Oireachtas Joint and Select Committees

Wednesday, 11 December 2013

Committee on Transport and Communications: Select Sub-Committee on Transport, Tourism and Sport

Rationale for Sanctioning Energy Price Increases: Discussion with Commission for Energy Regulation

2:40 pm

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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The purpose of this meeting is to discuss with representatives of the Commission for Energy Regulation, CER, recent increases in gas and electricity prices sanctioned by the commission. On behalf of the committee, I welcome Mr. Dermot Nolan, chairman, Mr. Paul McGowan, commissioner, and Ms Cathy Mannion, director.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or an entity by name or in such a way as to make him, her or it identifiable. I advise that any opening statement submitted to the committee will be published on its website after the meeting.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I invite Mr. Nolan to make his opening remarks.

Mr. Dermot Nolan:

We are glad to be here and hope we will be able to help the committee in any way possible. I am accompanied by Mr. Paul McGowan and Cathy Mannion. I will discuss the first three or four slides of our presentation and then hand over to Mr. McGowan, who will cover the rest. The first objective of the presentation is to examine the role of the Commission for Energy Regulation, CER, and the second is to outline the general drivers of energy costs. Clerly, another objective is to examine the latest price trends.

I will talk briefly about the role of the CER. The CER is Ireland's independent energy regulator. It was set up by statute consequent to legislation passed by the Oireachtas. It has broad functions in the area of economic regulation and it also has considerable safety functions concerning energy. It may well be appointed as the water regulator in the near future but this is entirely dependent on the decision of the Oireachtas. Further detail is available on the website of the CER, .

I will try to give a sense of our mission and what we genuinely believe our functions are. In a world where energy supply and energy prices are highly volatile – oil and gas price movements are considerable – the mission of the CER is to act in the interest of consumers and ensure the lights stay on, that gas continues to flow, that prices charged to consumers are fair and reasonable, that the environment is protected, and that energy is supplied safely. We will be changing that mission and vision in the near future if the Oireachtas decides to give us water functions.

I have tried to give some sense of what the CER is trying to do and what it is about. Mr. Paul McGowan will continue with the presentation.

Mr. Paul McGowan:

I will refer to electricity and gas prices, beginning with a summary of the electricity price drivers in Ireland at present. Some 60% of the price of electricity is made up of the wholesale price of electricity in the single electricity market. That market is regulated on an all-island basis by the committee comprising the utility regulator in Northern Ireland, the CER and an independent member. The biggest cost driver in our wholesale market pertains to gas but it is also fair to say that PSO is a factor in terms of the wholesale price of electricity.

The second major component of electricity prices comprises the networks, a monopoly. That represents approximately 30% of the price. This cost aspect is regulated by the CER. In this area, capital expenditure in terms of the rolling out of networks, both at distribution and transmission levels, is a big cost driver.

The final element determining electricity prices concerns the competitive supply side, that is, the cost of running supply businesses and other associated costs and margins. That represents approximately 5% to 10% of the price of electricity. In this area, given that we no longer regulate the price of electricity in the market, our focus is on customer protection.

The next slide serves to illustrate the weighting the various fuels have in the wholesale market. Members can see that the wholesale market is very much dominated by gas, first and foremost. Some 50% of the power comes from that fuel. It is followed by coal, which results in 19% of the power. Renewables constitute a large proportion, with 16% of the power being from wind.

The first graph I have made available to members illustrates neatly the very strong relationship between the price of gas and our wholesale market price for electricity. The two track each other very closely and have done so pretty much since the market was established. The following graphs illustrate that there is generally a trend of increasing prices for electricity across Europe. Ireland is broadly following the trend but our industrial prices are generally above the EU average and our domestic prices, while closer to the EU average, are none the less above the EU average although slightly below the euro area price.

There are three broad gas price drivers.

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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I thank the delegation for its presentation. I call on Deputy Michael Moynihan.

Photo of Michael MoynihanMichael Moynihan (Cork North West, Fianna Fail)
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The commission is there to protect consumers’ interests. Some of the half-year accounts for some energy suppliers show large profits. Is the commission taking everything into account when one of these energy suppliers requests a price increase? The commission claims it is setting a price based completely on the cost of the gas and the network with a marginal profit for the suppliers involved. How can they earn billion euro profits in a full year then?

There are significant charges for those who were disconnected from the network to be reconnected. Even those making small alterations to their houses or changing meters are being landed with €3,000 bills. Will the commission explain the reasons for this?

Mr. Dermot Nolan:

I assure the Deputy that we are doing our best to keep prices low. I know these are difficult economic times and people are concerned about any price increases. We are trying to keep prices to the most possible minimum level. Energy companies make profits. However, the legislation is set up so that like any other commercial company, they are allowed to make reasonable profits. Whether they are State or private is not an issue for the commission. We are there to ensure they have a reasonable rate of return.

Photo of Michael MoynihanMichael Moynihan (Cork North West, Fianna Fail)
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In the public domain, some of the companies would have put in for a price increase, and the CER would have given them a greater percentage increase than they would have sought in the first place.

Mr. Dermot Nolan:

That was an issue last year when Bord Gáis applied for an increase. I apologise for not precisely remembering the numbers, but I think it was a 7% increase. As we are bound to do, we had to consult on that and give a period of time for people to comment on it. We noted in the consultation that the company had asked for 7%. We were minded to give the company less, but we also noted that over the six to eight weeks before a final decision was due, fossil fuel prices could change and in fact, they did change. Gas prices basically increased over the eight week period, so as a result, the final increase was higher than 7%, even though we still cut costs. We did our very best to put that message across. Perhaps we could have done better, because it somehow got lost at the time. However, I can assure the Deputy that in the end the company applied for an increase of 1% to 1.5% above what we ultimately sanctioned. Perhaps we could do better with our message next time, but I can assure the Deputy that we did not give the company more than it sought.

Photo of Paudie CoffeyPaudie Coffey (Waterford, Fine Gael)
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I thank the witnesses for coming before the committee and for their presentation. Where more competition exists with suppliers, does it follow that unit prices are lower? There is much debate about wind generation, alternative renewable energy and so on. We also hear that we are importing nuclear energy from the UK. Perhaps the witnesses can clarify if that is the case.

Mr. Dermot Nolan:

I will do my best to answer the Deputy's questions, and then I will pass to my colleague who will deal with the remainder of Deputy Moynihan's questions.

Photo of Paudie CoffeyPaudie Coffey (Waterford, Fine Gael)
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If there is any detail on the cost of electricity that is generated by wind energy, versus traditional oil generation and-or possible imported nuclear energy, can Mr. Nolan explain who the CER arrives at a price taking all of that into account? In arriving at the unit price, does the CER consider the wider competitiveness of the economy and the social affordability when setting prices? One of the biggest overheads of small to medium enterprises is energy. We can continue to raise prices if we are going to reduce economic activity. Does that come into the consideration of the CER?

Mr. Nolan also mentioned the circumstances that cause challenges on the social side. Unfortunately, there are still many disconnections for people who simply cannot afford their utility bills. Are these taken into account generally when the CER is setting the price? Mr. Nolan said that the switching rates are quite healthy when compared to other jurisdictions but they have gone from 20% in 2009 to 11% in 2012. Perhaps he can explain why that has happened.

