Oireachtas Joint and Select Committees

Tuesday, 9 July 2019

Joint Oireachtas Committee on Communications, Climate Action and Environment

ESB Networks: Commission for Regulation of Utilities

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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We are now in public session and I thank people for their patience. We will now discuss the "RTÉ Investigates" programme that aired on 5 June 2019. I welcome the following representatives from the Commission for Regulation of Utilities, CRU: Dr. Paul McGowan, chairperson; Ms Karen Trant, director of energy networks and legal; Mr. Robert O'Rourke, electricity networks manager.

Before we begin, I draw their attention to the fact that, 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 joint committee. However, if they are directed by the committee to cease giving evidence on a particular matter and continue to do so, 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 are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. Any submission or opening statement witnesses have made to the committee will be published on the committee's website after this 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. Once again, I remind members to turn off their mobile telephones or place them in flight mode.

I invite Mr. McGowan to make his opening statement.

Dr. Paul McGowan:

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

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

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

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

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

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

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

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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What is the total amount of leakage reported to the CRU since the five-year review process commenced?

Dr. Paul McGowan:

I do not have the figure before me, but we will provide it to the committee.

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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That would be great. Dr. McGowan stated that in the period 2011 to 2015, ESB Networks requested funding and the CRU allowed a sum of €2.5 million.

Dr. Paul McGowan:

The correct figure is €20.5 million.

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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Sorry, €20.5 million. Only €6.2 million of it was spent. What further action was taken by the CRU regarding the non-spending? Was it happy with the response it received in that regard?

Dr. Paul McGowan:

We will revert to the committee regarding the total amount of leakage since the review commenced. On the non-spending, one of my colleagues may contribute further once I have provided an overall view. There were significant reductions across the capital programme for ESB and ESB Networks at that time because of the financial crisis. There was a very significant reduction in its capital expenditure because of ability to access capital markets. In addition, capital programmes have impacts on tariffs and every effort was being made to contain any price-increasing effects. At the end of the overall PR3, we reviewed whether, in spite of the fact that it spent less in capital expenditure across the board, the amount that was spent was spent efficiently. That is our normal approach. In broad terms, we accept that during PR3 there were significant capital constraints across the economy and the ESB was affected by that and, as a result, its capital programme was scaled back.

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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Would it be cheaper to do this work during a recession, given lower labour and material costs?

Dr. Paul McGowan:

Borrowing would have been required. It was all about the borrowing of very significant sums. Typically, multi-billion euro programmes over five years were in question. It was all about the ability to borrow.

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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Dr. McGowan stated that the role of the CRU was to allow the capital spending to fix the leaks. Was there any communication with its fellow regulator, the Environmental Protection Agency, EPA, regarding the number of leaks that had taken place and the concern that they had not been dealt with? Was it of concern that the leaks had occurred and the money that was allocated was not spent?

Dr. Paul McGowan:

We did not enter into direct dialogue with the EPA on this issue because there were no red flags from our perspective regarding the environmental programme of the ESB. Typically, the ESB came to us and we identified whether it had justified the spending. For example, in PR3 we gave it an allowance which we considered sufficient for it to meet its environmental and safety obligations. We saw no requirement to liaise with other sectoral regulators. The ESB reported to us that it was substantially in compliance with its environmental obligations. Those reports were in respect of our role as economic regulator. We are aware that ESB Networks, like any other network operator, answers to the relevant environmental and safety regulator in respect of its statutory functions. At the time, there was no perceived need for us to liaise with the EPA. That said, we have a memorandum of understanding with the EPA regarding our respective roles and are aware that it is carrying out an investigation. In support of that, we have shared information we have with it. We will liaise with it to determine whether any further exchange of information is required to support its role or ours.

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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The CRU was aware that ESB Networks had not spent the money on the leaks. If I understand Dr. McGowan correctly, it told the CRU that it was compliant environmentally. Am I correct in that regard?

Dr. Paul McGowan:

Yes. It advised us in its environmental reports that it was in substantial compliance with its environmental obligations. We took that at face value because we are not an environmental regulator. We took its statements on its environmental and other obligations at face value.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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I thank Dr. McGowan for his presentation. Knowing what he knows now, does he consider the ESB to be in compliance with its environmental standards obligations?

