 8.5%. Some 50% of that increase was due to an increase in network costs. Why did the CER award this level of increase? In the past two years, the ordinary people have seen an almost 30% increase in the cost of gas and electricity. How did the CER reach that figure? One of its duties is to protect the interests of the elderly and ordinary people who pay their gas and electricity bills.
Mr. Dermot Nolan:
I will do my best. I will first discuss the general issue of prices, then the specific example of Bord Gáis. On the former, we regret the significant increase in prices. I would most emphasise the fact that, in terms of gas and electricity, the fundamental determinant for end user prices is the price of fossil fuels, which are determined internationally and over which Ireland has no control. This is regrettable, but it is the way it is.
Nearly all of our retail gas is bought from Great Britain and comes from the North Sea. Wholesale gas prices rose considerably during the two-year period in question.
Kieran O'Donnell (Limerick City, Fine Gael)
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By how much?
Kieran O'Donnell (Limerick City, Fine Gael)
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I assume that the utility companies hedge against increases.
Mr. Dermot Nolan:
Hedging strategies are in place, but the price has risen continually in the past two years. We directly regulate the prices of Bord Gáis, but not electricity prices. In terms of the latter, we deregulated fully approximately one and a half years ago. Bord Gáis has an approved hedging strategy whereby it buys gas over a reasonable period. It typically buys slightly more in the summer months when gas is usually cheaper. If Bord Gáis hedges more effectively and beats its target, it is entitled to keep a proportion, but the majority is returned to the consumer. If it hedges worse than that, it is Bord Gáis's problem and it only keeps what it has hedged.
Kieran O'Donnell (Limerick City, Fine Gael)
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Why did ComReg award a 1% increase above what Bord Gáis sought?
Mr. Dermot Nolan:
I will try to explain. We consult on all of our decisions. We consulted on that decision in late July for an early October period. I am sorry if I cannot remember precisely, but we allowed a four to six-week consultation period for people's comments. In our executive summary, our press release and the paper itself, we stated that the figure was a consultative one and could change if wholesale gas prices changed significantly in the subsequent four to six weeks.
Kieran O'Donnell (Limerick City, Fine Gael)
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Bord Gáis was only seeking 7.5%, which was itself a significant increase. The CER awarded it a higher increase that it was seeking.
Mr. Dermot Nolan:
When we came to make the final decision more than one month later, wholesale prices had risen significantly. The mechanism is consulted on and agreed. Bord Gáis stated that the actual price would need to be higher because wholesale prices had changed significantly in the previous four to six weeks. In reality, Bord Gáis sought 9% rather than 7.5%. In the same period we made significant cuts and knocked €2 million or €3 million from its supply costs, as it was a difficult time for people with increasing bills.
Kieran O'Donnell (Limerick City, Fine Gael)
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Some 50% of the increase related to network costs. In layman's terms, explain why.
Kieran O'Donnell (Limerick City, Fine Gael)
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I am assuming it is a fixed cost.
Kieran O'Donnell (Limerick City, Fine Gael)
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The increase in fuel prices can be explained, but half of it relates to a network cost that has been in place for a number of years. The network element should not have increased because it is a fixed cost.
Kieran O'Donnell (Limerick City, Fine Gael)
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It was reported as 50%, a figure that was not denied.
Kieran O'Donnell (Limerick City, Fine Gael)
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Tell me the percentage.
Kieran O'Donnell (Limerick City, Fine Gael)
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That is still significant.
Mr. Dermot Nolan:
I accept that. I will explain in two ways. We completed a new gas review that year. As with aviation, we conduct a review of network monopolies every five years. We try to keep costs as low as possible. According to our review, network costs had increased slightly for two reasons. First and as has been discussed in terms of aviation, the average volume of gas used has fallen significantly in recent years. Second, the nature of such investments means that there is an efficient cost for the entire gas network. The more gas that is used, the better. If volumes are high, great, as the cost per unit of gas will be lower.
Kieran O'Donnell (Limerick City, Fine Gael)
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We are straying. I am trying to make a point. ComReg has a remit to look after the customer, yet all that we are discussing is the effect on utility companies. ESB is reckoned to be making annual profits of €500 million per year. Why did it need increases?
Customer switches present another issue. The number of domestic customers who switched their electricity suppliers decreased between 2011 and 2012. I will go into the detail later. Even taking all of the factors into account, including the network costs, I still do not understand.
The witness is saying that on average there is approximately a 30% increase, between electricity and gas, over the past two years, with 40% of that relating to network costs on average. I have no doubt that all the utility companies make use of hedging. They are large companies and that is what they do. It would appear that any risk arising is effectively being borne, in the main, by the customer. These are the ordinary people with a gas and electricity bill, which are going up. The primary role of the commission is to look after these people so will the witness explain how it has facilitated these types of increases?
11:45 am
Mr. Dermot Nolan:
I realise this is a large question and I will do my best to answer it. I hope I am not nitpicking about the gas price but the 40% referred to this year's rise. The bigger and very painful rise in gas was last year, at 21%. That was purely fuel-based because the price of gas rose for a variety of reasons. I can discuss them if the committee so wishes.
Kieran O'Donnell (Limerick City, Fine Gael)
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There was no network element in it.
Mr. Dermot Nolan:
No, that was this year. The network element came because we finished a fairly significant five-year review. The volumes of gas had fallen, driving up average cost. That is regrettable but it is the nature of the way regulation is done. We need a gas network that has enough capacity to keep people warm in winter and, given that so much of our electricity is dependent on gas, to keep the lights on. We need a gas network. Two or three years ago, when we had viciously cold winters, we needed every bit of capacity on the network. It must be paid for and we do everything we can to ensure the process is as efficient as possible.
Two factors drove this issue this year. One was volumes and the other more deleterious factor was an increase in the cost of capital, or borrowing costs for Bord Gáis. This was not good but came as a result of the financial crisis. The borrowing costs to run the network efficiently rose and we had to ensure it could meet that.
Kieran O'Donnell (Limerick City, Fine Gael)
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Was the network upgraded of why were funds borrowed?
Mr. Dermot Nolan:
It is set down in legislation that we must determine what is termed the cost of capital for Bord Gáis, the efficient cost of capital for every network company. That would be done by all the regulators. Given the issues of the financial crisis in Ireland, this is very regrettable but after studying this and employing consultants - which was necessary for a job of this magnitude - we have had to give for at least one year a somewhat higher level of increase. As Ireland's debt costs continue to fall, we hope the factor will disappear next year. Nonetheless, the network cost rose, although it has not been in any sense the main driver of the increasing gas prices over the past two years. It amounted to a small portion this year.
I hope I have answered the question of why an increase was granted of 8.5% for Bord Gáis when it sought a 7.5% increase, and I have done my best to do so. It was regrettable. When we consulted, we made it clear that the figure could go up or down. The company sought an increase of over 9% and we cut that to 8.5%.
Kieran O'Donnell (Limerick City, Fine Gael)
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In the initial period it sought an increase of 7.54% and the witness is saying that by the end of the process, it sought an increase of 9%.
Kieran O'Donnell (Limerick City, Fine Gael)
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Why is that not in the public domain?
Kieran O'Donnell (Limerick City, Fine Gael)
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With the current structure, the cost of capital must be covered for utility companies, and if the utility companies' cost of funding rises or volumes decrease, the end user will see an increase in bill costs.
Kieran O'Donnell (Limerick City, Fine Gael)
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In the case of Bord Gáis, it is 40% of the cost.
Mr. Dermot Nolan:
Yes, if volumes fall. The issue is analogous to the example of the airlines earlier. If volumes fall, the average cost per user will rise. Volumes have fallen, both with electricity and gas over the past two to three years. Energy volumes are typically closely linked to gross national product. We hope for all kinds of reasons that there will be a recovery over the next two years and if that plays out, volumes should rise again.
Kieran O'Donnell (Limerick City, Fine Gael)
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What is the current prediction for gas and electricity prices in 2013?
Kieran O'Donnell (Limerick City, Fine Gael)
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Electricity is directly related to gas prices.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will the ordinary end customer see an increase in electricity or gas bills in 2013?
Kieran O'Donnell (Limerick City, Fine Gael)
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Could there be a reduction in prices?
Kieran O'Donnell (Limerick City, Fine Gael)
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When will be the next review? How are reviews carried out?
Mr. Dermot Nolan:
In the case of gas, we still directly regulate the price for Bord Gáis. It is not a monopoly but it is still seen as having a dominant position. We will make a decision on when to move from regulating the price and treating like any other sector. That is part of our statutory mandate and the EU rules under which we operate that we should be moving away from direct regulation. We may move to deregulation with regard to Bord Gáis in the near future-----
Kieran O'Donnell (Limerick City, Fine Gael)
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If that happens, what will be the difference?
Kieran O'Donnell (Limerick City, Fine Gael)
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What percentage of the market is controlled by Bord Gáis at the moment?
Kieran O'Donnell (Limerick City, Fine Gael)
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It is a dominant player.
Kieran O'Donnell (Limerick City, Fine Gael)
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When will the next review of gas prices be carried out?
Kieran O'Donnell (Limerick City, Fine Gael)
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Could it be done earlier?
Kieran O'Donnell (Limerick City, Fine Gael)
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September was the last review date and three months from that would be December. The commission is conscious of the impact on the utility companies but I suggest that of more importance is the responsibility to the end consumer, which is also in legislation. I suggest that a review of gas prices is carried out with immediate effect. We are here to determine if there is proper use of the public purse and the commission is being paid significant amounts. May I get a commitment that such a review will be carried out?
Mr. Dermot Nolan:
I agree that our primary duty is not to the utility company but to the consumer. That underlies everything we do. We are supposed to ensure the cost to consumers is the efficient cost. The general issue of being a price setter in gas markets is very difficult.
The Deputy raises a specific issue of a gas review. We are reviewing the issue every three months and we will make an announcement of whether there should be a price change for 1 April in the near future. Without giving specifics away, over the past six months gas prices have not really changed. I do not expect the review to change the price in any significant way. If it does and the price falls, we will absolutely bring it down. There is a clear commitment in that regard.
Kieran O'Donnell (Limerick City, Fine Gael)
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We are considering some sort of positive element in that there should be no increase, with a possibility of a decrease.