I note from the presentation that the CER remit goes into the approval of capital expenditure for the various utilities. Is it right that the CER must approve any major capital investments by utility companies before they go ahead with them? The EirGrid proposals are topical. Does the CER have a role in approving those investment proposals? If it does, are comparisons made between an overground investment versus an underground investment? I ask that because many members of the public are calling for underground proposals from EirGrid. What impact would that have on the unit cost of electricity? There needs to be more clarity on this issue. We are told that putting wires underground costs three times more than overheads. If that is the case, does it have an impact on the unit price of electricity?

The CER is taking on a new role, with responsibility for water networks and systems. The CER is independent and responsible for ensuring appropriate standards of supply of all utilities, including the gas, the electricity and now water. It is my understanding that where an electricity supply is contracted to a business or domestic user, such an electricity supply must to be a certain standard, as per the contract. Do penalties apply if that supply or utility is sub-standard? Does the CER have a role in that? If somebody has a contracted electricity supply and it is sub-standard, the utility is penalised to some degree. Will such penalties apply in the case of water, if pressure or quality of the water are substandard? What is the role of the CER in setting the free threshold or allowance for domestic consumers with regard to water?

Mr. Dermot Nolan:

On the first comment, I must stress again that we do not actually set the price of retail electricity. Competing entities and consumers have a choice between them. In answer to the question on renewable and nuclear energy, there is probably a small element of nuclear energy coming in under the new east-west interconnector from the UK. It is probably not very much, simply because the use of nuclear energy by the UK has fallen considerably in the last five years. There is some coming in, but it is not a huge amount in terms of affecting the price here. There is not enough interconnection. The interconnector is valuable for all kinds of reasons but the nuclear energy does not have a huge effect.

Renewable energy is a very controversial and interesting area. Without going into too much detail, nearly 17% of our electricity comes from wind energy, and that proportion will rise considerably over the next seven or eight years. By and large, when the wind blows it is nearly free, so that drives down the price a lot. On the other hand, perhaps two thirds or even 70% of the time, the wind does not blow so it has no effect. The overall average affect of that depends on what the price of gas would have been. If gas or coal prices are very high, then renewable energy will lower the price. If gas prices are very low, then renewable energy may actually raise the price somewhat. There is that sort of trade off and it will really depend on fossil fuel prices generally. The public service obligation, or PSO, is set by government policy but the CER calculates it every year. A proportion of that - perhaps 2.5% of the entire electricity bill - goes on supports for renewable energy, so that is also a factor.

I will pass on to my colleague to deal with the other queries, bar the networks and water.

Mr. Paul McGowan:

Deputy Moynihan's original question was about disconnection. Until recently, the consumer was exposed to the cost of both a disconnection and a reconnection, but a decision taken by the CER reduced the exposure for customers to 50% of that disconnection.

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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In his presentation Mr. McGowan mentioned a list of supports for people in trouble. Is that the support to which he referred or are there others? Is a person who owes a few thousand euro allowed to pay back €1 per week?

Mr. Paul McGowan:

Ms Mannion might be able to give that detail. It is a valid question about ability to pay.

Ms Cathy Mannion:

We have required that suppliers come up with very flexible payment arrangements based on the consumers' ability to pay, not about the suppliers' desire to get money back in a timely manner. We have put some rules on the market whereby every time a customer who has taken a pay-as-you-go meter buys a top-up, a certain proportion of that goes to pay off the debt and the remainder goes towards the electricity the customer will use. We have put in place very strict rules whereby suppliers have to contact the customer a certain number of times by telephone, e-mail or letter before they can discuss disconnection. We audit the suppliers in terms of how they perform and so far they have outperformed against the rules we have put in place. We are working with them on that to see what further rules can be developed.

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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When somebody puts €10 in the pay-as-you-go meter, is some of that going to pay his or her debt?

Ms Cathy Mannion:

Yes, a certain proportion goes to pay off the debt and the rest goes towards the electricity.

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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What proportion is that, or does it vary?

Ms Cathy Mannion:

It can vary. I think there is a cap but I would have to come back with the precise cap. I do not want to mislead the Chairman but it is a reasonable cap.

Mr. Paul McGowan:

We can find out those numbers. On social affordability, the only residential tariff we set is the gas price. We do not have a social tariff system in Ireland. In setting the gas price, our role is to examine all aspects of cost, including the networks, gas price and cost of supply, to ensure they are as low as practicable in the circumstances. Social welfare schemes, such as the free gas and free electricity allowances, deal with people's ability to pay, and those are outside our remit and outside the energy market.

The fall-off in switching was mentioned. We would like to see healthier levels of switching across the piece, but the gas switching level of 17% is regarded as a healthy level of switching at a European level. The level of switching in the electricity market is lower than it was but is still above the threshold we set in terms of the indicators for there being enough competition in the market for us to deregulate. It is lower than it was. One factor in that was that there were some very successful marketing campaigns by certain suppliers in the market two or three years ago and that generated a very high level of switching. Perhaps that level of marketing is not there now, but at 10% or 11% it is still a reasonably high level of switching.

Ms Cathy Mannion:

One of the areas we want to investigate is how to promote further switching. The higher the level of switching, the more competitive an offering customers will receive from a supplier because suppliers will want to keep that custom. We recognise there is a certain level of inertia among 60% of customers and we are trying to think of ways to engage with those customers to get them to think about moving. Some customers still think if they change supplier their electricity supply will somehow be less secure, which is not the case.

Mr. Dermot Nolan:

I will reply on the issue of networks. Broadly speaking, EirGrid is a monopoly which we regulate directly. Capital expenditure and all its expenditure, capital and operating, must be approved by us. In accordance with standard practice for economic regulators, we generally do this by way of a five year plan. I hope that does not sound too Stalinist. Every five years we do a very major review of prices, capital expenditure, operating expenditure and make it as efficient and make as many cuts as possible. We are doing one again in the next 18 months. In so doing, the capital expenditure comes for approval in terms of expenditure by the CER.

Undergrounding and overgrounding have received much attention recently. We have approved some of the capital expenditure on the basis of it being overgrounded. In terms of the effect the Deputy referred to regarding undergrounding, I will try to give my best estimates. The one in three to which the Deputy referred was an independent study commissioned by the Department of Communications, Energy and Natural Resources, which focused specifically on one project, the North-South interconnector. It was done by a panel of independent experts and came out with a conservative estimate that there would be at least a 3:1 ratio in terms of capital expenditure, and maybe a little higher. The only thing for which there is very clear evidence is that there is at least a 3:1 ratio on capital expenditure.

Some of the other projects, including Grid Link and Grid West, have not been subject to that specific degree of analysis. In terms of the estimates I will talk about, we are assuming roughly a 3:1 proportion generally. That could vary according to different minds but that is our best guess now. If one gets that 3:1 proportion, and this is purely capital cost, we estimate it will lead to an overall increase of approximately €2.1 billion to underground all those projects instead of overgrounding. I will not comment on whether that is right, wrong or indifferent. That is our current estimate. In terms of the effect undergrounding would have on prices, generally capital projects cost a lot to build and are paid for over time. Something of that nature is generally recovered over 40 years, or in this case more likely 50 years. We have done some imperfect estimates. If the three major projects that are the subject of this debate, Grid West, Grid Link and the North-South interconnector, were all undergrounded, we estimate it would lead to an average increase of 3% per year for the next 50 years. That is our best estimate. That is 3% on one's bill every month.

Photo of Ann PhelanAnn Phelan (Carlow-Kilkenny, Labour)
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Is that cumulative? Is it 3%, then 6%, then 9%?

