Dáil debates

Thursday, 12 March 2009

2:00 pm

Photo of James BannonJames Bannon (Longford-Westmeath, Fine Gael)
Link to this: Individually | In context

Question 8: To ask the Minister for Communications, Energy and Natural Resources the way the reduction of 10% in the regulated domestic electricity price and the reduction of the 12% in the regulated gas price is being achieved; if further price reductions can be expected in 2009; and if he will make a statement on the matter. [10393/09]

Photo of Shane McEnteeShane McEntee (Meath East, Fine Gael)
Link to this: Individually | In context

Question 9: To ask the Minister for Communications, Energy and Natural Resources if he proposes to bring about change to the way in which domestic electricity is regulated; and if he will make a statement on the matter. [10451/09]

Photo of Pat BreenPat Breen (Clare, Fine Gael)
Link to this: Individually | In context

Question 30: To ask the Minister for Communications, Energy and Natural Resources if he will justify the continuation of an electricity price regulation model that does not allow the ESB to compete on price with its competitors in the domestic supply market; and if he will make a statement on the matter. [10397/09]

Photo of Seymour CrawfordSeymour Crawford (Cavan-Monaghan, Fine Gael)
Link to this: Individually | In context

Question 46: To ask the Minister for Communications, Energy and Natural Resources if changes are being proposed in the way electricity and gas prices are to be regulated in the future; his views on whether at the present time there is too long a period between the reduction in cost prices on the world market and the actual decrease in prices, as was recently witnessed before the Regulator decreased the price for both electricity and gas; and if he will make a statement on the matter. [10363/09]

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Fine Gael)
Link to this: Individually | In context

Question 71: To ask the Minister for Communications, Energy and Natural Resources if, in view of the price drops caused by the entry of Bord Gáis to the electricity market, he has further plans for liberalisation of the energy market; and if he will make a statement on the matter. [10467/09]

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

I propose to take Questions Nos. 8, 9, 30, 46 and 71 together.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

Is it possible to oppose that?

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

I am afraid it is the Minister who groups the questions rather than the House. The Deputy can un-group them if he is so minded.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

Will we have enough time to deal with all of the questions?

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

We will have plenty of time.

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

There will be time. There will be time for vision and revision.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

Indeed.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

Poetry included.

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

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.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

I would like to focus on electricity pricing, because there seems to be some confusion in that regard. The justification for the 10% reduction in the ESB domestic electricity price by the Regulator is explained by — as the Minister of State has just said — deferring distribution and network charges the ESB would be charging users. Therefore, the Minister of State is saying the reduction in price is not linked to a reduction in the price of oil, gas and coal internationally. I find this difficult to accept. The Minister of State has also said we may have another gas price reduction in October, but will not see another reduction in ESB prices.

Last summer, oil was at $147 a barrel and gas was significantly more expensive than it is now. As a result, we had a 17% increase in the cost of energy at that time. Why are we not seeing a corresponding reduction in the cost of electricity now that the raw material or fuel for generating electricity has dropped dramatically? I understand how the energy companies work in terms of buying fuel. They buy six months in advance or more, but six months ago energy prices had also collapsed. Therefore, how can the Government, which is responsible for the regulator, justify the fact that no reduction in electricity bills is attached to the cost of oil, gas and coal?

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

Last summer, the price of oil was $147 a barrel and we saw the effect of this at petrol pumps. At that time both Bord Gáis Éireann and the ESB applied for significant price increases. The regulator decided to adopt a flexible approach and partially granted both requests and said the matter would be reviewed again in December. We all know that between July and December the price of oil and gas reduced considerably and in December a small reduction in energy prices was announced. These lower prices have continued. Just a few weeks ago, the Minister asked the regulator to re-examine the situation and, as announced earlier, we will see a further reduction in prices within a few weeks.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

The Minister of State is missing the point. We are not seeing a reduction in the price of electricity. I accept we are seeing an adjustment in price in domestic electricity bills, but that is only because the ESB is deferring the distribution and network charges it applies. We are not seeing cheaper electricity being produced here as a result of the collapse in the cost of the fuel used to generate electricity. We see a 12% reduction in the cost of gas, but why do we not see a 12% reduction in the cost of electricity production from that gas?

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

Over 50% of the electricity generated in Ireland is generated from gas. As we discussed earlier, in trying to bring competition into the market, we had to provide certainty on pricing to new entrants. As a result, it is possible that some customers will see a reduction of up to 24% within a few weeks.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

Not ESB customers.