Kieran O'Donnell (Limerick City, Fine Gael)
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The review will be announced for 1 April and considering all factors in the current climate, the commission is not looking at an increase but it is looking at the possibility of a decrease.
11:55 am
Kieran O'Donnell (Limerick City, Fine Gael)
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I ask Mr. Nolan to look in great depth at the figures.
Kieran O'Donnell (Limerick City, Fine Gael)
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Ultimately, we are in the winter months and we are going through a cold spell. The elderly and so on are under enormous pressure. I understand the commission has a job to do but, taking into account that these companies are making significant profits and the commission's mandate is to look after the end users, I ask that it does that.
Mr. Dermot Nolan:
Ireland is a price taker but, in Britain, prices of electricity and gas have risen by more than in Ireland over the same period. They are also dependent and some of their nuclear plants have closed. Prices are rising more in GB than in Ireland and I can provide evidence of that if the Deputy likes. The price of home heating oil has risen by more than electricity and gas while petrol prices have risen. I understand the difficulties but I assure the Deputy, for what my assurance is worth, we honestly try to keep prices as low as we possibly can.
Kieran O'Donnell (Limerick City, Fine Gael)
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I refer to the issue of disconnections. Perhaps Mr. Nolan will give an overview because there appears to be disparity between the utility companies in this regard. How many disconnections did each utility company carry out in 2011 and in 2012? I welcome the fact that the commission has extended the provision whereby these companies can only charge half what they used to charge for reconnection until December 2013. In some cases, people cannot even afford that. For the second quarter of 2012, Bord Gais experienced a 38% increase in disconnections whereas there was a 30% decrease in the electricity market. Will Mr. Nolan also explain the issue of debt flagging? It appears that it may not be of benefit to people switching.
Kieran O'Donnell (Limerick City, Fine Gael)
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Has Mr. Nolan specific figures for the utility companies for 2011 and 2012?
Mr. Dermot Nolan:
I only have overall figures. I will provide further figures by company. We have those in our report but I did not bring the specific figures today. I will comment on my recollection of them if that is okay. In 2011, for instance, it varies by quarter. There were 2,500 electricity disconnections in the first; 3,500 in the second; it peaked at 5,000 in the third; and 3,200 in the fourth. Last year, the number in the first quarter was 4,170 and it was 2,960 in the second quarter. We have not published further figures but we are due to publish something in the next few weeks.
In the gas market, there were 519 disconnections in the first quarter of 2011; 1,149 in the second; 727 in the third; and approximately 840 in the final quarter. It went to 1,717 and then 2,373 in the first two quarters of 2012. There has, therefore, been a significant increase in gas disconnections over the recent period.
Kieran O'Donnell (Limerick City, Fine Gael)
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It has gone from 519 to 2,373 and it appears to be increasing whereas the figures for the electricity market are reasonably static. Why is that the case?
Mr. Dermot Nolan:
I would like comment on the figures first. What we have done over the past year or two is try to analyse - which has been difficult given the information provided - what proportion of these disconnections relate to vacant premises. The upper limit relating to vacant premises may be 25% of disconnections and approximately 35% are for gas. We are studying this further. I will not say we have got to the bottom of why the figure has increased but our sense is gas disconnections have increased because of the vacant premises issue.
The general issue of disconnections is a source of concern. We have continued with the modification mentioned by the Deputy, which ensures people do not have to pay the entire reconnection fee. By company, the disconnection rate has varied considerably. I do not wish to traduce a particular company.
Kieran O'Donnell (Limerick City, Fine Gael)
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I would have liked to have heard those figures at the meeting.
Kieran O'Donnell (Limerick City, Fine Gael)
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The officials should have had them at their disposal to give us an overview of the regulatory impact.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will the commission provide the figures to the committee?
Mr. Dermot Nolan:
I will do so tomorrow. Airtricity had the highest electricity disconnection rate approximately 18 months ago but that has reduced. It is not the absolute number of disconnections that matters per company; it is the proportion, which we now publish. Over the past 18 months, the company has reduced the number consistently to the point that it is no longer an outlier compared to the other two companies.
Kieran O'Donnell (Limerick City, Fine Gael)
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The companies can only charge 50% of the reconnection fee. Bord Gais's disconnection rate has increased. Has this measure worked to slow the disconnection rate?
Mr. Dermot Nolan:
It has certainly stemmed the rate of disconnection to perhaps what it what it should have been, as circumstances have gotten slightly worse and prices have risen. We have also brought in pay-as-you-go meters to address the disconnection issue for both electricity and gas. These have been around for longer in the gas market but we have introduced them in the electricity market over the past 18 months. They have been taken on and people find them reasonably effective. However, at the doorsteps, there is still considerable reluctance on the part of many customers to accept them.
I would like to make the protocol on disconnection clear. We have introduced strict protocols whereby every company must go through a prolonged process with specified contacts. They must offer the customer a payment plan, the customer must have a chance to meet the payment plan and there must be a clearly specified series of events before a disconnection takes place, including the offer of a pay-as-you-go meter.
We have audited all the companies and will do so again in the near future. We found they all meet and go slightly beyond the protocol, which illustrates the scale of the problem. The pay-as-you-go meters have been reasonably popular in one sense. In our discourse with the Society of St. Vincent de Paul and the Money Advice & Budgeting Service, MABS, who work every day with people like this-----
Kieran O'Donnell (Limerick City, Fine Gael)
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The latest figures I have from the Society of St. Vincent de Paul show that in 2010 the organisation spent almost €9 million on energy costs. People come to us every day in our constituency offices.
Mr. Dermot Nolan:
We dialogue frequently with the Society of St. Vincent de Paul and MABS. They are very much in favour of prepayment meters. I do not say they are in favour of disconnections but two things come to mind. First, they favour early intervention and strict action early to prevent a debt being built up. One of the biggest problems is getting the customer to accept that debt is there. They, therefore, favour early action and use of prepayment meters. When people are offered the meters, the ratio of them being taken is low. Our understanding is only one in four accept them. There appear to be two reasons for this. The first is there may be a perceived stigma about having a prepayment meter and, second, it requires that in the future people must pay up-front and they might be reluctant to accept that. Both the Society of St. Vincent de Paul and MABs, however, favour them and we hope to continue the roll-out in the coming period.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will the commission carry out a review? Perhaps there are categories of people for whom the reconnection fee should be reduced to 25%, for example.
On what basis is the levy applied to the utility companies? Is it based on the price they charge?
Kieran O'Donnell (Limerick City, Fine Gael)
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If the price they charge the customer increases, does the levy also increase?
Kieran O'Donnell (Limerick City, Fine Gael)
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I refer to the commission's business model. Will Mr. Nolan explain debt flagging?
Mr. Dermot Nolan:
There was a perception among the companies, the Society of St. Vincent de Paul and MABS that people would let a large debt build up and then jump supplier without paying the previous debt.
In Britain there is a stricter system, called debt blocking, whereby if one has a debt above a particular level one cannot switch. We had a lot of dialogue about 18 months ago with the Society of St. Vincent de Paul and MABS, the companies and some of the consumer organisations. We thought that debt blocking, which is in place in the UK, was a little too harsh on consumers but we thought debt flagging was reasonable. Therefore, for a certain limit, €250 for residential customers and a greater amount for business, if a customer wishes to switch and has a debt above that level in the company to which they are switching a flag appears and the company has the right not to take them if it so wishes. Even where debt flags appear some companies take them and they arose in about 1% of cases in the past year. We thought it was a reasonably proportionate measure that ensured that people were not jumping, which the Society of St. Vincent de Paul assured us was a problem, leaving huge debts. Ultimately, if that debt has to be written off it will affect overall energy costs.
12:05 pm
Kieran O'Donnell (Limerick City, Fine Gael)
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Where there is a debt has the organisation ever looked at the possibility of switching to another company and the other company charging a levy which it would repay to the previous company in, say, a two year period?
Kieran O'Donnell (Limerick City, Fine Gael)
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I appreciate that.
Kieran O'Donnell (Limerick City, Fine Gael)
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I have two final questions. What is the average price of electricity and gas for a household?
Kieran O'Donnell (Limerick City, Fine Gael)
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Therefore, the price of gas is about €78 per month and the price of electricity is about €83 per month.
Kieran O'Donnell (Limerick City, Fine Gael)
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The price appears to be on the low side.
Kieran O'Donnell (Limerick City, Fine Gael)
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Going back to the organisation's budgets, a couple of issues struck me. The organisation has about 67 staff who are on an average of €70,000 per year. What are the lowest and the highest salary levels? I note that a bonus of just short of €220,000 was paid in 2011. To whom was that paid and how many people were involved? Was a bonus paid in 2012? This appears to be out of keeping with the present economic environment.
Mr. Dermot Nolan:
I think the average salary is €66,000. We use the term performance related pay. I am not trying to use that pejoratively but I will give a little history to it. When the organisation was set up as an office in 1999, it was then the Commission for Energy Regulation, the salaries were linked to Civil Service salaries. At the time, in order to encourage high quality staff and also to encourage good performance, there was a scheme for performance related pay.
Kieran O'Donnell (Limerick City, Fine Gael)
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What year was that?
Mr. Dermot Nolan:
It was 1999. It has continued ever since and we have published this in our annual reports, therefore, it has gone on over the past 13 years. We set that as an average of 7.5%. The average amount for which people are eligible is clearly set at about 7.5%. We engage in performance monitoring exercises during the year. Every member of staff has objectives which are set, measured and evaluated and as a result the pot is shared out. I take the point about the general issues of the public service.
Kieran O'Donnell (Limerick City, Fine Gael)
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Was the bonus paid in 2012?
Kieran O'Donnell (Limerick City, Fine Gael)
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How much was the bonus?
Kieran O'Donnell (Limerick City, Fine Gael)
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How many of the staff would avail of it?
Kieran O'Donnell (Limerick City, Fine Gael)
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Everyone in the office. Is it core pay or is it performance related? Bonuses are a thing of the past. Does a company such as this, a State body, get any funding from the taxpayer at this point in time?
Kieran O'Donnell (Limerick City, Fine Gael)
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Do you pay a dividend back to the State?
Kieran O'Donnell (Limerick City, Fine Gael)
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If there is a lower level of levy, consequently that should bring down the price to the consumer as well.
