JOINT COMMITTEE ON COMMUNICATIONS, ENERGY AND NATURAL RESOURCES díospóireacht -
Wednesday, 29 Sep 2010

Electricity Sector: Discussion

Chairman

I would like to welcome our guests to this meeting. First, I welcome Mr. Michael Tutty, who is the chairman of the Commission for Energy Regulation. He is accompanied by Mr. Dermot Nolan and Mr. Garrett Blaney. Second, I welcome Ms Bríd Horan, who is the executive director of the ESB. She is joined by Mr. Adrian Kelly, who is the board's residential markets manager, and Ms Nuala Moloney, who is the board's customer operations support manager. Third, I welcome Mr. John Mullins, who is the chief executive of Bord Gáis Energy. He is accompanied by Mr. David Bunworth, who is the energy marketing director of Bord Gáis. Fourth, I welcome Mr. Mark Ennis, who is the executive chairman of Airtricity. He is joined by Mr. Roy Baker, who is Airtricity's head of operations. They are all very welcome.

I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to 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 or her identifiable.

I propose to ask each of the groups to make a presentation before I invite members to ask questions. We will start with Mr. Tutty of the Commission for Energy Regulation.

Mr. Michael Tutty

We were initially asked to talk about the issues of disconnection and price. In recent days, we were asked to refer to additional aspects of those issues, such as the disconnection policy in Northern Ireland and Northern Ireland prices. I will quickly go through our presentation, which we have circulated. As it does not cover the Northern Ireland issues, we have asked the clerk to the committee to distribute another page that deals with such matters.

I will begin by speaking about connection policy. The Commission for Energy Regulation requires all the electricity and gas suppliers to do the following: put in place a code of practice on disconnection; inform customers in advance of any disconnection and provide information on the cost to them of such disconnection; work with third parties acting on behalf of customers, such as the Money Advice and Budgeting Service and the Society of St. Vincent de Paul; enter into payment plans, where needed, and offer pre-payment meters or budget controllers, where appropriate; and to use disconnection as a last resort only where all other options have been exhausted. In addition, all electricity and gas suppliers are required by the commission to provide further protections to elderly people, who cannot be disconnected for non-payment during the winter months, and to customers who depend on electrically powered life-supporting equipment, who may not be disconnected at any time for the non-payment of bills. Such customers must register with the relevant companies to inform them that they are in such categories. There has been a significant increase in the number of electricity disconnections in recent months, which is shown in the graph. In the region of 2,000 to 2,500 people are being disconnected each month. When the supply company asks for disconnections, only about half of the disconnections requested happen. When the network company, ESB Networks, arrives, the bill is settled or something is done to solve the issue. We have a graph showing the percentages in each category, for example, the disconnections completed, new tenants, bill settled and so on. There is a process to try to avoid disconnection right up to the time it takes place. There has been no significant change in the number of gas disconnections. In 2007 there were 6,277, in 2009 there were 5,354 and up to recently, 4,054. On the electricity side there has been a significant increase, particularly in 2010. In 2009 the figure for disconnections had decreased from the 2008 figure, but it is significantly higher in 2010.

The cost of disconnection is something Members wished to talk about. In regard to electricity, a visit to disconnect the supply costs €86, excluding VAT and there is a further charge of €88 plus VAT for reconnection. The charges for disconnecting and reconnecting the gas supply are slightly lower. The charges are designed to reflect the actual cost of disconnection. The ESB Networks and Bord Gáis Networks charge the supply companies and the supply companies must recover the sum somehow. If there were no charges for disconnection, would people continue to pay their bills? There would be no great incentive to pay, if a person could ask to be reconnected on the day after being disconnected. If the costs are spread over all consumers of gas and electricity, it would mean that all consumers would bear the cost of disconnection for those who have not paid their bills. CER has been concerned since earlier this year about the trends in the levels of disconnections and have been engaging with the industry stakeholders to see what can be done.

