JOINT COMMITTEE ON ECONOMIC REGULATORY AFFAIRS debate -
Tuesday, 1 Apr 2008

Role and Functions: Discussion with Commission for Energy Regulation.

Chairman

I welcome the delegation from the Commission for Energy Regulation, Mr. Tom Reeves, chairman, Mr. Michael G. Tutty, commissioner, Mr. Eugene Coughlan, deputy commissioner, and Ms Cathy Mannion, director of electricity networks and retail division.

I draw the attention of witnesses to the fact that members of the committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. I remind members of the long-standing parliamentary practice that they should not comment on, criticise or make charges against any person outside of the House or an official either by name or in such a way as to make him or her identifiable.

I propose that the committee will hear a presentation from Mr. Reeves to be followed by questions and answers.

Mr. Tom Reeves

I am pleased to be before the committee. With your agreement I will share this presentation with Mr. Tutty. We will try to be as brief and as concise as possible.

The Commission for Energy Regulation, CER, has been around since mid-1999. Our functions are set out in the second slide. Primarily, we have five functions: to regulate the networks to try to drive the development of competition in both electricity and gas; to regulate the price of electricity and gas in some parts of the retail market; responsibility for safety of gas and electricity; to monitor and promote security of supply in both gas and electricity; and to advise the Minister and the Government as the case may be. In order to do that, we have devised a mission statement which we have tried to keep as simple as possible. Our duty is to make sure the lights stay on and the gas keeps flowing, that prices are fair and reasonable, and that it is done in an environmentally sensible and safe way.

The primary legislation which set up the Commission for Energy Regulation comes to about four Acts. However, there was also secondary legislation. The original main Act was in 1999. We were given responsibility for gas in 2002. Our powers were further extended in 2006 when we were given power to start developing the all-island electricity market and also to deal with safety in electricity and gas. When the new market was almost ready, further functions to regulate and govern this market were given to us by the Oireachtas last year. Further legislation is in train to extend our remit to cover safety for offshore and upstream oil and gas exploration.

At present, the organisation has two commissioners. However, ideally there should be three commissioners. There has been a vacancy for some time. The process being undertaken by the Minister to appoint a third commissioner is practically finished and we expect a new commissioner to be appointed in the near future. Terms of office are usually for five years but commissioners can serve for up to ten years, that is, for two terms.

We have organised our affairs in four functional divisions as follows: the electricity market which deals with the wholesale and retail markets, the networks and the retail end; the gas division; the safety, environmental and customer affairs division; and an operations division which deals with human resources, finance, IT, etc.

Our organisation has about 56 full-time equivalents. There are four directors of the functional divisions, managers, analysts, customer care officers who deal with any customer complaints which we receive and some administrative support. Most of our staff have post-graduate qualifications, some have PhDs. They come from diverse backgrounds in the energy industry but are also qualified in economics, business law, accounting, etc. We have a wide range of highly-qualified people. We would wish to retain these people and have a good environment in which people can work. We expect our staff numbers will have to increase when our responsibilities are extended to include further safety functions.

Our income is determined by ourselves and is levied on both the electricity and gas industries. We are not financed in any way by the Exchequer. We raise our money by way of two statutory instruments — one for the electricity industry and one for the gas industry. Effectively, it is based on the size of the companies involved and the amount of business they do in the sector. Our expenditure is on the wages and salaries of staff, professional and consultancy fees, accommodation and the usual office consumables. In 2006 expenditure was of the order of €12.8 million. Last year it was approximately €14.9 million — the financial statements have not yet been published — and our estimate for this year is approximately €15.7 million. If we have any surplus income in any one year, we offset it against the requirements for the subsequent year. That is the way we raise our money.

We are accountable in many ways. The annual report and work plans must be submitted to the Oireachtas through the Minister. We publish newsletters and information papers and engage in full public consultation on all our proposals and decisions. To put it in context, in 2007 the Commission for Energy Regulation published something in the order of 230 consultation, decision and other papers. As part of the development of the all-Ireland market, we published twice as many as that figure — well over 550 — of papers of all types. Therefore, there is an enormous amount of information available for people on which to comment and work.

We had an innovative idea this year. We had an open day when we presented our work programme to all interested parties. There was a large attendance at the meeting. Also, we regularly meet the Minister to discuss matters with him. We answer to four committees of the Oireachtas — this committee, the Joint Committee on Communications, Energy and Natural Resources, the new Committee on Climate Change and Energy Security and the Committee of Public Accounts.

For some time now we have been engaged in a consultation process on how we can further improve our public awareness and public consultation process. That process is almost complete and we will bring measures into effect in the near future.

I will give members a flavour of the work we do. As part of our work programme, we have identified what we regard as the ten key work items of the year, which are listed. Members will see that the all-Ireland gas project is listed No. 1. It is called CAG — common arrangements in gas. Renewable energy is on everybody's lips, as is smart metering. We must continue to develop the all-Ireland market. The east-west interconnector is a major matter, as is security of supply. Restructuring of tariffs is also high on our agenda, as is safety of delivery of electricity and gas supplies. We have recently taken over responsibility for consumer care activity from the ESB where it was known as ELCOM. We want to run our affairs properly and ensure our records and files are correct. I will touch on some of these issues briefly and then hand over to Mr. Tutty.

The single electricity market was our biggest undertaking last year and was launched last November. It has now been five months in operation and is working very well. It has been a major undertaking North and South. We have a regulatory body called the SEM committee which comprises the Northern Ireland regulator, our good selves, an independent member and a deputy independent member. That structure now regulates the all-Ireland market and appears to be working well.

As members will be aware, the price of fuels — oil, gas and coal — has been rising dramatically on the world markets recently. This will have a significant impact on the price of electricity in the next year. The cost of natural gas has increased by well over 150% in the past year, while the price of coal has almost doubled. The price of oil, as we all are aware, has increased significantly. The price of carbon is also in the mix, all of which conspire to drive up prices.