Mr. Dermot Nolan:
It should though our overall costs are minimal compared to the entire sector. To return to the issue of performance related pay, it is part of core terms and conditions from 1999 and is contractually bound. I honestly do not think it is a bonus, it certainly should not be. It does not apply to me and it, obviously, should not.
Kieran O'Donnell (Limerick City, Fine Gael)
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Everyone appears to get it.
Kieran O'Donnell (Limerick City, Fine Gael)
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Does everyone get it?
Mr. Dermot Nolan:
There was someone who got 0% this year. It depends on one's performance during the year. As I said it is part of core terms and conditions and pay. Obviously our staff, as was absolutely right, were hit by the same factors as the public service, pay cuts and pension levies and that in itself, given it is a percentage of the core salary, brought down the level of performance related pay as well.
Kieran O'Donnell (Limerick City, Fine Gael)
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With due respect, I find it hard to credit a bonus system in an organisation such as this at the moment. It is a bonus system as some people did not qualify for it. In the current climate does the average salary of €70,000 for 66 staff include the performance related pay?
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay. If €220,000 is divided among, say, 63 people, that amount to approximately €3,500 per person which is a significant sum. I ask the witness to rethink on that issue. I note that consultants fees amounted to €2.294 million, that the organisation borrowed €2 million and yet in the same period it had €2 million or €3 million or more on deposit. Why would the organisation retain such large cash reserves when it is paying interest of about €33,000 per year and earning about €7,000 on deposit? That does not make financial sense.
Mr. Dermot Nolan:
I agree Deputy and I will try to explain it. I said we had been being given responsibilities in the area of petroleum safety. This was done in an Act a number of years ago. Essentially we have to set up an entire framework to regulate safety in offshore petroleum activities at Kinsale, Corrib etc. That requires the development of a whole new framework and various expenditures. We are not allowed to levy anybody. The law prevented us from levying anybody until we set a levy which will be in the next couple of months. For a two to three period we were in a situation where we needed to fund activities to set up this important framework but we could not levy. When this happened previously, to respond to the Deputy's earlier comment as to whether we got any money from the Exchequer, we asked whether a loan could be granted in advance. This was not possible given the financial circumstances this time. Therefore, we were left with no choice but to borrow from the NTMA and we got permission from both Departments to do so. We borrowed from the NTMA for a two year period because the Act makes it clear that money we take in from those who supply electricity can only be used for electricity. We cannot use it for any activities relating to, say, petroleum safety. In that sense we are in a bind and the only way out of it was a commercial loan. I agree it is not a great place to be in but we will be in a position to recover it and will be in a position to levy.
Kieran O'Donnell (Limerick City, Fine Gael)
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May I ask a final question? The witness told the committee the average salary of the organisation. What are the highest and the lowest salary levels in the organisation?
Kieran O'Donnell (Limerick City, Fine Gael)
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What is the rate of pay?
Kieran O'Donnell (Limerick City, Fine Gael)
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What is the lowest rate for a member of staff?
Kieran O'Donnell (Limerick City, Fine Gael)
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Why has the organisation set up a defined pension scheme given that it was set up only in 1999? That is unusual in the present environment and very expensive to fund.
Mr. Dermot Nolan:
I was not around in 1999. It was set up as a defined pension scheme because I suppose it was perceived as equivalent to the general public service and, in particular, the Civil Service defined benefit pension schemes. The Act specifically provides that we must have our own pension scheme and it is defined benefit. I am not very helpful as to why it was not done because I was not there but it was certainly done in 1999.
12:15 pm
Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Nolan believe his salary and the average salary of staff is providing value for money in terms of the price people are paying for electricity and gas?
Mr. Dermot Nolan:
I am very conscious my salary may be very high. I am stating this as a purely personal opinion. What the Government chooses to do about high earners in the public service is entirely up to it and indeed there may be a case. That is a purely personal view - I am not trying to bind anyone.
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Nolan's salary is linked.
Mr. Dermot Nolan:
My salary is linked at the deputy secretary level to general Civil Service grades. What the Government does about that is entirely up to the Government. Speaking purely personally, I certainly see a case for action. That is a personal view. As to the idea of value for money at present we are working on projects for that and will have more to report on that in the future, but I can give again my word that we have done everything we can to keep the price as low as is possibly consistent with security of supply, with making sure the lights stay on in five years, in ten years, making sure the gas keeps flowing. We are keeping the prices as low as we possibly can. Obviously we regret the significant price rises of the last few years. This has happened in GB and it has happened in most European countries. We are desperately hoping that gas prices will fall. There is some possibility for this, but I would not necessarily bet.
Kieran O'Donnell (Limerick City, Fine Gael)
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I would strongly encourage it.
Paschal Donohoe (Dublin Central, Fine Gael)
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The witnesses are all very welcome and I thank them for their contributions so far. Deputy O'Donnell covered much of the area on which I was going to focus. I wish to follow up with Mr. Nolan on a few points he touched upon. I ask him to give us again the figures for disconnections for this year and the corresponding ones for last year.
Mr. Dermot Nolan:
This year, in the first quarter there were 4,177 in electricity and in the second quarter there were 2,963. For last year in the first quarter there were 2,548 and in the second quarter 3,540. Sorry, those are for 2011 and 2012. It may be of use to give the committee the overall figure for 2011 and 2012. I think there were 13,500 in 2011 and about 14,400 in 2012.
Paschal Donohoe (Dublin Central, Fine Gael)
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I ask Mr. Nolan to repeat those.
Mr. Dermot Nolan:
I have it directly here. I apologise. For 2010 it is probably the best figures I can give the committee - we do not have the full figures yet for 2012. For 2010 - just to be clear - there were 13,597 total electricity disconnections. For 2011 there were 14,508 electricity disconnections. In 2010 in residential gas there were 4,949; and in 2011 there were 4,240. My comments earlier to Deputy O'Donnell may apply. We believe that these figures are overstated because of vacant premises. The estimates I have given the committee are estimates and probably upper limits on that.
Paschal Donohoe (Dublin Central, Fine Gael)
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The quarterly figures Mr. Nolan gave earlier were for quarter 1 and quarter 2 of 2011 and 2012. Is that correct?
Paschal Donohoe (Dublin Central, Fine Gael)
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Does Mr. Nolan have any quarterly figures for 2012?
Paschal Donohoe (Dublin Central, Fine Gael)
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Is this for electricity?
Paschal Donohoe (Dublin Central, Fine Gael)
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I will get gas also, but for electricity I am trying to get a grip on the most recent trend and many numbers have been provided. I will restate them to make sure I have the right ones. For electricity for quarter 1 and quarter 2 of 2011 it was 4,177 then moving to 2,963. Is that correct?
Paschal Donohoe (Dublin Central, Fine Gael)
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I will start again to make sure I have it. They are important figures-----
Paschal Donohoe (Dublin Central, Fine Gael)
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----- and Mr. Nolan may well be giving them correctly and I am just getting them wrong. For 2012-----
Paschal Donohoe (Dublin Central, Fine Gael)
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Does he have the figures for quarter 3 and quarter 4?
Paschal Donohoe (Dublin Central, Fine Gael)
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What are the corresponding figures for 2011?
Paschal Donohoe (Dublin Central, Fine Gael)
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That was electricity. What are the figures for gas?
Paschal Donohoe (Dublin Central, Fine Gael)
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Yes.
Paschal Donohoe (Dublin Central, Fine Gael)
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Does Mr. Nolan have the Q3 and Q4 figures for gas?
Paschal Donohoe (Dublin Central, Fine Gael)
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So it is the same as electricity. Will the CER be publishing the gas figures soon?
Paschal Donohoe (Dublin Central, Fine Gael)
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One of the figures that jumps out is the trend in gas disconnections which has tripled.
Paschal Donohoe (Dublin Central, Fine Gael)
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I know we are only looking at two quarters but there is a substantial change in that figure in contrast to the other figures Mr. Nolan has shared with us. Does he have any explanation as to what might be behind that?
Mr. Dermot Nolan:
We do not as of yet apart from the fact that we are studying this and I will want to see the Q3 figures. We are auditing the companies again in the near future to make sure they are adhering to the procedures we set down for them. My sense would be that the vacant premises issue perhaps is driving this, but I do not know enough about that yet. Any further information we get, I will try to come back to the committee on it.
Paschal Donohoe (Dublin Central, Fine Gael)
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For the corresponding period in the previous year the figures doubled. For that period in the most recent yearn they tripled, so it is a very substantial change.
Paschal Donohoe (Dublin Central, Fine Gael)
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I draw a parallel between this issue and mortgage arrears. A set of figures that is of help sometimes in understanding where the crisis can go is the issue of indebtedness or distressed mortgages. Does Mr. Nolan have any analysis on the issue of arrears in relation to the payment on utility bills that might allow us to understand where the trend might go?
Mr. Dermot Nolan:
I do not have formal figures in that sense - there are various data protection rules. Our sense from talking to the companies is that arrears figures are running certainly over 10% - maybe 10% to 15%. This has gradually risen over the last four years. There is some sense I think it has stabilised in the last 12 to 18 months, but it rose considerably from, say, 2008-09. We do a survey every year of customers. The number of customers who define them in arrears is much lower - it is 4% to 5%.
Paschal Donohoe (Dublin Central, Fine Gael)
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What is the difference between how customers would define themselves and how a supplier would?
Mr. Dermot Nolan:
The supplier would generally define arrears as one has not paid any portion of one's bill within, say, four weeks of payment. On the customer, in a question we do not define that. We say: "Are you in arrears?" and the customer says: "Well, no, I am not."
I would comment on the general issue that Deputy O'Donnell raised. To some extent I am not sure - I think I should say this. In terms of the people struggling with energy bills, certainly in our conversations with the Society of St. Vincent de Paul and MABS, they are probably not senior citizens. This is purely informal. We have no way of determining who really is struggling or not, unfortunately, or the profile of customers who are finding difficulty paying bills, but our sense from the Society of St. Vincent de Paul and MABS, and even from talking to the suppliers, those who are struggling most are in fact families, often families with children. Obviously it has been reduced but the protections offered to senior citizens in terms of the free gas and electricity allowance tend to pay most of their bills. I am not in any sense trivialising some of the difficulties facing senior citizens, but in terms of the people who appear to be in arrears and having the most difficulty paying bills and are seeking assistance, most of them are not senior citizens. We think they are predominantly people with families.
