In 2006 the Commission for Energy Regulation, CER, ended the regulation of tariffs for large energy users. Some 90% of large energy users have now switched to independent suppliers. The CER has signalled that it intends to cease regulating ESB public electricity supply prices when sufficient competition has taken hold in the domestic and small and medium enterprise market. This is in line with EU legal requirements for the internal energy market.
In recent months domestic customers have been switching to independent suppliers in unprecedented numbers, thereby availing of the significant discounts available from these suppliers. However, it is important to note that there are close to 2 million domestic electricity customers and that the ESB still retains approximately 90% of the market share. The ESB also retains a market share of approximately 43% of the SME market. I am advised that discounts of between 10% and 20% are available to SMEs from competing suppliers and I strongly encourage small businesses to shop around in the interest of obtaining competitive quotations.
Energy price regulation is designed to ensure that a dominant player does not engage in uncompetitive short-term pricing practices which could undermine or drive out emerging competition. Regulation should cease once competition has taken firm hold in the domestic market. The ESB's tariffs are set by the CER at a level that reflects the costs borne by the ESB in supplying that electricity. Effectively, that means that if it can lower its legitimate costs the regulator will permit it to charge a lower tariff. What is not permitted under the regulatory model is below-cost selling of electricity or other anti-competitive practices.
The CER has also exited from the regulation of gas tariffs for large users. In that sector around 88% of business, in volume terms, has switched to independent gas suppliers. The gas market has been fully opened up to competition since July 2007. Experience in other markets has shown that there is a time lag between full market opening and the emergence of viable competition. The potential for ending tariff regulation in the domestic gas market is limited by the size of the Irish market, which is very small by international standards. Of the companies that supply gas in Ireland, Bord Gáis Energy has approximately 600,000 residential customers, while Flogas has approximately 9,000. Neither Vayu nor Energia currently supplies residential customers.
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Bord Gáis Energy also has a dominant market share in the small commercial users' market segment and tariffs in this sector are also regulated by the CER.
The nature of regulation is to drive improved efficiencies and lower costs in areas that are under regulatory control. This is designed to benefit customers primarily. The CER will continue to review overall energy tariff structures in the coming months, taking account of global fuel prices, the importance of regulatory and market certainty for the energy sector, and the competitiveness challenges facing industry.