By coincidence this morning we are hosting an industry meeting where suppliers will meet representatives from MABS to get their view on what can be done. We have been extending the number of gas prepayment meters available free of charge to customers in financial hardship. We have consulted on the code of practice for suppliers to see if there are improvement to be made and we have engaged with the suppliers of electricity to make budget controller units available to more customers. A great deal is happening in this regard. For example 22,000 budget controllers have been installed. As I understand it, this is a form of prepayment meter, where a component is attached to the meter that requires prepayment. We have approved the purchase of an additional 17,500 units to be made available to electricity customers in financial hardship. This is limited technology and is only an interim solution while we are examining the role out of smart meters. We are already conducting trials of smart meters with a prepayment option on them, however the roll out of smart meters will not happen immediately. We have approved the cost of these budget controllers and have agreed that their cost will be socialised, so the individual customer is not being charged for them. We are consulting on guidelines as to how these units will be allocated to customers.

Media attention has been focused on the zero disconnect policy in Northern Ireland in recent days. The North has a zero disconnect policy but this does not mean that consumers continue to get supply even if they do not pay their bills. That is not what zero disconnect means. What it means is that prepayment meters are installed where people are having difficulties and they have to prepay for all future usage and on top of that continue to make repayments on their bills because the cost per unit on the prepayment meter is increased to take account of the bills they owe. They can continue to use electricity as long as they continue to pay their bills. It is not that they can use as much electricity as they like regardless of making repayments. If the payments do not continue, the consumer effectively self-disconnects. That is not theoretical, it happens in practice. To my mind that is akin to the policy in the supply companies of entering into payment plans with customers with no disconnection taking place as long as the consumers continue to make their payments. If they had prepayment meters they would be in the same position. If they did not continue to make their payments, no electricity would flow. I was told yesterday when I attended a meeting in Belfast that the prepayment meters cost eight or nine times the cost of an ordinary meter. This is not a low cost solution. It is a very significant cost. At a time when we hope to move towards smart meters, we are reluctant to enter into significant extra costs for the consumer in rolling out a great many prepayment meters. We have authorised extra budget controllers to be put in, which is a low cost solution. We have asked ESB Networks to look at possible alternatives that could be used between now and the introduction of smart meters. The Northern Ireland disconnect policy means that those who cannot continue to pay will self-disconnect rather than being actively disconnected.

Competition has been developing very well in the Republic at the level of the household with nearly 700,000 customers having already switched from ESB Customer Supply to other suppliers. This is one of the highest levels of switching ever in Europe. We have issued a roadmap to deregulate fully ESB Customer Supply, with the business and industrial end being deregulated from 1 October next and the domestic sector probably in the first half of next year when the ESB reaches a 60% share level. At the moment from next October we are only regulating ESB domestic prices and monitoring the rest of the market.

Many people seem to think that electricity prices have just continued to rise. That is not the case. There has not been an increase in electricity prices since August of 2008. In the meantime there were reductions in January 2009, May 2009, no change in October 2009 and now a 4.9% increase coming from 1 October next. When we looked at the overall prices we found that on the generation side there were some increased costs, but on the network side there were reduced costs. I was criticised at a previous Oireachtas committee for not pointing out that the transmission costs had gone up but the distribution costs had gone down by even more, so that overall there was a reduction in network costs arising out of our review of the costs of ESB Networks and EirGrid and our decision to set targets for them to achieve over the next five years.

The things that concern us are evening out with no change, but the PSO subsidy has increased from zero in recent years to 4.9%. We only calculate the cost of the PSO levy. The policy is determined by the Minister. He and his Department enter into contracts with companies, so we have no control over this other than calculating what the levy should be. The legislation was introduced in 2002. The levy is designed to support peat, gas and renewable generation plants, as mandated by the Government and approved by the European Commission, and the underlying objective is security of supply, the use of indigenous fuels and the promotion of renewable energy. The 5% increase is due to the PSO levy and our role is simply to calculate it.

