Phil Hogan (Carlow-Kilkenny, Fine Gael)
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Question 1545: To ask the Minister for Communications, Energy and Natural Resources the reason for capacity and commodity charges that apply for useful transmission networks systems in respect of gas; if he will review this system in view of the difficult cost structure that is now pertaining to businesses particularly relating to the efforts that have to be made to retain employment; and if he will make a statement on the matter. [31906/10]

Eamon Ryan (Dublin South, Green Party)
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The regulation of charges in the natural gas market, including transmission and supply tariffs to final customers, is the statutory responsibility of the Commission for Energy Regulation (CER) under the Gas (Interim) Regulation Act 2002. Section 14 of the 2002 Act provides that the CER may set the basis for charges for transporting gas through the transmission systems.

Transmission charges are the CER approved costs that gas suppliers are required to pay the operator of the natural gas network (Gaslink on behalf of Bord Gáis Networks) for the transportation of gas through the system to the consumer and for the maintenance and development of the system itself. Network charges are largely pass-through costs for suppliers. These represent approximately 40% of the cost of gas to the Irish domestic consumer.

The Irish gas network is relatively new infrastructure. Ireland has seen significant investment in the network in the last number of years such as the Ireland-Scotland gas interconnectors and the gas pipeline to the west of Ireland. These investments have contributed to overall network costs. In addition, as Ireland has quite a fragmented population of a low density, more pipelines are needed to serve the customers. On a per customer basis Ireland has considerably more gas pipelines than Great Britain, which equates to higher transmission charges per customer.

In 2007 the CER carried out a comprehensive 5 year review of the price control regime for the transmission networks covering the period up to end September 2012. The revenues that Bord Gáis Networks (BGN) are allowed to earn each year for operating, maintaining and upgrading the network were consulted upon and agreed in the 5 year Review.

The Revenue Control Formula, which is set out in the CER decision, is used to calculate the maximum allowed revenues for BGN's transmission business for a given year of the control period. These allowed revenues are set against a revised forecast of 'peak day' and 'throughput' gas demand values (for the same year) to produce the annual transmission capacity and commodity tariffs. Capacity charges relate to booking space in the pipeline and commodity charges are levied per unit of gas delivered.

Under the current regime 90% of allowed revenues for transmission are recovered through a capacity tariff with the remaining 10% recovered through a commodity tariff. Different ratios of capacity and commodity could be chosen, but the allowed revenues for the year would stay the same and on average the costs to customers would stay the same. For example, if the capacity element was reduced this would, on average, lead to lower summer bills (when consumption is low) but winter bills would be higher.

In July of this year, as part of the price control BGN made their annual submission to the CER. Following the completion of a consultation process the CER directed that revised transmission tariffs be applied from 1 October 2010 to end September 2011. Compared with last year's tariff, the 2010/11 transmission tariffs represent an increase of 1.9% for some categories of shippers and an increase of 6.9% in nominal terms for other shippers in nominal terms. The 2010/2011 distribution tariffs result in a decrease of 3.4% in nominal terms. Overall, this leaves network charges for the average domestic customer at broadly the same level as last year.

In relation to BG Energy gas supply tariffs, the CER has recently decided, following its annual review, that there should be no change in the BG Energy domestic gas tariff from 1 October 2010. It should also be noted that the CER has instituted a number of decreases in the regulated BG Energy gas supply tariffs since January 2009 resulting in a cumulative decrease of 27% over the period in the BGE tariff for residential and small and medium businesses.

In relation to larger gas users, analysis by the Sustainable Energy Authority of Ireland, based on Eurostat data for the second half of 2009, shows that Irish industrial gas prices, when compared to the Euro area average, were below the Euro average in all industrial gas user categories. The Irish gas market has been fully opened up to competition since July 2007. There is now strong competition in the industrial and business segments of the market and increasing competition in the residential segment. Customers who switch to alternative unregulated suppliers can avail of significant reductions.

The CER will commence its review of network charges next year for the 5 year period commencing October 2012. In reaching its decision the CER will take due account of all perspectives including the views of all suppliers and of business customers themselves.