Vol. 467 No. 7
4 Mr. B. O'Keeffe asked the Minister for Transport, Energy and Communications whether domestic electricity consumers will face increased charges as a result of the deal agreed with the EU in relation to the opening up of the Irish electricity market. [14481/96]
15 Mr. Molloy asked the Minister for Transport, Energy and Communications the implications, if any, for the electricity industry arising from the decision of the EU Energy Council meeting in June 1996; and if he will make a statement on the matter. [14170/96]
418 Mr. B. O'Keeffe asked the Minister for Transport, Energy and Communications the impact, if any, the opening of 22 per cent of the electricity market to competition will have on the rationalisation deal concluded by the ESB. [14204/96]
I propose to take Questions Nos. 4, 15 and 418 together.
I am satisfied that the Electricity Directive is the very best that could be agreed and represents a fine balance between the member states who wanted a significantly higher level of liberalisation and those states who wanted a more measured and planned approach to such opening.
I had a number of clearly stated objectives in my approach to these negotiations. The proposal on the table would have had serious adverse consequences for Ireland if I had not fought to protect Ireland's position as a small and isolated electricity system. The directive very clearly takes on board the question of public service obligations which to me was a vitally important issue and absolutely essential to prevent cherry picking. Also, I achieved agreement that 15 per cent of electricity generation could be provided by indigenous fuels and this provision protects the peat industry into the long-term future.
The ESB will also have adequate time to complete its restructuring and to adjust to the new competitive market. The decision of Council enhances the importance of the cost and competitiveness review. Its early and full implementation is an essential prerequisite for the ESB to operate successfully in the new competitive market. I have every confidence that the ESB will prosper in this market.
The directive will in no way disadvantage domestic consumers. The ESB will not be allowed to subsidise its competitive business at their expense. Domestic consumers will benefit equally with larger consumers from the extensive changes which are happening in the ESB as a result of the cost and competitiveness review.
Given that the CCR was based on a 13 per cent liberalisation of the electricity market and that 22.5 per cent of the market will be open to competition, increasing to 35 per cent, what are the consequences for the ESB in terms of the number of jobs to be retained and in terms of price increases, which are inevitable in view of liberalisation? If competition levels are doubled, if a 6.5 per cent increase is granted to the ESB over a three year period, and if the Minister has to rebalance the tariffs, is it not inevitable that there will be an increase to domestic consumers?
I have clearly stated it is not the intention of the Government or this directive to burden domestic consumers with over and above price increases. The Government has already made a decision in respect of price increases. We have allowed for price increases over the next three years which are conditional on the implementation of the CCR. The price increases are very modest and take account of the investment needs of the ESB.
If one accepts that the top 250 energy using companies representing 25 per cent of the market here are the main target for competition from outside utilities, is it not inevitable that with the rebalancing of tariffs and to ensure competition in the heavy industry sector, domestic consumers will have to pay?
Absolutely not. It is important to recognise that electricity bills cover the cost of electrical energy and of the electricity transmission and distribution networks. Geographical differences in costs arise almost entirely in the transmission and distribution of electricity. The ESB will continue to operate the electricity network and it is the Government's intention that the charges for use of the transmission and distribution networks will be non-discriminatory. Industries in the higher density population areas, therefore, will not have any advantage over those in less populated areas where transmission and distribution is inevitably more costly.
I understand that prices will be non-discriminatory in an open market but when the market opens and large industry avails of the opportunity to import electricity, as no doubt they will, it is obvious to any amateur economist that prices must rise for the remaining users of electricity. In other words, if the finest commercial customers are lost to imported electricity, prices simply must increase for everybody else. I predict — as I have many times on this issue — that there will be frequent increases in the price of electricity in the coming years.
I stated clearly that the Government made a decision in respect of price increases which will be modest and conditional on the implementation of the CCR. I want to make it quite clear that domestic consumers will not be expected to shoulder more than their burden of any price increases in electricity. The increases will be non-discriminatory. As far as the outcome of the electricity directive is concerned, I am satisfied we have included in the directive the issue of public service obligations. That was a bone of contention which was argued strongly by our delegation on behalf of the ESB. Our concerns in this area have been included in the directive and will address many of the issues raised by the Deputy, including the cherry-picking of larger customers to the disadvantage of domestic consumers.
