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.