Mr. Dermot Nolan:

No, it is 3% per year. Let us optimistically say one's bill is €100 per year. If nothing else changed for the next 50 years, one would pay €103 per year for the next 50 years. That is our best estimate but there are some caveats. In terms of the expert opinion we have seen, this is on the lower end of the range. There have been some estimates that it could be higher than that. The independent report is our main source and it suggested that one in three was the minimum level. There are two possible issues relating to that. Although this has not been worked out to the same quantitative extent, it is likely that operating costs of an underground cable may be somewhat higher than an overground cable. I have spoken about capital expenditure. In terms of maintaining that cable, we have reason to believe from what we have seen that the operating costs would be likely to be higher. I am not trying to give a definitive view. There are also potential quality issues. I am going to be very careful about this. It is not so much that there would be more faults with an underground cable, there probably would not be, but faults in an underground cable of that magnitude might be more difficult and take longer to fix and could therefore present as some kind of security of supply risk. I am not trying to pass the buck, but this is a debate for society and the Oireachtas to deal with, and I am trying to present the facts.

Photo of Paudie CoffeyPaudie Coffey (Waterford, Fine Gael)
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I thank Mr. Nolan for his response. It is helpful and it is an important element of information to contribute to the wider debate on energy security and the cost of electricity. CER has a very important role to play in that.

Mr. Dermot Nolan:

Yes, we would have to approve. So far, EirGrid has only made overground submissions.

Photo of Paudie CoffeyPaudie Coffey (Waterford, Fine Gael)
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What about the questions on the water?

Mr. Dermot Nolan:

On the water issue, I will do my best to answer the questions, but I understand another committee has a scrutiny role over the CER in that regard. I will do my best to answer the question, but I want to let the Chairman know that. We have not been called before any other committee on this.

The CER does not have a role in regard to the free allowance. That is essentially a matter for the Government and the Oireachtas. In regard to quality of supply, I cannot answer that question because it will depend on the legislation that is ultimately approved. I will make some general comments regarding quality of water supply, but in the context of looking forward to a role we do not have. There is a sense that significant investment is required in water over the next period. People have talked a lot about the cost of water, but often they are just talking about the cost in terms of providing clean drinking water. Our estimates so far, which are not perfect, are that the overall cost of providing water is just over half of the cost, because much of the cost is for waste water disposal - efficient and clean disposal of waste water and sewage. Significant investment will be required in that area. I am not answering the Deputy's question precisely, but the answer depends on the legislation and the role we are given.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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Cuirim fáilte mór roimh an CER and thank its representatives for coming before the committee today. I have six questions. I preface my remarks by saying that sometimes we put questions to witnesses when we should be putting them to ourselves, because we are the people who decide on legislation and determine policy.

The Gas Regulation Bill 2013 passing through the Houses allows for the privatisation of Bord Gáis Energy. I fear this increases the risk of large price hikes and the prevalence of fuel poverty. I am sure the CER is aware of the rumblings of price fixing between the big six in the British market and I fear we face the same risk here. Will Mr. Nolan talk us through how these concerns will be addressed?

I get confused when I look at claims regarding electricity price increases. The Society of St. Vincent de Paul states it paid €10.4 million in 2011 for households that could not pay their electricity charges. That sum is 25% of what the society pays out in total. In 2008, the amount it paid out was €3.8 million. A major factor in this increase is that people's incomes have been dramatically reduced over the years, but there has been an increase of approximately €500 per household in energy bills over the past three years. However, when we look at the percentage increase figures issued, they state the increase is 2.04% or similar. This does not seem as if it could amount to €500 per household over the past three years. Am I reading this wrong or are there different measurements being used by different bodies?

Does the CER have any input into regulation of or has it any control of the price of connecting to the national grid? I am aware of a person in Monaghan who invested a good deal of his money in developing a biomass project. This project could work wonders at reducing the amount of waste for landfill and could provide significant industry in such a rural area. Everything was going swimmingly with the project until this person began to inquire about the cost of connecting to the national grid. He was quoted a cost of €500,000, which meant the project could go nowhere. My concern is that while we say the right words regarding micro generation, we are not serious about it. We are so blinded by the headline projects that we forget about the micro ones. Does the CER have any input or responsibility for the cost of connection to the national grid? Is a change required in this regard?

Until quite recently, I was not aware of the need for so-called security deposits for small industries. A man who runs a hotel in the north east was billed for a €15,000 security deposit, despite the fact he had been with the company for a number of years. He assures me he always paid his bills promptly, but he received a bill for a security deposit of €15,000. He did not have that money available to pay straight away, but the company came to disconnect his hotel, despite the fact there were guests in it and despite the fact the owner had paid his bills on time for the previous two years or so. I believe this practice is wrong. A security deposit should not be handled in the same way as an outstanding bill. Also, in the context of being able to switch suppliers, because the €15,000 showed as a debt against his business, the potential for this man to switch was zero. He had to go to the bank to get the money and pay company so that his supply would be maintained. This practice is wrong and is anti-business. It is certainly anti-small business.

My next question concerns the CER's view on consumer prices, which has been partly answered. Part of my question related to the situation if renewable energy development is accelerated. What does the CER feel the impact would be on electricity prices if fracking for shale gas or nuclear energy is permitted in this country? Does the CER have people working with it who can look at what is happening in these markets? Is the CER aware that the realistic lifetime of a fracking well is not 20 years, as claimed, but only four or five years? What is the role of the CER in regard to this and how does it see fracking for shale gas impacting on prices if it is permitted here?

If Ireland or any nation tries to ride the two horses of renewable energy and, for example, shale gas development, one or both will suffer.

We cannot afford to ride the two horses. I am concerned renewable energy will suffer for the short-term gain available from other energy sources. I would like to hear the witnesses' views on this.

Mr. Dermot Nolan:

I will answer the first question and my colleague will deal with the remainder. The privatisation issue is delicate and it is a policy issue. If Bord Gáis Energy were privatised, we would treat it in exactly the same way. At present we set a regulated price and it is likely in the near future, as with electricity, the market will be deemed sufficiently competitive that we will not set direct controls over it. As to whether a private or public company would behave differently, it is a difficult question for me to answer and I will not express a specific opinion if that is all right. We will treat it in exactly the same way regardless. Last year, I told the committee that in my view there is a very strong case for keeping essential networks such as the wires and gas pipes in State control. The issue of whether a company which generates and sells energy but is not a natural monopoly should be publicly or privately owned is a matter for the Government and the Oireachtas. It is a policy issue.

Mr. Paul McGowan:

To address Deputy Colreavy's question on the Society of St. Vincent de Paul, we are aware it has been using more of its funds for payment of bills in hardship cases. The average annual gas bill in Ireland is approximately €982 and the average annual electricity bill is approximately €1,200. A typical household incurs just in excess of approximately €2,100 to €2,200 per year in energy bills. Referring back to the graph we showed earlier, prices have been increasing throughout Europe since 2008. I do not have the exact figures but the €500 in the context of an overall energy bill of €2,200 would not be completely unreasonable given the changes in gas and electricity prices which have occurred since 2008. I cannot give specific numbers and I will have to come back to the Deputy.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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I understand this. Airlines set a price for fuel for a number of years. Do energy companies do this?

