Energy Prices: Discussion

The purpose of the meeting is to engage with Bord Gáis Energy, Energia, Electric Ireland and SSE Airtricity on the cost of electricity and gas to consumers in order to establish why prices do not appear to have fallen in line with the fall in crude oil and gas prices. On behalf of the joint committee, I welcome Mr. Dave Kirwan from Bord Gáis Energy, Mr. Tom Gillen and Mr. Gary Ryan from Energia; Mr. Jim Dollard and Mr. Paul Stapleton from Electric Ireland and Mr. Stephen Wheeler and Mr. David Manning from SSE Airtricity.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the Chairman to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter to only qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or an entity by name or in such a way as to make him, her or it identifiable. I also advise them that any submission or opening statement made to the committee will be published on its website after the meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person or persons outside the Houses or an official by name or in such a way as to make him or her identifiable.

I call on Mr. Kirwan to make his presentation.

Mr. Dave Kirwan

On behalf of Bord Gáis Energy, I thank the joint committee for giving me the opportunity to address it on the issue of energy prices in the context of falling wholesale costs. As an energy company that has operated in this market for over four decades, even prior to the establishment of the Commission for Energy Regulation, we take both our role and our responsibility to customers very seriously. We are always happy to discuss ways in which this market can be made to work better for our customers. That is why in recent times we have actively engaged in the review of energy policy being conducted by the Minister and his Department. Our responses to same have focused in a major way on how the industry can work on behalf of customers.

As we indicated in our submission to the committee, we reduced the cost of our standard unit rates for both gas and electricity on 22 January. We did this having regard to the fall in the cost of wholesale gas during 2014. We announced our decision to reduce prices as soon as we could see that lower wholesale gas prices were giving rise to a reduction in the near and medium-term cost of gas and electricity that we purchase on behalf of our customers. As the energy regulator explained to the committee last week, energy companies such as ours buy forward; therefore, movements in wholesale markets do not translate into immediate price movements - whether up or down - for customers. A significant proportion of the gas our customers used in January 2015 was bought in early 2014. As the cost of wholesale gas continued to decrease into 2015, we have been able to secure a lower cost product for our customers. As a result, we were able to translate this into a discount on our standard unit rates.

We fully understand the perception to the effect that we are quick to pass on increases and slow to share reductions. However, that is not the case. In the past decade, for example, our gas prices were regulated on an annual basis by the Commission for Energy Regulation. Each year we submitted the cost of gas purchased for the previous 12 months and projected the cost of gas for the following 12 months and on that basis the price was set. Increases approved by the regulator during the period were, therefore, made following periods in which the wholesale cost had been rising steadily and were designed to recover against the latter rather than being a move to counter it. Following deregulation on 1 July, we were happy that the first price adjustment we could make in the price of gas involved a reduction. In the case of electricity, we have consistently tried to offer a competitive standard rate since entering the residential market in 2009. Our customers have enjoyed the lowest standard rate for electricity for 46 of the past 49 months. In respect of both gas and electricity and as we confirmed at the time of our price announcement, we will continue to review wholesale costs. If further savings arise, we will pass them on to our customers.

It has taken many years to develop the Bord Gáis Energy brand. I have been proud to work with the company for over 15 years. I can reassure the committee that it is desperately important to us, as an organisation, that our customers can trust us. In 2010 we published the first Bord Gáis Energy index, by means of which we share short and medium-term insights into energy markets with key stakeholders, the media and customers alike. We did this in order that people might be better informed about energy markets and what influenced the price they paid for electricity and gas. We continue to publish this index every month. We remain of the view that transparency in wholesale costs and other factors which have an impact on energy costs is important in order for customers to be confident that we are doing what we can to deliver competitive prices to them.

As members will be aware from last week's discussion with the energy regulator, our energy market is intensely competitive. We are continually obliged to extend ourselves and invest in order to acquire and retain customers. In the 23 years I have worked in the industry I have never before seen the level of choice currently available to customers. That is good and we welcome the competition. None of the energy companies represented at this meeting can be complacent in the context of retaining customers, which is how it should be. The committee and members of the public can rest assured that there is plenty of pressure on us to deliver competitive prices to our customers in order that we might retain them. That is why we reduced prices and will do so again if the opportunity arises.

Mr. Tom Gillen

I thank the joint committee for its invitation to come before it. I am managing director of Energia and accompanied by Mr. Gary Ryan, our retail director. As we are probably not as well known as the other companies represented here, I will spend a few moments providing some background information.

Energia is involved in the generation and supply of energy to businesses and homes throughout Ireland. We employ 450 people directly and another 100 indirectly. Energia is one of Ireland's 50 top businesses and a major contributor to the national energy infrastructure and security of supply. Since 1999 we have invested €1.2 billion in gas-fired generation in north Dublin and renewable generation across the island. We are going to invest a further €1 billion to support renewable generation in the coming years. The company is, therefore, a major investor in and contributor to national energy infrastructure and economic progress in Ireland. We are very pleased to support that agenda.

In January 2014 Energia entered the Irish home energy market, with a dual fuel offer of electricity and gas. This involved an initial €10 million investment. From the outset, we stated we would always be competitive in terms of price. We consistently offer market-leading products. The average discount enjoyed by customers who switch to Energia is 15% off our standard rates, which is very competitive. Some 83,000 customers have switched to us for their gas and electricity supplies, of whom 97% are on discounted tariffs that are significantly below standard tariffs in the market, even in the aftermath of recent price reductions. Since our entry into the energy market, switching levels among consumers have increased by approximately 70% per year. The committee has heard from the CER that the promotion of switching and competition will have the most positive impact on customer costs. Despite the increase in switching levels, the fact remains that a large proportion of customers have not switched in order to avail of the benefits of the competitive market.

The committee is aware that commodity pricing has become more favourable and where the opportunity arises to do so, we will take advantage of this. We will pass on as much of the ensuing benefit as possible to our customers. I say this bearing in mind that, as a new market entrant and a competitive operator, it is in our interests to keep prices as low as possible in order that we might retain customers.

I again thank the committee for the invitation to come before it. I will be happy to reply to questions members may wish to pose.

Mr. Jim Dollard

I welcome the opportunity to come before the joint committee to discuss what is an issue of significant importance. I will spend my time talking about a small number of key issues which have an impact on electricity prices on the island of Ireland. The first relates to what drives electricity prices. There are four key factors in this regard, the first of which is wholesale commodity prices. As the CER indicated to the committee last week, it is the main driver of electricity prices in Ireland. Oil accounts for less than 1% of the electricity generated on the island. The second factor is infrastructure costs. I refer to the networks used to bring energy to people's homes. Given the island nature of our system, we are unique in Europe in this regard. The third factor which has an influence is Government policy, which involves support for renewables, security of supply and energy efficiency factors. The fourth factor is the market in the context of the activity of suppliers, their endeavours and practices in supplying customers and the costs incurred in doing so.

The second issue to which I wish to refer is Irish prices as seen in a European context. Intrastat reports indicate that as of June last year, most Irish businesses were paying for energy at prices which were at or below the eurozone average. That is a very important point. Another issue to which I refer in this regard relates to the fact that the Irish residential market is broadly comparable to those of the other countries in the eurozone. The largest category of residential customer in Ireland, which represents the average Irish consumption of energy, is paying 2% below the eurozone average.

In the context of the comments the committee has just heard, Ireland probably has the most competitive market in Europe. The level of switching here is the highest in Europe and, in global terms, is probably right at the top of the league. This means that the market is incredibly competitive.

The third point is wholesale energy costs. That is probably what is causing attention on this industry, particularly at this point in time. Wholesale gas prices have a significant impact on energy costs. They are the driver. Forward gas prices in euro terms fell in 2014 by about 18%. It is important to understand that much of the 18% happened towards the second half of the year. Recent forward prices have risen by about 8% as of earlier this week, in tune with commodities generally. One can see it at petrol pumps where prices are beginning to come up again.

Another factor in wholesale energy costs, as pointed out by CER, is that energy costs represent about 30% of the total electricity price. The other factors are infrastructure costs, Government policy and the cost of supplying customers. One of the key factors in end-user energy costs is the concept of hedging. This is the process of buying power into the future in small slots each month, typically over a 12 or 18 month period. One is trying to protect domestic customers which is essential in a volatile market. Electric Ireland does this on a staged basis over a long period of time. This is common practice around the world in terms of the residential market.