On the question of price comparisons with Northern Ireland, we have said before at these committees that we are quite happy to answer questions from Deputies and Senators whenever issues arise. We would much prefer if they rang us and asked us questions, rather than issue press releases and talk to the media. The main reason for the price difference with Northern Ireland is the responsibility of the Oireachtas rather than the CER or supplies. The rate of VAT in the republic is 13.5%, compared with 5% in Northern Ireland. That makes up 8.5% in the price difference for electricity here when compared with Northern Ireland. The remaining part of the difference, or whether there is a difference, depends on which consumption levels are compared between the two states. The Northern Ireland press release and documentation that was issued used an average consumption rate of 3,300 kW hours per annum, which is the UK average. At this level, our prices are higher than those in Northern Ireland. If the typical level of consumption was used in Northern Ireland, which is generally higher than in the UK at 4,200 kW hours per annum, then our prices, excluding VAT, are marginally lower than their prices. If they use the typical level of consumption in the Republic, which I am told is higher than in the North at 5,300 kW hours per annum, this would have shown that our prices are 1.2% below theirs. Whether we are higher or lower than Northern Ireland depends on the level of consumption and is largely determined by the way we use standing charges, which makes the cost for the lower rate of consumption higher than in the North, and the cost for higher levels of consumption lower than in the North. That is the explanation for why there is a difference between North and South. Whether we come out well or badly depends on the level of consumption. We gave the secretariat a document setting out these price comparisons.

Chairman

Thank you. I now call on Ms Horan from the ESB.

Ms Bríd Horan

I thank the committee for giving me the opportunity to speak on what are very serious issues facing our customers and the industry. The date for this meeting was set last week, but unfortunately our chief executive already had a long-standing commitment abroad, so he has not been able to be here today. I am the executive director of the ESB, with direct responsibility for the supply of business and these issues directly concern me. I am accompanied by our residential manager, Mr. Adrian Kelly.

The Irish electricity market has evolved rapidly over the past ten years. The ESB has gone from a position where it was the only player in the electricity market to the current position where it is now one of a number of generators and suppliers. As a result, the ESB has had to change internally to reflect the changed structure of the market. This has required the separation within the ESB group of the transmission and distribution business, known as ESB Networks, from our generation and supply businesses. I am the executive director for ESB's supply business, which is responsible for buying power and selling it to customers. For regulatory reasons, we are ring-fenced from other parts of the ESB. In particular, this means we are treated on an arm's length basis by ESB Networks, which is responsible for the networks and metering, in the same manner as all other suppliers in the market.

The supply or retail market has progressively opened to competition over the past ten years and in 2005 the market was fully opened. Since early last year, Bord Gáis Energy and Scottish & Southern Electricity, via its Irish subsidiary Airtricity, have offered electricity to residential customers and the level of competition has developed dramatically and at a pace unseen elsewhere in the world. In light of this, the CER adopted a roadmap to reduce its regulation of the ESB's supply business. From 1 October 2010, ESB prices in the business market will no longer be regulated and we look forward to competing on an equal footing with the other suppliers in the residential market early next year, when full pricing deregulation is expected there.

Mr. Tutty has dealt with the transfer of customers to Bord Gáis Energy and Airtricity. The most serious issue is the increase in the number of customers who have difficulty in paying their bills. We are fully aware of the impact that has on our customers because we talk to them directly about it on a day-to-day basis. We take all possible steps to help our customers through this difficult period. We have a long history of doing that. It is not just in hard times that customers have difficulties with bills. There is always a part of the community that struggles with bills, so we deal with the issue in good and bad times. However, it is more widespread at the moment. We engage actively with our customers facing financial difficulties, and we do so in a supportive and understanding way. Our objective is to agree a mutually acceptable, affordable and sustainable payment plan for their electricity bills. At the end of the day, the electricity has to be paid for, but we understand that can be difficult.

Mr. Tutty referred to the requirements of the CER on how suppliers act in the market. We have codes of practice in place that set out in detail how we deal with customers who have genuine difficulties in paying their bills and that provide guarantees to vulnerable customers that their supply will not be disconnected during the winter. The key message we have been consistently trying to get across to customers — we do this in conjunction with a number of agencies — is that customers experiencing difficulties should contact us as early as possible. Without that contact the problem gets bigger.

In the vast majority of cases we arrive at a mutually acceptable payment arrangement. In fact, there have been headlines about the numbers of payment arrangements this year. Approximately 10,000 customers are agreeing a payment plan with us each month, that is, approximately 90,000 so far this year. While that figure is an increase on the normal level, making payment arrangements with customers is part of our ongoing business. The level varies from year to year, for example in 2006, at a time when nobody was too worried about the economy, we agreed almost 8,000 payment plans each month. This is not a phenomenon, it is the way we work with customers. We do not see payment arrangements per se as bad news for the customer. I would emphasise that making a payment arrangement does help the customer to budget and deal with arrears and deal with their ongoing usage. We would not like a stigma attached to customers who are involved in a payment arrangement. It is an arrangement we welcome and we believe it can help them. That is reinforced in our interactions with the help agencies, the Money Advice and Budgeting Service and the Society of St. Vincent de Paul, who believe that payment plans are helpful to customers. We would like that message to be noted.