Mr. Paul McGowan:

They do. We do not have a view on the hedging policies of independent entities. When it comes to gas prices, Bord Gáis Energy hedges. It typically hedges at least a year in advance but it does not hedge all of its fuel price. It hedges various tranches for various periods of time. When we come to set the final price of gas, some fuel needs to be hedged and hence the price can increase or decrease. For every day in the year the amount of gas it has contracted in the wholesale markets will never exactly meet its demands. It will always either be selling into the spot market or buying from the spot market on the day. There can never be absolute certainty over the price of gas.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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The CER does not have an input-----

Mr. Paul McGowan:

We do not dictate its hedging policy but we seek assurance it has a reasonable hedging policy in place. We do not oversee anyone else's hedging policy.

Ms Cathy Mannion:

This is with regard to the suppliers purchasing gas for consumers. With regard to the consumer side of the gas market, we require an annual tariff which we review quarterly. On occasion other suppliers in the market have offered one or two year contracts with a fixed price for the consumer. It very much depends on the consumer's appetite for a fixed price for a longer period of time. These options are available to consumers.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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Is this with regard to the security deposit I mentioned?

Ms Cathy Mannion:

No, it is with regard to customers being offered fixed prices on the market.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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I apologise; I understand.

Mr. Paul McGowan:

I will address the issue of the security deposit and Ms Mannion will discuss connection policy. Security deposits are a matter for individual companies. We do not have anything in our guidelines which prohibits security deposits. However, there is a clear process in our guidelines that if somebody feels any aspect of the service they receive is unfair, or makes a complaint to a supplier, and a satisfactory conclusion is not reached, the consumer complains to us. We have a statutory obligation to deal with these complaints and we have powers of arbitration in that we make binding determinations. If we find against the supplier or the network company, the decision is binding on it and this can include compensation or a reversal of a decision. Where somebody facing disconnection has a genuine complaint or dispute, a disconnection would not be carried out until we have dealt with the issue at hand.

Ms Cathy Mannion:

I have heard about cases such as those mentioned by the Deputy.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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I contacted the office.

Ms Cathy Mannion:

In the past month I have written to all suppliers and asked them for their policy on deposits and we will be examining them. The Deputy's concern is it stops customers switching because they cannot afford to pay the deposit. We want to increase switching rates so we will examine it. We will come back to the Deputy on this issue when we have finished our work with the suppliers to see what the issue is. We must remember the supplier buys electricity at the wholesale price and is responsible for paying for it as soon as it is taken. Many customers do not get billed until after they have used the electricity so a deposit is required to cover the risk from when the supplier buys the electricity to when the customer pays for it.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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I understand the risk. My concern is because the security deposit is added to the indebtedness of the company it effectively means customers cannot switch until a security deposit is paid.

Ms Cathy Mannion:

This is a point I am picking up with suppliers and we can give the Deputy an update once we have finished the piece of work.

With regard to the price of connection to the network and the biomass plant, I do not know the specifics of the case but if someone is looking for a connection to the network, standard charges apply to various types of connection. If the Deputy sends us details of the particular plant we can come back to him on why the costs were what they were.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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I thought the person involved sent it in at the time. I will follow up on it. What are the witnesses views on shale gas?

Mr. Paul McGowan:

I do not know which way this will go with regard to shale gas or any alternative source of gas in the Irish market. The vast majority of our gas comes from the UK National Balancing Point, NBP, which is the main liquid hub for gas. We price against this. I expect any new source of gas will mark to this market. Having cheap gas from a source would not necessarily mean the market price for the gas was cheaper. Certainly it would compete against the NBP price but it does not follow it would be substantially lower because it would be priced against what was available elsewhere in the market.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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That is what I would have thought.

Mr. Paul McGowan:

This is just an initial view.

Photo of Ann PhelanAnn Phelan (Carlow-Kilkenny, Labour)
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Will the witnesses comment on the amount of development that will have to take place due to our renewables and development of wind energy?

Mr. Dermot Nolan:

The debate on renewables is taking place all over Europe. There have been a significant number of renewable developments in Germany, partially wind but also solar, and some people are now asking whether they were worth it. The Nordic countries are broadly supportive of renewables. I hope I am not characterising people unreasonably when I note that many of the eastern European countries are sceptical about renewables.

The vast majority of our renewables are envisaged to involve wind. Hydroelectric power generation is not suitable for the Irish system. Our target is to achieve 40% wind energy by 2020. On the Deputy's question about whether it will be cheaper, much will depend on the price of fossil fuels. I will try to explain the factors behind that answer. If the price of gas in 2020 is the same as its current price, it is likely that we will have more expensive electricity overall as a result of taking on 40% wind. However, if the price of gas increases, we may have cheaper electricity. It is a complex task to model the factors that will determine the outcome. We have done some modelling ourselves and the Sustainable Energy Authority of Ireland and Eirgrid are also conducting a study of various scenarios. Subsidies for wind generation relate to the public service obligation. My estimate, which I think is reasonably accurate, is that wind's contribution to the overall price of electricity in terms of subsidy is between 2% and 2.5%. It is likely that the figure will rise over time but the subsidies are set for a fixed period and will eventually go away. The other perceived cost to renewables is the fact that some element of capital expenditure on the grid is required for renewables. Some of this investment is simply aimed at keeping the grid safe and secure and keeping the lights turned on, but a portion is required to support renewables. The most obvious of the three projects in this regard is Grid West because much of the wind is in the west. As opposed to what might be perceived as the cost of renewables, when the wind blows it is free. It does not always blow but there is no question that the new entrants into the market are driving down the wholesale price and the average cost of generating electricity. In terms of the overall balance, that is what the studies are trying to achieve. Ultimately, they will come to some sort of view - I am not sure that I would say gamble - as to whether gas prices will be high or low in five, 15 or 20 years' time. I apologise that I cannot give a precise answer but they are the factors affecting the matter.

Mr. Paul McGowan:

Our safety functions in electricity are limited to the electrical contracting industry. We have a wider remit on safety in respect of the gas chain from well to burner tip.

On the question of Deputies making representations on behalf of customers, the reluctance on the part of suppliers is firmly rooted in data protection issues and avoiding a breach of the Data Protection Acts. I am not sure we could do anything to allow those Acts to be bypassed and I suggest that it is a matter for the Data Protection Commissioner.

Photo of Mattie McGrathMattie McGrath (Tipperary South, Independent)
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The witnesses spoke about the role of the CER, energy cost drivers and latest energy trends. I have heard some of their responses to members' questions but have missed other responses because I had to leave the meeting to attend other business.

CER may become the regulator for Irish Water. I hope it does not get this role because I am not satisfied with its record in regulating energy providers. I recently travelled with several of my colleagues to a European country which forced all the suppliers to reduce their prices. The country's President made the decision that prices should be cut by 33%. In the context of the current recession, the most up to date figures by SEAI for 2012 show increase after increase despite the fact that businesses are suffering. I am a small businessman. The figures for businesses show they have had to endure frightening increases. We are trying to build a competitive economy and good value but the increases keep coming. Bord Gáis recently applied for an increase of 5.43% but CER only agreed to 2.4%. That is coming on top of other increases. Other countries can force companies to cut prices. When we visited the aforementioned country we asked how utilities will be affected and whether companies will be able to reinvest but people are lining up to take over the utility companies. We are being led a merry dance and CER is ineffectual.