12:25 pm
Paschal Donohoe (Dublin Central, Fine Gael)
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Could Mr. Nolan give some consideration to getting a better analysis of this issue on indebtedness and arrears on utility bills because in our role as public representatives we come across so many symbols of the difficulty in which people find themselves, whether it be not having a job or not being able to pay a mortgage payment? One of the wretched ones is meeting somebody whose home is cast into darkness or who is not able to heat themselves. It appears that getting a better understanding of what could be the potential of the problem and what are the components of it merits a little more than anecdotal examples of conversations, important as those are. It would be valuable for all of us to have the figures to know the position.
Paschal Donohoe (Dublin Central, Fine Gael)
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Even if we cannot get information on the social profile, a better analysis of what is the issue of arrears or indebtedness will help us head off or deal with the issue of disconnections in the future. Even if there is not a legal obligation on the companies, there are other wider obligations that they might consider in supplying that information to Mr. Nolan.
Paschal Donohoe (Dublin Central, Fine Gael)
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Okay, that is fine. The broad point regarding indebtedness and arrears stands on its own and would be a helpful contribution to tackling a horrific problem that we all want to see dealt with.
Mr. Nolan responded well to many of the points Deputy O'Donnell made on the issue of price increases. An issue I want to look at is the relationship between the profitability of the companies and the price increases that are going through. What is the profit attributed to Bord Gáis?
Paschal Donohoe (Dublin Central, Fine Gael)
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How would that stack up versus where the company was in previous years, as a trend?
Paschal Donohoe (Dublin Central, Fine Gael)
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Did its profitability not fall a bit last year but its dividend payment went up, or something like that? It made a profit of €90 million.
ESB is a vast organisation. It is known as the ESB Group, with many different segments. Could Mr. Nolan attribute a profit figure to the part of its business that supplies electricity?
Mr. Dermot Nolan:
We could. We were in front of the Joint Committee on Transport and Communications in November last when we discussed this at some depth. I sent further information and I will send the information to the committee in this regard as well.
In terms of its profitability, the ESB's main activities are fundamentally in electricity generation and networks. It is a segmented company. There is a networks company, there is a generation company and there is a supply business, and it attributes profitability to all three parts.
I am, perhaps, anticipating. The question that came up before Christmas was whether the overall level of ESB profitability was too high. It had reported six-month figures at that point in time of just over €220 million. I will try and say now what I said then. I would say there are three factors.
One, we were genuinely concerned at this level of profitability but we were assured by the ESB in the conversations we had with it - this is reasonably consistent with previous years - that full-year profitability would be nothing like twice that. In particular, it had bought the Northern Ireland Energy Company, NIE, as it is called, and some of their profitability is purely attributable to what is called a financial swap, the details of which entirely escape me. About €70 million of it is entirely attributable to that. Profitability will be much lower in the second half of the year.
Profitability, in general, in the energy sector will, I think, fall somewhat over the next few years for the following reason. Over the past five years, any generator of electricity has essentially had what is called a free carbon allowance. There is a price paid for carbon. Part of the electricity cost that the end consumer pays is the price of carbon. The price - coal is dirty, gas is less dirty - is carbon emissions. There is a set of EU rules that this must be reflected in prices. However, for various reasons which I could not pretend to elucidate, when this was set up they were given five years of free carbon allowance, so although in some sense they had to pay for them, they were given them for free which is a slightly odd situation. As of December last year, that disappeared for all generation companies, not just the ESB - obviously, the ESB controls a significant share of generation in Ireland. The ESB, and other companies, should have somewhat lower profitability as a result because they will be paying for this carbon.
Paschal Donohoe (Dublin Central, Fine Gael)
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The metric for profitability of an organisation such as the ESB is still hundreds of millions of euro.
Mr. Dermot Nolan:
It is. Again, we provided further information. In terms of its profitability, it is, given the size of the organisation. It is divided. Network profitability, which is a classic monopoly and is separated, and it is ring-fenced within ESB, has set a rate of return so that it earns in some sense a steady, relatively low level of profit. Generation profits are not directly regulated by either the North or the South. The market is regulated in a very complex way, but profitability is not. As I said, generation profits have been higher over the past few years because of this issue but I would expect them to fall.
The last comment on that is - again, I will send further information on this - we have measured profitability of the ESB as compared to similar comparitor-----
Paschal Donohoe (Dublin Central, Fine Gael)
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Companies.
Paschal Donohoe (Dublin Central, Fine Gael)
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When Mr. Nolan is making a pricing decision, what reference, if any, is paid to the profitability of the organisation that is submitting the application?
Mr. Dermot Nolan:
On the ESB, we no longer make pricing decisions in general. We make a pricing decision in terms of setting network reviews every five years but what we do on that is determine what is called an "efficient cost". We determine how much it would be in an absolutely efficient company and we use comparitor benchmarks in the United Kingdom and abroad. We say, "How efficient is this company? Is it efficient? We need to give them the efficient amount of revenue to run the company, but no more." In some sense, that should give them a limited level of profit. If, by some chance, and this is the whole principle behind much of this regulation, they beat that, they might earn a bit more profit, but generally one sets tough targets so that they will earn a minimum level.
Paschal Donohoe (Dublin Central, Fine Gael)
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There is an evident inconsistency between the fact that customers are being disconnected in the State and many are having to ration their electricity and gas, when the utilities that are providing them are generating very high levels of profit. I would certainly ask that when looking at future pricing decisions in the context of the terrible environment that we are in, Mr. Nolan give as much recognition to that as he can.
Paschal Donohoe (Dublin Central, Fine Gael)
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Sure.
Mr. Dermot Nolan:
I am not disagreeing in any sense with what Deputy Donohue stated, but I will say the statute under which we operate is very clear that we are supposed to set the efficient level of cost only. We have to obey statutes. As I stated earlier to Deputy O'Donnell, our chief concern is to try to make sure prices are as low as they can possibly be.
Paschal Donohoe (Dublin Central, Fine Gael)
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I thank Mr. Nolan for his answers.
I want to turn quickly to Mr. Chisholm. Many of his areas have already been covered. I will focus briefly on the status of Eircom and the relationship between Eircom and Mr. Chisholm's organisation. I understand that Eircom was designated quite recently as a universal service provider, USP. For my benefit, could Mr. Chisholm explain what that means?
Mr. Alex Chisholm:
Happily, yes. It was, indeed, designated at the end of June last as the universal service provider for a two-year period. It is a requirement for us under the universal services regulations to designate a company as the universal service provider. We have to consider which is the most suitable company. We went for that consideration on a public consultation and determined that Eircom was the most suitable company.
Its obligations, as the universal service provider, relate to an obligation to provide installations of telecoms equipment to new build where there is some, obviously, limited, at present.
They must maintain a basic quality of service. Linked to this we have put in place quite significant quality of service standards, which have been effective in improving the level of service given at that basic level. The underlying idea behind the universal service is that if a universal service requirement did not exist, some parts of the population might not be covered by anybody. It is in economic and social interests to give everyone access to telephony.
12:35 pm
Paschal Donohoe (Dublin Central, Fine Gael)
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We are all aware, as I am sure is Mr. Chisholm, of the financial status of Eircom. The most recent financial figures reported showed a loss of €1.5 billion. It recently underwent a voluntary creditor restructuring and, sadly, it has announced a very large number of job losses. Once the status is conferred upon the company, how closely if at all does the regulator engage with the company to examine whether its financial viability will impact on its ability to deliver the obligations it has given?
Mr. Alex Chisholm:
It is important to appreciate that Eircom has always been a very profitable company. The examinership process it went through last year was because it took on a huge amount of debt under a series of private ownerships. Its operating profitability has remained very respectable and comparable to other incumbent operators throughout Europe. As a result of the examinership, as the Deputy mentioned, a figure of €1.4 billion of debt was written off, which was approximately one third of the total debt it had. This is what it was thought necessary to get the company to a manageable level of debt given its profitability. If Eircom feels it is losing money on the universal service and that it has net costs, it is open to it to make an application to us as the regulator to be compensated for these losses. It has made one such application, which was for 2009 to 2010, and we must publish our view of this matter at the end of the month.
Paschal Donohoe (Dublin Central, Fine Gael)
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How will the compensation process work? Will the regulator make available to the company an amount of money to compensate it for an unexpected loss?
Mr. Alex Chisholm:
Yes, broadly, but to give more detail, the company will apply using a methodology we have specified to calculate the net cost. We must then consider whether it is an unfair burden. It is possible a net cost is not an unfair burden. If we determine it is an unfair burden, we must determine how it should be compensated, and we make initial proposals on how the compensation would be defined, essentially by sharing it throughout the industry as a whole, but we have not made any final decision on this matter.
Paschal Donohoe (Dublin Central, Fine Gael)
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I fully take on board the point on the operating profit of the unit itself in Ireland and I very much hope it is successful in dealing with the difficulty it faces. I am sure it will be. To return to my earlier question, notwithstanding the facts Mr. Chisholm has laid out on the table, Eircom is facing a degree of financial difficulty and is making great efforts to respond to it. How closely does the regulator monitor this, outside of examining its role as a universal service provider?
Mr. Alex Chisholm:
We do so because it is a tremendously important company in many different markets, ranging from the wholesale services it provides to many other operators in the market to its fixed and mobile retail services. It also provides special services to the emergency services. It is a tremendously important player and, as such, if it suffers from excessive indebtedness or other such problems which stop it performing its full role in the market or stop it investing, it is a net negative for the market as a whole.
Paschal Donohoe (Dublin Central, Fine Gael)
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Has the regulator identified any such negative?
Mr. Alex Chisholm:
We felt the period of excess debt it went through held it back from making a firm commitment to investing in upgrading its infrastructure, particularly towards next generation broadband which we felt was in the interests of its customers and was probably justified by the competitive pressures it was under. Proof of this has come in that during the period after it came out of examination, it moved quickly to commit a larger sum, approximately €400 million in total, to investing in next generation broadband and speeding up the rate at which it wants to roll it out to meet the competitive pressures it is under. We are not alone in the perception that such investment would have happened at a slightly earlier period if it had not been going through the difficult process of trying to deal with the excess debt which involved a number of different players and debt holders throughout the world.