Dr. Paul McGowan:

It would be premature of me to offer an opinion in that regard because I am not an environmental regulator and the CRU does not regulate the ESB from an environmental perspective. We want to see what comes out of the EPA investigation. Given that the matter has come to public attention, clearly, we will examine it in the course of our look back on expenditure over the current price control period, which ends next year. As I stated, there were no red flags from our perspective in terms of the reports we were receiving. The typical message in the reports was that the ESB was in substantial compliance with its environmental obligations, had carried out external and internal audit of them, and there were no major concerns. From time to time, it may have been in breach of a particular environmental obligation, but it dealt with such matters along with the relevant environmental or safety regulator at the time.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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In light of the information contained in the "RTÉ Investigates" programme, does Dr. McGowan now believe there is a red flag?

Dr. Paul McGowan:

As I stated, in the look back we will pay particular attention to whether the ESB has spent efficiently the moneys for which it applied, as is normally the case. According to the environmental reports provided to us by the ESB between 2014 and 2017 - the 2017 report is the most recent we have and we provided a copy of it to the committee - the amount of leakage from the fluid-filled cables reduced from 54,600 l per annum to 15,201 l. On that basis of analysis, the ESB was making progress in its programme to reduce the level of leakage from the cables.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Is there a necessity for a greater level of co-operation between the CRU and the EPA? I am not suggesting that there is no co-operation currently. Is there a need for a more clearly defined communication path, transfer of information, regular dialogue and some kind of a forum such that the red flag referred to by Dr. McGowan would not be required and there would be a method of verification and closer level of auditing for the next wave of investment or approval of required investments?

Dr. Paul McGowan:

That is a fair observation. I would characterise the relationship between the CRU and the EPA as very constructive. We have a memorandum of understanding and regular dialogue, particularly regarding water, because there is a significant overlap between its functions and ours as a regulator and there are many environmental programmes associated with water. Up to now, the need for such dialogue regarding ESB Networks was not identified.

We certainly have a good relationship with the EPA, however. That dialogue will take place.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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When did Dr. McGowan first become aware of possible non-compliance, from an ESB perspective, with the investment profile that was permitted by the commission?

Dr. Paul McGowan:

Let me offer clarification on the investment profile. The investment profile I mentioned was price control 3, which ran from 2011 to 2015. In that period, as noted, the ESB was given a certain allowance and spent considerably less. We were fully aware of that and we have looked back. We have concluded that what it spent, it spent efficiently. That has fed through in respect of tariffs. In the current price control-----

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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What about the price control before No. 3? Did Dr. McGowan mention PR3?

Dr. Paul McGowan:

Yes. The current price control is PR4.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Was there a No. 2?

Dr. Paul McGowan:

We are coming up to the price control. We are in the fourth.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Considering the leakage has been occurring for 20 years, was this issue raised as part of the price control prior to 2011?

Dr. Paul McGowan:

I would need to check the details of that, unless Mr. O'Rourke can clarify.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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That would speak to a time when there was no shortage of economic activity, no constraints on the capacity to borrow, and no issues over the growth in the company's activity. It might be worth looking at what the chief executive was paid then. Was there was any curtailment of the capacity to fund the very large salary of the then chief executive and the associated entitlements?

Mr. Robert O'Rourke:

In terms of the PR2 allowances, we would need to double-check. The cable replacement programme is a very large capital programme. There were allowances under PR3 and there will be under PR4. At that point, we will review. In terms of PR2, we will have to revert to the committee.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Perhaps the witnesses will revert. When did the commission become aware that there was an issue? Did the ESB notify the commission in advance of the programme that was aired?

Dr. Paul McGowan:

In February, we were notified by the ESB that a matter had arisen in a protected disclosure that may be of relevance to us. It was actually a very narrow point. It was a narrow point in regard to the allowance that ESB had been given for its safety programme and the fact that the allowance it had sought was not adequate enough. The second point raised was that it had perhaps overspent the allowance. It is not unusual for management to prioritise decisions in the day-to-day running of the business and move budgets between one area and another. We do not regulate or manage ESB Networks or any of the networks we regulate to that level. We did not, on the face of it, see any issue with this but we determined that we would consider it in the look back associated with PR4, which we will conduct later this year and into next year. It was not until some time in June that we were advised that there was a programme airing on the matter.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Dr. McGowan made it clear that he does not have primary responsibility for the environmental risk aspect.