I hope it is not given responsibility for Irish Water because the only good thing about Irish Water is the name, An Bord Uisce. I do not agree with the decision to establish it because it will take away control and knowledge from local authorities, as happened with the HSE, SUSI and the driving licence fiasco. Ordinary people are paying their bills. Many people have been disconnected. I disagree with the way that issue has been addressed. It is not possible to argue over a bill; one must pay it. Even when one pays it, one's credit rating is affected. One cannot move anywhere else. CER needs to be more robust because it is not doing the business for the consumer or the business person.

Deputy Ann Phelan asked about the wind strategy.

Mr. Dermot Nolan:

I will do my best to answer Deputy McGrath. I am sorry he has no faith in us. All I can do is assure him that we are trying to keep costs as low as we possibly can.

He asked about the mandate. Our mandate is to set prices at the efficient cost. I can go into more detail, if the committee likes. The efficient cost of producing energy in Ireland has risen considerably, and, indeed, almost continually, for the past five or ten years. There are a number of factors for that which I can go into. I would also note that this has happened in many, not all, other European countries but I can explain that too. I would look at the prices, for example, in the United Kingdom, which has a similar energy mix to us in the sense that they also rely mostly on gas and to some extent coal, and they used have nuclear. Prices in the United Kingdom have risen considerably. Over the past five or six years, they have risen by more than prices in Ireland. Prices in France have not risen so much. France is 80% nuclear. Prices in Norway have not risen much. Norway has 95% hydroelectric. These countries are not subject to fossil-fuel prices. They are not subject to external forces in the price of fossil fuels which, frankly, we, as a small country, cannot control.

Given our mandate, we are supposed to set prices at efficient cost. We are - all I can say is I give the committee my assurance for whatever that is worth - doing our best to keep it low. I accept that it has been a most difficult five to six years for the Irish people. I accept prices have risen and it is difficult to pay but we are doing all we can to keep prices as low as possible. I am not sure if there is much more I can say on that.

On wind, I was asked about the idea of networks. I touched on this early. The idea is we approve expenditure. The planning structures, etc., on how that is done are ultimately a matter for EirGrid. I would very much hope that there is open consultation. I understand the idea that communities are affected by these matters and want to have their views taken on board.

On the last comment on the proliferation of wind turbines, that is a policy issue. The Government decided that there would be a 40% renewable target for various reasons, many of which are to do with climate change and carbon reduction. That is ultimately a policy issue. If the Government and the country want to achieve that, no doubt wind is our best and, to some extent, only option. It is really not a matter for me to say whether that is the right choice or not. The CER's job will be to ensure that it is done as efficiently as possible.

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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I appreciate their coming in and thank them for their contributions.

Photo of Mattie McGrathMattie McGrath (Tipperary South, Independent)
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I did not hear anything about CER's health and safety functions. Perhaps Mr. Nolan answered Deputy Ann Phelan.

Mr. Paul McGowan:

As I explained to Deputy Ann Phelan, our health and safety functions mainly relate to offshore oil and gas exploration and production activity. We do not have health and safety functions in relation to the electricity networks. Our safety function in regard to electricity is strictly limited to the register of electrical contracts scheme.

Photo of Mattie McGrathMattie McGrath (Tipperary South, Independent)
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That is alarming.

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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I thank the witnesses for attending this meeting. Has the CER ever refused outright a price increase request from a supplier and could they give the details and frequency, if any, of such outright refusals?

On a separate matter, how can the CER justify its decision that all gas providers must pay for the cost of the two interconnectors between Britain and Ireland, whether they use them or not? Are they aware that such decision is jeopardising a €1 billion project in north Kerry by Shannon LNG which will create 650 jobs over four years during the construction phase and a further 50 permanent jobs? How can such a decision be good for competition and keeping down or, perhaps even lowering, prices? Could they explain the rationale for that? If the High Court decision due today is in favour of that company, will they give a commitment not to pursue the matter further and allow the project, and the creation of those badly needed jobs, to proceed?

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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I will take Deputy Luke 'Ming' Flanagan as well and they can answer both together.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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I thank them for their presentation. I have quite a few questions.

How much extra does pay as you go cost the consumer? Does it cost more per unit of electricity? Is there interest to pay on what one is paying back? Also, they make it sound a good deal more rosy than it is in that if consumers cannot pay their bills, they can go on pay as you go and will not be cut off. That creates the following dire scenario. If a child is unfortunate enough to live in a home where the parents are not organised enough for whatever reason or are not good with money, what solace will it be to that child as he or she sits in the dark and in the cold that mammy and daddy have pay as you go. There were many scenarios in my youth where I did not know whether the lights would have been on and it would not have been reassuring to know that there was pay-as-you-go installed.

At this stage, the three-to-one cost ratio in the underground-overground power lines argument is bordering on farce. How can anyone have figures on this until he or she first asks the people whether they want the power lines to go underground or overground? I said this last week at this committee but it seems it must be repeated because people keep missing the point. One cannot have a ratio of overground to underground unless one knows what sort of terrain one is going through. The ratio that we are getting appears to be the result of where they already decided we are going overground and chose a route on that basis and that it had better be fairly solid terrain on which to put the pylons, but if they decided first that they were putting it underground they would choose a different route. This ratio is completely irrelevant.

They estimate a 3% increase in electricity prices if the power lines go underground. How did they arrive at this cost increase? Also, there was mention of increased costs afterwards if the power lines go underground. What about the decreases in costs from the danger of overhead lines being blown down? We are told climate change is happening before our eyes and there will be more unpredictable weather. Surely, they should be concluding that putting the power lines overground might involve more long-term costs.

Has the CER any say over the power that will be produced in the midlands, and if not, why?

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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The next contributor is Senator Breenan to be followed by Deputy Colreavy who has a supplementary question and then I will call the delegates to respond.

Photo of Terry BrennanTerry Brennan (Fine Gael)
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I thank the delegates for their presentations. I apologise for having had to leave the meeting for a vote that was called in the Seanad. I hope that none of the questions I have for the delegates have already been asked. Some 110,500 customers switched suppliers last year. Is an increase anticipated in the coming year? On switching suppliers does a time stipulation apply? Can a customer switch back to his or her previous supplier and switch forward to a competitor or must the customer remain with a supplier for six months, a year or two years?

Pay-as-you-go meters have been installed. Am I right in saying that they are installed free of charge? What would be cost for a household comprising two adults and two children to pay under the normal meter compared to the cost of switching to the pay-as-you-go meter system? Would the delegates have an idea of the comparison of annual costs for such a household? Is there any saving between the two systems? I believe the pay-as-you-go meter system is more expensive, although I cannot quantify that. The delegates might confirm if that is the case.

I welcome what the delegates said that on the question of the disconnection of supply, every opportunity possible is given to consumers, including deferred payments. I presume disconnection is a last resort ,and that is the way it should be. Some colleagues mentioned reconnection costs. I must declare that I am a former ESB employee. I consider that reconnection costs are exorbitant. It cost one consumer recently upwards on €1,700 to be reconnected in circumstances where he had no outstanding bills. He had his electricity disconnected while an extension, painting or rewiring work was being carried out and a reconnection fee of close to €2,000 is exorbitant.

I note from one of the delegate's presentation that industrial and commercial prices in Ireland are above averages in the euro area and in the EU. Is there a main reason that is the case? Will the situation improve with EirGrid's G25 proposals for the next five to ten years? Will electricity costs be more competitive for commercial, industrial and domestic consumers which would make us more competitive? The delegates might comment on that aspect.

