I thank the committee for giving me the opportunity to speak on what are very serious issues facing our customers and the industry. The date for this meeting was set last week, but unfortunately our chief executive already had a long-standing commitment abroad, so he has not been able to be here today. I am the executive director of the ESB, with direct responsibility for the supply of business and these issues directly concern me. I am accompanied by our residential manager, Mr. Adrian Kelly.
The Irish electricity market has evolved rapidly over the past ten years. The ESB has gone from a position where it was the only player in the electricity market to the current position where it is now one of a number of generators and suppliers. As a result, the ESB has had to change internally to reflect the changed structure of the market. This has required the separation within the ESB group of the transmission and distribution business, known as ESB Networks, from our generation and supply businesses. I am the executive director for ESB's supply business, which is responsible for buying power and selling it to customers. For regulatory reasons, we are ring-fenced from other parts of the ESB. In particular, this means we are treated on an arm's length basis by ESB Networks, which is responsible for the networks and metering, in the same manner as all other suppliers in the market.
The supply or retail market has progressively opened to competition over the past ten years and in 2005 the market was fully opened. Since early last year, Bord Gáis Energy and Scottish & Southern Electricity, via its Irish subsidiary Airtricity, have offered electricity to residential customers and the level of competition has developed dramatically and at a pace unseen elsewhere in the world. In light of this, the CER adopted a roadmap to reduce its regulation of the ESB's supply business. From 1 October 2010, ESB prices in the business market will no longer be regulated and we look forward to competing on an equal footing with the other suppliers in the residential market early next year, when full pricing deregulation is expected there.
Mr. Tutty has dealt with the transfer of customers to Bord Gáis Energy and Airtricity. The most serious issue is the increase in the number of customers who have difficulty in paying their bills. We are fully aware of the impact that has on our customers because we talk to them directly about it on a day-to-day basis. We take all possible steps to help our customers through this difficult period. We have a long history of doing that. It is not just in hard times that customers have difficulties with bills. There is always a part of the community that struggles with bills, so we deal with the issue in good and bad times. However, it is more widespread at the moment. We engage actively with our customers facing financial difficulties, and we do so in a supportive and understanding way. Our objective is to agree a mutually acceptable, affordable and sustainable payment plan for their electricity bills. At the end of the day, the electricity has to be paid for, but we understand that can be difficult.
Mr. Tutty referred to the requirements of the CER on how suppliers act in the market. We have codes of practice in place that set out in detail how we deal with customers who have genuine difficulties in paying their bills and that provide guarantees to vulnerable customers that their supply will not be disconnected during the winter. The key message we have been consistently trying to get across to customers — we do this in conjunction with a number of agencies — is that customers experiencing difficulties should contact us as early as possible. Without that contact the problem gets bigger.
In the vast majority of cases we arrive at a mutually acceptable payment arrangement. In fact, there have been headlines about the numbers of payment arrangements this year. Approximately 10,000 customers are agreeing a payment plan with us each month, that is, approximately 90,000 so far this year. While that figure is an increase on the normal level, making payment arrangements with customers is part of our ongoing business. The level varies from year to year, for example in 2006, at a time when nobody was too worried about the economy, we agreed almost 8,000 payment plans each month. This is not a phenomenon, it is the way we work with customers. We do not see payment arrangements per se as bad news for the customer. I would emphasise that making a payment arrangement does help the customer to budget and deal with arrears and deal with their ongoing usage. We would not like a stigma attached to customers who are involved in a payment arrangement. It is an arrangement we welcome and we believe it can help them. That is reinforced in our interactions with the help agencies, the Money Advice and Budgeting Service and the Society of St. Vincent de Paul, who believe that payment plans are helpful to customers. We would like that message to be noted.
Another measure we take and which customers also find helpful, and of which the agencies are particularly supportive, is to install the meters to which Mr. Tutty referred, that is, token meters to pay for electricity and help clear the arrears. These token meters can help customers to manage their electricity arrears and current usage. We welcome the CER's announcement of a further commitment to increase the number of meters available in the market and the fact that the cost is being socialised because up to now we have borne the cost on behalf of our customers.
As Mr. Tutty has said, we have been actively involved with the ESB networks and the CER in this pilot test of how we can use smart metering technology to develop a more user-friendly and a more adaptable form of meter. We believe that is an important initiative and that we should press ahead with it. We welcome the commitment of the CER in that regard.