Another major activity in which we have been engaged with the ESB is the disposal of some of its power stations. By the end of this year we expect the ESB will have disposed of approximately 1,500 MW. That process is well in train. A short list will be organised by the ESB and the due diligence process is under way. Bids are expected by mid-summer and a decision later in the year. We have a formal legal agreement with the ESB to do this and see it as a major part of improving competition in the market, which everybody welcomes.

The last paragraph about which I will talk relates to smart metering or electronic meters. As members will note from the presentation, they can store data, measure inputs and outputs by time of day and they can be controlled remotely and upgraded. This will eliminate the need for such dreadful practices as estimated readings. It will allow us to have far more sophisticated tariff structures. This system can also accommodate micro-generations. People with micro generators in their houses can export the power and their exports will be measured. We are working on that basis and a steering group is working on this system. Progress on it is well under way. I will hand over to Mr. Michael Tutty.

Mr. Michael G. Tutty

I will mention a number of other issues. Mr. Tom Reeves referred to the east-west interconnector. We were asked by the Government to oversee a competition for the east-west connector, which will be owned by EirGrid. The competition for it has been launched. Tenders are expected to be received in another few months. A seabed survey is being carried out which we had hoped to have completed before the competition was launched, but due to the windy weather over Christmas and since then it has not been completed but is nearing completion. It is still on target to be delivered by the end of 2011, but there are issues such as planning still to be resolved and there is high demand for cables on the market. We are waiting with bated breath to note the timelines on the tenders when they are submitted.

Renewable energy is a topical issue. There is a Government target that by 2010 15% of electricity consumption will be sourced from renewables. We are on course to meet that target, particularly in terms of the wind energy coming onto the system. Between what is already built and what is contracted, we will have 1,269 MW of wind energy on the system. It, together with the hydro energy we have on the system, will result in our meeting our 2010 target. For 2020, the target is 33% of consumption. We have approximately 4,600 MW of installed capacity. This target is challenging, the demand exists to build it and it is simply a question of getting it built.

The Minister and his ministerial counterpart in the North commissioned an all-island grid study to examine the capacity for renewables here. It was published recently and confirmed that the 33% target was feasible and that even more could be done. The limit to developing wind power currently is the grid connections. There was a sudden upsurge in demand for people to build wind farms in recent years and we had to change the process through which EirGrid and ESB Networks operate because they were dealing with the applications one by one, but with so many coming on-stream that system could not continue. We developed a system of what we call gates, which, effectively, groups the applications. Gate one has been well completed. Almost all the connections for gate two, which will have 1,300 MW of renewables, have been issued at this stage. When they are implemented the total amount of wind energy on the system will be up to approximately 2,800 MW. We are starting the process of gate three. A consultation process is under way to determine how we will handle the next stage. Once we started talking about gate three, there was an even bigger surge in proposals to build wind farms. We now have more than 8,200 MW of wind farm applications, which when processed would bring us well above not only the 33% target but even the 42% target, which the grid study confirmed was feasible. We are grappling with how to deal with those applications and hope that work on the next stage will move along as quickly as possible.

Regarding the common arrangements for gas, once we had completed the single electricity market, we decided it was time to examine what can be done in terms of natural gas supply on an all-island basis and the CAG is the direction we are taking. The aim is to establish common arrangements whereby all stakeholders can buy, sell, transport, operate, develop and plan the natural gas market, north and south of the Border, so that it effectively operates as one market. We recently signed a memorandum of understanding with our counterparts in the North, the NIAUR, and the key deliverables from this will be a single transmission tariff methodology, a single transmission operational regime and connection policy, a single transmission planning regime, a single approach to security of supply and a common framework for regulation of retail markets. There is a great deal of work to be done in this area.

We were given responsibility for customer complaints in July 2007. Once the market was being opened up, an independent complaints system was necessary instead of the systems being operated by the ESB and Bord Gáis. We have been developing a customer affairs team to get moving in this area. We are dealing with complaints from customers who have gone through all of the processes in the company with which they are dealing, be it the ESB, Energia or the like. If they still have a problem after going through those processes, they come to us and we attempt to adjudicate. In the second half of last year we had 128 complaints. Many of them were against ESB networks, as is clear from the list shown on the slide. Others were against Bord Gáis energy supply, ESB customer supply and so forth. The next slide gives a breakdown of the type of complaints. It shows that the biggest issue for the network operators was estimated readings. The network operator does the readings. We hope that when smart meters are implemented this problem will be resolved because smart meters will be read automatically without it being necessary to send somebody to people's houses to read them. Estimated readings have always been a problem. The main complaints against the suppliers were about the tariffs.

What are the key challenges facing the CER? Continuing high wholesale fuel prices are obviously a problem but, unfortunately, we cannot deal with that. We import most of our fuels and must pay the market prices. The small size of the Irish market makes it difficult to generate competition and our reliance on fossil fuels means our type of energy production is not very diversified. Meeting the climate change targets will certainly be a challenge, while bringing renewable energy sources on to the system in the most cost effective and appropriate way is also a challenge. We must ensure the market remains competitive and attractive for new investment. The more new investment and operators we get into the market, the more competition we can develop. The single electricity market appears to have worked well already in enticing people into the market.

Difficulties in construction of large infrastructure projects are an issue in the energy sector just as it is in others. Committee members will be aware of the protests against the proposed North-South line, and the Minister has already initiated a study on the advantages and disadvantages of putting it underground. Building infrastructure generally is more difficult than other construction and to do all that is needed to bring the renewable energy sources on to the system will require a great deal of infrastructure. That, in itself, is a challenge. We will be happy to answer members' questions.