Paschal Donohoe (Dublin Central, Fine Gael)
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That was my main question and I thank Mr. Chisholm for answering it.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I thank the witnesses were coming before the committee. A number of my questions are for Mr. Chisholm. The main mobile phone operators, including Vodafone, O2, Meteor and Tesco, obtain a licence from the regulator to provide a service. I am sure hundreds of pages of conditions are attached to it. What monitoring is done to ensure they comply with their licence conditions? The Vodafone signal has been deteriorating and weakening in large parts of Ireland. I know of many locations throughout the country where the previously modest signal from Vodafone has become very poor. The service which the licence stated should be provided is not being provided. How often does the regulator audit masts to examine signal strength? What is the regulator doing to ensure those who pay for a service continue to receive it? Vodafone has failed in the delivery of its signal and it is deteriorating in some areas. I seek reassurance from the regulator that something will be done about it. The company exists to make a profit and if it can cut costs and corners and possibly weaken the signal and have a few additional grey signal patches, it can probably cope with it. It is an issue.
Does the regulator have a role with Sky? The regulator has some responsibility for broadcasting.
Seán Fleming (Laois-Offaly, Fianna Fail)
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The regulator has a role in broadcasting.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Sky television comes into hundreds of thousands of houses. Will Mr. Chisholm explain why the regulator has a role in broadcasting but no role with regard to the television signal which comes into most houses in Ireland?
Mr. Alex Chisholm:
With regard to services by mobile operators, in contrast to the universal service provision by Eircom which we discussed earlier, it is not part of a universal service so there is no obligation under any national or European law for mobile operators to provide 100% coverage. The obligations all operators face include signal quality, the amount of uptime and coverage by population and geography. The Deputy asked in particular about the obligations Vodafone faces, and under its GSM 900 and 1800 licences it has an obligation of 99% population coverage and 92% geographical coverage. Under its 3G licences it has an obligation of 85% population coverage. These are some of the key licence obligations it holds. The Deputy asked what do we do about it. Drive tests are conducted on our behalf whereby specialised equipment is moved throughout the country to test the strength of signals at various places. Approximately 60,000 such tests are conducted in a year.
We analyse the responses from our contact centre, for example, where people say that there does not appear to be a good signal, or where people make complaints or raise issues of which there is not a huge volume. When those issues are raised we make sure that the route taken by the drive testers is informed by those areas. They make a particular point of going to areas of reported weak coverage. We then use the results of those tests for two further tests. First, we use them to make sure that the companies comply fully with their licence obligations, which is the case. Second, because those are average national levels we also use them as a way of providing useful feedback to the companies to enable them to address any areas of deficiency that they might have.
The other type of activity which is important for looking at the overall quality of signal coverage across the country is the amount of spectrum that is available and for what period. An argument has been made to us that, towards the end of the periods of licence, people's incentives to invest in their infrastructure might be weaker. Until it was clear how long new licences would be held for-----
12:45 pm
Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Chisholm might have answered my question so I shall return to one aspect that intrigues me. I shall talk about Vodafone because I have seen it noted as the largest supplier at the moment. He said that Vodafone, under a previous licence, had to provide 99% coverage of the population.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is he now saying that for 3G it only needs to provide 85% coverage?
Seán Fleming (Laois-Offaly, Fianna Fail)
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That is what he said a moment ago.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is Mr. Chisholm talking about Apple and Samsung smartphones and that type of technology?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I am referring to 3G and that is probably the essence of the problem. The Irish population had 99% coverage provided by their mobile telephone operators when they used the traditional mobile telephones. Is Mr. Chisholm saying that 14% of those who have moved to 3G have now been told to get lost and are not covered under the licence? I am unhappy about that. Why did the licence provided by the Commission for Communications Regulation allow the mobile operator to only provide signal coverage for 85%? The remaining 15% who bought 3G telephones in good faith are unable to get the adequate signal they enjoyed with their previous mobile telephone.
I may have answered my own question on why the signal has deteriorated. It is my fault that I did not notice the difference between the 3G licence and the earlier one for 2G. Most people use an ordinary mobile telephone for texting.
Seán Fleming (Laois-Offaly, Fianna Fail)
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The new provision is unfair to consumers. The commission has a responsibility to inform consumers that when they migrate to 3G, having spent between €500 and €600, 15% of the population will not have a signal, and the commission will not require the mobile provider to provide one. Will Mr. Chisholm to explain the position?
Mr. Alex Chisholm:
The Deputy will appreciate that the mobile communications market moves rapidly. In the past year the number of people using smartphones, iPad devices, tablets and so on has increased by 20%. Operators are trying to ensure that their services move in line with their customers' needs. From what the Deputy has said they need to do more in that regard. It is crucial that a lot of this new suitable spectrum be made available, which has been done as shown in the decisions that we reached last November. That spectrum will be licensed within the next few weeks. New services will be introduced using the new spectrum, which has not been made available yet and has not even started to make an impact but which will make a tremendous and positive impact on the quality of mobile data provision. We have taken the step to make the necessary spectrum available.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is the communications regulator telling me that for part of the industry that he regulates he did not allow all of these smartphones onto the market? He knows that they are on the market but he granted licences to Vodafone, O2 Meteor and all of the other companies for a 3G signal for their smartphones. He said that he knew at the time that the spectrum would not provide the 99% coverage to which people were used. A long time after people bought these telephones he talked about releasing spectrum next year. Is the regulator or Vodafone responsible for the lack of a signal on my iPhone for a large part of my constituency? I blamed Vodafone until a few minutes ago but it appears that the company does not have the spectrum. Why should it provide over 85% coverage when the regulator's licence did not require it? The commission did not inform the public that 15% of them will not have an adequate signal on their smartphones.
Seán Fleming (Laois-Offaly, Fianna Fail)
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No, the regulator said that he was going to release spectrum.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I do not understand any of this stuff. We are lay people.
Mr. Alex Chisholm:
The spectrum that we use, which is of critical importance and was the core of the spectrum that we auctioned last November, is 800 MHz. Up until the middle of October it was used for television broadcasting signals. It was only when that was switched off in the middle of October that we were able to use it for an alternative use, that is, mobile frequency. It is not something that could have happened a year ago or two years ago.
Seán Fleming (Laois-Offaly, Fianna Fail)
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When will we have the spectrum? When will the signal improve?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I understand. It is an awful pity that people like the regulator, who knew, did not tell the public that 15% of them who bought a smartphone would not have coverage where they lived. It is a pity that somebody did not tell us before we bought smartphones.
Mr. Alex Chisholm:
The Deputy is not right about the 15% figure. He assumes that the requirements set by my office act as a ceiling for the provision of services that companies offer. That is not correct. Let us examine the figures. For one operator the requirement was 85% but its actual coverage is 96%. For another operator the requirement was 80% but its actual coverage is 90.5%. In other words, the operators have responded to the needs of users like the Deputy and is providing services.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I ask the regulator to send the committee a note. I have heard that some of the other companies did not meet the 85% target and may improve.
Seán Fleming (Laois-Offaly, Fianna Fail)
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That is no thanks to the regulator but is due to the providers wanting to attract customers.
Seán Fleming (Laois-Offaly, Fianna Fail)
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People look to the regulator to protect customers. It is the luck of God, goodwill and commercial activity that some of the operators have exceeded the commission's targets. Why did the regulator set such low targets compared with the 2G licence which required 99% coverage?
Seán Fleming (Laois-Offaly, Fianna Fail)
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They are lower than what people with mobile telephones were used to. The regulator reduced the requirement under the licence. I have heard a lower figure than 85% coverage cited for some of the other operators. Please forward the information to the committee. I am disappointed that people bought or upgraded their old mobile telephones but the regulator knew all long that there was insufficient spectrum to provide the 99% coverage that people were used to. He claims that they will get it in due course but we should have been told that earlier. It is up to the regulator to look after the interests of the public. People are tired of regulators not looking after their needs. Mr. Chisholm could have done us all a favour by telling us about this long before now rather than have us endure an unsatisfactory service. I hope that the new spectrum will solve the problem.
Does the regulator have a role to play when it comes to Facebook, which is an electronic communication tool?
Seán Fleming (Laois-Offaly, Fianna Fail)
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My question on Sky.
Mr. Alex Chisholm:
We regulate the broadcasting network industry. Where we conduct a market analysis which shows that a certain operator or broadcasting network has significant power, it can be subject to regulation. We have proposed that be the case in respect of RTE Networks. That would not apply to Sky because it does not have broadcasting networks in this country. It is an authorised operator because it will shortly offer - and it is doing so at the moment on a trial basis - telephony and broadband services. We will regulate it on that basis.
12:55 pm
Seán Fleming (Laois-Offaly, Fianna Fail)
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Who regulates Sky's signal in Ireland?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is there an equivalent to the role of Commission for Communications Regulation in the United Kingdom that is responsible for regulating Sky?
Mr. Alex Chisholm:
In the United Kingdom, they have chosen to put in place a so-called converged regulator dealing with both content and networks and that regulator is called Ofcom, the Office of Communications. In Ireland, we have kept the roles separate, ComReg, the Commission for Communications Regulation and the Broadcasting Authority of Ireland, which deals with broadcasting content.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Does ComReg have a role?
Seán Fleming (Laois-Offaly, Fianna Fail)
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In his opening paragraph, Mr. Chisholm states, "The Commission for Communications Regulation, known as ComReg, is the national regulatory authority for the electronic, communications and postal sectors". Is Facebook not an electronic communication?
Seán Fleming (Laois-Offaly, Fianna Fail)
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When we read Mr. Chisholm's presentation and then he states that ComReg has no role in relation to social media does he understand that people would expect ComReg to have that role? Who should regulate Facebook, if ComReg does not regulate it?
Seán Fleming (Laois-Offaly, Fianna Fail)
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We have been told that 36% of houses have subscribed to broadband and 65% of houses receive broadband. What is the difference? Does that mean that 35% of houses in Ireland have no broadband?
Mr. Alex Chisholm:
Yes, that is correct. The average figure for Europe as a whole is that 68% receive broadband and in Ireland 65% have access to broadband. We are very close to the European average. Clearly one third of houses do not have broadband connections. As the Deputy will have noted from the published figures on broadband by the Department of Communications, Energy and Natural Resources, which deals with the national broadband scheme, it believes there is almost universal coverage. The fact that people do not have a broadband connection at home is a function of choice rather than the service not being available.