On our approach, Electric Ireland is a State body which has served customers for almost 90 years in this market. We see affordability and confidence in the market as a huge issue. Last autumn Electric Ireland implemented a 2% electricity price reduction before the winter as we considered this to be incredibly important. Be assured that we can give an assurance that we will continue to pass through reductions in wholesale prices if other factors stay static. Margins are modest in this market when we compare with other markets in Europe.

Affordability, be it for domestic, business or small business customers, is a huge issue for our economy. Right through our history we have been focused on that. Things are very difficult for businesses and domestic customers out there. A lot of work has gone into trying, as best we can, to shelter people from the impact of that. Disconnections by Electric Ireland are down 20% this year, a significant reduction in the teeth of an incredible recession. An important tool in helping people deal with arrears in a structured way is the pay as you go meter. We actively support the installation of these meters. The number of customers who have payment plans with us, typically people who are struggling, is beginning to fall. This is a positive development of which we are proud. Electric Ireland has additional protections for vulnerable and elderly customers who are important in this environment.

As wholesale prices continue to fall, Electric Ireland is committed to passing the reductions through. Thank you.

I thank the witnesses for their short presentations. I apologise, I almost overlooked Mr. Wheeler.

Mr. Stephen Wheeler

Good morning Chairman and committee members. I thank you for your invitation here today. From small beginnings, SSE Airtricity has grown substantially since its entry into the market in 2008. It has achieved this by investing more than €2.5 billion here and creating direct employment for more than 800 employees, up from 120 employees at that time. This investment means we own and operate over 1500MW of generation capacity, one third of which is renewably generated wind power.

We have driven market competition and have built up a customer base of 800,000 customers, up from 40,000 in 2009. We have done this by offering some of the most competitive prices in the market. Customers who switched to SSE Airtricity have saved over €100 million since our entry into the domestic market in 2009, all the more important given the tough economic conditions we have gone through over the same period.

It was during these difficult economic times that SSE made some of Ireland's largest capital investments. I am pleased to report that in the last year alone we have completed our Athea wind farm in County Limerick, a €70 million investment which created 300 jobs during its construction. We are nearing the completion of our new 460MW gas-fired power plant in County Wexford, a €330 million investment that created more than 1,200 jobs during construction, 80% from the local area. We have just begun construction of Ireland's largest wind farm, the 170MW Galway Wind Park in partnership with Coillte. This €280 million investment will employ more than 350 people during its construction.

Over the past five years our business in Ireland has delivered a dividend of €70 million to its shareholders enabling us to generate significant economic activity and jobs here. As illustrated in our recent PricewaterhouseCoopers report, SSE's Economic Contribution to Ireland, SSE has contributed €956 million to Irish GDP in 2014 alone directly providing more than 800 full-time jobs and supporting an additional 5,150 jobs. This was the equivalent of 0.3% of total Irish employment and 0.6% of Irish GDP in the fiscal year 2014.

A core value for SSE is sustainability. We live this value by investing in low carbon generation sources and by investing €1.2 million every year in community projects through our wind farm community funds. In particular, we seek to help communities reduce their energy consumption by investing in energy efficiency initiatives. One recent example is the retrofit of 107 local authority fuel-poor homes in County Limerick in partnership with Limerick County Council and the Sustainable Energy Authority of Ireland SEAI. This was provided free of charge to those households. We have also successfully completed retrofitting a further 412 council homes with local authorities in Wexford and Fingal.

While I felt it important to set out the overall economic value of SSE's investment in Ireland I expect much of our discussion here this morning will centre on energy costs for consumers, ensuring customers benefit from falling wholesale markets and protecting them from rising prices. Let me assure Members that this is a priority for us at SSE. If there are more savings we can pass on, we will pass them on in due course. Driving this is Ireland's highly competitive retail market where SSE Airtricity must deliver competitive and value based energy products in order to attract and retain customers. In doing so, we at SSE Airtricity are also particularly focused on helping our most vulnerable customers. This is why SSE Airtricity has been to the forefront in deploying prepayment meters to help customers in managing their bills, and also ensuring that they are on the cheapest pay as you go tariff in the market.

In January, we announced that SSE Airtricity is reducing its gas tariff by 4% and its electricity tariff by 2% for all customers. This reduction applies to both the unit rate and standing charge. While market commentators suggested that bigger decreases were achievable, we would ask the committee to note three things. Wholesale prices represent half of the consumer's bill. Individual companies' hedging policies, foreign exchange rates, timing and the volatility of commodity markets directly influence price. Finally, while commodity prices, particularly oil, have reduced over a short period, other costs have increased. These include the cost of policy measures such as energy efficiency. Costs such as market operator charges, use of system charges and public service obligation costs are not in the control of generation or supply businesses, but they offset decreases in wholesale prices.

During difficult economic times SSE Airtricity has made significant investments of around €2.5 billion; directly and indirectly created employment for almost 6,000 people and saved its customers more than €100 million. To remain competitive in a crowded market we must ensure that we are passing on savings to customers and offering products they value. It is also important that those costs not in the control of generators and suppliers are minimised, that all customers realise the savings achievable through supplier switching and that costs more aligned with social policy are removed from the bill and funded through the Exchequer. Thank you for your time and attention.

I thank witnesses. This issue has arisen in the past few weeks in the context of reduction in fuel price and people had noticed it. It is important that the witnesses have explained why there might not be an immediate reduction. The committee has been told how energy is bought ahead of time. Is there a presumption that there will be a reduction for the remainder of the year since supplies of gas were bought when the price was lower?

Switching was also mentioned. All the witnesses seem to put huge effort into getting customers to switch. The committee would like to know if that is where resources are going, rather than on reducing the basic price.

There have been suggestions by witnesses that bigger reductions were available for bigger customers such as businesses or industry. Is there discrimination to a certain extent?

For instance, does the small corner shop pay the same rate as a domestic customer or is it just the very big industry customers that get the bigger reductions?

Mr. Jim Dollard

In terms of prices, typically Electric Ireland buys the power for any given month in slots in order to smooth the impact and reduce the likelihood of vagaries of price occurring. In this way it takes advantage of the market and does not expose customers to peaks in prices. What that means is that it has taken particular slots. Certainly the price reductions that happened, particularly towards the latter end of last year, were because those slots were coming in cheaper and that price impact has been passed on to the customer. The bigger impact is more likely to be in 2016, because as we buy forward more of that will come through. Assuming that the 70% of other costs remains stable I would forecast that prices will continue to come down and the suppliers will do that. It is my expectation that those prices will come down later this year.

In terms of the switching and where resources are going I will comment generally on that. It is only five or six years ago that we in Electric Ireland, ESB as it then was, had 100% of the domestic residential market. In that time more than 50% of customers have switched. They may have switched back and forward but more than 50% have switched. The rate of switching in Ireland is significant and is now among the highest in Europe. I believe that switching is a factor in any market. A policy decision was made to open the market; once that was done providers had to compete on either price, products, or through some other method. Discounts and switching are a key factor if there is to be a competitive market. Electric Ireland has received the brunt of that because it has conceded huge amounts of share. In the longer term the focus of switching per se will have to be balanced by other directions. The customers who stay with a provider have to also see benefits and I believe that is a very important factor. It is not something that is widely known. Electric Ireland is beginning to focus more and more on existing customer and the loyalty of those customers.

Does Electric Ireland incentivise customers to stay with it?

Mr. Jim Dollard

It does. That is information that is not generally available. I welcome the opportunity to say it. Existing customers of Electric Ireland can also avail of discounts. That is probably true of all of my colleagues as well. That is true and it is a very important point that I would like to get out.

Is Mr. Dollard saying that people should talk to the providers?

Mr. Jim Dollard

Yes. A significant portion of the people who are benefiting from discounts at the moment are existing customers. It is not just about that though. I would argue that the loyalty issue is a bigger issue. Some people do not want to sign up for a contract. They do not want to commit to particular conditions; they are not in a position to do so. I believe those customers have to be dealt with as well. In Electric Ireland we are building up loyalty schemes and last winter we gave back a lot of money to customers in that regard.

In terms of existing customers we are concerned with how vulnerable customers are treated. A significant portion of our current customers, probably 50,000, are on pre-pay meters. Those customers are getting a discount from us. We are treating them favourably. We are giving existing customers a 4% discount, which is very important in the market. Those customers have been with us for a very long time, and probably, in reality, cannot easily switch providers and what we are trying to do is to help them in their current situation.