Another measure we take and which customers also find helpful, and of which the agencies are particularly supportive, is to install the meters to which Mr. Tutty referred, that is, token meters to pay for electricity and help clear the arrears. These token meters can help customers to manage their electricity arrears and current usage. We welcome the CER's announcement of a further commitment to increase the number of meters available in the market and the fact that the cost is being socialised because up to now we have borne the cost on behalf of our customers.

As Mr. Tutty has said, we have been actively involved with the ESB networks and the CER in this pilot test of how we can use smart metering technology to develop a more user-friendly and a more adaptable form of meter. We believe that is an important initiative and that we should press ahead with it. We welcome the commitment of the CER in that regard.

It is only in cases where we cannot agree a suitable payment arrangement with a customer, which often involves a token meter, that we are forced to notify the customer of the intention to disconnect supply. I assure the committee that before any customer receives such a notification, that is, a letter stating he or she will be disconnected, they have already received many communications from us over a period of months, if not years. These include letters, text messages or telephone messages in the case of landlines, if it is possible to use that contact. Our objective is to work with each customer to agree a payment plan to cover ongoing usage and which will gradually clear the arrears that have built up. We work closely with the Money Advice and Budgeting Service, the Society of St. Vincent de Paul and other agencies, in assisting those customers who are experiencing genuine difficulty with their bills. Mr. Tutty referred to further contacts between those agencies and the industry and the CER. We welcome those contacts and will continue to work actively in that space.

We are currently working with An Post and the help agencies to increase customer awareness of a scheme that is available to people in receipt of benefits. This is an important facility whereby customers who are in receipt of social benefits can have some of their utility costs paid by deduction from their social benefits. This helps to budget and spread their costs through the year. It is only in cases where all efforts to agree a mutually acceptable payment arrangement fail that a customer may be faced with disconnection. This is a last resort for us and the committee can take it we have been down every other avenue before going there.

Obviously, we would prefer that no customer was disconnected. However, if there is not some sanction, arrears continue to grow and the problem increases for the customer as well as for the ESB. To put that in context, we do end up writing off significant amounts of uncollected debt every year. I think the figure has appeared already in the press that for this year we expect it will be of the order of €20 million. All energy suppliers will be faced with debts and ultimately if they are written off they find their way into the costs for all energy users.

In regard to specific concerns for the charge which is applied for disconnection visits, the position is as outlined by Mr. Tutty, that is, when any electricity supplier requests a disconnection there is a fixed charge associated with the call-out cost imposed by networks. That arises because of the cost involved in going to the customer's residence. We have no discretion in incurring the associated call-out charges. If we did not charge this to the customer concerned it will find its way into the costs for all other customers. I remind the committee that the disconnection charge is only a part of the costs we incur in dealing with debt and arrears, which includes the delayed payment on which no interest is charged, unlike many other bills, collection costs and the ultimate write off of debt which I have already mentioned.

In regard to electricity prices, I do not propose to deal with this issue in great detail as Mr. Tutty has covered the pattern in recent years. The committee will be aware that since 2008, the ESB provided more than €500 million to reduce customer bills. This was used to reduce all customers' electricity bills regardless of whether they were an ESB customer or not. It helped to offset, particularly in 2008, the dramatic increase in fossil fuel prices that occurred. This meant that the increase in electricity costs in Ireland was significantly lower than would otherwise have been the case. As previously announced, the ESB will not be increasing the unit rate or standing charge for residential customers from 1 October. Last year there were price reductions in January and May and no increase in October. The only increase this year, unfortunately it must be passed on, is in the PSO levy, to which Mr. Tutty referred.