Work can be done to try to promote the uses of broadband and to ensure that people see how useful it is for the way they live and work. The so-called demand stimulation measures are part of the national broadband plan published at the end of August last year.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I have two specific questions. Mr. Chisholm referred to Eircom's contract as an universal service provider and it being fined €525,000 because it did not meet its fault repair targets under the terms of the universal service provider contract. That fine was paid to ComReg.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Were the customers who were left without the service for the extended period compensated by the money that resulted from the fine paid by Eircom?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Chairman, if that is a provision of the legislation, we should recommendation that it be revisited. If Eircom's customers were left without a phone service for a time in excess of an acceptable period, and Eircom had to pay a sum of money in lieu of not meeting its contract, in my opinion it would be logical to compensate the customer who was left without a service.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I will now address my questions to Mr. Dermot Nolan from the Commission for Energy Regulation, CER. Does CER regulate Eirgrid?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I have put this question to both ESB and Eirgrid and I now wish to hear Mr. Nolan's response. Under the Grid 25 Plan, it is proposed to generate electricity through renewable energy and run pylons from the west to the population on the east coast. Mr. Nolan and I know that people will not want to see the erection of pylons across the landscape on the scale proposed. We both know this proposed development will go to all the planning authorities and will be referred to Europe. Given that most of the electricity is required on the eastern side, very little of the proposed generation capacity is in that part of the country. In essence we are producing electricity in the area in which it is not needed and transfer it by pylon to where it is required. Is it not the essence of sustainability to produce the goods close to where they are required? I asked the chief executive of Eirgrid whether he would ensure that electricity is generated closer to where it is needed? His response is that he has no role in that matter, that producers can produce it where they like but he is legally obliged to get it to where it is required. Mr. Nolan as chairman of CER regulates both the producers and the transport network for transporting the electricity. Does he agree it makes more sense from the environmental point of view to produce it close to where it is required? We are embarking on producing electricity in areas where it is not required and transporting it at enormous cost and thereby creating a significant environmental impact in the process. Does Mr. Nolan have a view on that?
Mr. Dermot Nolan:
We have set targets for renewable energy, and 40% of our electricity by 2020 must come from a renewable source. That is a binding EU target. If we do not meet that target we will be susceptible to fines. It is Government policy to meet the target. Most renewable energy generation in Ireland is created by wind turbines and for good or ill, wind turbines are far more efficient in the west, and the north west in particular. Therefore that is where they are likely to be built.
I see the point the Deputy is making, but it would not be as efficient to locate wind turbines on the east coast and would be far less likely to meet the renewable target. We may be left with a situation, whereby the logical place to locate renewable wind generation is in the west but most of the demand is in the east, we may need to build such pylons. We will try to minimise this as much we can.
I will ask my colleague Mr. Garret Blaney to respond further.
Mr. Garrett Blaney:
We are keen to try to get the least cost development. We do not want to put unnecessary restrictions on developers as that adds to cost. We are keen to keep the cost of development low.
Deputy Fleming mentioned that the majority of the load is on the east coast. We can only respond to the demand and we are there to facilitate the market and consumers. If there was an opportunity for government to stimulate development of demand on the west coast, that would be very helpful and would reduce the burden on the transmission system. That is more a policy matter but we are advising the Department on this area. We are concerned about reducing demand on the electricity system. We have been talking to IDA and others about trying to stimulate new loads into the system such as data centres and further economic activities that could help stem this downward trend in consumption, which is obviously is very concerning from a consumer point of view. These are policy matters. All we can is advise policy makers.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Does CER have a role in regard to the east-west interconnector that is under the Irish Sea because that facilitates the importation of electricity and the possible export of electricity in the future? There are proposals for wind farms and I am sure Mr. Blaney is aware that people want to produce electricity for the export market.
Will the commission be regulating that generation of electricity even though it will not be used or acquired in this country? Does the commission have a role in that regard?
Does Mr. Blaney have information or documentation on how waves emanating from wind farms affect biomedical devices of those living in close proximity to them? Has anyone in the commission examined the issue? Previously, there was talk about radiation from mobile telephone masts and the commission carried out audits. The same questions are now asked about wind farms and the impact they could have on biomedical devices such as implants or pacemakers of people who live within 400 m to 600 m of a wind farm. Does Mr. Blaney have any information on the issue? If not, would it be possible to send to the committee the guidelines the commission follows when dealing with such issues? I am sure public health is a concern of the Commission on Communications Regulation and that it would ensure that nothing could be done that would impact adversely on public health.
1:05 pm
Mr. Garrett Blaney:
I will cover the points raised by Deputy Fleming. We have a role in regard to the east-west interconnector. It has been a fairly direct role. We have had regular meetings with EirGrid on the development of the project. We reviewed all the costs on the project. We regulate it directly as a monopoly asset. I can give an update on the project currently. The interconnector is in operation but not in full operation. There have been telecoms issues and we have worked with the telecom regulator on that.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Has there been interference?
Mr. Garrett Blaney:
There has been some limited interference but that is currently being resolved.
In terms of the broader question on export activities, our role, as set out in legislation, relates to generation licences. Obviously, anyone who wants to generate in the State has to apply to us for a generation licence. Similarly, they must have an authorisation to construct. We generally have a facilitative role in terms of trying to facilitate the development of export but we do not have any direct responsibility in legislation for that. We will try to be facilitative, but it is primarily a matter for the Minister as a policy issue and is driven very much by the revenue available to any export and the sources of revenue for that.
On the effect wind farms might have on pacemakers or other such devices, we have no direct responsibility in legislation for ionising radiation or the effects of electrical fields. That has not been given to us by the Oireachtas. There has been discussion about other agencies taking on the responsibility. We are not aware of any scientific evidence that says there has been an effect. That is a matter for whatever agencies are responsible for the issue.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Perhaps Mr. Blaney might help me then by outlining what agency I could raise the issue with, given that he says the commission has no role in it. This is what normally happens. One deals with a planning authority which says it does not deal with health matters and when we go to the commission, it says it is not under its remit and that it is a matter of public health. When I go to the HSE, it says it has no role in electricity generation. Everyone washes their hands of the problem. It has never been proven that there is a health risk and I do not suggest there is one but concern has been expressed and there must be information available from other countries that are more advanced in renewable energy technology and have carried out some investigation. We see the job of a regulator as being to look after the public interest. Health must be part of that. The Department of Health will say it is not a matter for it but that it is the commission’s responsibility. Who will look after the issue or to whom can Mr. Blaney direct me?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is the commission prevented from examining matters people raise on renewable energy? One would assume the regulator would not have to be told to look after public health if approving something that could have an impact on health. Mr. Blaney is saying that unless it is specified in the legislation that the commission should do something then it will not do it. I do not buy that approach.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I will conclude on this point. I will be happy if the commission just examines the issue. In recent months a Private Member’s Bill has been produced on the topic by Deputy Penrose. The issue has been raised in the Oireachtas and this is an opportunity to talk to the electricity regulator to ascertain the position. Perhaps the commission could examine the Private Member’s Bill that was published towards the end of last year on the subject. There must be information on the issue somewhere in the system because the legislation has its origin somewhere.
Mr. Dermot Nolan:
We will. We will do our best to find out the agency responsible. We have not received any evidence on the issue. In terms of powers and things we could do, if there was a problem – we have no evidence that there is – it is not obvious that we would have any legal power to act. I am sorry about that but that is to some extent the statute that governs us.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Nolan should send me what he has.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I wish to ask Mr. Nolan about earlier comments. He is on a salary of €180,000 and he has a certain number of staff. He is to respond to the committee on an issue raised by Deputy O’Donnell. Will he give a breakdown of staff in terms of the number on various salary levels and who benefited from the payment of bonuses? He can submit the information in writing to us so that we will have a record of it. Mr. Nolan indicated that a number of staff did not qualify for bonuses. How many out of the overall staff did not qualify?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is different because they are not eligible. Does that mean that all those who are eligible did get bonuses?
Mr. Dermot Nolan:
Staff are eligible for a bonus of between zero and 15%. That is the range outlined in the contractual conditions for performance-related pay. There is a range of outcomes. Someone might have got zero and someone else might have got a low figure and there were also those who got high figures.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did anyone in the group that was eligible for a bonus get zero?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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One out of how many staff?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does an independent audit process outside of the organisation deliberate on whether employees are eligible for a bonus?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So the system is in-house.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does the level of salary for each staff member relate to a Civil Service grade?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The staff and the salary relates to Civil Service grading. Is the bonus that is paid to them on top of that? It is not the case that they are at a disadvantage in terms of their salary. It relates to their performance.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that performance outside of working hours or what are the criteria set down for it? Mr. Nolan need not explain it in detail but he could provide us with a note on it. I am interested to find out whether the bonuses are paid to staff who work regular hours. What do they do beyond the call of duty that requires them to be paid between zero and 15% extra?
Mr. Dermot Nolan:
I will come back to the Chairman with a detailed note. Objectives are set and if staff exceed them, they are more likely to get a higher performance-related pay.
I revert to the fact that this is part of the contractual arrangements that were set up in 1999. The contracts specify 37.5 hours per week. The average working hours, which we have measured, are approximately 42 hours per week. People are working more than their contract specifies and there are no overtime payments. The system is dependent on the idea that if staff perform well over the year they will get some reward for it.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would like to know what all of that means. In the current economic environment that would seem to be out of step with what is going on.
An explanation is required and I would like to hear one. While I understand a contract has been in place since 1999, I would like to hear the reasoning behind it as it appears to be odd. Are all the commission's staff located on one site?
1:15 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is the property leased or owned by the State?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How much does the lease cost?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What are the terms of the lease? Does it include a facility to negotiate the rent downwards? If so, have such negotiations taken place and when will the commission next have an opportunity to engage in such negotiations?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it possible to negotiate the rent downwards every five years?
Mr. Dermot Nolan:
We have been in the property since 2007, which was before I arrived in my post. My understanding is that there has not been any opportunity to negotiate the rent downwards owing to the types of rent reviews that were in place in 2007. Without giving too many specifics on what is, I suppose, a quasi-confidential matter, we share the building with another State body and it has been suggested that this body may require either more or less space. We are studying the idea of making some sort of attempt, with the other State body to, shall we say, negotiate the rent downwards in return, potentially, for a commitment to stay longer.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The commission negotiated the current rent in 2007 when property prices were extremely high. What efforts, if any, has the commission made, notwithstanding the legal issues surrounding when one can or cannot negotiate, to negotiate the rent downwards given pressure in the rental market, including downward rental reviews?