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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I will take a final supplementary from Deputy Colreavy.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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I have three questions that my colleague, Deputy Ellis, wanted to ask but unfortunately he had to leave. When the CER is establishing an price increase, does the level of profitability of a company play any apart in that calculation? Does the CER get such information and are the delegates satisfied that they are getting accurate information in terms of company profitability? Has there been a recent case here or elsewhere where were prices were lowered by an energy regulator instead of increased? Have the delegates any figures for the projected timescale for the continuation of the supply of gas from Europe? How long do they expect that we will able to continue to get gas from Europe? Have any figures been produced to indicate that timescale?

Mr. Dermot Nolan:

A good number of questions have been asked and I will aggregate some of them and pass some of consumer questions to Mr. Paul McGowan and Ms Cathy Mannion. On Deputy Griffin's question on whether the CER has ever refused a price increase, I have not been with the CER for its entire existence. I am not sure about that and I will revert to the committee. The general practice is that a company will generally put something in - the committee may not agree with this but a company will generally not put in an outrageous figure, it is generally a figure close to the cost - and we generally reduce that. I am not sure if we have ever gone to zero but, in anticipating Deputy Colreavy's question, we certainly have had price reductions in the past, admittedly not in the past two or three years but we have certainly ordained price reductions.

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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If it is agreeable, Mr. Nolan might provide a list of all price increase requests in the history of the CER and the response from the CER at his convenience.

Mr. Dermot Nolan:

That would be fine. On the question of the Shannon LNG case, the judgment issued today, I will say two things about it. The first issue is that we took that decision, and probably given that it is in some sense still potentially sub judice in the context of the court, we believed that if we did not change the framework that existed, and we did so in accordance with European law, gas prices in the country would be significantly higher over the next ten, 20 or 30 years. There were various numbers but we were thinking of a potential transfer from the producer to the consumer of hundreds of millions of euro; therefore, gas prices would be hundreds of millions of euro higher over the period of time. I accept the points about the jobs and I have no problem saying that I would very much like to see the project go ahead.

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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What was the rationale for insisting that Shannon LNG would have to pay for the two interconnectors it does not intend to use? How could that be good for competition and prices?

Mr. Dermot Nolan:

I am slightly edgy about going into too much detail because it has already been written down, and more importantly, the issue could potentially involve court proceedings. I will try to give a short answer, which is the sense that the interconnectors need to be paid for. They were authorised before the Commission for Energy Regulation, CER, was set up and they provide valuable security of supply benefits. Given the nature of the way the charging system was when they were set up, the price of gas from Britain was linked to their usage. To give a hypothetical numerical example, if the cost of price was €100 and the price of transport was €5, if use of the interconnector fell drastically, the cost of transport could rise to €20, so the overall price of gas would go from €105 to €120. We believed that would be difficult and harmful to consumers so we changed the system. I have probably said all I can on that issue. We will see what happens with the court case and then take a view.

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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There is the issue of the role of the Minister in the commission's decisions. Has the Minister at any stage the authority to overrule a decision from the CER?

Mr. Dermot Nolan:

Under statute the Minister has the authority to give the CER a policy direction, where he must be openly consulted and at the end of which he can give a direction to pursue a particular policy. I hope I am right in that this cannot relate to a very specific entity, as in he cannot say that something must be done for entity X or commercial entity Y. Nonetheless, the policy direction is there.

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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In essence, the Minister could indicate that players other than those using the interconnectors need not pay for their use.

Mr. Dermot Nolan:

I would not want to speculate about what policy decision the Minister might or might not give. Certainly, the power exists, although that is all I can say. Deputy Luke 'Ming' Flanagan asked about a variety of issues. On the 3:1 ratio estimate relating to costs, we have not made a decision about undergrounding or overgrounding. EirGrid has a view that an overground solution was the most cost-efficient for at least the North-South interconnector, although the decision has not been made for the other two. The Department also commissioned a report. The Deputy is questioning the 3:1 ratio, indicating that an underground solution might take a very different route attracting a lower cost. I do not know if I can comment on that specifically but the independent report examined scenarios and came out with a particular view. I do not know if that satisfies the Deputy's point but it is essentially the process that has happened.

I mentioned a caveat about the other two issues earlier, and there was less surety about potential increased operating costs. That is something we will continue to follow. In terms of quality, I indicated earlier there may be fewer faults, although they may be slightly more difficult to fix. I am not making definitive claims on that and we can pursue the matter further if the Deputy so wishes.

With regard to renewables, Gate 4 and general issues, the CER is currently planning to do something about - for want of a better word - what we call Gate 4. We will consider if targets have been met and what scope there is for further connection from renewables to the grid. However, that will be guided to some extent by Government policy and it will depend partially on whether the 40% targets are being met. We will take some policy guidance on that. There is a process in place to consult early in the new year about connections along the lines of Gate 4.

On the midlands issue, I do not wish to be evasive, although the Deputy may think I am. It is a policy matter. Some of our staff are engaged in working groups on the issue but it is really a matter for the Government to decide whether this should go forward. If it is going forward, it is unclear as to whether the process will be regulated. If it is set up in a way that is connected to the main grid, it is likely there would be a regulatory role for the CER. Currently, some of the proposals are that it will be an entirely separate entity from the electricity grid, with wind turbines directly connected to the UK. If that is the case, it is unlikely we would have any regulatory role unless the Oireachtas chooses to give us one.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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In effect, it would be an offshore wind farm for Britain.

Mr. Dermot Nolan:

That would be one way of looking at it if it is not connected to the grid. The matter of whether it will be connected is a matter for the Government and the Oireachtas to decide.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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What about hook-up costs and the €27,000 just to lodge an application for a connection?

Mr. Dermot Nolan:

There is a slight difference between the issue noted by the Deputy and the security deposit matter.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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Will Mr. Nolan deal with it?

Mr. Dermot Nolan:

I accept there was major interest in Gate 3 but the number far exceeded the availability of the grid. A cost was imposed at the time, and although the point may have been taken about a party showing up, a genuine expenditure of resources was required to process these applications and in some sense deal with the process of deciding who-----

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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Will the witness explain the following? If after the application is made a party hands over €27,000 but two weeks later somebody decides to join the process, with the name being put on the company's register, how does it cost anybody in excess of €10,000 to make the name change? What are people being paid in the office? Is it €1 million per day?

Mr. Dermot Nolan:

I do not know the precise issue but I will revert to the Deputy. Perhaps Ms Mannion has something to add but I will follow up in writing on the specifics. I am not entirely aware of the name change issue and the associated costs but I will revert on the matter.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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How did the CER settle on the 3% rate for the increase? Within the space of a couple of days it will become fact, so I would like to know exactly how the commission arrived at the figure. That is how things work in this country, and if something is said often enough, it becomes the truth.

Mr. Dermot Nolan:

I will explain the process and we can try to provide further calculations as necessary. We began with the €2.1 billion figure. I indicated earlier to an idea that the way major network investments are made - particularly one of this magnitude - is to pay for them over 50 years. We considered the €2.1 billion as going over the 50-year period. It is repaid according to a rate of return, which is standard for all major network investments. We used a couple of different rates of returns and got a figure around that. We have basically considered how to pay the €2.1 billion over 50 years, which is standard practice, with a rate of return allowed on the investment.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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The commission has made these calculations and it was not done on the back of a sheet of paper. Could that be sent to us? That is asked at meetings like the one I attended last night in Ballinameen. We need to know how the commission arrived at the figure. The ratio keeps changing, which does not really help confidence. The 3% increase needs to be nailed down. Will it be sent to the committee?