Dr. Paul McGowan:

Yes.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Who does?

Dr. Paul McGowan:

I understand the EPA is carrying out an investigation. It would not be appropriate for me to say who is responsible for the environmental aspect. It is not in my legal remit.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Does the commission have resources or require resources that would give it some powers in this regard? Obviously, it is not going to require that it be the key environmental risk analyst but is there a necessity for additional resources to allow it to be more familiar with what is going on from that perspective or to build an interface between itself and the body with primary responsibility?

Dr. Paul McGowan:

Right now, in terms of our economic regulatory function, I would say that in respect of the regulation of network companies, we have adequate resources of the type necessary to carry out this work. I offer a caveat, however, in that if the scope of our work or our remit were to alter, we would clearly need additional resources.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Dr. McGowan outlined the regulatory role - the efficient spending of resources to ensure delivery according to the objective of the organisation. To do that, however, the commission must have some expertise in the areas of health and safety and environmental risk. He might talk to us about that function within his organisation. While the commission does not have primary responsibility, and bearing in mind that managing the risk is such an important part of what ESB and ESB Networks do, how are responsibilities discharged?

Dr. Paul McGowan:

Typically, because price controls happen every five years, we do not retain full-time expertise, particularly in these areas. What we typically do is take in expertise for a period. I refer to those with specific expertise right across the capital programme we envisage ESB would have. These experts examine the various aspects of ESB's capital programme for us, be it the construction of wires, the operation of substations, or meeting various safety obligations. They, along with our internal staff, led by people such as Mr. O'Rourke, carry out the overall analysis and determine whether the sums being sought by the network company are sufficient to carry out its statutory functions or whether they need to be adjusted. It would not be unusual for us to do some form of adjustment. For example, a network utility might say it needs money for X but might not provide us with the evidence we would say is necessary to support it. In any event, we may challenge it to deliver what it wants to deliver more cheaply.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Are they independent external advisers?

Dr. Paul McGowan:

Yes. They are advisers to us.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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But it is not the EPA.

Dr. Paul McGowan:

No. They are typically engineers or staff from engineering houses, people with expertise right across the area of electricity networks.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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I am just trying to be helpful in getting to a point that works. There is no charge to suggest not enough moneys were given. Clearly, under PR3, the resources set aside were more than adequate. Do the witnesses accept that there is probably a greater requirement to involve the EPA in that process in respect of the standards they are setting on the other side, such that everybody is aware of what is included?

Could Dr. McGowan clarify what he said about the volume of oil leaked last year?

Dr. Paul McGowan:

We do not have the numbers for 2018. The latest report we have is for 2017. According to the report we received from the ESB, its target was 15,000 litres. It had 15,201 litres of leakage in 2017. These are the latest data we have.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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My recollection is that there were 43,000 litres in one of the years. Was that 2018?

Dr. Paul McGowan:

We do not have the report for 2018 so it would be impossible for me to say. I know that, as far back as 2014, the leakage was at 54,600 litres. It is on that basis-----

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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My recollection from the information is that there was a figure of 43,000 litres last year.

Dr. Paul McGowan:

We do not have those data as yet.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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I thank the witnesses for attending.

We know from the ESB documents that the ESB knew about the leaks from the fluid cables at least since 2009. At that point, did the ESB alert the commission regarding the leaks? When did it happen? Dr. McGowan outlined the commission's role in the opening statement and clarified that in the discussion some moments ago. If there were works to be carried out that would incur a great cost, surely the ESB would alert the commission because it would make a submission to be given approval for capital expenditure. If the ESB knew about the leakage in 2009, did it tell the commission in that year? When did it raise the issue? It is a very expensive problem to fix, by all accounts.

Mr. Robert O'Rourke:

It would have made that request as part of the PR3 process.

There is also the allowance of €20 million in PR3 that Mr. McGowan mentioned earlier. It would have requested that on the basis that cables needed to be replaced.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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That is the problem. Did he inform the commission that they were leaking and that it was having environmental consequences?

