Speeches
Extracts from Fiona O’Malley’s Speech in Dáil on Energy Costs- Private Members Business 8 Nov 06
I welcome any opportunity to discuss energy policy.
Certainly no public representative can be unconcerned by the rate of increases in the price of electricity and gas recently granted by the Energy Regulator. The cost of energy is increasingly becoming the issue of most significant concern to manufacturing industries in the country.
As a minute & isolated energy market Irelandwas never going to enjoy the security and the price benefits which economies of scale can provide to countries on mainland Europewho are well connected into the European grid.
Equally, as a market representing 1% of the European electricity market, it is questionable whether the EU directives on liberalisation should have been interpreted by our regulator quite so strictly. A strong case for derogation could, and indeed I believe should have been made.
While electricity prices in Irelandwere suppressed for many years, recently prices have increased very substantially. Our industrial electricity costs are now the highest in the EU and a major threat to the competitiveness, and as the Joint Oireachtas Committee has heard, the very survival of many industries here in Ireland.
Furthermore, the rate of increase of irish electricity costs is unparalleled in the EU as may be seen from data produced by Irish Academyof Engineering which shows that in the period 1999-2005 electricity prices in Irelandincreased by 50% but declined marginally in the EU as a whole.
The Deloitte Report into the Irish Electricity Market points specifically to two issues which affect Irish electricity costs: Our fuel mix; and the operation costs of ESB generating plant.
We are inordinately dependent on imported oil and gas; dangerously so, and therefore subject to vagaries of geo-political circumstance.
While international oil and gas prices are declining presently, the long- term trajectory is upward. Rather than tinker with short term solutions we need a rigorous re-haul of the Irish Energy market. We need to provide long term solutions which will safeguard Irish industrial competitiveness and ensure reasonable prices for the domestic user.
The necessity to develop our own indigenous supply through the flow of Corrib Gas is utterly compelling, and a matter of supreme national importance.
As the Deloitte Report points out on pg 38 a way to protect against our perilous oil and gas exposure is to ensure the extraction of this valuable resource with all haste. I pay tribute to the current Minister’s handling of this issue and support his unequivocal stand in relation to the Shell to Sea evolving shopping list. Any one who has an interest in Irelands Sustainable Energy future would support the Minister in getting the gas into the Irish market.
While the rapid rate of increase of prices was attributed to increasing fuel costs, examination of ESB’s Regulatory Accounts indicates that other factors are in fact equally important. These include:
The considerable increase in ESB’s Operating &Maintenance costs over the period 2002-04 from €480m - €799m, - a rate of increase nearly 70% in two years. The regulator should have been far more vigilant. These are ridiculous increases & should not have been allowed.
The other factor contributing to price increases is: the rapid increase in profits within ESB’s monopoly business areas
i.e. Transmission, Distribution and Public Electricity Supply (PES) from €215million - €325million before interest.
As it is now accepted that ESB’s monopoly businesses will not be privatised in the foreseeable future, there is no economic argument for retaining profits at present levels. Electricity prices could be reduced by up to 10% in the near term if the Minister was to issue a direction to CER to regulate these businesses on a “Not for Profit” basis.
This would have the added advantage of forcing ESB to address its acknowledged excessively high power station cost base, so as to generate a more appropriate level of profits from the business areas open to competition.
Whether the regulator has been appropriately prudent in permitting the rate of capital investment which he has permitted over recent years is questionable. The easy way for the ESB to make profit is to increase the capital investment
The ESB and Bord Gais, as the two main energy providers contain assets which by virtue of historic State investments and support contain key infrastructural assets – why have commercial rates of return criteria been applied to these assets? i.e. wires and gas pipelines. Would the country and the economy not be better served by setting a regulatory model which ensures ESB and Bord Gais are capable of meeting all their third party debt service obligations, retaining some funds for extending the electricity and gas grid where appropriate to do so and avoiding ESB and Bord Gais making profits of circa c. €400m between them; part of which is the dividend back out to the Exchequer directly. Reducing the rates of return awarded to Bord Gais and ESB would not impact on their ability to pay third party debts or extend the gas and electricity grid but would significantly reduce the cost of energy inputs for industry in Ireland. The management of both these companies could be accused of operating as utilities in search of a privatisation. And that has resulted in unnecessarily high prices for the consumer.
The Deliotte report found costs in the order of €100 million in the ESB arising out inefficiencies in operation and maintenance of ESB generating plant. This relates both to the availability of plant: how regularly it is available to generate, and the average wage cost. In Poolbeg this is particularly poor: 67% availability and with average wage costs at €122,000 no wonder €100 million could have been saved.
Business as usual cannot continue to apply at our State energy monopolies.