I am glad to have an opportunity to address the House on this motion and to support the amendment moved by my colleague, Deputy Kavanagh, in my absence in Brussels last week. In the course of my contribution I will attempt to throw some light on certain misconceptions in the motion originally put to the House. The Government and the ESB have for some time now been subjected to criticism in regard to electricity prices. Much of what I have heard and read of this criticism has been of the popular kind and makes no attempt to support its case with hard facts.
While I do not suggest for a moment that criticism on this score is necessarily a bad thing in itself — in fact, a certain amount of criticism could have a beneficial effect on the level and quality of performance by anybody in the trading sector or the semi-State sector — I urge the Opposition to accept that, if this criticism is to be effective and if it is to have the desired effect, it should be properly informed. I ask the House, and particularly the movers of this motion, to face up to the facts of the situation in regard to electricity prices. As in the case of any other commodity or service, the basic costs of producing electricity are subject to inflationary trends. For the ESB these costs are fuel, labour and capital costs, none of which has escaped the general effects of inflation.
Control of electricity prices is, if anything, more rigorous than that which applies to any other industry. By virtue of the Prices (Amendment) Act, 1972, the price increase applications for the ESB are submitted to the National Prices Commission. When a recommendation has been made on the application by the NPC and has been approved by the Minister for Industry, Trade, Commerce and Tourism the matter is then put to the Government for decision. The most recent price increase of 6.83 per cent allowed by the Government is neither more nor less than that which had been recommended by the National Prices Commission.
In fact, the application made by the ESB had been for a higher percentage increase to apply from 1 April of this year, whereas the increase allowed will not come into effect until the November-December billing period. The net effect of this later application of the increase is that some £24 million less will be recovered in additional revenue in the current financial year than would have been the case if the same increase had been applied from 1 April 1984. I am convinced that the increase allowed is the absolute minimum which will enable the ESB to hold down their accumulating deficits. The board's cumulative deficit at end of March 1984 was over £37 million and, even allowing for the recent price increase, this deficit is projected by the ESB to increase to £57 million by the end of March 1985.
The ESB are a service utility and as such they are constantly in the public gaze. Their activities are probably reported on more fully than any other commercial institution in this country. They provide a consistent flow of statistical information to the public about their activities in their annual reports and, therefore, there is little excuse for inappropriate or ill-informed criticism. I believe that it is essential to deal fairly with the ESB in regard to their prices and this is the approach which the Government took when they commissioned the inquiry into electricity prices.
The Electricity Supply Board are one of the largest undertakings in this country, and because they serve well over 1,000,000 houses and premises, they support most of the community's essential business, industrial, commercial and residential activities. For example, the ESB now provide electricity directly to the transport sector since the DART system was commissioned and this is one example of continuous progress in extending the applications of electricity.
There is no dispute as to the essential nature of the electricity service. If it is to be discussed, then it is important to examine the functions of our electricity supply authority in the context within which they have been called by the community as a whole to provide a service. Such a discussion, if it is to be of any value to the consumer in moving towards a more effective and less costly service, will have to take place within a framework of appreciation for the technical, economic and social constraints which the ESB face in managing the enormous resources entrusted to the board by the community.
In fact, the board and employees of the ESB hold a position of trust granted by the entire community. Ownership of the electricity service is entirely in public hands so we, the consumers, are the masters of our own fate. There is no third party to whom we can turn to shoulder blame for any of our present difficulties. Therefore, I hope it will be possible to discuss the issues raised in a logical fashion, despite the emotions which are created frequently in discussions of this subject.
Electricity sales grew by 4.5 per cent in the last ESB financial year, that is, in the period 1 April 1983 to 31 March 1984. This represents a remarkable recovery from the doldrums of recent previous years, and it occurred primarily in the industrial and commercial sectors. In fact, industry used almost 6 per cent more electricity than in the previous year. Apart from the revenue which the ESB earned from these sales, which were achieved despite a reduction in overall staff levels of over 400, the implications of a resumption in growth are very significant for the electricity industry. Continued growth of this nature will inevitably lead to a more economic use of existing plant, particularly if growth does not concentrate in the peak demand sectors. A more economic use of existing plant, lowering production costs, will lead to lower prices for electricity in the medium term.
A second fundamental point to bear in mind about the growth rate in electricity consumption is that the capacity to meet demand must be planned for, evaluated, selected, designed, constructed and commissioned into operation before the demand occurs. This procedure must anticipate the demand by from five to ten years, depending on the kind of plant involved, site availability, etc. When the demand has been changing about, as it has been for the last five years, the original plans require modification, and costs per unit produced are inevitably higher than they would have been in the absence of recession and oil price rises. I shall refer later to some important aspects of these external influences.