Mr. Robert O'Rourke:

As I recall, yes. There was an issue with leakage. The age of the cables was also a potential issue. This could present environmental issues. Alongside this, we were getting environmental reports which indicated that the ESB was in substantial compliance. While we accept that this work was required for environmental reasons, at the same time, there were not necessarily any red flags. As Mr. McGowan said, it was in compliance and this work was required to stay compliant.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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It made the commission aware that the cables were leaking fluid.

Mr. Robert O'Rourke:

Yes.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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Did the commission bring that to the attention of the EPA at that point? The witnesses referred to the commission's remit in their opening statement and I understand it. The commission's role is not to police environmental matters but it is the Commission for Regulation of Utilities. Surely there would an onus on the commission to bring it to the attention of the EPA or to ask the ESB if it had done so?

Mr. Robert O'Rourke:

The ESB has obligations related to compliance with environmental law, health and safety and various other requirements. Our own remit is to look at the economic regulation of the ESB, whether it has sufficient funds to carry out its duties and if it is spending those funds efficiently.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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At that point, did the commission check with the ESB to see if it had notified the EPA that this was having an environmental impact or did the commission bring it to the attention of the EPA?

Mr. Robert O'Rourke:

We did not contact the EPA. The ESB has its own reporting requirements.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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Had the ESB notified the EPA?

Mr. Robert O'Rourke:

Not to my knowledge.

Dr. Paul McGowan:

To clarify, the ESB would have indicated to us that it was in substantial compliance with its environmental obligations. We would have taken from that that it was complying with the relevant environmental regulations that would exist from whichever regulatory authority.

Ms Karen Trant:

It brings us back to the purpose of the report from the ESB, which is for us to be able to look at where it is spending the money and where these programmes are. We will not necessarily challenge it with regard to its environmental outcomes. It stated in the report that it is in substantial compliance. We would take that at face value. We would have assumed that it would have reported to the EPA. The report states that it reports on other areas, including polychlorinated biphenyls, PCBs.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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Would it be correct to assume that, if the ESB informed the witnesses in the report that it was in substantial compliance, that was actually misleading?

Ms Karen Trant:

We are waiting for the outcome of the report and would not want to pre-empt that. It would be in bad faith if that is the case.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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Since 2006, the ESB has been required to report to the CRU regarding environmental performance, including about cable insulation fluid. The CRU website states that the key policy objective of the organisation is to ensure that energy is supplied across the State in a safe fashion. There is some distance to go to get to the bottom of this. Does the CRU believe that it has achieved that objective and overseen the safe delivery of energy?

Dr. Paul McGowan:

It would be important to distinguish our energy safety functions, of which we have some. We are the safety regulator for the upstream petroleum and gas sector and the downstream natural gas sector. We have no safety function relating to electricity networks. Our function is purely as an economic regulator. The way that we fulfil our obligation to carry out that function is by ensuring that the utility has adequate funds to meet its safety obligations. We would be satisfied based on what we have seen. During the current price control, PR4, the ESB requested additional funding for safety due to initiatives that it wanted to undertake. We examined that and gave it additional funding for its safety functions. We have discharged our function. We do not have a safety function related to electricity.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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Just for gas.

Dr. Paul McGowan:

We have a function related to gas.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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PR3 covered the 2011 to 2015 period and ESB Networks requested funding for the replacement of cables. The commission allowed for €20.5 million, which included replacement of HV fluid for the cables. The reported spend was €6.2 million. How much did the ESB request? Did it request the €20.5 million that the commission subsequently allowed or did it look for more than that? The fact that slightly less than 30% of what was granted was actually spent, while at the same time we had the problem of cables leaking fluid and oil into the environment, especially in the Dublin area, seems to indicate a mismatch. How much did the ESB look for at that point?

Dr. Paul McGowan:

We do not have that number with us but we can certainly provide it. If we take PR4 as an example, it is probably worth noting that in PR4, ESB Networks came to us-----

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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It looked for €28 million in PR4.