Last autumn Electric Ireland announced a 3% price reduction for SMEs, so slightly ahead of residential customers. SMEs are probably one of the biggest drivers of employment in the economy. Electric Ireland believes that working with SMEs is important. Some SMEs can avail of some of the hedging products that big customers can avail of. They certainly can switch and they certainly are getting discounts. There is no doubt that the bigger the customer the more fuel is an issue in terms of their overall bill and they are more likely to be able to take risk in a market, which allows them to win and to lose. Once they take risk in a market, which big customers can do, they can win and lose.

Are the very small SMEs less able to get the better terms, even though they are probably under the most pressure?

Mr. Jim Dollard

They are but they also avail of reductions. There was a 3% reduction announced for that whole sector last year. It would not be easy for an SME to take a risk profile. Small businesses trade on very tight margins and as with the domestic customer certainty is of huge importance, and so is being able to price that in.

Mr. Dave Kirwan

I apologise for the stunned silence; we are not used to co-operating. In respect of the prices and how that flows through the book, it is as Mr. Dollard has outlined. It is a case of buying in stages and, even though we focus on the down sides, there are benefits to that. It means that neither we nor our customers see the volatility in the market. The overall view of Bord Gáis Energy at the moment, which is supported by the monthly index we publish, is that there is a confidence level that has been building in the market vis-à-vis supply and demand. Isolated events can change that. I mentioned in our report to the committee that it appears that Europe's largest gas field is constrained at the moment due to concerns around seismic activity. Events such as that do affect the underlying confidence. Hopefully the underlying confidence that there is excess supply to meet demand will flow through into the winter months of 2015 and into 2016. Bord Gáis Energy would like to be in a position to pass on the benefits to customers.

Mr. Dollard raises a very good point in respect of switching. I believe for the most part, for the people who have been in this industry a while, even before there was open market competition, the measure of success was considered to be a high level of switching activity, i.e., customers are aware of the choices that are being presented to them and are free to choose and move around competitors, which keeps us all on our toes. It is true to say that the Irish energy customer has really grasped that. The level of switching, as everyone has said here this morning, is greater than in other markets. It is very important that we do not forget the customers who are loyal to us. We would be mad to, to be quite frank. Bord Gáis Energy will be launching a campaign in the next number of weeks which will offer discounts to customers for staying with us and who have been with us. We hope that this gets a response from our loyal customers. Bord Gáis Energy was the first in the market to introduce a rewards club where customers can, by paying their energy bills, receive Tesco loyalty cards, which they can trade against grocery bills, or indeed their energy bills. These devices and others are being invested in to pay back customer loyalty. If customers come to us saying that they want to shop around Bord Gáis Energy will respond by seeking to keep their business.

In respect of large customers benefiting more than residential customers, the energy industry is a large volume low margin business. The way in which the industry is structured does benefit larger users with a larger volume. Even in respect of the amount of network costs that large users pay, it is less pro rata than the residential equivalent.

Last week the Commission for Energy Regulation highlighted that industrial users in Ireland have benefited from falling wholesale costs more quickly than their European counterparts. There is a very sophisticated large user base in Ireland and they shop around and put us under pressure in respect of prospecting for the best product available. The Bord Gáis Energy trading team in Cork buys specifically for customers at their behest, and those customers can take positions. SMEs just cannot afford to take the positions that larger users do. The same would apply to the residential market. It is very competitive out there. SME customers are switching on an annual basis and they are shopping around.

It is a different kind of structure for smaller users but no less competitive.

Does anyone else want to contribute?

Mr. Stephen Wheeler

We do not always agree but I believe some important points have been made. When wholesale prices continue to fall, if everything else remains the same, then you can see further reductions passed on. However, as of now all other things are not remaining the same. One of the biggest challenges is around foreign exchange. We buy gas in sterling and we sell it in euro. The euro has weakened significantly against sterling. Over the last nine months it fell between 12% and 14%. That has a significant impact. It is important to consider the context. Wholesale gas price is a significant portion of end user price but there are other factors we need to keep an eye on. We have trading teams focused on how we can get the best prices for our customers but there is a lot happening that we do not have control over.

The Irish market is very competitive judging by the extent of energy provider advertisements on our televisions. It is also a very inert market. Over 50% of the total customers in Ireland have never switched. They have never availed of any introductory discounts in the market at the moment. Customers are very sticky and there is much inertia in the market. Existing customers that do make a move avail of introductory discounts and further discounts through payment methods.

Progress has been made around disconnections, with engagement of vulnerable customers, to make sure they are on the lowest standard rate. My colleagues share that view. In regard to big consumers versus small shops, it is very much about appetite for risk. Big consumers have teams in place to take positions. Sometimes the positions work out well for them, other times the positions come with more risk. This needs to be balanced when one is considering the issue of big consumers versus small shops.

Mr. Tom Gillen

I am in a slightly different position because Energia is just entering into the residential market, so acquisitions is where we are at now. We have had to hedge quite far in advance to get into this market. When we entered the market in January 2014 we were starting a year beforehand and there are good reasons for that. We have to fix prices and we have to know what our profit and loss is going to be. Movements in commodities prices can put companies like us out of business, so we do not take risk on this aspect but price changes will be reflected. Energia is new in the market so we have to offer price as an incentive for people to switch. It is a very competitive market and all of us will have to reflect the cost if we want to keep those customers. While there is a lot of switching in the market many customers have not switched and we need to do something about that.

In regard to businesses, the large end of the market is more sophisticated. We do offer products to the smaller customers, we have very small customers on variable products and some like it. Most SMEs however like the fixed prices, as do most domestic customers.

I thank the Chairman and welcome the organisations before us. It was a very worthwhile discussion and debate. Some of the witnesses have explained the exasperation that is prevalent and the perception that prices have dropped in the last quarter of 2014 with no corresponding price drop in household or business energy bills. I understand hedging but there has been a considerable reduction in wholesale price in the last quarter of 2014 and in early 2015. Even though prices have crept up by 8% in the past couple of weeks, can the witnesses explain when we can see this reduction reflected for consumers? Is it true that the wholesale price of gas, as pointed out by the Commission for Energy Regulation last week, has dropped by something like 18%? The figures presented by the witnesses that 30% of the energy price is made up by the wholesale costs of energy means that consumers should be seeing a reduction of 6% or 7% across the board in energy prices. Will the witnesses indicate to the committee when we might see this reduction as the price coming through is between 1.5% and 3%? I presume that all the companies having looked at their hedging and bought in the last quarter of 2014 would have reserves of cheaper, wholesale gas on the market. Are we looking at energy price being stabilised at a lower rate in the latter half of 2015 or early in 2016? How far in advance would the gas purchase have been hedged?

Mr. Dave Kirwan

The numbers discussed with the Commission for Energy Regulation were broadly in agreement. The proportion of the end price for electricity impacted by wholesale gas is around 30%. We all buy differently but we all buy in advance. At the end of 2014 there was a trend downwards, a significant movement in the curve, but in the period December 2014 into January of 2015 a pre-market situation prevailed. When we returned after Christmas and reviewed the curves we saw there was headroom to pass on a reduction in the unit price to the consumer and we moved promptly on that basis.

We have not bought out completely for 2015. It is difficult to do that as one has to buy in slots and it depends what is available in the market. As a result, Bord Gáis Energy is still buying over the course of 2015. If there are further wholesale reductions in the next couple of months we will be able to procure that and feed it in.

Currency has been mentioned as a factor. Unfortunately the euro has continued to weaken against sterling. In the last four weeks we have seen a 5% weakening. That sets off against the wholesale benefit. Currently for every percentage drop in wholesale, one loses about one third of that on the sterling to euro conversion. That is a challenge for us. We will watch the wholesale prices, we will buy in over the next number of months and if the savings accrue over that time we will be seeking to try and pass that benefit on towards the end of 2015. We do not have a crystal ball on it.

Nobody anticipated the earthquakes at the gas field in Holland over the last couple of weeks. That can add 2% or 3% to the price in a day and it takes a while for that confidence to build back in to the market place. Bord Gáis Energy will publish its monthly index which is available to everyone. It can be seen in an objective manner where that movement is going and where sterling comes into it.

Having read and re-read the presentations, as independent operators the witnesses can agree on one thing, namely, the price reduction of gas in the past 13 months of 16% or 18%. This is completely at variance with what energy experts are saying. Consumer correspondents in the national papers refer to a figure closer to 30%.