Photo of Liz McManusLiz McManus (Wicklow, Labour)
Link to this: Individually | In context

Perhaps I can put the question another way. The situation is puzzling. The reason there has been a drop of 10% in electricity prices is because of the deferral of charges. The Minister of State said in his response that there would not be a further reduction in October. Where then do we get the benefit of the reduction in oil prices? Gas prices are tied in with oil prices and there has been a significant drop in oil prices, as can be seen at the petrol pumps. We were told before that the reason we did not see a corresponding drop in electricity prices was because of the way energy operators acquire their oil and gas. This is no longer sustainable because we have long passed the six-month period. When will we see the benefit of the drop in oil prices in electricity bills?

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

We are already seeing the benefits of the reduction in prices.

Photo of Liz McManusLiz McManus (Wicklow, Labour)
Link to this: Individually | In context

We are not.

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

The regulator stated that current prices must be set at levels that are cost reflective. It indicated that if any suppliers are in a position to provide electricity or gas at a lower cost, it will permit them to reduce prices further.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

Not the ESB. It is the largest producer, but it cannot reduce its price.

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

It can. The regulator has shown, in the way it has dealt with recent requests for price increases and with the reduction of world prices for gas and oil, that it is very flexible in its approach. We have seen a number of price reductions over recent months.

Photo of Liz McManusLiz McManus (Wicklow, Labour)
Link to this: Individually | In context

The most recent increase was over 17%. We are now getting a 10% reduction, but that does not bring us back to where we were. The Minister clearly does not know the answer to the question, but will he ask the regulator for the information as to when we will see the effect of the drop in the cost of oil and gas in the price charged for electricity by the ESB?

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

There are a number of factors ——

Photo of Liz McManusLiz McManus (Wicklow, Labour)
Link to this: Individually | In context

I want the Minister of State to ask the regulator because I do not believe the Minister of State knows the answer.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

The Deputy should allow the Minister to answer the question.

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

I hope the regulator will be more helpful than I have obviously been.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

The question of the commercial and industrial price of electricity is where the problem lies in terms of competitiveness and jobs. It costs almost twice as much to power a business in Ireland as in a place like Manchester, Liverpool or wherever. Does the deferral of distribution and network costs in the domestic sector also apply to the industrial sector?

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

Big businesses enter into negotiations with the ESB or other independent suppliers with a view to making their own price arrangements.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

Does that mean it does not apply?

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

It applies to everybody. The price reduction as announced by the regulator or Minister last week——

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

I want to be helpful on this matter.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

Allow the Minister of State to finish.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

I am sorry.

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

The recently announced price reductions will apply across the board.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

With respect, I want to make sure we are not misleading the House. The price reductions only apply to domestic ESB bills and are being justified by the regulator on the basis of the ESB deferring what it charges to itself, between power generation and networks and distribution.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
Link to this: Individually | In context

Has the Deputy a question?

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

In an effort to lower electricity prices in the commercial sector also, will the Government seek to have distribution and network charges in the industrial sector deferred in an effort to give the economy a competitiveness injection to reduce prices, if this is not already happening? The Minister of State says it is but I suspect it is not.

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

The Deputy referred to the cost of energy in Ireland by comparison with Manchester or many other countries. We are very conscious of the competitiveness difficulties and the action required to deal with these. As an island nation importing over 90% of our energy, we are obviously in a very vulnerable position. This is why our energy policy indicates we must place great emphasis on alternative energy sources. Renewable energy, in particular, must be developed. Wind and ocean energy have been prioritised and we are investing in them because we regard the growth in renewables as essential to securing competitiveness and to meeting at least some of our energy needs.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
Link to this: Individually | In context

The Minister of State will know the ESB does not have a majority stake in the industrial-commercial sector. There is free competition and, as is correct, the ESB's market share in this area has fallen because of competition. There is now competition in the domestic electricity supply market. I am concerned about the ESB's future in terms of power generation because the Government, through regulation, is deliberately preventing the ESB from competing in the domestic sector. Does the Minister of State not agree that, in the industrial sector, the role of the ESB, with the exception of ESB International, which is a separate company, has already been diminished and that we are now facilitating the collapse of market share in the domestic sector also by preventing the ESB from competing in terms of price with Bord Gáis and Airtricity?

Photo of Seán PowerSeán Power (Minister of State with special responsibility for the Information Society and Natural Resources, Department of Communications, Energy and Natural Resources; Kildare South, Fianna Fail)
Link to this: Individually | In context

It was the wish of all Members that competition be introduced to the market. To achieve this, it was necessary to make some changes with regard to the ESB, which had a monopoly for longer than people would have desired. To make the market attractive to new entrants, it was essential to provide certain guarantees for them such that it would be viable for them to enter the market. It was essential to regulate prices but I admit it causes certain difficulties for the ESB. However, these difficulties are very much in the short term. They will obtain until the market develops and competition becomes stronger, at which time regulation will no longer be required and all companies will be on a level playing field.