asked the Minister for Industry and Commerce if his attention has been drawn to an EEC report that the ESB is the third most profitable major company in the Community; and if he will now take steps to compel the ESB to reduce the price of electricity by reducing their excessive profitability.
Ceisteanna—Questions. Oral Answers. - Electricity Price Level.
19.
I have seen the report in question which is the Sixth Report on Competition Policy of the EEC Commission.
In this report the references to the ESB are contained in a comparison of corporate performance of 292 firms in the EEC member states. This comparison is based on four accounting ratios for these firms as derived from financial data appearing in the 1975 list, published by the magazine Vision, of the 500 largest European industrial firms.
I do not accept the ratings given to the ESB in the report in question as being valid for the purpose of determining the price level of electricity in Ireland. Put briefly, the profit and cash flow arising from the total operations of the ESB have been measured in the report, against some 16 per cent of the capital required to generate them. A more appropriate basis against which to measure profit and cash flow would, I consider, be total capital employed. As the ESB has no shareholders the concept of "own capital", such as excluding loan funds, used in the report can give the most misleading results.
I do not, accordingly, propose to take any steps to reduce the price of electricity on the basis of the findings of the report in question.
Is the Parliamentary Secretary aware that under the terms of the Electricity Supply Act of 1927, the ESB set off against revenue the interest and sinking fund provisions for the repayment of capital on their borrowings, and at the same time in the same accounts, they have to set off against gross profits provision for depreciation of the assets which are represented by the things that are already written off to revenue, and that when the EEC examiners who examined accounts looked at this they felt it was not right that the same thing should be written off twice, that a normal commercial company would be allowed to write it off once, and that in these circumstances the very high degree of profitability by normal criteria of the ESB was arrived at? Would the Parliamentary Secretary agree that the National Prices Commission should also apply normal criteria, and should not allow the ESB to appear to be making little or no profit, when in fact by the normal commercial criteria, it is making a substantial profit, and that therefore prices of electricity should be significantly reduced?
This is a very long question.
That operation should be carried out by the necessary amendment of the accounting provisions in the 1927 Act.
The amendment of the 1927 Act is a major matter which would require the attention of the Minister for Transport and Power as the Minister responsible for the ESB. Conscious of the problem mentioned by the Deputy, I asked the National Prices Commission on the 9th of July, 1976, to re-examine the criteria which they have been using in looking at ESB price applications. I understand that a report prepared for the Commission as a result of my request is now before the Commission, and I expect they will be conveying their findings to me in the reasonably near future. The figures quoted in the EEC study are not fair, because they are not a representation of the real profit situation in the ESB. The problem is that they have counted only the capital which is supplied from the ESB's resources, and not the capital which is supplied in the form of loans. The amount of capital being provided in the form of loans to the ESB is approximately 85 per cent of the total capital. This is far greater than the normal amount that would be provided to a normal commercial firm with which the ESB is being compared in the study. The normal amount of capital loaned to an ordinary commercial firm would be about 30 per cent, therefore an unbalanced picture emerges if the criteria applied to normal commercial concerns is applied to the ESB. The ESB also has a very high capital intensity for each unit of production, and most of this capital is borrowed. This must also be taken into account.
Does the Parliamentary Secretary agree that if the unusual and strict accounting obligation on the ESB under the 1927 Act were amended to bring it into line with modern conditions that apply not just to private companies but to State corporations generally, the financial position of the ESB would be shown to be considerably better than it is at the moment and that significant annual profits will be shown, and that since these are scarcely necessary, it would be possible for the National Prices Commission to recommend a significant reduction in the price of electricity?
As I conveyed in my reply to the Deputy's last supplementary I have some doubts as to the conclusions he is inferring would be drawn from such a change. In any event it would be wrong for me to comment until I have the results of the expert examination presently being carried out at my request by the National Prices Commission into this matter.
When is the Parliamentary Secretary expecting a report?
As I have said, the report is already with the Commission, so it should not be too long.