Deputy Seán Ardagh

I thank Mr. Reeves and Mr. Tutty for explaining the work of the Commission for Energy Regulation. One of the items not mentioned is nuclear energy. Does the Commission for Energy Regulation have any function with regard to a discussion or debate on nuclear energy? I heard Mr. Ed. Walsh speak about this on the radio last night. He is an advocate for a discussion on nuclear energy, although he was probably more forthright on the matter in previous years. Now, however, with alternative energy coming to the fore he sees a need for a debate on this issue so people can be better educated and informed about it. The standard of nuclear installations has improved dramatically since Carnsore was initially proposed 40 years ago. Sellafield is one of the negative aspects for us, however, although that is a totally different type of facility to what one would consider here in Ireland. At the same time, we are so opposed to Sellafield it can appear somewhat hypocritical to be discussing a nuclear facility now. We must be realistic, however, and cannot bury our heads in the sand. I believe it is something we should examine and debate. I wonder if the commission has any function in that matter. I will come back to a number of smaller items after other members of the committee have contributed.

Deputy Damien English

I have a couple of brief questions, including one concerning the timescale for when the commission sets its prices. International markets can rise or fall but the commission can only set the price once or twice a year. Will that position change so that the commission can set the price for buying gas more often? It does not always reflect what is occurring on international markets. It can work both ways but it often works the wrong way for most people, especially for industry which uses a lot of gas.

Mr. Reeves said that part of the commission's mission is to protect the environment. He also mentioned the EirGrid proposal and the controversy over whether to place a line overground or underground. Does the commission have a say in what infrastructure is used to carry electricity, or is it only concerned with the generation process? I am posing the question because I did not feel the commission had a role in such decisions. I will not pursue the matter further, however, because I know the Joint Committee on Communications, Energy and Natural Resources has already discussed it. Does the proposal have to come before the commission to be sanctioned or has that already been done? I got the impression that permission had not yet been obtained from the commission in that regard. Perhaps Mr. Reeves could confirm that point.

Mr. Reeves mentioned smart metering but what is the timescale for introducing it? We heard about what has to be done, but no timescale was given for its introduction.

Does the commission advise the Minister on making grants available, or increasing such grants, to domestic users for various types of energy, including underground heating or windmills?

I am also a member of another Oireachtas committee that visited Güssing in Austria earlier this week to examine a successful energy project. That small town had serious economic problems but has managed to turn itself around mainly by generating all of its own electricity for energy, fuel and heating purposes. Ireland is doing well in meeting its targets but having seen what that small Austrian town can do, should we select certain towns for such projects? We should try to make renewable energy work by providing electricity as well as creating jobs and achieving an economic turnaround. The way to go about it seems to be to pick areas for such development. We seem to have projects all over the place but no joined-up plans for local authority areas.

How many applications are being processed for wind farms or other such projects? I saw figures recently and it seems that there are more plans for generating energy than we need or can use. Business people are entitled to invest their money as they see fit but such projects might never happen because the grid may not be able to accommodate them. I realise that even if we do not need such power ourselves we can sell it abroad via the interconnector, but I am not convinced we will be able to handle it. Does the commission see this as a future problem in that too many people will be investing in projects that may never take off? It would be a shame if that happened, so who is monitoring that situation?

I agree with Deputy Ardagh that we need a debate on nuclear energy, and sooner rather than later. We cannot completely shy away from it. We must have a thorough debate on it and decide one way or the other. There are many advantages with nuclear energy and there are disadvantages and dangers with it. Fear of Sellafield should not mean we turn our backs on nuclear energy. We should check it out. Is Mr. Reeves concerned when we connect up to other countries that we are using nuclear energy? Does that come under his brief? I have a few other questions to which I will return.

Deputy Seamus Kirk

I welcome the members of the regulation body to the committee. Given the present state of the economy and the issues that need to be addressed within it, a constant theme with economists is that energy costs are escalating. What is the role of the commission in the context of keeping the lid on costs? Has the commission sufficient powers? Is there need for legislative enhancement of the commission's role and if so, what sort of enhancement is necessary?

Sometimes when we speak of different agencies, either in an oversight role or perhaps in a developmental role, there are areas of overlap of concern to both agencies and room for a greater degree of co-operation between agencies. Clearly, there is much research work on developing alternative sources of energy, some of which I am sure is co-ordinated. Perhaps there is room for a greater level of co-ordination, and for investment justification in particular areas having regard to the economy of scale benefit that may arise in certain circumstances.

One area has always fascinated me. The ESB has surveyed our rivers. With a few exceptions, they do not thunder towards the sea from high mountainous areas that would give the drive, power and volume essential in the establishment of hydroelectric stations. What is the potential for constructing artificial dams on some of our rivers? When the capital investment is made in the development of a hydroelectric station, the subsequent running costs are fairly minuscule by comparison to the running costs for other sources of energy. I may have other questions as we go along.

Deputy Paul Kehoe

One of the functions of the commission is promoting the supply of alternative energy such as electricity. Picking up on Deputy Kirk's point, the cost of energy has put so many companies under severe pressure in recent years that Ireland is almost uncompetitive. Many companies in my area have closed down because of the cost of electricity and energy.

I visited Veridian in north County Dublin several years ago when I was junior spokesperson for Fine Gael on communications, marine and natural resources. Can many such plants be set up across the country?

I come from Wexford where natural gas is not available and it is a significant disadvantage. We are right beside Rosslare Europort which should be able to attract industry into the county but, because natural gas is not available, we cannot attract the industry I would like to see it coming into the county. We are a gateway county and that should be a significant benefit. There are other counties surrounding Wexford that are connected to natural gas. I cannot understand why Wexford cannot be connected. It would be a simple matter to do it. I have heard of ways in which it can be done. Then I have been told why it cannot be done which I do not accept.

Deputy English spoke about renewable energies and I mention incineration. Has the commission ever looked at incineration as a part of future energy enhancement? In other countries huge amounts of energy have been generated through incineration. Have investigations been carried out in this regard?

Deputy Edward O’Keeffe

Metering has arisen as an issue, particularly in the context of people receiving estimated bills, etc. Under the new smart-metering system, will it be necessary to install new meters in all houses and business premises? How will customers be informed under this new system as to what will be the estimate of their bills?