We have been actively engaged in promoting more efficient use of energy but when customers are faced with large bills, that is sometimes a small consolation. We need to remind ourselves that the bill is directly connected to the level of usage. The ESB is actively working with customers to support them in reducing actual usage because that is the most effective way to reduce the cost. As part of that drive, the ESB insulated, without charge, more than 3,000 low-income households last year. In addition to the cost involved, we provided a further contribution of €2 million to the SEAI warmer homes scheme to insulate a further 2,000 homes. ESB HALO teams carried out more than 20,000 free home energy audits for our customers. Those teams helped customers to decide on a number of measures to reduce their energy usage.

I am pleased to inform the committee we are proceeding to launch an installation service which is taking energy saving to the next level. Moving on from giving advice on energy saving, we will be offering a one-stop-shop on measures to reduce energy usage in homes. That will range across all measures from basic wall and roof insulation to more technical solutions, including solar panels and all the other hi-tech options that are available.

I hope I have explained our supply position clearly, including the initiatives the ESB has taken and will continue to take. I emphasise again that for us in the ESB, disconnection is a very last resort and only occurs after a number of months or years of contact with the customer and when all other avenues have been exhausted. I reiterate it is important to encourage customers who are experiencing difficulties to contact us as early as possible and to work with us and the help agencies so that we can come to suitable arrangements, particularly for the customer. The sooner the problem is dealt with the better for us and for the customer. I hope the committee will appreciate that throughout the ESB's long history that is how we have dealt with debt and customers, and will continue to do so.

Mr. John Mullins

I thank the committee for the opportunity to speak on this subject matter. Bord Gáis has operated as a supply company for more than 30 years, providing services to 600,000 customers, located in the cities and towns connected to the gas pipeline infrastructure in the east, midlands, south and west of Ireland. Today Bord Gáis Energy provides gas, electricity, dual fuel gas-electricity and home energy services to more than 1 million customers on the island of Ireland.

The Big Switch campaign, launched by the company in February 2009, was the catalyst for real change in the residential energy markets in Ireland. Customers responded in large numbers to the Bord Gáis energy electricity offer and by the end of the year, more than 400,000 had switched electricity supplier and, assisted by Airtricity, this is the highest switching rate in the world, as noted by a think tank in Scandinavia.

In our relationship with all our customers, we are determined to deliver on the two core drivers of our proposition, that is, exemplary service at the right price. In the conduct of the relationship with all our customers, we are guided by a number of key values which we developed through discussion and engagement with our people in the company and, more importantly, with our customers over the past two years. Among them is empathy. We are committed to dealing with all our customers with care and respect and this informs the way we manage the growing issues of customers experiencing difficulty paying their energy bills.

When I came into this job in 2008, Bord Gáis sought to create an awareness of the likely emergence of bill payment difficulty as an issue for the industry and for policymakers. I spoke on the subject matter at the Energy Ireland conference in June of that year and, subsequently, met many of the organisations whose work is focused on supporting people with limited incomes, including the Money Advice and Budgeting Service, the Society of St. Vincent de Paul, CORI and the Combat Poverty Agency. Later that summer, we commissioned a study on the issue from CIPA consultants which was published in September 2008 and submitted to policymakers for consideration. An interdepartmental group was set up led by the Department of Communications, Energy and Natural Resources to examine the many dimensions of the subject and I understand the final report is expected from this group shortly. We have copies of this report, which deals in great detail with the UK and Northern Ireland approach to fuel poverty and energy affordability for all the members.

The fundamental issue at this stage is that an increasing number of people — customers of the energy companies — are experiencing difficulty dealing with and paying their everyday household bills. The reason is they have limited financial resources. The factors giving rise to their difficulties are not surprising — unemployment, loss of income, large mortgage liabilities, historical commitments and, in very many cases, having the first experience of dealing with this circumstance. A particular feature of the issue it presents today is that people encountering difficulty paying their household bills come from all sectors of our society. They are just as likely to come from middle-class neighbourhoods as anywhere else. This is a radically different scenario to the customer utility debt crisis of the late 1980s when the issue was predominantly associated with the less well off areas in our cities and towns.

In managing the issue, we have three fundamental objectives: to help customers to maintain supplies through intervention and engagement, that is, to mitigate to minimise disconnections; and to be paid for the services and the products we provide to all of our customers. Achieving these objectives is a major challenge for a utility with a broad customer base which first demands significant people resources. In fact, our cost base has had to increase by €3 million this year to deal with this issue. It requires sensitivity and judgment in dealing with the issue.