There has been a great deal of talk about what has happened in the industry and the efforts that companies are putting into encouraging people to switch by asking consumers to shop around and so on. It is all very fine to give a few quid to people who will move from one company to another but I think it is a smokescreen. One can afford to give relatively generous bonuses to people who switch, because Irish people do not like charge and they will resist switching. The number of customers who have not changed is in excess of 50%. The people who will probably never change are low income families and elderly people. The people who will not change providers are being fleeced. They have got nothing from the energy providers. Cheaper prices have applied to new customers for the past 13 months but the customers who have stuck with their providers have received no reductions. The companies can afford to play around with the people who are shopping around. Having read the presentation I cannot see a mention of the percentage fall in the price of gas. Did it fall by 18% or 28%?

The reductions that were made prior to the Christmas period were alluded to in the presentations. The companies could afford to reduce prices because the six main suppliers in the United Kingdom reduced prices by double the amount of their Irish counterparts. I know that the witness will come back with the retort that there are various factors at play. I understand about forward purchasing and the variance in the euro vis-à-vis, sterling but if the price of gas fell by that amount, and I do not agree with the figure of 18% or any other in that ballpark, why are the decreases to customers so minimal? The balance sheet of the various providers has been the main beneficiary, not the customers. As things stand the providers will gain most.

There is speculation about possible price reductions in the first quarter of this year. If one is able to analyse all the material and all the variations in the industry in the past year to 18 months how come the delegates cannot tell the committee what reductions we will get by June 2015?

Mr. Jim Dollard

I recognise there is confusion in the marketplace. I have seen the reports in the media and the debate in various fora. As my colleagues have said, we genuinely appreciate this opportunity to debate the matter. The reason the CER focused on Intrastat reports is that it is important there is transparency on how Ireland is faring in the European context. Intrastat is the system for collecting information and producing statistics on the trade in goods between countries of the European Union. The statistics are developed independently of all of the energy suppliers and they show that we are competitive.

The Deputy asked about the rate of reduction when the price of oil is down 60% to 70% and why, when gas is down by big margins, the price of electricity is not down by a corresponding rate. I welcome the opportunity to reiterate that the price of oil is irrelevant. I know that Deputy Maloney did not raise that point.

The Deputy rightly said that there are reports of a 30% reduction and I have also seen those. The analysis by the CER, which is an independent body, is that forward prices, which is the relevant price index for us in buying power, is about 18%. I would not disagree with that value.

Spot rates, that is the day-on-day rates, are very volatile and can move significantly day-on-day. Depending on the day, one can get numbers as high as the figure mentioned. I do not know the specific background to the 30% rate but I suggest that it relates to the spot rate. We do not buy gas on the spot market. That would result in unbearable volatility in the price of a necessity.

There were words to the effect that we were creaming it but my view is that if this industry tries to build profits on the back of falling fuel prices confidence will be lost and the industry will be broken. That is the reason I made the point that margins in Ireland compare favourably across Europe. Prices compare favourably and margins compare very favourably. We are trying to do the best we can in a difficult environment. I understand that there is a lot of anger. Energy is an essential necessity for people and businesses and we are passing on the reductions as best we can. We are not gaming the system. The view of the CER, an independent body, would support that. The real test is whether we are moving in the right direction against our competitors or are building significant margins. If either of those were true, we would have a problem in the industry. I do not believe they are true. I hope that has gone some way to answer the Deputy's question.

Mr. Stephen Wheeler

Let me add to that. There are two very important points, first, the domestic prices in the Republic of Ireland are below the EU average. That is a fact verified by a third party. When one compares the prices in the Republic with those in Great Britain, in particular to the prices in Northern Ireland, where the price reductions are so much higher, the first reason is the FX exchange rates. As I said in my opening remarks, we buy gas in sterling and we sell it in euro. The other major factor in Northern Ireland is that it is a regulated market and there is a k-factor adjustment in Northern Ireland, where companies that have over-recovered previously give back. If one looks at a unit rate comparison between Northern Ireland and the Republic of Ireland, there is very little difference between the standard rate. In spite of the higher reductions in tariff, when one compares the figure from 1 April in the Republic and Northern Ireland, the rates are very similar. That needs to be considered.

Mr. Tom Gillen

The rates in Northern Ireland are set by the regulator. The regulator has gone through a process with the main supplier in Northern Ireland, Power NI, and has gone through all its hedges and all its cost and the price it comes out is the cost to domestic customer, which is comparable to the price in the South after these reductions. I can understand that members may think that our profits rise when gas prices drop, that is why we hedge, so I can tell members that we are not making excess profits on the fall in prices.

There are another number of things that impact on cost that are not wholesale related. There is an increase use system cost that was not passed on to the customers and costs about 1%. The Oireachtas passed legislation that puts an energy efficiency obligation on all of us which is quite a significant cost. That also has not been passed on to domestic customers as of yet. We face costs apart from the wholesale price which customers will have to bear to meet the European commitments.

In terms of comparators, we referred to the situation in Northern Ireland and in the EU. From talking to somebody the other day, I learned that the tariff for domestic customers is 30% cheaper in Ireland than in Germany. I was asked why we do not set out our prices. The reason is that the market is competitive and it would be foolish for me to tell member that we would reduce the price here and there because that would be telling our competitors.

We are saying we will be pricing the reductions because if we do not do this, we will lose customers.

How can Electric Ireland announce a price reduction of 2.5% from 1 April 2015? By the way, a constituent of mine saw the humour in it, it being April Fool's Day? How can a single company make such an announcement?

Mr. Dave Kirwan

We made an announcement on 22 January that we would be reducing the price of both gas and electricity from 15 March. We were happy to do so.

Mr. Stephen Wheeler

We made a similar announcement in the last week of January.

I welcome the delegates and thank them for their presentations. Let me summarise what people think. They see the wholesale price of oil and gas reducing dramatically; in percentage terms, the reduction is in double digits, yet when they drive by the petrol pumps, they see a percentage reduction in a single digit figure. They also see single digit reductions in the bills from their energy provider. Most people think the regulator could instruct the companies to reduce the cost of energy by a specified percentage figure. It took me a while to figure out that was not the way it worked.

The themes common to all four presentations this morning refer to the level of competition which encourages the delivery of value; customer switching which forces the companies to offer attractive rates to new customers; forward buying and hedging, which I understand; and the impact of Government policy on renewables and affordability measures. It was mentioned that the price of oil or gas was only one component of the overall cost to the companies, that the cost of oil was not really a factor and that margins were very modest. Currency fluctuations were also mentioned. I understand the concepts behind it.

In relation to forward buying, does each company have the expertise to conduct the negotiations, or is there a bank of international oil auctioneers that are specialists? How does the process work?

Mr. Dave Kirwan

We all have our own internal expertise. Bord Gáis Energy has a trading division in Cork which interacts with its counterparts across Europe. In purchasing gas the local liquid market is in the United Kingdom. When we purchase gas there, it is shipped across the interconnector into Ireland, in respect of which we pay transportation charges. Unfortunately, because we depend so much on the importation of natural gas, we pay an extra carriage charge to transfer it from the United Kingdom to Ireland, which accounts for the difference one sees in absolute price levels in the United Kingdom and Ireland.

I am sure every company has a different approach in how it tries to manage volatility and smooth out the peaks and troughs. The period over which we buy is probably unique to us versus our competitors. Our team in Cork has developed its expertise over 20 years and we always try to procure the best price for our customers. It is important to state we do not trade to speculate and make a profit. We trade to try to secure a stable price. We have very strict risk mechanisms for our traders. They are not encouraged to bet on future gas trades but encouraged to lock things down in order that our customers are protected against volatility in the markets. Our approach is probably mirrored by the other companies.

Let us take the example of gas imported from Britain. Would there have been different contracted suppliers in the past five years or is there a single supplier?

Mr. Dave Kirwan

They come and go; it is fluid. There are many counterparts. We would have in our gas book a figure of up to 20 or 30 at a given time and different slots in a very fluid market.

Mr. Kirwan referred to modest margins, which is comforting to hear, but does the regulator have any influence over the profit margins of companies?

Mr. Dave Kirwan

As the Deputy stated, the regulator no longer has direct price control authority. We were the last energy suppliers to have price regulation. Up to 1 July, we were allowed, as a maximum, to have a 2% net margin, if we had had a good year. That sets the frame for the margins available in this market.

Is it self-discipline rather than discipline is imposed by legislation or regulation?

Mr. Dave Kirwan

It is not just self-discipline, it is also the pressure of the competitive market.

Would companies like Bord Gáis Energy have business arrangements with companies in Britain, the rest of European Union or internationally? Are all of the companies stand-alone businesses?

