Peter Kelly (Longford-Roscommon, Fianna Fail)

I welcome the opportunity to speak on this motion. As electricity and gas consumers, we all know the CER has recently made its determinations on ESB and Bord Gáis Éireann end-user prices for 2007. Regrettably, gas bills have increased by 33.8% since 1 October while ESB bills will increase by 19.7% from 1 January. Understandably, the energy regulator has received many queries from customers and industry throughout the consultation period on these price increases. Many wondered whether falling international gas and oil prices would result in an immediate downward revision of ESB and Bord Gáis Éireann proposals for price increases.

We need to examine the reasons for the slow reaction to the recent downward trend with regard to end-user prices. In the case of Bord Gáis Éireann, almost 70% of the final price of gas is based on the wholesale price on international markets. Ireland is reliant on the UK for its gas and we import approximately 85% of the gas we use. Gas suppliers operate by buying their gas forward. This means they purchase gas now and during the summer for the coming winter based on the projected forward price. However, they do not take delivery of the gas until the winter. This policy guarantees delivery of the gas at a certain price, thereby avoiding the volatile spot market where prices could soar on a particular day.

During the summer and early autumn Bord Gáis Éireann would have forward purchased 90% to 95% of its gas needs for the winter, leaving only a small purchase element to the spot market. Therefore reductions in wholesale gas prices which were seen in recent weeks will only affect BGE for a very small amount of its needs. The ESB generates electricity from gas, oil and coal, all of which must be imported. The energy regulator has ensured that the ESB carried out a full assessment on the impact of current prices on its estimated fuel cost. The most recent analysis indicates that 2007 fuel costs, and as a result ESB prices, would not change substantially as a result of falling gas and oil prices. There would be a decrease of €9 million out of a total bill of €495 million for 2007. Falling gas and oil prices internationally would only have a marginal impact on the ESB's cost base for 2007. There are two main reasons for this. The price of coal has increased compared to the forward price assumed in the 2007 tariffs and now costs almost €71 per tonne. This increase largely outweighs the benefits of declining oil and gas prices.

The remaining outstanding fuel bill of €150 million from 2005 and 2006 must be recovered by the ESB. This deficit occurred as the price of fuels in each of these years increased beyond expectations. The ESB was unable to recover the additional cost as the tariff charged to customers was fixed for the full year, therefore a price lag built up. I understand that the energy regulator intends to fully track market fuel prices and the impact these have on the ESB and BGE cost base throughout the winter.

The energy regulator has decided to reopen a consultation on fuel price variation mechanisms in electricity tariffs. These mechanisms allow unit costs in tariffs to change in response to wholesale fuel market trends. This commitment follows a number of requests by industry consumers and the Oireachtas joint committee to examine fuel price variation. The commission will consult on this before the end of 2006 with the intention that any such clause would be introduced in spring 2007.

Negative politics is not my style. I believe in people working together for the common good. I absolutely accept the requirement for the Opposition parties to hold the Government to account. However, I would like to see them do it in a more constructive style. Will the Opposition categorically state that if in government it would reverse these increases?

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