Dr. Paul McGowan:

That is right. We adjusted that primarily because we expected the ESB to do the programme more efficiently. It was not that we did not agree with the programme. As with any utility that we regulate, the utility needs to present us with evidence that the programme is necessary. If it presents that evidence, then we make the funds available. At the end, if it presents evidence that it carried out the programme efficiently, then we allow those funds to flow through to prices that consumers ultimately pay.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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The commission has responsibility for water, gas and electricity. Does the CRU have the staff, resources, finance and equipment required to carry out its role? There have been discussions in the past that the commission is understaffed and under-resourced. Is that still the case?

Dr. Paul McGowan:

Possibly the last time that we discussed this, I would have said that the CRU was adequately resourced at that time. Financial resources have never been an issue for the CRU because we raise our financial resources via a levy. We are still subject to the usual employment control framework that needs sanction through the Department of Public Expenditure and Reform. We currently have an application in for additional resources, which is very much to address the climate change and clean energy package, and other matters which are adding to our workload for the foreseeable future.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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How many staff are required?

Dr. Paul McGowan:

We have a ceiling of 106 full-time equivalents and we have sought additional resources above that level.

Photo of Brian StanleyBrian Stanley (Laois, Sinn Fein)
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How many does the commission need?

Dr. Paul McGowan:

We sought a total of 21 and we are awaiting the outcome of that.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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I thank the witnesses for attending. A friend of mine fell sick last week because he was swimming in Dublin Bay, so he was swimming in sewage. Is that of any interest to the CRU?

Dr. Paul McGowan:

Yes, it is.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Why is that of interest?

Dr. Paul McGowan:

It is of interest because we make an allowance for the overall capital investment programme that Irish Water will make into water and wastewater services throughout the country.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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It is an environmental issue rather than an economic issue, and Dr. McGowan says the CRU is an economic regulator.

Dr. Paul McGowan:

Our role is to ensure that the utility has adequate funding.

When Irish Water makes applications to us for funding, the vast majority of those applications relate to achieving environmental standards that currently exist and with which it is not in compliance.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Is it not the same in the energy area?

Dr. Paul McGowan:

The energy area is at a much more mature stage in that the bulk of the investment is typically to digitise or modernise systems, for example, smart metering. The other aspect would be to allow for growth, which would be the connection of new generation technologies and new demand.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Why is the CRU seeking additional resources to implement the clean energy package?

Dr. Paul McGowan:

We have identified within the climate action plan and the clean energy package that as an organisation we will have to change in terms of our ability to adapt the regulatory framework to meet what will be a rapid step up in the connection of new types of resources to the grid.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Dr. McGowan stated that the CRU has no interest in environmental issues in its work and that it is just an economic regulator.

Dr. Paul McGowan:

I am not sure I accept that characterisation. We are not an environmental regulator. Our role as an economic regulator is to ensure that the utility has adequate financial resources to meet its environmental obligations.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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I do not wish to be rude but I was slightly shocked when I heard the earlier introduction and the corresponding responses. If one is involved in energy policy for any period, this trialogue between environmental protection, competitiveness and security tends to become ingrained in one's head. I have never heard someone in recent years state that he or she just looks at the economic aspect. I could not believe that when I heard it. That may be the case but I was frantically trying to find the legislation on my telephone because I will have to look at it now as it may need to be amended. I could not believe that a modern regulator of an energy or water business would say it is not an environmental regulator and just does economics.

Dr. Paul McGowan:

I will clarify the position. If that is what the Deputy has taken from it, that is not what I meant. I will separate two things. First, if one takes the example of the transformation that is required in the energy system, of course we have a substantial role to play in respect of the achievement of targets for renewables on the system, the introduction of renewable gas or any of those matters. We obviously have a key role to play as a utility regulator in that regard. Through the price controls we make very substantial amounts of money available, from the analysis we carry out, for the utility companies to deliver those environmental obligations.

With regard to the particular topic of the cable leaks that we are discussing, I am talking about a narrower focus there in terms of ESB Networks' obligations under environmental compliance legislation in respect of its discharges to the environment. It is important to separate those two. Of course, we have a key role to play in the delivery of the clean energy package and the climate action plan.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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To return to the analogy, the CRU is regulating Irish Water and it states that the latter is of interest to it if sewage is going directly into Dublin Bay. When it comes to ESB Networks, however, if this oil fluid is going into the Royal Canal, it is not as much of an interest.

