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Water Charges Administration

Dáil Éireann Debate, Tuesday - 13 May 2014

Tuesday, 13 May 2014

Questions (447, 476, 480, 481)

Róisín Shortall

Question:

447. Deputy Róisín Shortall asked the Minister for the Environment, Community and Local Government the projected yield from domestic water charges in 2015 to 2019, inclusive. [21640/14]

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Róisín Shortall

Question:

476. Deputy Róisín Shortall asked the Minister for the Environment, Community and Local Government the projected operational and capital costs of Irish Water over each of the next five years; the methodology employed to arrive at these figures; the projected sources of funding for Irish Water over each of these years with the amount expected from each source for each of the years; the methodology employed to arrive at these figures; and the basis on which these figures were used to determine the average figure for domestic water charges in 2015 and 2016. [21399/14]

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Róisín Shortall

Question:

480. Deputy Róisín Shortall asked the Minister for the Environment, Community and Local Government the current cost of providing water services in Ireland; the total revenue; and the total State subsidy with a breakdown by local authority. [21403/14]

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Róisín Shortall

Question:

481. Deputy Róisín Shortall asked the Minister for the Environment, Community and Local Government his position in respect of limiting the total State funding to be provided to Irish Water; the total State subsidy in 2014, 2015 and 2016; the proportion of costs this represents; and if he will make a statement on the matter. [21404/14]

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Written answers

I propose to take Questions Nos. 447, 476, 480 and 481 together.

Irish Water's costs in the coming years will be funded through a mix of revenue from the domestic and non-domestic sector, third party finance (such as the Ireland Strategic Investment Fund, EIB, bank lending and capital markets facilities) and State support which may be in the form of both equity and subvention. The Water Services (No.2) Act 2013 assigns responsibility for the independent economic regulation of Irish Water to the Commission for Energy Regulation (CER). In performing this role, the CER must ensure, inter alia, that Irish Water provides water services in an economical and efficient manner, that it operates in a commercially viable manner and that it can meet all reasonable demands for water, both current and foreseeable.

As part of their role, the CER will approve a water charges plan submitted by Irish Water. The CER has commenced the process leading to the submission of the first water charges plan of Irish Water, with public consultation underway on the approach to tariff structures and design. They plan to engage in public consultation on Irish Water’s proposed water charges plan and the underlying operational and capital costs in June 2014. As part of this process, the detailed costs and revenue proposals for Irish Water for the first regulatory period to end 2016 will be outlined. Details of the public consultation plans of the CER are set out on their website (www.cer.ie).

As the free allowance and the level of funding to be provided by the Government to Irish Water will have a strong bearing on the net charges to be met by households, recent Government decisions on these matters provide greater visibility on the expected level of charges in advance of the final determination of all aspects of the water charges plan by the CER. The Government have decided to provide the following funding to Irish Water in 2015 and 2016:

- An average subvention of €537m in each of the two years, conditional on the annual average domestic water charges to end 2016 for households with both supply of water and treatment of waste water not exceeding €240; and

- Provision of just over €400m in 2015 and 2016 to support increased investment in public water services, including the provision of a “first fix scheme” by Irish Water.

The Government decisions on levels of funding and the approach to free allowance were informed a high level financial model prepared by NewERA, which was based on inputs provided by my Department and Irish Water. This model envisages that the total amount to be billed to domestic customers in 2015 will be approximately €300 million, which factors in properties with only one service and holiday homes. The high level funding model is based on average operational costs, excluding interest costs and depreciation, over the period 2014 to 2016, estimated to be in the range of €775m to €800m per annum. The proposed operational costs by Irish Water will be the subject of careful scrutiny by the CER to ensure that only efficient costs are incurred. Similarly, they will review the proposed capital plans of Irish Water, which entail almost €1.8 billion in proposed capital projects over the 3 year period, as well as the metering programme and establishment costs. Irish Water are considering the appropriate financing package to fund these costs, taking into account the capital funding which will amount to just over €640m over the period 2014-2016, in addition to the operational subvention. The detailed plans in this regard will form part of the water charges plan, which will be published by the CER for public consultation in June 2014.

Irish Water’s Water Charges Plan as approved by the CER will take account of these Government Decisions and ministerial policy directions. This plan will provide the detailed position on costs and proposed revenues from different sources, and will have to be developed on the understanding that the average annual tariff for domestic customers with both supply of water and treatment of waste water will not exceed €240. The CER will announce its decision on the approved water charges plan in August 2014.

It is proposed that from its inception, Irish Water should be classified as a Market Corporation under Eurostat rules and, as a result, will not, other than in relation to Government operating subvention, be included in the calculation of the General Government Balance. This is determined through the application of the Market Corporation Test which requires that income from customers (ex VAT where applicable) be greater than 50% of production costs (including consumption of fixed capital and including interest). The operational subvention agreed by Government for 2015 and 2016 is set in this context and represents just under 50% of the anticipated production costs of Irish Water.

This funding package for 2015 and 2014 builds on the funding being provided to Irish Water in 2014, which includes a proposed €240 million equity investment from the Central Fund which subject to Eurostat confirmation would not impact the General Government Deficit as this amount would be treated as an acquisition of equity rather than a capital transfer. The investment will be used to primarily fund the core capital expenditure programme of Irish Water.

In addition, Irish Water will receive a subvention of €486.5 million from the Local Government Fund in 2014 which will fund water related expenditures incurred heretofore by local authorities and met by local authorities from their own resources, non-domestic water charge revenues and general purpose grants from the Fund. It is anticipated that Irish Water will finance other costs from non-domestic water charge revenues of some €190m and from borrowing, which will be the subject of appropriate ministerial consents in due course. As subvention and equity provision is based on funding provided to Irish Water, a breakdown by county of proposed expenditure is not available.

The first regulatory cycle is viewed as an interim regulatory cycle, with a full six year regulatory cycle to commence from 2017. The CER will engage in full and detailed public consultation on the proposed water charges plan, and associated costs and revenues of Irish Water well in advance of that cycle commencing. As it is anticipated that Government subvention to Irish Water will continue beyond 2016, decisions will have to be made in a budgetary context on the level of Government support to Irish Water beyond 2016.

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