Mr. Dermot Nolan:

Yes. Given that we have mentioned the figure, I do not see a reason not to send it. There is a caveat with the figure. The ratio has only been established in terms of the North-South interconnector. The Deputy may question that establishment but that is all that has been done. We are implying the 3:1 ratio for the two other main projects. I will send the figures to the committee. I accept the point that it may be perceived as fact but there are several caveats about the point.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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There was another question on whether one pays more if one chooses the pay-as-you-go option. If a user has all one's debts paid and he or she buys €10 worth of electricity, does he or she get the exact same value as if he or she were paying a bill or does it cost more?

Mr. Dermot Nolan:

I will pass the question to my colleagues. I apologise if this is rude but I am dying to take a biological break and have been for some time.

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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That is all right. We will forgive Mr. Nolan. We would not want to impede him in that regard in any way.

Mr. Dermot Nolan:

My colleagues will continue.

Ms Cathy Mannion:

On the question about the pay-as-you-go meters, by way of background, there are two types of customer and the price is different for them. One has those customers who for reasons of financial hardship receive a pay-as-you-go meter from ESB Networks and Bord Gáis Networks. For those customers the price is the same if not cheaper than the standard tariffs offered by those suppliers. There are other suppliers on the market whom I will not name but the committee probably knows who offer pay-as-you-go meters for lifestyle choices. People who take those meters tend to pay more for their electricity than those who have meters installed due to financial hardship. Those customers have made a lifestyle choice and have decided to go with those suppliers and therefore implicitly have decided to pay those charges.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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So it could be cheaper then?

Ms Cathy Mannion:

Yes. Those on pay-as-you-go-----

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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Could we get details in that regard? Does it relate to one individual scenario or is it common?

Ms Cathy Mannion:

No, what we did was we looked at the prices offered by the suppliers to people in financial hardship compared to their standard tariff to see how they measured up. We could send a note to the Deputy if he would like.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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Yes. It is just that in many cases the poorest end up paying the most.

Ms Cathy Mannion:

That is not the case here.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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If that is the case; that is great. It is wonderful.

Mr. Paul McGowan:

I might address some of the other questions. The key point on the pay-as-you-go option is that in the case of financial hardship the cost of the meter is socialised, whereas, where a choice is involved the company offering it needs to recover the cost.

The process for switching in Ireland is straightforward and it is free. One exercises one’s choice freely and there is no prohibition on people re-exercising the choice to switch to another supplier. However, certain suppliers when they sign up customers might have reached a certain deal with them and there might be a termination provision in the contract but, generally speaking and all things being equal, if it is a straightforward domestic supply contract without any of those provisions then customers are free to switch at any time they choose.

We have addressed the question on the cost of pay-as-you-go meters. Essentially, where there is financial hardship the cost is socialised and recovered through the market but where financial hardship is not an issue and the meters are offered by a commercial entity the cost must be recovered by it through its tariffs.

Deputy Flanagan also inquired about pay-as-you-go meters. It is important to bear in mind that if somebody is on a pay-as-you-go meter and they do not make payments then their electricity could be cut off.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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It will be.

Mr. Paul McGowan:

Some people refer to that as self-disconnection. In terms of the idea that pay-as-you-go meters would be rolled out without any regard, that is something of which we have to take due account. For example, when suppliers deal with customers they also check to see whether the customers are vulnerable. That has some impact on whether they offer the meters.

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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To return to what Mr. McGowan said earlier, that if one puts an amount into the pay-as-you-go meter, a certain amount of it is used to pay off what was due, therefore it does not arise that the person is not paying back some of what they owe and they would not be disconnected in such a situation. Is that what Mr. McGowan said?

Mr. Paul McGowan:

The credit can run out on a pay-as-you-go meter and if it is not topped up then-----

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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Does Mr. McGowan mean if the credit is not used at all?

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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If Mammy or Daddy gets too drunk to go out and pay it the children end up in the dark and cold. That is the long and the short of it. Flawed and all as the other system was, if Mammy and Daddy went out and got drunk the children would have electricity. I understand where the witnesses are coming from but it will create hell for many children.

Ms Cathy Mannion:

We do not see pay-as-you-go meters as a solution. Deputy Flanagan is correct; one is going from being disconnected by a network to self-disconnection and that creates its own problems. We know that and what we have done is put emergency credits on the meter so that at least in one of the circumstances outlined by the Deputy there is some credit that will let people continue to use electricity for a period. The amount is approximately €5 which is perhaps a day or so’s worth of electricity. Another measure is that at certain times of the day or over weekends the meter will not disconnect because one wants people to have the opportunity to buy credit in order to top up their meter. What one does not want to happen is that the electricity would run out during the night and that suddenly there would be no electricity.

I have one other point to make about vulnerable customers. The supplier has to demonstrate to us that the customer actively wants to have a pay-as-you-go meter for the very simple fact that it is self-disconnection and it does not suit certain customers. The supplier has to be very clear with the customer on whether they want that type of meter.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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Could a customer be forced to have such a meter if they continuously do not pay their bills?

Ms Cathy Mannion:

No. In the North legislation specifies that such people can be required to take such a meter but that is not in the legislation here. Ultimately, if a customer says “No”, they face disconnection.

Mr. Paul McGowan:

I shall try and make sure we have covered all of the other questions that were raised. One outstanding question is about electricity prices and why they might be higher in Ireland than in other areas. One point to note from an earlier slide is that gas dominates the pricing of electricity in Ireland whereas, as the commissioner, Mr. Nolan, noted earlier, other countries benefit from the wide availability of relatively cheap nuclear energy or hydro energy, which we do not have. That could be one factor on why prices are higher here than elsewhere. There is also the fact in terms of gas, for example, that it has to be transported over longer distances in order to reach the Irish market. There are a number of factors feeding into electricity prices.

Photo of Terry BrennanTerry Brennan (Fine Gael)
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Alternative energy methods are used more elsewhere. I made a point about the EirGrid G25 proposals. Will that help to liberalise or equalise the cost of commercial and industrial units to domestic consumers?

Mr. Paul McGowan:

It would be hard to draw that immediate conclusion. Grid25 is being rolled out for a number of reasons, first, to help meet renewable targets. The wires are needed in order to ensure the system can handle that level of renewables, but also to ensure that the lights stay on. Much of the emphasis on grid roll-out is on security of supply. A cost will be associated with those wires but, for example, the North-South interconnector infrastructure would remove between €30 million and €40 million of constraint costs from the single electricity market per annum. I think that is the correct number but it might be lower than that – between €20 million and €30 million. In that instance, that particular wire has a direct cost impact on the market.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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Do the witnesses have details of the profits of the companies when they assess increases?

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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These questions are being asked by Deputy Colreavy on behalf of Deputy Ellis.

Photo of Michael ColreavyMichael Colreavy (Sligo-North Leitrim, Sinn Fein)
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The second question is on the projected lifetime of gas supplies from Europe.

Mr. Paul McGowan:

In regard to profitability, when we set charges - the only area for which we now determine prices is for the residential gas market - our focus is on the cost of the gas, the cost of the networks and the cost of running an efficient supply business and then a reasonable margin. On whether we look at the profitability, no, we look at the costs underlying the price.