Mr. Dermot Nolan:
I am not trying to dodge the bullet in this matter but I must revert to the Chairman on it. Efforts were made before I became chair and Accounting Officer but they did not succeed given the structure of the rent review. I promise the Chairman I will come back to him on this specific issue as soon as possible.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When will a review be possible?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is the cost of consultants closely monitored? Are consultant contracts subject to competitive tendering?
Mr. Dermot Nolan:
Everything is competitively tendered. We have a complex procurement requirement to meet Irish and European Union rules. One thing I would say about consultancy over the past year or so is that we are incurring a fairly significant set-up consultancy cost for the petroleum safety framework to which I referred.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The commission's proposals for gas pipeline tariffs generated controversy or negative comment as to the impact they would have on the cost of the product to the end user. What was the outcome of activity in this area in 2011?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
Mr. Dermot Nolan:
That led to a conclusion whereby we changed somewhat the structure of gas tariffs. A court case in this matter is due to be heard in the High Court at the end of February. Shannon LNG is taking a judicial review against the Commission for Energy Regulation, which limits what I will say on the matter. I will say, however, that we took such actions because if we had not done so, the price of gas to end consumers would have risen significantly in future years and this would have had a knock-on effect on electricity prices. That is the reason we took that action.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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While I respect Mr. Nolan's decision not to speak about the case before the courts, it is the contention of the gas operators which use the pipeline that the opposite would have been the case, namely, gas prices to the consumer would have fallen.
Mr. Dermot Nolan:
We are being judicially reviewed by one particular entity, Shannon LNG. This may be a subjective view but Shannon LNG and nobody else argued that gas tariffs would have come down. If one examines the responses we received as part of our various consultation exercises, people agreed that there was a fear that gas tariffs would increase. As I stated, that was the basis for our action. We did not want gas tariffs to rise and we believed it would be somewhat perverse if, as a result of finding a new source of gas in Ireland, gas tariffs to end consumers were to rise significantly. That is the reason we took the action we did. This decision is being judicially reviewed and the commission will respect whatever decision the court makes.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Mr. Nolan give the committee a note on the background to this issue, setting out the reason the Commission for Energy Regulation addressed this matter in 2011, what consultation process it entered into and the reaction to it, including some negative reaction? Perhaps he will read the record of Dáil debates from that time and examine the contributions that were made in the Dáil on the issue. The expectation was that the pipeline tariffs were out of line with the direction in which the market was moving and that we would have had cheaper consumer prices. I would like to know the background to the process. I will not discuss it in detail today because of the court case as I would not like to ask any questions that could create difficulties for the commission before the courts. Notwithstanding that, I ask Mr. Nolan to provide a comprehensive note on this issue.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is fine. My questions to Mr. Chisholm of the Commission for Communications Regulation are the same as those I put to the other commissioners. I ask him to outline salary levels in his office, provide a breakdown in staff numbers relative to salary scale and indicate whether bonuses have been paid.
Mr. Alex Chisholm:
The staff level is 107. When asked what the employment control framework was I indicated it was around the same level as current staffing. I can now provide the precise figure. The employment control framework was 119 by the end of 2012, 111 by the end of 2013 and 105 by the end of 2014. It shows a considerable reduction over the relevant period and one which will put pressure on the commission.
In terms of the pay that applies to staff, as in case of the Commission for Energy Regulation, this is an inherited obligation, in our case one which dates back to former Office of the Director of Telecommunications Regulation in 1997. It was renewed at the time of the establishment of the office of the Commission for Energy Regulation in 2002. As declared in our annual report, which is before the committee, we have a performance management system in place and approximately 8% of staff pay is based on performance. This mechanism has never applied at commissioner level. Does the Chairman have other questions in this regard?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How many commissioners does the Commission for Energy Regulation have?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are both commissioners on the same salary scale?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is Mr. Blaney's salary?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There are two commissioners, one on a salary of €180,000 and the other on a salary of €160,000. What is the position regarding salaries in the Commission for Communications Regulation?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are the commissioners on the same salary scale? Is the salary €180,000?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is Mr. Chisholm's salary?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is roughly the same as----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the salary of the other commissioner?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The salary level is roughly equivalent to that of the Commission for Energy Regulation.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the position regarding the commission's premises, lease and so forth?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it a State owned building?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the rent?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is €250,000.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The commission pays €1 million per annum to the State for its accommodation or office base.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I suppose the commission is tied into an upward only rent review. What is the State's policy in this regard?
1:25 pm
Mr. Alex Chisholm:
A break clause that we have been eagerly awaiting is approaching during 2015. It will need to be negotiated with the Office of Public Works. The OPW has more properties than it has tenants. From its point of view, it is hoping to maintain its current rent roll. We are a tenant like any other and would like to pay much less rent.
I am pleased to inform the committee that we were given responsibility by the Oireachtas for regulation of premium rate services. We assumed liability for the staff and premises of the agency that previously dealt with them, the Regulator of Premium Rate Telecommunications Services Limited, Regtel. We were able to sublet half of its premises to defray the cost and moved all of its staff into our office space, constituting a significant saving and consolidation. We are now taking steps to exit its offices completely. As members see from the accounts, our premises cost will decrease during the next year, reflecting the reduction in office space.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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During the next year, ComReg will make substantial savings on rent, as it will opt for another building or its rent will be reduced.
Kieran O'Donnell (Limerick City, Fine Gael)
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What does that lease entail?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The total cost for the two leases is €1 million.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is substantial.
Kieran O'Donnell (Limerick City, Fine Gael)
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What was the range of bonuses paid to staff? Some 8% of the total amount was mentioned, but what percentage is needed for employees to qualify?
Kieran O'Donnell (Limerick City, Fine Gael)
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Similar to the managerial level.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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As with Mr. Nolan's, are those bonuses paid each year regardless?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Was there any year in which bonuses were not paid?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When ComReg submits its figures to us, it might identify the number of staff who qualified for a bonus and the number who did not as opposed to the number who were not eligible so that we can get an idea of how the system of performance assessment works. I presume that it is not independent and that it is in-house.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I wish to ask Mr. Nolan a question. Given the current circumstances in terms of pay, conditions and so on and people's desire for transparency, would it not be advisable for all of the organisations present to assess performance in an independent, out-of-house way?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When I asked my question, I expected Mr. Nolan's organisation to examine the cost versus the outcome. If changing was not cost effective, it would not be done. I would not expect the organisation to do it just for the sake of transparency. It is an issue of one system versus another, but one would like to see such an analysis being done.
Mr. Guiomard's organisation has had extensive correspondence with Ryanair. Most of the questions that would have been asked by this committee were asked by Mr. O'Leary. He has pursued the Commissioner for Aviation Regulation, CAR, for answers to his questions. He wrote to us on 20 March to seek guidance as to why we failed to take action on a quango that employed 18 people. This is the first time that the three regulators have appeared before the Committee of Public Accounts. We invited them so that we could get a sense of how each one's work, costs and so on impacted on the price the consumer pays for a service, etc. This has been a worthwhile exercise and members may wish to invite the regulators to appear separately, perhaps alongside their respective Departments so that an overall view could be outlined. Mr. O'Leary might be pleased to hear this.
Mr. O'Leary also suggested that the committee should indicate why we believed that "Irish airlines and passengers should fund this bureaucratic waste and incompetence". These are his words, not mine. I am interested in bureaucratic waste and incompetence, in that it is our job to ensure there is none. There must be efficiency, value for money and so on. Achieving these goals forms part of the process of cross-examining or conversing with witnesses about their costs, as does showing the public what those costs are. Some are substantial, for example, the €1 million in rent, the bonuses, the salaries, etc. These matters are of public interest. I hope that, by way of this exchange, we bring pressure to bear, reduce costs - each of the organisations before us is attempting to do this anyway - and ensure value for money. In this context-----
Kieran O'Donnell (Limerick City, Fine Gael)
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May I speak about the aviation authority?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Mr. Guiomard address my questions on his salary, employees and bonuses?
Mr. Cathal Guiomard:
The figure for my salary is the same at €180,000, the number of staff is 15 and there is no equivalent performance scheme as has been described in respect of the other two offices. As commissioner, I had - and still formally have - a scheme of making commissioner's awards to reflect special efforts by staff. I did this in one of the years under discussion. The amounts in previous years were much smaller and some years saw no awards. In 2012, there was no award.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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According to the 2010 accounts, expenditure included an ex gratia payment of €80,000. To what did it relate?
Mr. Cathal Guiomard:
As the committee saw from the slide I presented, we have actively managed our costs downwards. This has meant that, from time to time, we have not renewed employment contracts or have otherwise sought to make savings when we did not require particular services.
In the case in question, we did not wish to continue with a contractor's services. As a result of discussions, we decided to make a one-off payment to conclude our arrangement.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Why would the commissioner do that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If a contractor provides a service that one no longer requires, one should end the contract, not renew it or continue to employ the company.
Kieran O'Donnell (Limerick City, Fine Gael)
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Was it an employee or a company?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Why would the commissioner's organisation give the company or employee €80,000?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand. Was it an individual or a company?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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A self-employed contractor.
Kieran O'Donnell (Limerick City, Fine Gael)
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It was not an employee.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It was a contractor. What were the circumstances? Was the CAR threatened with litigation? Did it just assume that there would be litigation? Who arrived at the €80,000 figure?
1:35 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So there was a dispute.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What was the value of the contract?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So the annual cost was €80,000 and there was a dispute about the ending of the contract.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That arose because the commission did not want the service any longer and felt the cheapest option was to settle this before it went to court, with solicitors, barristers and everything else getting involved.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The €80,000 figure was reached by way of negotiation with this contract.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In light of all the other costs that might have been incurred, the witness saw this as best value for money or the best route out of this.
Kieran O'Donnell (Limerick City, Fine Gael)
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Was that a yearly contract?
Kieran O'Donnell (Limerick City, Fine Gael)
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When the contract was signed, was it a yearly contract or was it for four or five years?
Kieran O'Donnell (Limerick City, Fine Gael)
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How many years was that for?