Mr. Stephen Wheeler

SSE Airtricity is part of the SSE group. While we have a trading team in Ireland, the main trading function is taken care of in Perth in Scotland. We can access a much larger expertise and skill level and secure the best prices we believe are possible in the market. As my colleague, Mr. Kirwan, said, the whole function of the trading team is not to speculate but to secure stability in our prices. Ultimately, this is a very competitive market and we need to remain competitive as otherwise we will lose our customers.

Would an arm of SSE Airtricity be purchasing from another arm of the company?

Mr. Stephen Wheeler

Our trading team is based in Perth and purchases on our behalf and trades with us in Ireland.

Does it purchase from other sources?

Mr. Stephen Wheeler

It purchases from all sources.

Therefore, it would not be purchasing from other arms of the company?

Mr. Stephen Wheeler

No; it purchases from other sources. The market in Great Britain is very liquid. There are a number of counterparts involved in the trading.

The companies are not very loyal to customers who stay with and are loyal to them. My problem with switching is that at a certain stage the attractive contract rates become the norm because if more than 50% switch annually, it becomes a circle of switchers. Are the delegates aware of how switching works in other jurisdictions?

Mr. Jim Dollard

The approach to switching is exactly the same in other markets, but it is not as prevalent. The level of switching in Ireland is at the highest in Europe and worldwide. To a degree, I agree with the Deputy in his view on loyal customers. There is more we can do for them. The standard rate is a very important one and Electric Ireland tries to keep it as low as possible.

We also focus very much on a low standing charge because our customers are typically lower level consumers. We will give discounts to existing customers, if they are willing to enter a contract. I accept that does not suit every customer type but we will make them available. We are focussing on building a loyalty programme and last Christmas we gave a significant amount back, particularly to loyal customers. We focus particularly on vulnerable customers. There 50,000 people in difficulty with arrears. They are our true customers who have been with us for a very long time and Electric Ireland is giving them a 4% discount on top. There is a lot being done around loyalty in the market but we need to do more.

It has come to my attention that if a person disconnects and seeks a reconnection after 18 months he or she will pay a punitive reconnection fee. Could each of the witnesses outline their policies on that, what the fees are and explain why there is such an increase after 18 months?

A retailer who makes an effort to use very little electricity is being punished by paying quite a high price and the reason given is that the business is not using enough electricity. Could the witnesses elaborate on that?

At a recent meeting of Kerry County Council, Councillor Niall Kelleher from the Killarney electoral area, raised the issue of energy companies paying below market rates for energy credits associated with energy upgrades by local authorities. This arises from the energy retrofit scheme and refers to the kilowatt hour savings assigned to works carried out, or the carbon reduction saving certificates. Councillor Kelleher obtained information that the local authorities are disposing of these certificates for what he considers to be far below the market value, for example, in 2013-14 certificates were given to Electric Ireland for as low as €0.4 and €0.6 per kilowatt hour when the market value was seen to be €0.88. The knock-on effect is significant loss to local authorities which gain these certificates as a result of investment from public funding through the Department of the Environment, Community and Local Government. How much are the energy companies paying to local authorities per kilowatt hour credits? How many hours have they purchased since 2012? How many have they obtained? Will they give as much information as possible on that area please?

Mr. Stephen Wheeler

In regard to reconnection policies, everyone’s objective is not to disconnect any customers. In the past year the Deputy may have seen the work that went on behind the energy engage code which is a commitment by all suppliers that we will not disconnect any engaging customers. We will work with customers, whether through payment plans, or pay as you go metres. We will consider their needs and work with them. One challenge is that not everyone is engaging. That becomes a problem and unfortunately disconnections do happen. To be clear, there is no benefit to anyone in this room today in disconnecting a customer. The Commission for Energy Regulation, CER, stipulated 18 or 24 months ago that each energy company, or supplier, pay half the reconnection fee. Disconnections usually happen because of debt and that is why people do not engage. The supplier is losing the debt and has to pay a reconnection fee. It makes no sense to disconnect.

I am not aware of the punitive fee after 18 months because I am not aware of that policy within SSE Airtricity. I will not speak on behalf of my colleagues. I am happy to come back to confirm that is not the case at SSE Airtricity.

On the point of energy efficiency and paying more, this comes back to how one breaks down energy costs. Wholesale prices are less than 30%. There are fixed charges, such as network charges which have gone up this year. We need to be mindful that although consumption is a key driver of one’s energy cost there are fixed costs associated with that. Nothing can be done in that regard, they are network and other associated costs. They do not affect the kilowatt hour.

With regard to energy certificates, it is very important to step back when we look at the energy efficiency targets. We have signed up to a significant obligation which will come at significant cost to all our consumers. This is a competitive market and it is in everyone’s interest, and ultimately the consumer’s interest, that suppliers pay the most competitive price they can for certificates because that cost will be passed to the customers. I cannot comment on any other supplier’s practices. The Deputy asked a detailed question about the number of certificates and how much we paid. I will be happy to furnish that information after this meeting. I cannot stress enough the point that this is a consumer cost and we need to do whatever is in our capability to keep that cost to a minimum.

I appreciate Mr. Wheeler's commitment to furnish the information in respect of 2012-14, detailing if possible the number of hours, payments and the prices. My interest is in the Exchequer and the value for money for investment in better insulation in local authority housing stock and the subsequent rebate to local authorities for those credits. That is my interest and it is the interest of the councillor in Kerry who brought this matter to my attention.

Mr. Dave Kirwan

In respect of the questions, and over and above what Mr. Wheeler has said, I echo the point on disconnections. It is a position of last resort. Disconnection is a no-win situation. It is loss-making. Through the energy engage code we have increased communication and we validate every single disconnection in our organisation. The committee could help us in this respect. There is no need for any customer in this country to be disconnected. A free issue prepayment metre is offered to every single customer in distress. If customers are happy to take that prepayment metre a disconnection will not happen. It is very important that people know that. We are doing our best to communicate it and any help the committee can give us would be appreciated.

In respect of reconnection fees, the cost of disconnection and reconnection is a matter for the network companies that are regulated. There is certainly no profit here. It is simply passed through but in respect of the burden on customers it is key to stop it in the first place.

What about the 18 month clause?

Mr. Dave Kirwan

That is not ringing any bells with me. There is no premium attached from our perspective.

Mr. Tom Gillen

I have not heard of the 18 month clause but I will go back and look. In respect of the usage rates there are costs approved by the regulator for a network which are passed through in standing charges. There is nothing we can do about it. If usage is low one still has to pay them. It is done differently in other countries but the market still takes that cost.

I understand the Deputy is talking about the county council energy efficiency obligation but central government wants a competitive market and wants the stuff delivered as cheaply as possible because it knows that cost will be passed to consumers.

I understand the point the Deputy is making, but the Government wants this to be cheap. I do not know about the individual case, but I presume it went out to tender and that it was the best price. At the end of the day the costs flow through to customers.

Will Energia release the information to the joint committee?

Mr. Tom Gillen

We are in a competitive market and as long as it would be kept private and confidential, I think-----

Whatever information Energia gives to the joint committee, we will pass on, but it is its decision. I do not want to become a regulator in my own right.

This is an important issue. The credits arise from public resources investment. It is the chicken and the egg. Ultimately, the consumer is paying for it by providing for the investment in the first place. It is of public interest that we have full disclosure and that there be public accountability. I do not think it is a matter that should be confidential because, ultimately, the consumer is paying for it in one way or another, whether through the Exchequer or direct as a customer. Do I have a commitment from each of the companies that the figures will be produced? Is it the position of all three companies that the reconnection fee will not increase if a premises is reconnected after a period of 18 months?

Mr. Stephen Wheeler

We are not aware of an 18 month condition.

Mr. Tom Gillen

I will have to go back and look at that figure.

I would appreciate it if the delegates clarified the position on reconnection fees after a period of 18 months. It would be a shame if there was an increase in the reconnection fee after 18 months.

We will group the contributions. I call Deputy Noel Harrington who will be followed by Deputy Patrick O'Donovan.

I have been waiting patiently since the start of the meeting and would appreciate some latitude.

We give the same latitude to everybody.

I welcome the presentations. The price reductions during the past four or five months have been welcomed by consumers. In the past year the consumer has been looking at plunging oil prices and expecting to see a correlation in their energy bills. They are demanding it, rightly so.

In the course of the meeting the delegates have clarified how wholesale gas prices affect the companies. They have outlined the projections, the fixed costs, the other increasing costs and foreign exchange rates. I would like to address a few points in that context.

