Seán Power (Kildare South, Fianna Fail)

At the request of the Minister a number of weeks ago, the Commission for Energy Regulation, CER, undertook an urgent review of options to bring forward a reduction in energy prices for business and domestic consumers. The need for an early review was underlined by the various cost pressures facing Irish businesses in the current economic climate.

The proposed decisions on the ESB and Bord Gáis tariffs to apply from May next were published for consultation by the CER last week. The CER has concluded that the best way to deliver a reduction in electricity prices in the short term is through the deferral of both transmission and distribution network revenues. A total of €165 million of network revenue will be deferred for five months and recovered over the following year.

The exact reduction to be seen by a particular customer or category of customer will depend on his or her pattern of energy use. It will tend to average at approximately 10%. The reduction in electricity costs now is bringing forward the reduction that consumers would otherwise see in October due to the fall in fossil fuel prices. The approach of the regulator ensures that the benefits of lower prices are passed on to all customers, of all suppliers, in a way that does not distort the market. In regard to gas prices, the regulator concluded that downward trends in global gas prices and higher sales of gas by BGE during the cold winter months, would allow a significant reduction in BGE's regulated prices to residential and small industrial and commercial customers.

In the normal course, this reduction would come into effect next October, which is the start of the gas year. However, in view of the exceptional difficulties currently facing the economy, the CER proposes to bring forward the price reduction to 1 May next. That will result in a 12% price reduction for domestic and SME gas users.

Further energy price reductions in 2009 will depend on trends in fossil fuel prices, particularly gas and coal, which are still the largest components of electricity generated in Ireland. The regulator will continue to closely monitor global price trends in the coming months. On current trends, the regulator has advised that there potentially may be scope for a further reduction in gas prices in October. In the case of electricity, the regulator is bringing forward the entire reduction now, as opposed to having any reduction in the autumn.

The regulator has stated that the regulated prices are currently set at a level that is cost reflective. However, if either ESB or BGE can demonstrate to the regulator that they can provide electricity and gas at lower cost then the regulator will permit them to reduce their prices. The regulator has also made clear the intent to exit from regulated prices as competition takes hold in the market. The regulator has already ceased regulating tariffs for large energy users. The majority of these have now switched away from ESB to independent suppliers and negotiate their own specific arrangements.

There is no doubt we will see an end to regulated tariffs as soon as the market power of the dominant player is sufficiently reduced. It is a matter for the regulator to judge when the moment is right. The Electricity Regulation Act 1999 is not prescriptive in terms of the timing and frequency of decisions by CER on charges by ESB customer supply. The legislation does not preclude the regulator reviewing electricity prices very regularly. As its two-phase structure adopted last year and its current tariff proposal have shown, the regulator is showing flexibility in its approach to tariff regulation in the interests of all energy consumers, without distorting the market.

The entry of BGE and Airtricity to the domestic electricity market is welcome. It shows that the Government's policies and the regulatory framework are working. I also welcome plans by the regulator to carry out a more fundamental review of energy tariff structures during the year in consultation with all stakeholders.

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