Dr. Paul McGowan:

As stated, ESB Networks has reported to us each year that it is substantially in compliance with its environmental obligations. In the case of Irish Water, it is broadly accepted that a massive programme of investment is required in order for the company to meet its environmental obligations. They are at two totally different stages in terms of environmental compliance.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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It is a different scale but similar in the sense that the crew knew for several years, according to Mr. O'Rourke, that there was an issue with leaking oils into the Royal Canal, the Grand Canal or the Dodder. These are all sensitive locations. Every location is sensitive.

Dr. Paul McGowan:

To be clear, I was not personally aware that there were leaks at a particular location. We would have been aware that there were leaks from the fluid filled cable network and that it had been identified that these cables needed to be replaced over time. Our role was to ensure that ESB Networks had adequate financial resources to fund that programme and we carried that out through the price control.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Thousands of litres were involved. Did I hear Dr. McGowan state, in answer to a question from Deputy Stanley, that the CRU's role is safety regulator when it comes to the gas network but not when it comes to the electricity network?

Dr. Paul McGowan:

That is correct.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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If I was an ESB member of staff and I had a concern about safety, to whom would I go?

Dr. Paul McGowan:

The relevant authority would be the Health and Safety Authority, HSA. We have no statutory function in that respect.

Ms Karen Trant:

I have worked in that area. Our role with regard to safety is public safety risks, not occupational health and safety. There is a distinction. That would sit with the relevant authority, which would be the HSA. ESB Networks would report to the HSA as an employer. On the gas and petroleum sides, we have a specific safety function for public risk that is enshrined in legislation. There is a lengthy provision of the 1999 Act that sets out our functions, enforcement powers and so forth and we have a well developed framework to allow us to do that. When talking about the environmental aspects with regard to ESB Networks, we do not have the same enforcement powers or the same expertise that the EPA or the local authority have to monitor that, but we have an interest and we take it into consideration. As Dr. McGowan said, when we take it into consideration we allow the utilities the money to make sure they meet their environmental obligations.

By contrast, there is our safety role in respect of gas. We keep environmental experts on retainer who would review EIAs and other environmental assessments that Gas Networks Ireland would carry out before it lays a gas pipe. We review that to ensure it is in line with environmental obligations. Again, however, that is a function and power we have under legislation.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Is there a safety risk with 50,000 litres of this hydraulic oil leaking into the watercourses?

Ms Karen Trant:

I am not an expert in that field and I do not wish to say "Yes" or "No". We will await the outcome of the EPA report.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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With regard to the figure of €25.4 million under PR4 - I am not sure of the exact figure - and given that this issue has become public following the RTÉ programme and the CRU has appeared before this committee, is there an estimate of how much has been spent in this PR4 period to date?

Mr. Robert O'Rourke:

We do not have an estimate for that programme. The process in which we are involved is the five-year look-back. We will be collecting financial data on that programme as well as the remainder of the capital programme over the coming months. We will analyse that and that will feed into the decision on the allowed revenue for the next five years.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Has the CRU talked to ESB Networks about this issue?

Dr. Paul McGowan:

We have not spoken specifically about this. As we have just kicked off the price control, we will be doing a full analysis of the programme.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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After becoming aware of the protected disclosure in February, that the programme was being broadcast in June and that the committee was investigating it, has CRU communicated in any way with ESB Networks on this issue over the past six or three months?

Dr. Paul McGowan:

The first notification we received was late in February and it was in respect of our role in approving funds on the safety side rather than on the environmental side. It was not until June that we became aware of the scope of the issues being raised. As stated, our efforts are concentrated on the fact that we are now doing a full look back for that period so we will be getting a detailed analysis of the expenditure of ESB Networks in the past five years. That process is under way.

Ms Karen Trant:

In regard to this issue, we have communicated our concerns to ESB Networks and we are awaiting its internal report and investigation.

I suppose, because it is the subject of a confidential disclosure, we do not want to become involved in that at this point.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Ms Trant must have some ongoing sense of the matter. In monitoring programmes of expenditure, she must have some mechanism other than having to wait for the end of a five-year period. She must have some way of monitoring, on an ongoing basis, how things are going in the various budget lines.