The difficulties experienced by the ESB in recent years must of course be examined carefully for the lessons which must be drawn about future actions. It is essential to do this against a background of some matters of fact. There is a tendency in some quarters to criticise the ESB as if they were somehow deficient in areas in which the critics could solve the board's problems. In fact, several hundred ESB employees have been involved in overseas work in 14 countries during the past year, and this must weigh heavily as evidence of the employees' ability and the board's determination to earn revenues in the international constructing area — itself the victim of severe recession. The importance of this work in broadening the experience of Irish personnel and as a possible introduction for other Irish services, in addition to its revenue earnings, must be valued appropriately. The propects for competently emerging from present difficulties must be greatly enhanced by the skills and new expertise available to the board as a result of this work.
In case this reference to overseas work draws any foolish comment that the ESB should confine their activities solely to the problems of their Irish consumers, I would draw your attention to the fact that nearly 26,000 new houses were connected to the ESB system last year. Few Irish undertakings have operations which are required to maintain services to existing consumers while continuously investing in the expansion of their distribution system on this scale. Last year ESB investment in transmission and distribution to bring power to people where they want it was over £50 million, while current expenditure on capital, operation and maintenance on the distribution system was over £90 million. The view that investment capital is not needed because surplus capacity is available for some years hence is a misleading one.
The international circumstances within which the ESB operate must also be carefully evaluated. Although the ESB are responsible for electricity sales within Ireland, their operations are vulnerable to international prices to an extent that is not always appreciated. The ESB spent approximately £90 million on oil imports last year. This was after use of peat, hydro, and the increased allocation of natural gas. The price of oil is widely reported in the media as falling and people's expectations recently have been that prices based on oil must fall. But because the dollar has strengthened so much against the European currencies, and against our punt, the price of fuel oil in Irish punts rose by nearly 40 per cent since January of last year. This may be partly due to a temporary increased demand for fuel oil in western Europe, but nonetheless the fuel must be bought and paid for at market rates. There is no magic formula for avoiding cost increases of this nature and when they occur the consumer must ultimately pay an increased price if the financial stability of the ESB is to be maintained. In some quarters it may be represented that such cost increases may be matched by increased borrowings. I do not think there are many Deputies who would advocate further borrowing to pay our current expenditure such as our fuel bills.
The long-term financial viability of the ESB is of primary importance to this country. To deny to them the ability to recover through the price mechanism cost increases which are outside their control would obviously make what is already a difficult situation even worse. One effect would be to build up a cumulative deficit which would render it impossible for the board to borrow for their capital purposes. In the final analysis it would be the Exchequer and, in effect, the taxpayers who would be called upon to bear the cost of putting the ESB back on the rails. While the Government are concerned about electricity prices, they have a responsibility to all sections of the community and must look to the long-term effects of their action — they are not in the business of gaining short-term popularity such as might accrue from the course of action proposed in the motion.
The continued development of our electricity system must be planned and carried out in anticipation of the demand for electricity supply up to ten years hence. We are all aware of the increase in electricity consumption which accompanies improvements in our standards of living. Although much machinery has become more energy efficient in the last few years, new applications are found for electricity all the time. Our growing population will itself increase our demand for electricity as people are housed and use public and commercial services.
Against this background of rising demand we face a number of problems which increase the future costs of providing electricity. Electricity supply companies all over the world have to face growing opposition to the large scale of their operations and to the environmental consequences of building and operating power stations and transmission and distribution lines. Alternative solutions to the problems created can be found, but only at a cost which must be paid by the electricity consumer. The balance between the need for cleaner air, proper waste disposal, properly landscaped facilities, underground cables and the resulting extra costs of electricity production must be struck so that it does not prevent the economic growth we are committed to creating for all our people.
We must also be careful to avoid attributing to electricity supply problems which are largely caused by other fuel uses, such as in transport, or through the widespread use of solid fuels in urban areas. At the moment the European Community is considering legislation regarding emissions from power plants. We as a Government support the view that other countries should strive to enjoy the air quality which is still largely the case in Ireland. We are concerned to ensure that efforts to curtail the growing menace of air pollution in Europe are concentrated on those areas suffering from heavy industrial, transport and power station emissions. We are concerned to avoid a situation whereby expensive remedies for serious problems in other countries are enforced on us in Ireland in a manner which makes no significant contribution to the air quality problems which, indeed, must be resolved. The increases in electricity prices which could arise from implementation of stringent measures which are not necessary in Ireland would be very damaging to our economy.