We have moved away from the use of coal in respect of electricity generation but it is still used at some ESB stations? Is this coal smokeless or does it have a high-carbon content that leads to air pollution? What quantities of such coal are used? Are there plans to introduce alternatives in this area?

Like Deputy Ardagh and others, I am of the view that we have no choice but to face up to the issue of the introduction of nuclear power stations. Ireland is in the dark ages. The UK and France are building a new generation of nuclear power stations. A French contractor was recently engaged to build such power stations in the UK.

A number of issues arise for Ireland in this regard and in respect of incineration. I am convinced that if we are to be competitive, we must consider the introduction of nuclear power. Politicians on all sides will voice their opposition in this regard and state that people could die as a result of its introduction. However, the latter is far from true. I recently heard a radio programme on the events at Chernobyl during which an expert stated that these were not as devastating as we were led to believe.

How secure is our supply of gas? There have been many rumours regarding gas supplies from Russia, particularly in the context of difficulties in Ukraine. Is there a possibility that the island of Ireland might be left without any gas if problems arose elsewhere?

My final point relates to oil. There has been a great deal of discussion regarding the aviation industry in recent years and the fact that some aviation companies have bought fuel in advance, etc. There has also been much comment on the competitiveness of companies such as Ryanair, Aer Lingus, British Airways, Air France and others. I understand that the success of many airlines is based on the way in which they purchase fuel. How successful are those involved in the electricity generation industry in buying fuel in advance? Do the companies involved display good intelligence in this regard? From where is the oil used in the electricity generation industry sourced?

Senator Geraldine Feeney

I apologise for my late arrival. How do interested parties gain entry to the grid? I refer here to small groups responsible for the production of wind energy.

I wish to add my voice to those requesting a debate on nuclear energy. I watched a documentary a couple of months ago which dealt with France's nuclear power stations. Everything relating to this matter does not have to come down to what happened at Chernobyl. There are some extremely successful nuclear power stations in France. It is time we entered the debate on this matter. I am not stating that we should opt for nuclear energy but we should at least open up the debate, examine the options and educate people on the positive aspects rather than having them concentrate on the negative ones.

Deputy Damien English

On the North-South and east-west interconnectors, the use of private and public funding is proposed. I presume it is the commission's job to state that our energy supply is adequate. If, for example, two private companies wanted to construct and operate an interconnector from Wales to Ireland, would the commission have responsibility for stating that such an interconnector would not be necessary?

My final question relates to something we do not have in Ireland, namely, a district heating system. Such systems work quite well in other countries. It is probably not something the regulator can superimpose on existing terms but when planning new estates, could the commission have a role in advising Ministers on a new policy or initiative that might work? District heating would be a great way to save on energy costs and it has worked well in other countries. I accept it may not be possible to introduce such heating in certain places but it could be used going forward.

Chairman

The regulator referred to many issues relating to renewable energy but, for example, wind energy sold into the national grid is achieving a price of 6 cent or 7 cent a unit whereas other renewable energy sources are achieving 12 cent or 13 cent a unit. Why is renewable energy making different prices with the primary producer?

Mr. Tom Reeves

I thank the Chairman and members for their questions and we will try to share them among us and deal with them fully. The first issue raised was nuclear energy. The authorisation by the commission of nuclear power stations is prohibited in the legislation enacted by the Oireachtas in 1999. Under the Planning and Development (Strategic Infrastructure) Act 2006, An Bord Pleanála cannot give planning permission for such a station and, therefore, it is up to Oireachtas Members to change that before we can do anything. When the Joint Committee on Communications, Marine and Natural Resources produced a report last year, it called for a debate and I understood at the time it would organise a debate. A new committee has been constituted and I do not know whether that will happen. The Minister at the time said there should be a debate on the issue. We have no statutory function and such a policy is ultimately for the Minister. It is a policy matter and we are not a policy making organisation but we would be happy to host, discuss and examine such an issue. Ultimately, it is not a matter for us whether that will happen.

Nuclear technology has advanced enormously over the years. Chernobyl was a sad and dreadful accident but there are much higher standards now. The greatest issue of debate for us is the size of nuclear power stations. Up to now they have been enormous in the context of Ireland but they would need to be much smaller, more efficient and people would need to be happy that they are all right. To have a nuclear power station ready by 2020, we would want to start now because there would be a serious amount of objection to it. However, as Mr. Tutty said, one of the great challenges facing the country over the next 15 years is climate change. Even with all the wind energy, we will not meet our climate change carbon requirements and, therefore, we will have to use something else such as clean coal, nuclear power or energy efficiency. We must examine a wide range of issues. A debate would be worthwhile and if members were interested, we could organise it. It would not be within our core functions but we are prepared to facilitate the committee in doing that.

I was also asked about importing nuclear energy. Such energy is perfectly legal and it is allowed under European laws. There is free trade in electricity and nuclear power is only a means of making electricity. The State would import electricity which happens to be made from nuclear power rather than nuclear energy. That has happened to a small extent because power is imported from Scotland through Northern Ireland to the Republic and a small portion of that is nuclear and on summer nights it is probably all nuclear. However, it is only electricity. It is not nuclear electricity. Nuclear power is used to make steel, which is used to make electricity.

Deputy English asked about prices, which has been a difficulty for us. Ms Mannion, who is dealing with this, will comment on that. We are only involved in regulating electricity prices at the lower end of the market for small businesses, which are general purpose customers, and households. We generally set those prices from 1 October for a year. However, in our decision last year, we said that if it looked like the price would change by more than 5% within six months, we would examine it again. The price has not changed by more than 5% so far this year.

In making these determinations we take into account many costings, including the forward cost of fuels and the mix of fuels. When we settle on costs, the people selling the power then lock in fuel prices based on our assumptions. The biggest factor in respect of redetermining prices relates not to the cost of fuels but to the volume effect, namely, assumptions in respect of sales at particular times, which is always high risk. There is a volume risk and a price risk involved though it is mostly the volume risk that comes into effect.