Ms Karen Trant:

The 2017 report that was submitted would have been an annual report that we would review. When we looked at that report from an economic and an expenditure point of view, there were no red flags. Had the company stated that it was not in substantial compliance, that would have raised a flag and we would have taken action.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Given this committee's work and the high-profile nature of this case, no one has informed anyone as to what the level of spending is in PR4. How would I find that out?

Ms Karen Trant:

We will find that out in the coming weeks when the ESB puts together its look-back and proposals for the next price control.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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Given that this committee was to investigate this issue, surely it must have crossed Ms Trant's mind to get a sense of the level of spending in the past four years.

Ms Karen Trant:

If the committee feels that is relevant, we can get it.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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It is relevant.

Dr. Paul McGowan:

We do not have that information but we can certainly find it out.

Photo of Eamon RyanEamon Ryan (Dublin Bay South, Green Party)
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The point I made at the outset is not a minor one; it goes to the core of the issue. There was an OECD review of regulators and, by and large, the CRU came out with flying colours. My experience, as a former Minister, is that one cannot act as a regulator if one does not take the environment into account as well as public safety. If the legislation is at fault in this regard, then we must amend it. One cannot act a regulator where one states that one is only an economic regulator and that one does not look at the environment. That has to be one of the most valuable lessons of this process. How would the regulator know what we are to do in respect of the climate? If anything, in that three-way process, the environment comes first because the one physical certainty we know about is that we must stop putting carbon in the atmosphere whereas competitiveness or security can be devised in a range of different ways. To discount the environment and state that one is only an economic regulator, is a valuable lesson out of what has come out today. I do not see how a regulator can do its job if it is coming at the matter in that way.

Dr. Paul McGowan:

I would not characterise it like that, namely, that we discount the environment. Given our statutory functions, the main means we have by which we ensure that the utilities we regulate discharge their environmental obligations is to ensure that they are adequately funded to do so and it is through the price control that we achieve that.

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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Hindsight is a great thing. Knowing that the ESB had not spent the money, and I take Dr. McGowan's point that a recession occurred, does he feel that CRU has adequate environmental expertise in house to be able to assess such spending and to understand the environmental impact of leaks like this so that when it sees that capital investment has not been made to fix these leaks there is somebody in house who will raise a red flag and say that there was a recession but this has a serious environmental impact? Does the CRU have staff in house with that expertise and environmental knowledge that it is necessary to bring to bear when it is giving the go-ahead in respect of a capital spend and then seeing that it is not spent?

Dr. Paul McGowan:

We would typically take that sort of expertise in as and when required. When doing a price control and looking at a capital programme, we take on experts to advice us on that. Because we do not have, for example, powers to prosecute or investigate in environmental incidents and safety incidents in respect of the electricity network side, we typically would not have significant expertise in that area.

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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The CRU agrees to allow them to spend X amount on what are leaks. The CRU is handing that over to the EPA. Given there was €20.5 million and only €6.2 million was spent, is there any look-back or follow-up in respect of this because it has an environmental impact? The big question relates to why red flags were not raised even after that. This was a serious environmental issue. Even if the CRU could not deal with the matter, it could approach its fellow regulator and discuss this, even informally, through the memorandum of understanding with the EPA. If there is a recession or financial or outside forces, it is still a serious environmental issue that needs to be dealt with. Should it not have been flagged with the EPA?

Dr. Paul McGowan:

Overall, that is a fair point. As stated, when we look back, we look at whether or not they have spent efficiently. At the time, in PR3, right across the utilities, the capital programmes were being cut because of the recession and access to capital markets. It is fair to say that once the EPA has concluded its investigation, we will look at how we might bolster our memorandum of understanding with it in order to ensure that we have dialogue with them on an ongoing basis.

Photo of Hildegarde NaughtonHildegarde Naughton (Galway West, Fine Gael)
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A key message from this meeting is the need for communication, be it even informal, on environmental issues. I thank Dr. McGowan and his colleagues for attending. We appreciate their presence here this afternoon.

The joint committee adjourned at 5.15 p.m. until 5 p.m. on Wednesday, 10 July 2019.