Will the Minister tell us when the electricity directive will come into operation here, bearing in mind that we do not have the necessary legislation? When it is in operation, from where does the Minister expect alternative sources of electricity supply will come to provide the competition which is the objective of this directive? Importing electricity has been mentioned. Does the Government plan to proceed now with an electricity interconnector between the adjoining island and ourselves or will it open up the market for the construction of privately funded electricity generating stations? If so, when will that happen?
It is my intention that the opening of the market will occur in Ireland from 1 January 1998 onwards and I will introduce the necessary legislation to achieve this during 1997. I believe competition in the sector will come from the construction of new power stations by people involved in the private sector.
I want to come to other questions. I will call Deputy Batt O'Keeffe and then Deputy Séamus Brennan for a final question.
Will the Minister agree it is inevitable that the targeting of 250 of the largest companies will result in a loss of market share for the ESB which will have an adverse effect on a particular sector? If the Minister intends to reduce prices, particularly in the industrial sector, to meet outside competition its effects will be felt by another group, namely, the domestic consumer. What is the position with regard to the 120 megawatt peat fired station in the midlands——
That is a separate question.
——and the advertisement in the EU journal for its building, management and operation? Under the derogation, is it not now the prerogative of the ESB to manage and operate the station rather than having it advertised in the EU journal? Is it the Minister's intention to withdraw that section of the advertisement?
I answered the first question on two occasions. On the second part of the question, it is not the Government's intention to cancel, alter or interfere with the decision we have taken in respect of the peat fired power station in the midlands. That station will go out to tender and the construction, maintenance and operation of this plant is open to the ESB and the private sector. We are currently advertising for key specialists in specific areas——
Will that not impact on jobs in the ESB?
——to set the terms and conditions of the contract and to advise in regard to the winning application.
That is likely to result in further job losses in the ESB.
It will not. The Government is totally committed to Bord na Móna and its workforce in the midlands area. It is crucial to the further operations of Bord na Móna that we continue to use peat as a source for the generation of electricity. The Government is intent on doing that and the provision of a new peat fired power station, which will go out to open tender, will ensure the long-term future of the operations of Bord na Móna——
Is that not daft when we have derogation——
Order. The Deputy may not continue to question from a seated position. Other Members are entitled to come in also.
——in the midlands and secure the employment of its employees in that area. The derogation will not in any way interfere with this process. The reality is that by the time this contract is set and the plant is constructed and operational, it will be the year 2000.
I fundamentally disagree with the Minister's view that if the ESB loses its top 250 companies as customers to imported electricity it will not increase domestic electricity prices. By way of giving us some comfort has the Department conducted any study which bears out the Minister's opinion that losing these major customers to imported electricity will not result in an increase in domestic prices? Is that an opinion off the top of the Minister's head or has he studied the matter?
The Deputy is missing the point. The object of the CCRs exercise was to prepare the ESB for competition. It was clearly stated in the McKinsey report that the ESB's cost base was out of line and that its productivity was not conforming with that of operators in other European countries. The CCR was based on an in-depth study and analysis of the ESB's operation and set against best practices in utilities in other countries. The ESB always expected there would be competition. It must restructure the company and conduct the necessary rationalisation to ensure that its cost base is driven down, so that with a lesser share of the market it can compete effectively.
Regarding the peat station in the midlands, could the Minister state the reason for the delay? Could he indicate when the construction of this project will commence? The Minister must agree there has been an inordinate delay. This matter was under discussion five years ago when I was Minister. What is holding it up?
I understand the Deputy's impatience that this project is not up and running. When I came into the Department I discovered that the European Union had not given approval for the grant aid involved. After much discussion and detailed negotiations with the Commissioner, we finally got agreement for a grant aid package of £22 million, which has made this project viable. It is a complex competition and detailed issues must be addressed. We have to advertise for people with professional expertise and knowledge to run the competition.
The Minister told us that months ago.
I am satisfied we have identified those now.
It was almost ready for sanction when I was in the Department.
As the Deputy knows, certain procedures and time constraints must be adhered to. We had to advertise in the European Union journal and we had to leave a specific amount of time between advertising and accepting tenders. We have made progress, although I wish it could be faster.
The Minister should give us a start-up date.
I look forward to appointing these specialists in the near future.
When will construction start?