Large customers now have no tariffs and can purchase electricity at a different price every half hour. We have linked into the wholesale market where the price changes every half hour resulting in 48 different prices per day compared with one price per year. Many large companies that can manage their load have locked into this market and are finding it provides them with a good incentive to manage their electricity prices. This has proven popular. We are trying to create a situation which allows people to control their costs better than heretofore.

Other than in respect of the ESB, the Commission for Energy Regulation has no function, good, bad or indifferent, in respect of any other agency selling electricity. These companies simply sell their product like anybody else.

Ms Cathy Mannion

As regards domestic customers, ideally we would like to see prices change more than once a year as this would be more cost effective. Everybody wants to know the cost to them of electricity when they use it. However, a problem arises in respect of meters. As Mr. Reeves stated, we receive complaints from customers in respect of estimated reads. Changing tariffs more frequently than once a year would open up the debate in respect of estimated reads based on electricity usage at old and new prices. We are examining with great interest the issue of smart metering. Once this type of metering has been installed in a household, tariffs can be changed more frequently to reflect changes in the underlying cost of electricity. This would also do away with the need for estimated reads. We are hoping to use smart meters to provide domestic customers in particular with more accurate time of day prices. This will allow domestic customers to manage their electricity use by, perhaps, using less electricity at times when the price is high.

Mr. Tom Reeves

I will try to answer the other questions asked. Deputy Kirk asked about controlling costs. Our determinations on prices are to the greatest extent possible made in public. We are seeking to ensure all determinations will in future be made in public.

As regards the ESB, the public electricity supplier, last week we published on our website its proposal for a new structure in respect of different tariffs and this will be done in public. We strive at all times to keep prices low. Last year, we managed to reduce prices by an average of 6% compared with 2006. However, prices have since increased. We strive to achieve efficiencies at all times. The wholesale market drives efficiency generation. We regulate the networks and keep prices down. We also try to keep prices down on the supply side. We are determined to keep prices as low as possible because we get no thanks when prices increase.

The issue of smart metering has captured everybody's imagination. However, we should not get too carried away with it. While smart metering is quite expensive, it is the right way to go. A steering group, chaired by Ms Mannion and in which I am very much involved, has been established to examine the issue. Also involved are people from ESB Networks who will be responsible for installing the meters and collecting information and the electricity supply companies which are also interested in learning how they can structure tariffs and change behaviour by encouraging people to shift their load from the evening peak. We are looking at this from a micro-generation point of view and in respect of the practicalities involved.

The group comprises members of ESB Networks, independent suppliers, Sustainable Energy Ireland and the ESRI, which will examine data. It is a comprehensive project. We will commence with a pilot study to see what exactly is the right thing to do, bearing in mind different technologies and what type of information should be in people's houses. Following the pilot study we will consider how best to roll out the new system. It will be easy to roll out for new customers as all that will be required will be the installation of a meter. However, the retrofitting of over 200,000 meters is quite an undertaking and could take at least five years to implement. Therefore, we are looking at five to six years time for everything to be in place. We must be aware also that technology evolves all the time. We are at the cutting edge. Italy has done it, but no other country in Europe has done it. We are trying hard to get it right because it is very expensive.

Deputy Damien English

When the commission decides to roll it out, it will take some years to implement, but new customers will be able to get it more quickly. What will happen in the case of customers who want to produce their own electricity? Will they get quicker access to the smart meter or will they have that option?

Mr. Tom Reeves

They should have. We are always determined to encourage people to do the right thing and never do something that makes it harder for them to do so. Deputy English mentioned his Austrian visit. We do not have a function in getting a town involved in a similar project, but there is nothing to stop a town council doing it. The way the laws apply currently, it is not a centrally controlled market and people can look for permission to do something; it is like planning permission. If people wish to build a power station, they can do so once they get authorisation from us and the usual planning permissions. To get an authorisation from us is a straightforward procedure and is obtained by following the set of criteria set down in the law. We have not refused anybody so far.

Deputy Kirk asked about co-operation between agencies. We work closely with those we can because we know we do not have all the insights. The organisation most involved in energy here, after the Commission for Energy Regulation, is Sustainable Energy Ireland and we work quite a bit with it.

It is true there is no natural gas available in Wexford. There used to be town gas in Wexford and people with long memories will recall its demise and that it was seriously uneconomic. Perhaps Mr. Tutty will touch on that issue. We have laid out a set of economic criteria for determining whether we will allow gas to be extended to new towns and Mr. Tutty may enlarge on that aspect.

As far as we are concerned, the commission is only concerned with the electricity aspect of incineration. If an incinerator is proposed, gets permission and comes to us with an electricity proposal, we just deal with that part of it. If the heat can be used, that is great. The only large power station in Ireland using heat is located in the Aughinish Alumina Limited facility in Limerick, where the steam is used in the process of making alumina. It is the biggest CHP plant, but the question of whether incineration can provide district heating depends on whether it is economic. Sometimes these proposals are not economic.

Mr. Michael G. Tutty

We split our responsibilities within the commission and I will answer some of the questions not answered by Mr. Reeves. On the question of our role with regard to the North-South interconnector, we approved the capital expenditure of EirGrid and have approved a five-year capital plan which included the interconnector. We are anxious for the interconnector to be built because in the context of the single electricity market on the whole island, it will enable the power to flow fully from North to South and the reverse.

If EirGrid decides it wants to put the interconnector underground, we will have to consider the cost of doing so because we must act in the interest of the consumer. Therefore, we would not automatically agree that EirGrid should spend X million to put it underground. The Minister's study is considering the matter and if a policy decision is made that everything should go underground, so be it. In our estimation, considerable cost is involved in that and it would not just involve the North-South interconnector. Once it is put underground in one area, it will, undoubtedly, be done in every area. We must consider the costs of putting it underground, but our primary role is to approve EirGrid's capital expenditure and it is only if it comes back looking for more money that we would have any further role in the matter.