In terms of gas from the EU, I would not be able to give any definitive view on the matter. We would have to consider whether there is available information in terms of how long it will last. Since my time in the energy industry, the availability of gas at a European and global level has continued to go further out.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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I have a question specifically for Mr. Nolan on the midlands. The legislation for the CER is for all of Ireland. Has a provision been built into it that I have not seen? Have we now gone so far that not only is Ireland an offshore windfarm for Britain but also part of Britain? The CER does not seem to have any say. It is strange that the legislation establishing the CER concerns the whole of the country. How come there is a hole in the midlands?

Mr. Dermot Nolan:

I will do my best to give an answer but Ms Mannion may wish to respond. Our legislation is supposed to protect customers, those who will actually be charged for Irish electricity in Ireland. I spoke about generation and supply. Bearing in mind what I said about the connection to the grid, the key is that we are supposed to regulate the grid. The grid has a specific legal existence in some sense. In particular, it must be a monopoly and one cannot privately build one's own grid. The statutory objective is to regulate it to set an efficient cost and to allow connections to it for generators. Without the connection to the grid, we would not have a statutory role. If, as a result of what I have alluded to, energy were not directly sold into the Irish market and people were not supplying that directly, we would not have a role.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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The CER can be bypassed by sleight of hand.

Mr. Dermot Nolan:

I am not sure whether I should comment on that. If there is a connection to the grid, we must have some sort of regulatory role. As to how that would be constituted, I do not know. If there is a connection to the grid, by definition there would be some sort of regulatory function for the CER. However, we will have to see how that evolves.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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Are generators not customers also? Do they not have to be regulated also? Is it not within the CER's remit?

Mr. Dermot Nolan:

It is absolutely the case that we regulate generators that are connected to the grid that produce energy and that is to be sold on the island of Ireland.

Photo of Luke FlanaganLuke Flanagan (Roscommon-South Leitrim, Independent)
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It is just a case of theory. The CER cannot regulate theory but it regulates actual things.

Mr. Dermot Nolan:

I am not sure how to answer that.

Photo of John O'MahonyJohn O'Mahony (Mayo, Fine Gael)
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We have had a very interesting and good discussion on this. I thank Mr. Nolan, Mr. McGowan and Ms Mannion for attending and engaging with us on this matter, which is of great interest. They said they would revert to the committee on certain questions. Perhaps they could send the information to the clerk for distribution.

At our next meeting, on Wednesday, 18 December 2013, we will discuss in private session the work programme for 2014 and any outstanding matters that arise. Is that agreed? Agreed.

2:50 pm

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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It will usually include paramedics, in some cases the Coast Guard and in others people who are registered as advanced paramedics with the pre-hospital emergency care council.

I would be disinclined to take it too far because while we all want to ensure a doctor is not prosecuted on the way to an emergency, those people are not necessarily trained in how to drive or in defensive driving and I would be afraid of creating a new loophole that people would use. We have seen some examples with the quashing of the fixed charge notices. I am disinclined to create loopholes. I will ask my official, Mr. Treacy, to comment.

Mr. Maurice Treacy:

What we have been trying to do in this section is to create an accepted definition of the ambulance service. The issue of doctors speeding to a genuine emergency has been put to us but our feeling is that is a whole different category and something we would need to think about in detail. The Minister says most of these doctors would not be specifically trained for the purpose of driving an emergency vehicle and all of the ambulance drivers, Garda and fire authority drivers must be trained to a very high standard to be able to use the blue lights.

Photo of Ann PhelanAnn Phelan (Carlow-Kilkenny, Labour)
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On a point of clarification, from my knowledge, it is not the doctor who does the driving, as he has a designated driver who does the driving.

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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That applies if the doctor is on call, for example with KDoc or NowDoc. If the driver is registered and recognised by the pre-hospital emergency care council, he or she would be covered.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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On a point of clarification, due to the reconfiguration of hospital services, because many of the smaller hospitals are no longer on call for emergency service, an advanced paramedic, usually in an emergency vehicle, will often attend an incident before the ambulance arrives to the scene of the emergency. Are they covered by this?

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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If the provider is registered with the pre-hospital emergency care council.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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These paramedics are using HSE vehicles.

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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As far as I know, every advanced paramedic or ENP is registered with the pre-hospital emergency care council, but the legal provision is that the provider must be registered.

Photo of Tom HayesTom Hayes (Tipperary South, Fine Gael)
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Amendments Nos. 8 and 9 are related and may be discussed together.

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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I move amendment No. 8:


In page 17, line 14, to delete “and”.
This amendment relates to commercial vehicle roadworthiness. I have proposed a number of amendments to the Road Safety Authority (Commercial Vehicle Roadworthiness) Act 2012 to tidy up some of the issues that have caused problems arising from the Act. The Act established the Road Safety Authority as the body responsible for overseeing commercial vehicle roadworthiness testing. Since its introduction, lessons have been learned which show the need to make some amendments to that Act. I have included a number of these amendments in the Bill itself. I have also decided that several more minor amendments are necessary.

Section 25 of the 2012 Act deals with the powers of authorised officers to enter CVR testing premises and conduct inspections and issue directions relating to failures to comply with the requirements and to the measures necessary to correct this. As originally drafted, the 2012 provisions inadvertently led to a situation whereby only the individual authorised office who conducted an inspection could issue a direction. I propose to amend this in order that other authorised officers could issue the direction. The situation I want to address is one in which an officer makes an inspection, produces a report on that inspection but may not be available when directions are sent out. I think this is an essential and practical change and is what was intended in the first place.

I am also amending section 34(1)(a) of the 2012 Act, which deals with the powers of inspectors. At present, section 34(1)(a) allows an inspector to stop and inspect a vehicle if the inspector is accompanied by a member of the Garda Síochána. I propose to extend that to members of Customs and Excise, so that if Customs and Excise stop the vehicle, the RSA inspector will be able to carry out an inspection. At present they are only allowed to do that if vehicles are stopped by a Garda.

The final change is to amend the language in section 41(4)(b) the original Bill which reads "enforcement officers, consultations or advisors" but should read “authorised officers, CVR inspectors, consultants and advisors”. I am not sure if the spell check caused that one.

Photo of Tom HayesTom Hayes (Tipperary South, Fine Gael)
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On that point, will this increase costs for those with buses and minibuses who have had their vehicles tested in the normal way and must hold on to the documentation?

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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It should not have any bearing on the cost.

Photo of Tom HayesTom Hayes (Tipperary South, Fine Gael)
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I have heard a number of people talking about that issue.

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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They are being charged at present, but that is a separate issue.

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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I move amendment No. 9:


In page 17, between lines 29 and 30, to insert the following:“(e) in section 25(5)—
(i) by inserting “, or another authorised officer acting on his or her behalf” after “he or she”, and
(ii) in paragraph (b), by inserting “or CVR tester” after “CVR test operator”,
(f) in section 34(1)(a), by inserting “or a member of Customs and Excise” after “a member of the Garda Síochána”, and
(g) in section 41(4)(b) by substituting “authorised officers, CVR inspectors, consultants and advisors” for “enforcement officers, consultations or advisors.”.”.

Photo of Anthony LawlorAnthony Lawlor (Kildare North, Fine Gael)
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I wish to table an amendment on Report Stage to make it illegal to tamper with odometers.

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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I will also table minor amendments on Report Stage. I am not sure if members are familiar with road trains but I will be tabling an amendment relating to them on Report Stage.