Deputies are rightly concerned about the cost of electricity — a service we have come to regard as an essential feature of modern life. In striving to ensure that everything which ought to be done to lower the cost of electricity is being done, we must recognise the real difficulties we face. Our electricity system is the only major system in Europe which is deprived of interconnection with its neighbours, apart from the Northern Ireland Electricity Service. This handicap arises because our interconnection link with the North has been severed for many years now on the Northern side. We do not have the cost advantages of very large scale stations which are typical of European countries and we do not have very high consumption level per consumer.
The second amendment put down by Deputies Mac Giolla and De Rossa makes three suggestions for Government action which it is claimed would eliminate the need for the recent 6.83 per cent rise in prices. There are two very serious misconceptions behind this amendment and it is important to tease out what they are and to demonstrate why they make this proposition unacceptable. All Deputies will know that it is very simple to suggest price reductions. If these are not accompanied by cost reductions — as such suggestions seldom are — they become a wish list. We have a sufficient list of problems caused by not recognising the true costs of our actions, and it would be foolish in the extreme to add to them.
The first misconception which lies behind this amendment is the belief that a large and complex organisation like the ESB can address their very real problems by tinkering with the commercial conditions in which the organisation operate. This has been tried in the past and has produced unsatisfactory results. It is futile to look at one or two aspects of the ESB and conclude that by adjusting those aspects everything can be patched together for another while. This "make it up as you go along" approach, which sacrifices the future to apparently immediate but actually deceptive satisfaction of the general desire for lower prices, will not do.
The community deserve something better and the Government have taken action to put the concerted planning of the ESB on a medium to long term basis. First, the Government have instituted the inquiry into electricity prices to which the Minister for the Environment referred during last week's debate on this motion. I have announced already that I have received the report of the inquiry and that it is being examined at present. It will be submitted to Government for consideration at an early date and it will then be published so that all interested parties will have an opportunity to study its findings. The Government also required of the ESB, as of all their major semi-State bodies, a corporate plan for the next five years. The National Planning Board published a detailed analysis of the performance and problems of commercial State-sponsored bodies, including the ESB, and the Government have produced the national plan. This work is the essential work of analysis and discussion which is absolutely required as a basis for real improvement in this area. For example, the planning board have provided an analysis to show how better performance of the State-sponsored commercial bodies in terms of benefits obtained for the money they have borrowed must be measured.
In ensuring that funds borrowed are matched by corresponding productive assets, and by the efficient use of assets once they have been created, market forces cannot always be relied on to generate better performance, and proxies must be developed. The right pricing policy advocated by that analysis is targeted at bringing their selling prices into line with the prices in other European countries. But current subsidies should not be used to achieve this parity of prices.
The first ground therefore on which I urge the House to reject this amendment is that it is a short-sighted, live for today, unplanned proposition which is made unnecessary by the constructive actions the Government are taking to address the fundamental issues over the long haul. But, even if we give further consideration to the bits and pieces approach, we find it defective in the extreme. The levy in lieu of rates is a removal of an advantage originally granted to the ESB vis-à-vis other commercial spheres of activity. The level of rates which it is appropriate for the ESB to pay is a matter for expert arbitration. But the principle of taxation involved is clear. There is an onus on anyone who proposes lifting taxation to say which services he proposes to suspend, since he will not provide the funds to meet their costs.
We might all have our views on which form of revenue collection we would most like to see diminished or abolished. But to single out one productive function such as electricity supply and to suggest that it should not pay its share of the rates burden is a whimsical approach to Government. No responsible Government could accept it, as a naked proposition without some supporting analysis. Such analysis can only be carried out in the light of all the major considerations which are relevant to electricity prices and costs and since these are still under examination I cannot presume to prejudge the outcome. But I can point out what some of the major considerations in regard to this particular issue are likely to be.
Likewise, the fuel oil tax. No sensible Member of this House likes this tax any more than he likes other taxes. If the proposers of this amendment were prepared to discuss the abolition of services and costs which give rise to a need for this or for any other tax, then this amendment would have a purpose. But as it stands it has only the merit of opportunism.
The last suggested action in the amendment — calling on the Government to reduce the price of natural gas — is the element in this proposal which must cause raised eyebrows. The simple fact is that when an international oil company supply oil to the ESB they must be paid the international market-price. But here we have a proposal that the Irish State-owned supplier of natural gas, Bord Gáis Éireann, should be paid a lower price for a depleting native resource. One would expect from all sides of the House fundamental agreement on the proposition that when the taxpayer owns a resource it is not to be handed over for use at the cheapest possible price.