The Deputy referred to the east-west interconnector or, at least, the proposal for a private sector interconnector. At the time the Government decided there should be an interconnector owned by EirGrid, there was nobody showing an interest in building it as a private operation. We even had consultants talking to people and advertising for proposals. Not only would they not do it on a private sector basis but even on a public private partnership basis there was little interest, apart from one which took no risk on actual use of the interconnector. Following the Government's decision, a proposal emerged from a company called Imera to build not one but two interconnectors. Up until recently, that proposal had not moved very far but it now seems to be moving faster. The interconnector being built by EirGrid will be 500 MW. The Government White Paper indicated there would be greater interconnection in the future; there was even talk of an interconnector to France. We do not see any inconsistency between the EirGrid interconnector and a private sector interconnector. Undoubtedly, there is a limit to the level of interconnection needed but if the private sector company sees fit to build an interconnector in a totally private risk-bearing way, knowing that the EirGrid interconnector project is going ahead, we should all be happy that it is proceeding.

On the question of wind energy applications, up to a few months ago there was certainly a good level of applications in the system and we thought we would probably be able to deal with them all and that it would not be beyond the capacity of the country to use wind energy generation. Once we started talking about Gate 3, the next stage, as I mentioned, there was a sudden upsurge in the number of applications that lengthened the queue from something like 3,000 MW to more than 8,000 MW. I do not think there is any way this country can accommodate 8,000 MW of wind energy on our system as current maximum demand is 5,000 MW or so. I mentioned we had 2,800 MW of wind energy supplies already contracted or going through Gate 2. Those involved in the industry say it will never happen, that such interconnectors cannot be built, that they will not be built and that a natural selection process will take place. Our role is to try to have the connection offers made to wind farms or as many of them as we can. The grid would not be able to cope with all of them in one go. What we are trying to do with Gate 3 is decide how to we can progress these projects and whether we should choose a certain number and make connection offers to them and, if so, the basis on which we should choose them. Those who were in the queue first should naturally be given precedence but even with Gate 2 we did other things to optimise the position for those who were early in the queue. We do not see how we could possibly have that number of wind farms connected in this country and even if there was a facility to export wind energy supplies, somebody would have to be found to buy it at the time that the wind was blowing here which may be 3 a.m. when there is no great demand. Private sector operators will have to make up their own minds about whether the next generator will be an economic prospect.

Senator Feeney asked how entry to the grid was obtained. I suggest entry is obtained by applying to the grid, ESB Networks or EirGrid. Unfortunately at the moment that means joining a very long queue and the application will be processed over time depending on how we deal with the people in the queue. That is the way to get in. A person must apply to ESB Networks for connection to the distribution system and EirGrid for connection to the transmission system.

Senator Geraldine Feeney

Are people being told about the queue? People to whom I have spoken felt they were being blocked. When Mr. Tutty explained the issue of supply and demand I can understand that. However, are people being told that?

Mr. Michael G. Tutty

People who have been in the queue for some time know quite well that there is a queue. There are some who were in the queue at the time that we decided what to do in Gate 2. The ones who did not get into Gate 2 and have been sitting there for a few years would undoubtedly think they are being blocked. Hopefully we can deal with them in the next round.

It is simply a question of how quickly ESB Networks and the grid can build the connections to connect all these people up. That takes time and it is not possible to deal with them all at the one time. At least in our view if they tried to deal with them all at the one time nothing would get connected for a long time. We try to take it in chunks, get the Gate 1 people into the system as quickly as possible and then get the Gate 2 people. We had hoped that Gate 3 could complete the process until this further upsurge. I am quite sure that the people who are there know what the situation is. However, if they are not being dealt with they naturally feel they are being forgotten about or being blocked.

On the question of the natural gas in Wexford, we laid down some economic guidelines for Bord Gáis on what its approach should be to connecting up new towns because if it just builds and the capital cost is added on to all the consumers around the country but that extension is totally uneconomic, we are simply adding to the overall cost of gas to everybody. We reviewed the guidelines in the past two years and issued new guidelines. Using those new guidelines Bord Gáis has considered towns in the west, in the Mayo area, and found a number of new towns that can be added on there. It has reviewed other areas — Monasterevin is in my mind because I live in Kildare. Some 17 new towns are being added. It has also been reviewing other areas. I have not heard that it has come up with proposals for Wexford. However, if it were to ascertain that the capital cost of bringing gas to the various towns in County Wexford were economic it would approach us with such a request. Every part of the country would like to have gas but unfortunately the capital cost of transmitting the gas to every part of the country would be very high. It is a matter of ascertaining what additions can be put in at a reasonable cost.

The Chairman asked about the differential price for wind energy versus biomass. It is the Minister who determines the subsidies for renewables and not us. The Minister has looked at the economics of the renewables and tried to set a subsidy that will make them economical without being hugely profitable. If the same figure is set for offshore and onshore wind enterprises, those involved in the latter group will make big profits. Offshore wind farms are more expensive to develop and run. Similarly, biomass is given a bigger subsidy than onshore wind farms because it is more expensive to organise. The study assessed the levels of subsidy needed to make the various renewables economical.

Mr. Tom Reeves

Mr. Coughlan and I would like to respond to Deputies Kirk and O'Keeffe, with the agreement of the Chairman. We were asked whether there were power stations other than Huntstown power station. The answer is yes. Mr. Coughlan will elaborate on the matter.

Mr. Eugene Coughlan

We have a considerable interest in building new plants. The new market provides the incentive for new entrants. Two power stations are being built in Cork. The ESB is building a new plant at Aghada, while Bord Gáis is building a new plant at Whitegate. These large baseload plants will provide over 400 MW each. They should be commissioned in 2009 or 2010. We expect that a further large baseload plant will come on stream in 2011. I refer to the plant being developed in County Louth by the Quinn Group which is currently consulting An Bord Pleanála on the matter. It is expected that a decision will be made in May. Such a development would be welcome because it would provide additional capacity. It would also bring a completely new player into the market, which would be good for competition.