It was stated oil prices, for example, the Brent crude oil price, did not materially affect energy prices. It has been put to me that long-term natural gas supply contract prices are indexed against the Brent crude oil price. I would like to have it confirmed that they are so indexed and that they are not matched, but that there is a long-term correlation between crude oil prices and natural gas prices.

It was stated that in 2014 the reduction in the wholesale price of natural gas was about 18%. The media, however, report that the average wholesale price of natural gas in 2014 reduced by 27%. That is a major difference, a difference of 9%. The point was made that the consumer price was based on the projected price in 2015. I suggest the reduced wholesale price in early 2014 could have been the future price for 2015 and that consumers should enjoy higher reductions than 2%. I accept the point made about foreign exchange variations and the fixed costs of companies, but in view of the reductions ranging from 18% to 27% in 30% of the companies' costs, I would like to know what is the story.

Many members have touched on my second point, offering reductions based on a consumer switching between companies. This is punishing loyal customers. Consumers find it hard to understand why they cannot be offered a direct reduction in the price they are charged but instead have to switch providers to get the best value. This is a direction from the office of the Commission for Energy Regulation, but from the consumer's point of view, why should he or she have to switch to be offered the discount the companies have enjoyed in the wholesale market?

My third point concerns the impact of renewables. It is estimated, but I could be wrong that 19% to 30% of our energy comes from renewables, mostly wind energy. It is supposed to be cheaper to produce electricity using wind energy rather than gas. The consumer, through the PSO levy, has paid for the capital investment in renewable energy projects. What impact did such projects have on reducing energy prices in the previous three or four years?

I do not know if each of the companies offers different price matrices to business than to the domestic market. What is the ratio in commercial and domestic energy consumption? Commercial consumers have clout that the domestic consumer does not have. I do not think the domestic consumer receives the same support from the Commission for Energy Regulation as the domestic consumer in the North. I also suggest a customer in the North might be very anxious to know how his or her prices compare to those in the South given that the foreign exchange rate does not apply to them.

I welcome the 2% reduction in price for the domestic consumer, but it is not enough.

As I concur with everything Deputy Noel Harrington said, I will not repeat it.

Recent commentary has suggested one could abolish Irish Water's charges and transfer them to those paying commercial rates. Presumably, all of the companies represented are paying commercial rates to local authorities, be they wind energy producers or engaged in the use of gas or oil. Using that analogy, will they provide an insight into what it would mean to the ultimate user of electricity if, for argument's sake, commercial rates were to be dramatically increased to subvent the investment by local authorities in water infrastructure? A person in my constituency who generates wind energy recounted to me that his commercial rates had risen dramatically.

There is a wind-operating facility on his property.

I wonder what level of engagement those present have had with the Department of Public Expenditure and Reform and local authorities on their companies' competitiveness because I presume that every increase in commercial rates by the local authorities ultimately wind up with the consumer. Certainly, these people do not take the hit for it. Perhaps they would provide me with some degree of insight as to the engagement they have had with the Department of Public Expenditure and Reform. For instance, have they made a submissions to the Valuation (Amendment) (No. 2) Bill 2012 that is currently going through the Dáil and have they engaged with the local government management association because I understand that there has been much commentary on this, particularly in the wind energy context? The reason I ask is it affects my constituency. It affects the Chairman's constituency too. It affects the constituencies of all members present because we all come from coastal constituencies and those are the ones most likely to produce wind energy. If there is to be investment in it in the future, there needs to be a level playing field in terms of the commercial rate base. From what I have seen, that is not the case. The change that has taken place in how the valuations are determined for the energy sector, not only in wind but as a whole because we are looking for micro-producers to the grid as well, makes it prohibitive. However, they might address my first comment, which is, if they were to take the existing increase that local authorities are seeking, together with the push that is there from the Valuation Office and the suggested political push that they take on Irish Water as well, how would that go down with them?

I apologise for being late and missing the presentations. I must declare I was employed by the ESB for quite a while.

I am glad to hear that sympathy, concern and every opportunity is given to the consumer in the case of disconnections. I am glad that this is still continuing and I hope it will continue that way. It is as a last resort that consumers are disconnected. For my colleagues, I can endorse that.

How does the consumer decide on who is the cheapest provider? I am not saying that I am more clever than any of the rest of them. Would it be possible for them to merely reduce the bill and maybe let the consumer know? They will know when they see the bill.

I am fearful. I am with the same provider - without stating which it is. I never changed.

Senator Brennan would be mindful of his pension.

One must be 66 to get a pension. I have a little while to go.

There is not long now.

One should not mind the grey hair. It was grey when I went into the ESB.

I have just one question. Perhaps it was addressed in their submissions. Often I am told Ireland is one of the dearest countries in Europe and growing more expensive for both domestic and commercial electricity. How do we compare with Northern Ireland, Great Britain and continental Europe? Are we first, as in the dearest, or in the middle row?

The dearest.

Perhaps they addressed this. If so, I am sorry.

I also welcome the representatives from the suppliers to the meeting. If one thinks of it, a few short years ago there was only one supplier and we would deal with the Regulator. It is to be welcomed that the market has opened up. To pre-empt the response to the Senator's question, I understand that in the past few years, I am sure in big part due to the opening up of the market, we have seen a reduction in the domestic electricity prices. Today, the concern, because of the considerable coverage of the drop in gas and oil prices, is what that means for consumers. This offers a great opportunity to drill down and look at the components of the electricity bill that consumers receive.

The part I would like to look at is the wholesale price. It follows on from Deputy Harrington's point. On wind energy, there is a large wind resource in my county, County Mayo. Of course, we face challenges in developing wind farms at this juncture. It was not so a few years ago, I might add. In recent years, there seems to be more concern about the development of them. From the point of view of cost, and the fact that we have a renewables policy that we must follow and we must develop some form of renewable energy, they might speak to the cost effectiveness of wind, as the chosen renewable source. At what point might we see the removal of the necessity of a refit tariff for the generators? The companies represented here are not all generators but some of them are.

We talk about the cost of electricity but, equally, when we go to another committee, the Joint Committee on the Environment, Culture and the Gaeltacht, we must look at carbon emissions targets. As well as the good environmental benefits, we are obliged to use more renewables to diversify our dependency on carbon fuels. Would any member of the delegation care to comment on Government policy and European strategy for the future that will impact on electricity prices and the renewable of choice? I have heard many groups which have come in suggest it is not wind and it should be something else, and that by the time one puts the concrete in the ground it neutralises the carbon credits one gets. I seek feedback on the way we should proceed and what the mix should be. We all know wind is not the ultimate solution in that the system cannot take wind because it does not blow all the time, etc. I would appreciate some comments on that and its cost to the consumer, which is reflected also in the build-out of the grid because of the need to take the wind energy from the windy parts in the west and along the western seaboard.

There is one other point related to the delivery of wind projects. As I stated, they are not all in the generation business. I can only speak from my experience in my county that while a few years ago there seemed to be a positive feeling among the public about wind energy, unfortunately, much of that has dissipated. I would blame much of the coverage on the midlands project, much of which was misunderstood. There was a lot of bravado in terms of selling the projects in terms of delivering supply to the United Kingdom, and in the process the change required of the ordinary person and in communities was not taken into account. That put people off. I ask the representatives, particularly those of SSE Airtricity, to comment. SSE Airtricity has a project in Dunneill, only up the road from me, and I have visited it. There are also State companies which have interests in developing wind farms. The contrast between the turbulence of the State companies in dealing with the public and the way SSE Airtricity has dealt with the public is stark. In essence, SSE Airtricity cultivated a recipe of community gain in dealing with the public and the landowners. The feedback I get from the community is positive. I contrast it with what I see Bord na Móna and Coillte doing. That is not taking from the merits of the projects. On the public relations side, and bearing in mind that the public acceptance of these projects has a big bearing on the ability to deliver them, I wonder do they have any observations on that or whether they have a particular formula for doing it because the approach to the public on the delivery of wind is in danger of scuppering or unduly delaying many projects.

Deputy Colreavy has a final supplementary and then we will hand over to the representatives.

In regard to the security deposit or guarantee, does each company require a deposit? I am thinking of a business, say, a 300 bed hotel. Do each of the companies require a deposit, including from existing and fully paid customers and, if so, how is that deposit calculated? Can supply be cut in the event of non-payment of a security deposit, although supply has been paid for? What happens to that deposit during a customer switch?

A great many questions have been raised across the board.

Just one point, Mr. Tom Gillen referred to energy efficiency measures which suppliers are required to undertake but have not yet passed on the cost. I ask whether they will do so. Perhaps he would elaborate on that issue.

