John Perry (Sligo-North Leitrim, Fine Gael)

I congratulate the Fine Gael energy spokesperson, Deputy Coveney, on tabling this important motion. It focuses on the cost of energy to the consumer, especially the cost of electricity. The motion acknowledges that Irish households and businesses are burdened with some of the highest gas and electricity prices in the European Union and that our national economic competitiveness is suffering as a result of high electricity costs.

These complaints are not new. Any historical review will show that complaints about the high cost of electricity are a long-standing problem dating back decades. The last few reports from the National Competitiveness Council, particularly the 2008 report, comprise a damning account of the Government's failure to address spiralling business costs and the decline in economic competitiveness. This shows that the Government has made little progress in addressing the crisis arising from rising electricity costs and that Irish industrial electricity costs are the second highest in the Union.

The past decade has seen the introduction of major changes in the electricity sector, including a serial restructuring of the ESB and the establishment of the Commission for Energy Regulation. These changes were intended to bring more transparency to electricity pricing, more competition in electricity generation and lower electricity costs for consumers. Regrettably, none of these seems to have occurred in practice.

The first major impact of the opening up of the market was that electricity prices increased, resulting in the creation of a profit margin for new generation companies. That particular round of price increases cannot be blamed on ESB management as it was the direct responsibility of the Government.

The hope that full transparency regarding electricity pricing would follow the establishment of the Commission for Energy Regulation was dashed some years ago during the fiasco in which the regulator granted the ESB a major price increase only to be followed a few months later by a reduction in that increase. There are credible anecdotal accounts that this price reduction followed, in large part, the discovery of a significant error in the data underlying the case for the price increase. This does not inspire confidence in the cost control activities of the ESB's executive management and the regulator.

A key characteristic of the electricity sector is the perception that electricity costs are largely outside Government and executive management control. The costs of the primary energy inputs of fuel oil, coal and natural gas are determined by world markets. Electricity generation and supply comprise a capital-intensive business and there is little flexibility in the scale of the annual financial charges passed on to the electricity customer.

These two factors lead to the perception that labour, operation and maintenance costs comprise a small proportion of total electricity costs and do not matter very much overall. This is more or less what the secretary general of the Irish Congress of Trade Unions said on the RTE news within the past week. In actual fact, domestic factors that are under the direct control of ESB executive management account for a significant proportion of the cost of electricity, and the bulk of these costs are labour costs. In absolute terms, ESB payroll costs amounted to more than €500 million last year. The scale of labour costs constitutes a powerful reason to ensure cost factors within our control are minimised and the sector operates as cost efficiently as possible. This is not the case at present.

Making the electricity sector cost effective for the Irish consumer can be characterised as a long-running power struggle between the Government, ESB management and ESB trade unions. The minimisation of the costs within their direct control is the fundamental challenge for the ESB's executive management. The way the price of electricity has undergone a sustained escalation over the years would seem to show that the Government and, therefore, the Irish electricity consumer have been on the losing side of that power struggle.

A consultant study from 2004 showed that domestic controllable costs are estimated to account for 30% of the difference between Irish and average EU electricity prices. As an absolute minimum, the regulator must focus on lowering this differential in controllable costs to bring us into line with our competitors. The problem really concerns controllable costs but the Government has abandoned its responsibility in this area.

We now need a fundamental review of the regulatory system, including by way of asking ourselves whether the break-up of the ESB and the introduction of the regulator, in its present form, were actually mistakes. The small and relatively self-contained electricity system in Ireland does not really lend itself to the dogma of competition as applied in large electricity markets. Our circumstances are unique and we should recognise this in how we approach Government control of the sector. High costs comprise one of the key causes of our job losses.

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