Considerable interest has been expressed in five or six projects by parties interested in building what are known as "peakers" or "mid-merit plants". I refer to smaller plants which are far more flexible in the sense that they can be turned on and off quickly. Such plants would be particularly useful at times of peak demand. Flexible plants are needed to support the arrival into the system of an increased amount of energy from wind sources. There is considerable interest in such developments. Five or six projects are being pursued. Mr. Tutty has mentioned that interest has been shown by those involved in the wind sector, who could potentially deliver projects to deliver 8,000 MW of energy.

Deputy Kirk asked whether we had sufficient power to do something about high prices. We are not looking for additional power in this regard. It is important to understand that we control between 30% and 35% of the price of electricity. That is in relation to the networks. We have direct control over this percentage. Ms Mannion is responsible for this. We control ESB Networks — the revenue it can earn to run the business and invest in it. We undertake a five-year revenue review and make decisions on the overall amount of money that can be gathered. We have direct control over this. We have put in place a market in respect of the remainder — generation and supply. Such costs are mostly influenced by external factors such as the price of gas, oil and coal on the international fuel market. We have developed a market that offers an incentive to do all of this efficiently.

As electricity cannot be stored, unfortunately, the market that has to be designed is certainly not straightforward. It is very complex. To put it as simply as possible, every power station offers electricity for dispatch on a half-hour basis. The system that has been designed selects the cheapest plant from which to dispatch electricity every 30 minutes. The price changes every half an hour. Electricity is cheapest at night, when not as much power is needed, and is most expensive at approximately 5 p.m. or 6 p.m. on a winter's evening. The system calls the cheapest plant. If the electricity one is offering is too expensive, one will not be called. That offers an incentive to build efficient plants and for people to buy fuel efficiently, as it obviously forms a major part of the cost.

Mr. Tom Reeves

Deputy Kirk mentioned rivers. River potential in Ireland is effectively nil at the moment. It would not be economic to dam or flood some areas. To put the matter in context, Ardnacrusha, the largest dam in Ireland, only produces 86 MW, a very small quantity. While its running costs are zero, its capital costs are very high. Nobody has approached the commission seeking to pursue this option.

Deputy O'Keeffe asked about the use of coal at Moneypoint power station. While the plant is using the cleanest, lowest sulphur coal it can secure, it still produces sulphur. Three years ago we approved the installation of what is called a flue gas desulphurisation plant to remove the sulphur from the coal. This costs a great deal of money and Moneypoint is still spewing out carbon, producing approximately one tonne of carbon per megawatt hour of electricity it produces. That is just the way it is. The plant is now 20 years old and probably has another 20 years of life left so we will still have it for some time yet.

Deputy Ciarán Cuffe

I apologise for my late arrival. Some of the issues I raise may have been covered. I have three brief questions for the commissioner. Regarding current and future interconnectors, is Ireland a net exporter and what will be the trend in terms of the use of the interconnectors?

To return to the issue of smart metering, these types of meters range from being fairly stupid to very intelligent. The best smart metering allows domestic consumers who wish to install a turbine or photovoltaic system on their property to sell surplus electricity back to the grid. Does the commissioner envisage that this option will be realised? Whether domestic users can supply electricity to the grid, which I understand is the case across the water in the United Kingdom, is a key issue in smart metering.

In regard to the planning environment for offshore wind, I note the mission and responsibilities of the Commission for Energy Regulation include environmental protection. The 1933 Foreshore Act is an extremely antiquated mechanism for dealing with the large offshore projects we are hoping to add to the grid. Does the Commission for Energy Regulation have a mandate for or interest in ensuring the legislation is updated?

Deputy Seán Ardagh

On the issues of comparison with and working with other regulatory authorities, I note from the slide on accountability and public consultation that the Commission for Energy Regulation intends that its consultation process will be a standard bearer in the public sector. The joint committee is concerned that every regulatory authority's consultation process should be a standard bearer. To what extent is the commission co-operating with other regulators in developing a leading edge, state-of-the-art consultation process which would be the match of any international equivalents? It is important that a standard form should be applied to enable us to measure the output, effectiveness and efficiency of regulators. While the regulators are all different, we would be able to see the time each one takes to respond, the speed at which outcomes are made available on the Internet and so forth. Uniformity and the availability of a high standard, state-of-the-art process would help the joint committee and, I believe, the regulators. Is the commission working with other groups on this issue?

Deputy Seamus Kirk

A difficulty arises regarding elderly people living alone, perhaps in an OPD in a local authority or in the countryside. With estimated bills people get a shock when the reconciliation date arrives. In the context of the billing system used by the ESB, is it possible to have equalisation or an off-setting arrangement across a 12-month period to try to anticipate that difficulty?

Is there potential for the staggering of peak-time domestic and industrial electricity usage? What sort of potential is there if we could adjust lifestyles or working time to off-set the peak period of usage?

Mr. Tom Reeves

I will deal with Deputy Cuffe's question on smart meters and Ms Mannion and I will deal with some of the other questions. Smart meters are designed to be able to be read two-way. It is fine if a person has photovoltaic or some type of small microgenerator that will measure the output going on to the grid. That is a technical issue and it is not difficult to do. The issue is who will pay for it or what would be provided. It does not necessarily have to be an ESB public electricity supplier although we will examine those type of tariffs as part of the project. They are meant to be as intelligent as we can get them within a reasonable cost, as they are not cheap. Calculating the cost of each meter at €300 and 2 million of them are required, one is already at €600 million. We have to bear in mind the cost of electricity and getting money back on that. This is an expensive undertaking and we need to get the appropriate technology. We are trying to do the maximum amount possible. This group is working towards that and we will have a significant pilot study.