It is only in cases where we cannot agree a suitable payment arrangement with a customer, which often involves a token meter, that we are forced to notify the customer of the intention to disconnect supply. I assure the committee that before any customer receives such a notification, that is, a letter stating he or she will be disconnected, they have already received many communications from us over a period of months, if not years. These include letters, text messages or telephone messages in the case of landlines, if it is possible to use that contact. Our objective is to work with each customer to agree a payment plan to cover ongoing usage and which will gradually clear the arrears that have built up. We work closely with the Money Advice and Budgeting Service, the Society of St. Vincent de Paul and other agencies, in assisting those customers who are experiencing genuine difficulty with their bills. Mr. Tutty referred to further contacts between those agencies and the industry and the CER. We welcome those contacts and will continue to work actively in that space.
We are currently working with An Post and the help agencies to increase customer awareness of a scheme that is available to people in receipt of benefits. This is an important facility whereby customers who are in receipt of social benefits can have some of their utility costs paid by deduction from their social benefits. This helps to budget and spread their costs through the year. It is only in cases where all efforts to agree a mutually acceptable payment arrangement fail that a customer may be faced with disconnection. This is a last resort for us and the committee can take it we have been down every other avenue before going there.
Obviously, we would prefer that no customer was disconnected. However, if there is not some sanction, arrears continue to grow and the problem increases for the customer as well as for the ESB. To put that in context, we do end up writing off significant amounts of uncollected debt every year. I think the figure has appeared already in the press that for this year we expect it will be of the order of €20 million. All energy suppliers will be faced with debts and ultimately if they are written off they find their way into the costs for all energy users.
In regard to specific concerns for the charge which is applied for disconnection visits, the position is as outlined by Mr. Tutty, that is, when any electricity supplier requests a disconnection there is a fixed charge associated with the call-out cost imposed by networks. That arises because of the cost involved in going to the customer's residence. We have no discretion in incurring the associated call-out charges. If we did not charge this to the customer concerned it will find its way into the costs for all other customers. I remind the committee that the disconnection charge is only a part of the costs we incur in dealing with debt and arrears, which includes the delayed payment on which no interest is charged, unlike many other bills, collection costs and the ultimate write off of debt which I have already mentioned.
In regard to electricity prices, I do not propose to deal with this issue in great detail as Mr. Tutty has covered the pattern in recent years. The committee will be aware that since 2008, the ESB provided more than €500 million to reduce customer bills. This was used to reduce all customers' electricity bills regardless of whether they were an ESB customer or not. It helped to offset, particularly in 2008, the dramatic increase in fossil fuel prices that occurred. This meant that the increase in electricity costs in Ireland was significantly lower than would otherwise have been the case. As previously announced, the ESB will not be increasing the unit rate or standing charge for residential customers from 1 October. Last year there were price reductions in January and May and no increase in October. The only increase this year, unfortunately it must be passed on, is in the PSO levy, to which Mr. Tutty referred.
We have been actively engaged in promoting more efficient use of energy but when customers are faced with large bills, that is sometimes a small consolation. We need to remind ourselves that the bill is directly connected to the level of usage. The ESB is actively working with customers to support them in reducing actual usage because that is the most effective way to reduce the cost. As part of that drive, the ESB insulated, without charge, more than 3,000 low-income households last year. In addition to the cost involved, we provided a further contribution of €2 million to the SEAI warmer homes scheme to insulate a further 2,000 homes. ESB HALO teams carried out more than 20,000 free home energy audits for our customers. Those teams helped customers to decide on a number of measures to reduce their energy usage.
I am pleased to inform the committee we are proceeding to launch an installation service which is taking energy saving to the next level. Moving on from giving advice on energy saving, we will be offering a one-stop-shop on measures to reduce energy usage in homes. That will range across all measures from basic wall and roof insulation to more technical solutions, including solar panels and all the other hi-tech options that are available.
I hope I have explained our supply position clearly, including the initiatives the ESB has taken and will continue to take. I emphasise again that for us in the ESB, disconnection is a very last resort and only occurs after a number of months or years of contact with the customer and when all other avenues have been exhausted. I reiterate it is important to encourage customers who are experiencing difficulties to contact us as early as possible and to work with us and the help agencies so that we can come to suitable arrangements, particularly for the customer. The sooner the problem is dealt with the better for us and for the customer. I hope the committee will appreciate that throughout the ESB's long history that is how we have dealt with debt and customers, and will continue to do so.