Vol. 400 No. 9
5 Mr. R. Bruton asked the Minister for Energy whether he has had discussions with the ESB regarding their intention after 1992 to revise prices in order to reduce long-term debt and create a development fund, and if he will make a statement on the matter.
55 Mrs. T. Ahearn asked the Minister for Energy whether he has had discussions with the ESB regarding their intention after 1992 to revise prices in order to reduce long-term debt and create a development fund; and if he will make a statement on the matter.
I propose to take Priority Question No. 5 and Question No. 55 together.
I understand that the ESB are currently reviewing existing policies for funding future investment. Funding under existing practice is provided partly from the depreciation and amortisation funds which are used also to meet debt retiral as required, and the remainder is by new borrowing. When this review is completed the ESB will be submitting their proposals for my consideration.
Is the Minister concerned at the statement in the ESB's recent report on this topic that their debt, while not as high as previously, is still among the highest in Europe, clearly implying that in 1992 there will be an upward shift in their pricing structure? Is the Minister concerned about that and will he set some limit so that electricity prices will not rise at a greater rate than the consumer price index?
I am concerned about the size of the ESB debt. Their debt equity ratio, at about 61 per cent, is too high. The objective is to achieve a figure of 50 per cent. On the other point the Deputy raised, it is much too early to predict what price increase, if any, will arise in 1992. As the Deputy knows, electricity prices are mostly influenced by factors outside the ESB's control, such as dual costs, exchange rates and interest rates. To try to predict a trend in this area is virtually impossible and would be akin to crystal ball gazing, an exercise the Minister for Energy should not indulge in too often. We can only hope, therefore, that the costs to which I have referred do not escalate in the intervening period. It is premature at this stage to try to predict what prices will be in the post-1992 period.
Would the Minister agree it is time to reconsider the system of amortisation that the ESB build into their pricing structure, which was criticised by the Jakobsen report who suggested it was adding to electricity prices for consumers in Ireland?
This matter has arisen over the years and is the subject of the proposal to create a development fund. I would not mind giving the House the detail on this if I had time. If I did so now I would be taking up all the time for priority questions. There is a popular misconception about the ESB's amortisation charge. In a private enterprise company, reserves are formed from after-tax profits before dividends are paid to shareholders.The purpose of these reserves is to make provision for future debts and the cost of capital expansion. However, the ESB are prohibited by statute from making a profit and cannot therefore make a reserve in the same way as a private enterprise company. They are a highly capital-intensive body and must have some form of funding to meet their high capital commitments. Notwithstanding the requirement to break even, it is a desirable policy that the ESB should provide a substantial proportion of their new capital requirements from their own resources rather than having to resort entirely to borrowings, a point also made by Jakobsen.
The principal mechanism used by the ESB to provide for such internal funds in their accounts is depreciation and amortisation.The amortisation charge has been interpreted by some as concealing a profit which would help to reduce prices but the reality is that if the amortisation charge was to be abolished and not replaced by an alternative funding mechanism, future capital requirements would have to be met entirely from borrowings. Total reliance on borrowings would inevitably worsen the terms under which the ESB can borrow and, of course, in the long term this would raise electricity prices. As I have said in my initial reply, this whole matter is to be looked into. Discussions will take place between the Department, myself and the ESB regarding this whole area which, as the Deputy and others have said, is in need of urgent attention.