The approach we have taken in assisting customers is found in several key actions: early intervention with customers to contain and deal with the debt. Over a 90-day period that consists of three letters, multiple bills, and three telephone calls; agreement on a payment plan that meets the needs of the customer and the company; the installation of a gas prepayment meter at the early intervention stage, where the customer is in agreement; close interaction with MABS to ensure the customer has the opportunity to get wider advice on money and budgeting; and a very close and supportive relationship with the Society of St. Vincent de Paul which is highly active at the coalface of financial hardship in this country. Bord Gáis made a direct combined contribution to the Society of St. Vincent de Paul and Alone of €1 million at the height of the winter in or around 7 and 8 January of this year when we had a one in 50 winter circumstance.

The scale of this issue is significant. Currently, we are managing close to 100,000 customers who are slow in paying their bills. The level of debt varies within this group of customers. Of the order of 26,000 customers are currently carrying arrears greater than €500 and 20,000 customers are in the final resolution stage, where disconnection of supply is a possibility unless payment plans can be finalised or, as an important alternative highlighted by Mr. Tutty and repeated by Ms Brid Horan, the installation of a prepayment meter can be agreed.

I point out to the committee that not all disconnections are due to hardship. In many cases, landlords disconnect over the summer period because it is student accommodation. If we consider what is happening in the country today, we have quite a migrant population and many people are leaving the country and leaving households with quite an amount of debt. One can see that through random samples of our own bills.

In terms of actions and propositions — clearly, at this point looking to the winter — we need solutions. We can talk about the issues and the circumstances but we need solutions at this time. It is clear that primary responsibility to manage this issue effectively from the customer care and business perspectives resides with people like me and the energy utilities. However, a number of actions are required at this point which can assist the utilities in this endeavour. First, we should give utility companies freedom of action to install, with the permission of the customer, prepayment meters in their homes and allow the cost involved to pass through to the overall network charges rather than be treated as a supply cost to be recouped from the customer. It does not make any sense to ask a customer who is in financial trouble and is willing to take a prepayment meter to pay the €373 for it. In the prevailing climate, these costs must be socialised. A formal policy decision is required on this urgently and I welcome the assistance of the CER in this regard. In particular in the gas industry in recent years, we have increased the number of prepayment locations on payzone to more than 400 and it is growing.

Disconnection and reconnection charges must be recovered through overall network charges rather than the indebted customer. Currently, there can be an addition of almost €200 to the customer's debt exacerbating the problem for the customer and the supply company. I am quite willing to make contributions but should the supply company make the full contribution? We can socialise that through the network charge. This may well have been an acceptable policy in normal times but we are not in normal times. However, it does not answer the case in these current circumstances and the circumstances of the people who telephone my office and send letters to me and to my colleague, Mr. David Bunworth, every day. These costs must be socialised.

Bord Gáis will continue to do all it can to avoid disconnections, in particular going into the winter period. We absolutely honour the vulnerable customer listing and we ask members to talk to the elderly to ensure that there are not vulnerable customer listings coming into this winter. However, we need political and regulatory support to deal with this crisis and we need these prepayment meters and a social approach, combined with a regulatory one, to deal with the issue of hardship in reconnection and disconnection.

Chairman

I call Mr. Mark Ennis of Airtricity.

Mr. Mark Ennis

I thank the Chairman and members of the committee for allowing Airtricity to make a contribution to this discussion. Airtricity is obviously the new player on the block and I suppose we have taken the view that the best way to help customers in their particular circumstances is to offer very competitive pricing. We offer a range of very competitive prices up to a 13% discount on the regulated tariff.

However, as many contributors pointed out, we are in economic distress and, as a consequence, we have many customers suffering. We have tried to approach this in a very pragmatic way. As Mr. Tutty explained, in Northern Ireland we have prepayment meters and, as Mr. Mullins said, we would certainly support the introduction of prepayment meters as it is a very effective way to treat affordability issues with customers.