Does Mr. Dollard wish to respond first?

Mr. Jim Dollard

Deputy's Harrington's basic question was whether we had fairly passed on the price. He said there is a view abroad that the wholesale prices of gas are more than 18%, 30%, 40% or whatever, that we have not actually passed them on and that we were basing our position on projections. I understand that is what he said but he can correct me if I am wrong. I will deal first with that issue. As I said earlier, that is a common misconception. People hold such a view, as I have read in the media. It is a sustained position when I speak to people in the community. When we talk about hedging, it is not just projections, we are actually buying power. It is physically bought in slots as we go forward but is not delivered yet. We are currently committed to 2016. The percentage of the actual projection is falling all the time as we get closer to the point, so it is physically bought and it increases in size as we get close to the end. Therefore, the element of projection is relatively small when one gets to a tariff element.

At that rate Electric Ireland would have bought power up to the end of this year.

Mr. Jim Dollard

Yes.

Can Mr. Dollard predict what the price will be given that he will know whether the price at which it was bought is higher or lower than the present price? Again we might have a dispute about the reduction in the wholesale price, some analysts say it is 27% while it was stated as being 18% in this evidence. Electric Ireland would have bought it early in 2014. If it had done the same last year as it did this year Electric Ireland would have bought it at that price differential.

Mr. Jim Dollard

The key point from our perspective is that any reduction we would have delivered in those slots we have passed through. We have definitely passed it through. There is no intention to build margin on the back of falling fuel prices. We have not done that. Where those slots have been priced at a lower rate we have factored that in and we have delivered that in the tariff. There are different numbers about what the rate is and what is the reduction. It is difficult for us to combat that because it is coming from different perspectives. The CER, independently of us, has said the reduction in gas prices last year was of the order of 18%. I would say - it is relevant to the comment I have just made - much of that happened in the second half of the year and it affected the following year as well. I would stand over the principle that we have passed through everything that we can on what we have bought. If the wholesale prices continue to fall we will continue to pass them through. We will buy power at a cheaper price for the future and we will pass that through in due course. Electric Ireland's view is that if the supply companies try to do anything different or get clever about this it will end badly, as has happened in other markets around us in Europe. Where the suppliers are starting to build margin in that situation it does not augur well, it is not a good position for supplier companies to take. The nature of the competition in this particular market will not allow it. In summary, in terms of the actual gas price reductions that we have achieved, we are passing them through as much as we can in so far as can, and that includes the full value of them.

Why do customers have to switch to get a reduction or a discount? I made some earlier comments about that. It is not the case that customers necessarily have to switch. The perception is that people have to switch.

The Commission for Energy Regulation has told us that is how it is going to be done.

Mr. Jim Dollard

I cannot speak for my colleagues but I suggest it is the same for those operators. For us our dual fuel current offering in the market place discount is available to existing customers as well. They do have to sign up to certain contract types and all of that. Some people are not able to do that and I recognise that. It is true that discounts are available to existing customers. I made a comment earlier which I think the Deputy is driving towards, that is, the loyal customer. That is an issue. If we look at what is happening in the area of health insurance, it appears to me that there will be significant competition in the next few years. That is a factor of competition. As the market opens up there is fierce competition in the energy industry and when that is worldwide it is driven primarily by discounts because that is how the competitors, our competitors, gain share. It has driven our cost base down and it has made us more effective but as the market matures - this is a personal view - we have to move more and more towards loyalty. We did some work last year in the area of loyalty schemes and they are not insignificant.

We also have to be mindful of how we treat customers in duress. Affordability is a huge issue in terms of how we deal with customers. I would like to think that across the industry we are responding and we are trying to be mindful not just in the area of disconnections but in terms of people who are in trouble and who are suffering. There are some 50,000 customers in our book who are struggling and we are helping them with a significant discount. There is nothing related to switching. They are getting that discount because they need it. That is what is happening.

What is the impact of renewables? We would all probably have a different perspective on it. I am a supplier. I do not have a generator and have no licence to speak about generation but from a supplier buying renewables it is having an impact, it is suppressing prices. A tariff supports that which is a cost in the PSO, so there is this playoff and that is what people talk about in the industry. It is having an impact and it is a major factor in energy prices.

Can Mr. Dollard make a stab within the 2% reduction? How much of an impact is it having and could it be more?

Mr. Jim Dollard

With respect, it is genuinely very difficult for me to answer that question because what one has is the retail price and the wholesale price. Effectively, wind is getting tariff support and that tariff support has grown as wind has grown

By the consumer?

Mr. Jim Dollard

Yes and it is related to a policy decision that the country has taken that we could not keep. There is much merit in that decision though it has an impact for the customer. There is merit in the country moving away from sole dependence on imported fuels. We are importing so much of our energy that there is a massive security of supply issue. I suppose the State took the view that it had to move towards renewables to reduce that impact. There is a cost. Wholesale prices are not as high as people would have projected then and that is what is causing that PSO to rise. If one looks at some of the EirGrid websites, day on day one can actually see the impact of wind. Over a period of time I cannot say it is having an impact. I genuinely do not have that information to hand.

The last point was that the domestic customer does not have the clout. On an individual basis they do not have the same clout as some of the marquee industrials but at another level my colleagues provide them with that clout. The battle for customers in Ireland is very significant and I think standard rates are not lost in that. There is a huge fight for domestic customers on this island. The operators here would have a different perspective on it but I would say we had 100% market share five or six years ago and they have eaten into that as more than 50% of customers have moved. While on an individual basis the domestic customer does not have clout, through the competition process they have secured greater clout.

Given a reduction of 2%, I do not see them reeling too much at the clout.

Mr. Jim Dollard

No more than every other business in Ireland in the past five years, the impact on our business has been very significant. The cost reductions across the ESB have been painful, with €140 million taken out of our payroll cost base, and a €280 million reduction in overall costs. We have experienced huge pain in our supply business. There has been full centralisation and very significant outsourcing. It has been difficult for our staff - no more than for people in other industries - but competition has driven huge change in our business and it has been at a difficult cost for our staff. I hope I have answered the Deputy's question satisfactorily.

Who wishes to deal with Deputy O'Donovan's question about commercial rates?

Mr. Tom Gillen

There have been significant increases in Limerick. The plan is to move around county by county.

Mr. Stephen Wheeler

There has been a 300% increase in Limerick. This has a significant impact on the future viability of that wind farm.

Has the company discussed this with the Department of Communications, Energy and Natural Resources and the Department of Public Expenditure and Reform?

Mr. Stephen Wheeler

The answer is, "No", in the sense that we are not getting much of a response.

Has the company requested a discussion?

Mr. Stephen Wheeler

We have looked to request it.

Have they refused?

Mr. Stephen Wheeler

We have not had any feedback. This is a significant issue for the industry at the moment. It should be remembered that we must achieve the 2020 targets. Wind and onshore wind is the most competitive way to achieve those targets. That is beyond doubt.

I do not disagree. Have the companies requested meetings with the Departments of Public Expenditure and Reform and Communications, Energy and Natural Resources, on this issue?

Mr. David Manning

Our industry representative body, the Irish Wind Energy Association, along with a number of other groups, have taken on this issue. We have interacted with a number of different Departments and we have written to all of them to make them aware of the issue. The situation can arise where the rates bill has increased exponentially. For example, I will extrapolate to show that it will be about €75 million as an additional cost for the industry as a consequence of this change. It is not a small number, by any means. On the question of whether we have received any comfort that this will be considered today, the answer is "No", not really.

Have the companies met the Departments?

Mr. David Manning

Yes, on a number of occasions. We have met directly with the Valuation Office and we have corresponded with the different Departments. We have highlighted the issue to them that this needs to be examined very closely. The industry has recently put forward a solution which is around a clause in the Valuation Bill which would help to address this issue. We are hoping we will see some traction. We highlighted the issue and we signalled a solution to it. If a solution does not come forward, without wishing to be dramatic, that sort of cost increase will impede some investors in looking at delivering renewables investments in Ireland which, in turn, would affect the 2020 target.

I have noted the increase. In 2012 an individual company paid €167,000 to Limerick County Council and this cost has now risen to €557,000. That is an astronomical amount yet some people are suggesting that they should carry the burden of Irish Water on top of that.

Mr. Tom Gillen

There is a real impact. Those costs for some of the wind farms could force them to shut. If that happens, given that they are project-financed by banks-----

How does one shut a wind farm?

Mr. Tom Gillen

Basically, the money dries up.