Deputy Ardagh asked about the authority. We have of the order of 30 pieces of primary and secondary legislation on electricity and 15 on gas, not to mention all the old gas Acts. Other than the safety of upstream, off-shore gas, we probably have enough legislation currently.

We meet with and co-operate with other regulators. However, the subject matter is slightly different, as are the approach and the technology. We had several meetings but they fell by the wayside for a while and we have re-established them again to look at the type of issues to which Deputy Ardagh referred.

It is difficult to measure output. We get grief when prices go up and other than that we are effectively under the radar much of the time. We published a customer code with which we comply. It outlines how we will deal with our customers and we try to follow that. We have also insisted on codes of conduct for all suppliers in terms of how they deal with customers.

Deputy Kirk inquired about the elderly. We have codes of practice that relate to not cutting people off in the winter and other such good practices. We published all of those last year at a public event. They were very well received by the Society of St. Vincent de Paul organisation and MABS. I also understand the ESB has an equalisation arrangement but to avail of it one needs to have a bank account and to set up a standing order. We have been very conscious of not cutting off vulnerable people.

Ms Cathy Mannion

Regarding the elderly and estimated bills, one of the specific requirements within the code of practice is that the supplier must take a flexible approach to payment arrangements with customers. One cannot simply cut off a customer. Opportunities are provided to customers to pay the money owed over a longer period and it is up to the supplier to arrange that with the customer.

We issued a decision last November that enabled microgenerators to have interval meters installed as and from then. We allowed this to happen in advance of the smart meter roll-out to facilitate the development of microgenerators. Up to that point, there was no way of measuring the output of such a generator. The decision allowed the suppliers to come forward with whatever payment arrangements they chose to apply to the microgenerator. Specifically within the smart metering project, we are to consider a possible tariff, to see how it would work through all the systems in the electricity market. Then it would really be a case of the supplier going to the customer and making whatever offer it chooses to make.

Deputy Seán Ardagh

Mr. Reeves made a point about the number of Acts in place. Perhaps there is a misunderstanding but I cannot understand its relevance.

Mr. Tom Reeves

The Deputy asked about authority and powers. All our authority and powers come from the legislation.

Deputy Seán Ardagh

I understand that but I was making the point that the commission should work together with other regulators to set the standards of administration in order that the effectiveness and efficiency of the work being done would be as great as possible. I was not advocating that the commission's powers be changed.

Mr. Tom Reeves

I misunderstood. We have not worked hand in hand with other regulators on that front but we have adopted what we regard in our code as the correct approach, given our type of custom. We hope and believe we provide a good service for all our clients.

Deputy Seán Ardagh

It is part of this committee's remit to examine effectiveness and efficiency. A comparator would be helpful to us in that regard. The more the regulators work together to achieve the best measurable performance, the better. This would make the committee's job easier.

Mr. Tom Reeves

I accept that point.

Deputy Seamus Kirk

Can Ms Cathy Mannion send me some details of the arrangements for dealing with the elderly?

Ms Cathy Mannion

We will forward the codes of practice to the committee.

Mr. Michael G. Tutty

In respect of interconnectors, Deputy Cuffe asked whether Ireland was a net exporter or importer and also queried the position that would obtain in the future. Up to now we have generally been importers through the Scotland-Northern Ireland interconnector. Capacity on the island has been limited enough; we have certainly not been in a position to have a significant level of generation.

The future position and location of buildings will depend on the price arrangement between the United Kingdom and Ireland. To some extent, an interconnector can offer an alternative to building another generator in Ireland. The authorities in the United Kingdom may be happy to take electricity from us if we have excess capacity. So far, it has been more a case of import than export. In future, particularly if we develop many wind farms, we will have to consider the prices on either side.

On the planning environment for offshore wind projects, we have certainly not been involved in planning issues and legislation. We have been the subject of changes made by the Minister for the Environment, Heritage and Local Government through the strategic infrastructure legislation. If we found that planning issues were the problem rather than the grid, we would act on them. We must deal with the grid issues primarily but if we realised a certain matter was impeding progress and needed attention, we would determine what could be done about it.

Chairman

I need to raise one issue before we adjourn the meeting.

Deputy Seamus Kirk

Is there potential for the staggering peak-time domestic and industrial electricity usage?

Mr. Tom Reeves

How much can be staggered is unknown. We have several schemes, such as the winter demand reduction scheme, to reduce peak-time usage. However, a key part of the smart metering project will be to see what it takes and by how much domestic users can shift peak-time usage. Through tariffing or some other structure, we hope they will use their dishwashers or washing machines at eight o'clock at night when the price would be less and avoid peak times. Such a move would save much investment and up to several hundred megawatts. We do not know yet the extent of it or how much the price differentials would have to be before people would react.

Deputy Seamus Kirk

Are pilot projects in place or contemplated?

Mr. Tom Reeves

This will be part of the smart metering project we are devising. There are many parts to this scheme.

Deputy Seán Ardagh

Can we get audio instructions as to when one should put on the dishwasher, for example?

Mr. Tom Reeves

Ironically, smart meters will be positioned outside a house. Some houses, however, will have a screen, in say the kitchen, which will inform people the best times to use appliances. Some will have red lights to indicate the times to switch domestic appliances off and so on.

Mr. Michael G. Tutty

The Minister for Communications, Energy and Natural Resources, Deputy Ryan, has referred to smart networks as well as smart meters. He envisages a time when the network could be used to switch off all freezers for an hour each day and so forth. The feasibility of such a system is somewhat down the road. I am not sure to what extent people will want their freezers to be suddenly turned off but it is an interesting concept.

Chairman

I thank the delegation for their time and the worthwhile discussion. I have no doubt the committee will have further discussions with the delegation in due course.

The joint committee went into private session at 3.27 p.m. and adjourned at 3.32 p.m. until 4 p.m. on Tuesday, 15 April 2008.