Kieran O'Donnell (Limerick City, Fine Gael)
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How much time had passed when the issue arose and the contract was to be broken?
Kieran O'Donnell (Limerick City, Fine Gael)
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Is it possible that the contract was paid to its end? The contract was valued at €80,000 per year so how much of the contract was left?
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Guiomard needs to be more specific than that. Is that a year or a month?
Kieran O'Donnell (Limerick City, Fine Gael)
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So if the contract had been finished, the contractor would have been paid less money than the €80,000 figure.
Kieran O'Donnell (Limerick City, Fine Gael)
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Could the commission not see out the end of the contract?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If the contractor had been told to stay at home and not bother coming in, he or she would have been paid far less than the €80,000 if it was at the end of the contract.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am well aware of that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That may be so but according to the information this morning, the contract was just at an end. The easiest action would have been not to renew the contract, and it would have been cost-effective. I understood from earlier exchanges that there was a longer period to run but it turns out that the contract was on the verge of finishing. If that was the case, it would have cost less to allow the contract run out and not renew it. I am familiar with the legislation and I want to get into Mr. Guiomard's reasons for not allowing the contract to run out, which would have cost less, and why much more was apparently paid. I am only asking for an explanation.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I cannot understand that. If the contract was to end shortly, why would the value of a year of the contract be paid at a cost of €80,000? It was just at the end of the contract.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There would not have been a dispute if the contract had been allowed to run out and take its course. The contract was close to its end and a dispute would not have arisen. There would only have been costs for the period of the contract running out. Why would the commission bother entering into a deal for €80,000 when the contract was at an end?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How could that happen if the end of the contract was close?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is pretty clear that if I was part of a contract that was just finished, and I knew it would not be renewed because of ill feeling or a judgment that the contract was not being fulfilled properly, I would live with the issue for the few months. That is what private enterprise might do; it would grin and bear it until the end, paying far less than €80,000. I would not put my hand in my pocket for €80,000. Mr. Guiomard will appreciate why I must ask the question because the commission is putting its hand into the pocket of a taxpayer to pay the €80,000. In the course of Mr. Guiomard's consideration of the issue and payment of €80,000, was sanction required from the Department?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is not required. I am just asking to clarify the matter. No sanction seems to be required.
Mr. Cathal Guiomard:
That is correct. The office collects the levy, makes its expenditures, has various audits done and publishes the end result. We have an external audit committee that oversees this. Individual expenditure does not need to be sanctioned. At this time there are specific controls on employment levels, salary scales and a variety of elements but the office also makes discretionary decisions.
Kieran O'Donnell (Limerick City, Fine Gael)
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Why was it described as an ex gratia payment? That should apply to an employee but this case relates to a contractor. How many years was the contractor with the Irish Aviation Authority?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That was not agreed with me or the committee.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We are here to extract the detail of the payment from the witness. I have not asked for the name of the contractor or anybody else. We are discussing the principle of paying somebody €80,000 at the end of their contract when it would have apparently cost substantially less to let the contract run out. There could not have been a legal dispute at the end of a contract if it had been fulfilled by both sides and came to a natural end after five years. That is the only point I am making. Our job is not to make arrangements with the Comptroller and Auditor General, and he did not tell me about it. I am acting on the information before me, which is that the money has been paid. I am asking why this happened and it seems there is an unsatisfactory response in that the contractor was paid off towards the end of a contract. That is the essence of the issue. Mr. Guiomard seems very decent and he paid €16,000 to employees at his own discretion.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What did the audit committee make of the €16,000 and €80,000 payments? Did it have a view?
Mr. Cathal Guiomard:
With regard to the €16,000 payment, I introduced a performance scheme in the office, although economic circumstances were different when it was introduced. The rules were an application of a prevailing scheme within the Civil Service.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the audit committee approve of the scheme?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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A "Yes" or "No" answer will do. Did the audit committee agree to the scheme which was introduced that led to the €16,000 payment?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It did not express a view and Mr. Guiomard did not ask it prior to the introduction of the scheme which paid staff €16,000. That is no reflection on staff or anything else but rather the process by which the arrangement was reached by which €16,000 was available to staff. Mr. Guiomard is telling me he did not ask the audit committee about it.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did you ask the audit committee's advice prior to the payment of the €80,000?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So you act on your own?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That may be so but there is an audit committee and surely it has some role. Had it expressed any concern about the payment of €80,000 or €16,000?
1:45 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Has it been brought to its attention bar from putting it in the accounts? Has it debated the accounts?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How much do its members get paid?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that €15,000 each?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So they get five grand a year. Is that right?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I find the payment of €16,000 - again nothing to do with the staff or anything else - and how Mr. Guiomard arrived at that to be unusual, unless the Comptroller and Auditor General would like to comment on the information that he has on the ex gratia payment of €80,000.
Mr. Andy Harkness:
I do not have the details of that to hand or what our consideration of it was at the time. Obviously, what we have signalled to the committee in the past is if there are instances of loss or uneconomic expenditure, it is imperative that the matter be disclosed in the accounts. We also signalled a threshold where we will draw attention in terms of our audit certificate to those matters. The amount in this case did not exceed that threshold but it obviously was of such significance that we insisted that the matter be disclosed in the accounts.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will conclude on this because there is no point pursuing this at this meeting. We will pursue it elsewhere. What information did Mr. Guiomard give to the Comptroller and Auditor General regarding the €80,000? Was it in writing?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What Mr. Guiomard has given is a file of the information around the payment of this €80,000 to the Comptroller and Auditor General's office.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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For the purpose of this question, we need to get the information from that file or at least have a discussion with the Comptroller and Auditor General about it and we will come back to Mr. Guiomard in due course. This is unsatisfactory. For one man to make that decision - we will see the legal advice around it as well if Mr. Guiomard sought it - is unusual. I will make no further comment until I see the content of the file.
With regard to the property, are all the commission's staff located in the one office?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the cost of the lease?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When is it up for review?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When is the next five-year review?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What did the commission achieve from that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When was the €285,000 agreed prior to the review?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In spite of property rental prices going down, Mr. Guiomard failed to obtain a decrease in the rent paid. This will stand for a further five years.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is there a break clause in the lease?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Who negotiated that? Is that something Mr. Guiomard inherited?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did the organisation negotiate it?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So Mr. Guiomard's office negotiated a rent of €285,000 a year with five-yearly reviews and no break clause.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If Mr. Guiomard would.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What advice did the office get on the rent? Does the amount compare favourably with the cost of renting property in the area? Did an auctioneer examine this?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We must have the information on the inquires that were made and how the rent compares to other properties at that location. This also formed part of Mr. Guiomard's reply to a previous question as to why the commission is not based at Dublin Airport. It cannot move to the airport because of the 25-year lease. Did the commission consider locating at the airport when it was being created?
Mr. Cathal Guiomard:
A number of sites were considered when the office was set up. In the recent period, there was an announcement in 2009 that the office was to be merged with the National Transport Authority. That decision was not pursued. There was a subsequent decision about merging with the safety division of the Irish Aviation Authority. A number of merger proposals have been contemplated, which involve corresponding bodies in different locations, and if progress had been made on some of those by now and there was a location for whatever merged entity was going to result, there would have been an opportunity then to see what the rental arrangements, the office provision and so on needed to be. I wanted to avoid moving out of the office into another location, signing a rental agreement there and then finding another change had to be made thereafter. I would have expected the merger to have happened by now and we would have relocated to wherever the new office was going to be.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That relocation would open up difficulties in the context of the 25-year lease.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does the lease allow the commission to do that? Is it not specifically tied into the lease?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Mr. Guiomard clarify those issues for us?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I refer to the commission's policy on the use of consultants. Does it tender for all this work?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does whoever wins the contract have it for three years?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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One of Mr. O'Leary's letters refers to €120,000 expended on consultancy and more than €80,000 on advertising and public relations. To what does the €80,000 refer?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is Mr. Guiomard's view on the costs relating to Terminal 2? Much of the commentary is on the low numbers of people going through the terminal and the cost to the people who use the airport because of that. What does Mr. Guiomard think of its future? I passed through the building a number of times recently and I was taken aback because it was almost vacant.
1:55 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Therefore, would the witness envisage increased costs being incurred by those who are travelling?
Mr. Cathal Guiomard:
There will not necessarily be increases in costs. We will have an exercise to do in 2014 where, obviously, capital investment commitments have already been made but we will scrutinise operating budgets for the subsequent five years and taking account of traffic forecasts and setting a price cap.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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According to the correspondence the witness granted that Dublin Airport Authority will not pay a significant price increase to compensate for the substantial fall in passenger numbers. Does the witness see that price increase being maintained at that level and does he foresee any further increases?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does the organisation monitor and prepare reports on the efficiencies that need to be acquired?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I read in the documentation in respect of a meetings and consultation between Dublin Airport Authority and airline users that the witness failed to attend a consultation. Is that accurate?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Many other issues are covered in the correspondence and reports which we have before us but one of the striking features is the level of correspondence between Mr. Guiomard's office and Ryanair. The volume of correspondence is noticeable. Is it a matter of concern to the witness that so many issues have been raised by Ryanair on what happens at Dublin Airport and in his office? Are the complaints reasonable?
Mr. Cathal Guiomard:
There is a long history of correspondence and legal action. As I have pointed out we won those legal actions with one exception, therefore, the court's scrutiny of our work seems to involve a judgment that we make legally valid decisions. There is also a long history of Ryanair faulting many parties, it is not limited too our organisation in terms of those who are criticised or written to. In the case of the four particular points that Mr. O'Leary raised in spring 2012 at the start of that sequence of correspondence, the Chairman described him as having successfully extracted answers from the organisation, the replies I gave to him were from our annual report of the year in question. No extraction was required. We had already provided information under these headings and are happy to summarise it again for anybody who may write to us seeking it.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It appears he has not much faith in Mr. Guiomard's office.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are there any further questions?
The committee notes the 2010 annual accounts of the three regulatory bodies. As a footnote to that we need to clarify the matter between the witness and the Comptroller and Auditor General on the issue of the €80,000 referred to. We will return to the witness on the other issues raised. There were other questions raised where regulators did not have the full information. It is important that we get that information in a speedy fashion and as detailed as possible.
I thank the witnesses for their attendance at the meeting.