Mr. Tom Gillen

It would just be shut down. If we could not pay the ESB its network costs, for example, we would be treated like any other customer.

Mr. Stephen Wheeler

It would be a case of being unable to service a debt.

Mr. Tom Gillen

The bank would step in and this would have major implications for the Irish wind sector.

Is it fair to say that the responses from the Department of Communications, Energy and Natural Resource and the Department of Public Expenditure, have been less than favourable?

Mr. David Manning

We would like the issue to be examined a little more closely.

Is that a "Yes" or a "No"?

The committee will do a report on this issue-----

When it comes to a town nearby, it is a different question. What happened in Limerick was horrendous. It is going around the country like a bandwagon. It is moving on and will be in County Mayo one of these days.

I have no doubt the Deputy will have an input into the recommendations.

Mr. Stephen Wheeler

There is no doubt that the Deputy's concerns are well founded. The impact will be felt very quickly.

I made the suggestion that the companies in the sector would take on the burden of the cost of Irish Water. How would the delegates feel about that suggestion?

I note the stunned silence.

That answers my question.

Mr. David Manning

I will answer some of the questions about renewables. We have to achieve a 2020 target. The most efficient way to achieve that target is through onshore wind. Compared to other technologies such as offshore wind, which is highly cost-prohibitive, Ireland has a natural resource of which we must take advantage and I have no doubt that wind has a significant part to play. I share Deputy Mulherin's concern. The way social acceptance of the industry has moved in recent years, is worrying. Where wind farms were regarded favourably in the past, one can see in the media that there is much opposition to them currently.

However, in our view it is our best opportunity to deliver on 2020 targets. It is hugely favourable to communities. We have recently begun construction in Galway of the largest onshore wind farm. It will be an 18-month construction project. We plan to invest €280 million in it and there will be significant local employment in the building phase in particular. Three factors are essential for public acceptance, the first being early inclusion. Wind farm owners and operators are in this for the long term, whether that is 20 up to 50 years, and they are part of the community. Early engagement with communities in order to understand their needs and for them to understand the plan and to become involved, is very important. This is one area in which we all need to achieve a very high standard.

On that point, Mr. Manning referred to offshore wind and the competitive nature of onshore wind. How does the Valuation Office put a commercial rate on a sandbank in the sea because commercial rates are supposed to be about a notional letting value of the property? Who will rent a sandbank?

Mr. Stephen Wheeler

We have not even considered rates from the point of view of offshore wind; we are looking at the capital cost of installing and building offshore wind farms and it is much more costly than building onshore. The conditions offshore are much more prohibitive and there is more associated risk.

This makes it even worse.

Mr. Stephen Wheeler

That is a challenge. From the point of view of public acceptance, early inclusion is essential. It is important that companies undertake responsible development and act within the guidelines and within best practice. Deputy Mulherin referred to community gain, which is hugely important. At SSE Airtricity we believe that we have led in regard to community gain by way of our community fund whereby a fund is put in place at the start of the operation of the wind farm which benefits the people in the locality. This can be anything from energy efficiency to university bursaries. It makes a difference to local communities and that is a very important element in bringing forward renewable energy. Ultimately, if we do not continue with onshore wind, we will not hit our 2020 targets.

There is a cost to renewables and in Ireland renewables are supported through the refit mechanism. This mechanism is very cost-competitive when compared with Europe. It is not over-expensive relative to the EU average. A comparison of refit 1 versus refit 2 shows the benefits with a reduction in the level of support provided for wind farms. Ultimately, the aim is to get to a point where technology does not require support, but we still have some way to go in that regard.

Wind farms must be planned in the right way. Concerns have been expressed by certain local authority areas that the technical expertise is not available on smaller wind farms in particular in order to ensure against flicker and to ensure a properly designed wind farm.

Do the witnesses have an opinion on that? Do they think that Government guidelines could be more prescriptive? As the experts, developing the sector, what is their assessment of that suggestion? It is fair to say that some local authorities, especially those in the midlands, never thought about wind farms until planning applications started to arrive on their desks?

Mr. Stephen Wheeler

I can only really speak about the authorities with whom SSE Airtricity has dealt directly. We believe there has been a level of expertise. In terms of maturity, it is still an immature market and there are lessons to be learned. Issues crop up on a site-by-site, project-by-project basis. The most important point is that it is incumbent on any developer to deal with issues as they arise in a responsive way. We focus on our responsibility to ensure that the development is done in the proper way.

I cannot comment on what happened in the midlands. SSE Airtricity is not involved in the midlands. What I can comment on are the projects we are currently involved in and what we are building. Our wind farm in Galway will be the largest wind farm on the island of Ireland. That has been a very positive experience, both for the communities, the developers and the council. We have come to a meeting of minds where we are developing and will build out a socially responsible project, which will be delivered in the next 18 months.

Based on my experience, I am aware of the impact on housing of a wind farm in County Roscommon that is causing problems in the area. This is cited as an example of how wind farms are inevitably anti-social and against people. My understanding, having looked into it, is that the issue that has arisen could have been avoided if the wind farm was designed in the correct way. That is my concern.

How do we compare with the electricity providers in Northern Ireland, Great Britain or on the Continent?

Mr. Dave Kirwan

I will refer to the EUROSTAT analysis published in December 2014 to which the Commission for Energy Regulation referred last week. The price of gas for residential customers is 6% below the European average, and the price of electricity is on average. Compared with Europe, Irish energy prices compare favourably. That is not to say that we should not try to do better. To be fair, the Department of Communications, Energy and Natural Resources has done a great job in charting energy policy in recent years in respect of the optimum mix for the power generation portfolio. Its support for onshore wind has introduced a good mix.

We have discussed the issue of competition at length. I think it is demonstrably working for customers. We re all under pressure and we would love to have Senator Brennan as a customer. If I may I will get his details afterwards, we will be delighted to talk to him.

There are other people looking for my business.

Mr. Gary Ryan

Let me add that switching is very important and it needs to be easy for people, particularly for ourselves, Energia as a new entrant. In fairness to the CER the regulator has accredited a number of websites that people can go to and make that comparison.

I am thinking of people who would not use the website. If one changes provider, is one compelled to enter a contract for a fixed period, such as six months, one year or two years before one can revert to the previous provider?

Mr. Gary Ryan

Different competitors have different products but normally the standard period is 12 months.

Mr. Paul Stapleton

I will address the question of security deposits from the perspective of Electric Ireland. In general, Electric Ireland works with customers, in particular small business or as the Deputy mentioned, the hotel sector to ensure that we have an arrangement that will work for them. In the case of an existing customer with a good credit history who pays on time by direct debit we would not need a security deposit. We would certainly never disconnect a customer because of a deposit, we would work to reach an arrangement that would suit the customer.

I am aware of a case where that did not happen. A threat was made to the customer that he would be disconnected unless he paid a security deposit, although he was a customer in good standing for a number of years.

Mr. Paul Stapleton

I do not know if the Deputy is referring to a customer of Electric Ireland. I would be happy to talk about the specific case off-line but in principle, our policy is that we do not require a security deposit from a long-standing customer paying by direct debit who has good credit history.

I was further advised by this business owner, who felt he was being treated unfairly, that not having paid the security deposit prevented him from switching to a competitor.

Mr. Paul Stapleton

It is hard to comment on a specific customer. I can comment only on general policy.

If Mr. Stapleton gives me his contact details after the meeting I will provide the details of the case.

Mr. Paul Stapleton

I will be happy to look into this case if the person is a customer of Electric Ireland.

Mr. Tom Gillen

It is not often understood by customers that we work on what is called a fully collateralised market, which means that before we buy anything we have to put the money upfront. The last time I looked at this, our company, Energia, had put up €80 million as a security deposit with all the other companies just to enable us to trade. We have never missed a payment even by a day.

We as suppliers are at the end of a very long supply chain. We have to pay our taxes, the PSO levies, the new system charges, and our costs. I have asked numerous times if that could be shared among industry but that has never happened. That is the reason Energia is focused on credit because we have to pay everything from our sales and the security deposits are significant. If a customer, be it a domestic or large industry customer, does not pay us, we still have to pay everyone else.

We have covered a great deal of ground. I thank all the witnesses for coming before the committee. The process has been beneficial to members and to the public and it has enabled the energy companies to put the message across. The committee will compile a report on all of the issues related to energy. We look forward to engaging again with the energy providers.

The joint committee adjourned at 12.40 p.m. until 9.30 a.m. on Wednesday, 4 March 2015.