However, in the absence of that and taking our initiative, Airtricity recently launched a smart energy card which, effectively, is a top-up card for all 330,000 customers Airtricity now has. They are able to use that card to manage their energy bill and this is a very effective way to allow people to get through a difficult circumstance and not to be faced with a significant bill at the end of the month. That is a good initiative.

Another initiative is that we encourage our customers to contact us. We have a text service and we text them five days before their bills are due. That enables them to read the meters and ensure they do not get estimated readings which, effectively, might give them inflated bills.

We are launching an energy initiative to encourage and point out to customers how they can save energy and we are also launching a community fund which will donate more than €0.5 million per annum to energy efficiency and energy service, primarily targeted at rural and socially poor areas.

Those are the initiatives and pragmatic actions we, as a business, have taken to try to address this question. On the specific question of disconnections, Airtricity disconnects as an absolute last resort. During the process, which lasts many weeks, we send letters and communicate with our customers. We encourage customer communication to address these issues.

I will give the committee an example. A customer recently called a radio station to complain that he or she had been disconnected for no reason. Quite rightly, the regulator's office contacted us to say it wanted to investigate this charge and see how we handled the case. When we studied the case, we found that the customer signed up with us in August 2009 and paid his or her first electricity bill in January 2010. When we contacted the customer, he or she made a part payment. We agreed a payment plan with the customer, like those described by all the supply companies. The customer did not pay anything under the payment plan until we contacted him or her in May to ask what was happening. Following numerous phone calls, the customer paid another amount and was put on another payment plan. He or she also defaulted on that payment plan. By July, we had a debt of more than €1,000 with the customer in question. It was only at that stage, when it became clear that we could not discuss the matter with the customer, that we first decided to proceed with disconnection. When the official from ESB Networks arrived to disconnect the customer, the customer rang us to say he or she would pay and to asked us not to disconnect. We accepted that as a genuine offer. We took a part payment and we did not disconnect. We agreed another payment plan, but it was defaulted on subsequently as well. The customer was finally disconnected in August of this year with an outstanding bill of more than €800.

I have given a practical example of what the energy supply companies face. I hope the committee can see that we disconnect our customers as an absolute last resort. One of the most effective ways of addressing this issue is to use pre-payment meters. We are waiting for smart meters, but we have been told they will not be introduced until 2017. They do not represent a practical solution to this problem.

Speakers referred to the various circumstances in which disconnection takes place. A number of disconnections relate to empty properties, or changes in tenancy where there are no contracts. Two types of other customers tend to be in danger of disconnection — those who have fallen on hard times, but genuinely want to pay, and those who just do not want to pay. Mr. Tutty's figures may reflect our experience, which is that an increasing number of customers who do not want to pay are jumping from supplier to supplier and carrying their debt. This is known as debt hopping. We encourage the regulator to introduce regulations to prevent debt hopping for two reasons. In the case of a person who is not willing to pay, that circumstance should be isolated. Such a case should not add to the number of disconnections — one should isolate that circumstance. A person who has a genuine problem with payment should be forced to contact us and to enter into a payment plan arrangement. We want to have payment plans; we do not want to lose customers. Every customer is very important to us. We want to help people in every circumstance. Some people are embarrassed about being in debt. They think the easy answer is to switch suppliers, but all that does is compound the problem.

I was also asked to speak about the pricing differentials between Northern Ireland and this jurisdiction. The regulator has handed out a leaflet on this issue. Four main factors contribute to the cost of an electricity bill — the cost of energy, the cost of wires, miscellaneous costs grouped under the PSO charge, and VAT. As Mr. Tutty said, if one wants to equalise the bills on either side of the Border, one of the obvious things to do is equalise the relevant rate of VAT, which is 5% in the North and 13.5% in the South. There is also a differential in the charges associated with wires. We have shown that Airtricity makes a difference to pricing in the energy market. Similarly, we have encouraged the Department and everyone involved to open up to competition all sectors of the wires business — distributing, connecting, and owning and operating distribution lines. If there is no competition in such sectors, the costs associated with the network will increase. The increased cost, by comparison with the cost in Northern Ireland, is ultimately borne by the consumer. We encourage all involved to facilitate competition in every possible part of the energy sector.

Chairman

We appreciate the delegations' presence and their presentations this morning. This meeting was called at the request of Deputy McManus, who raised an issue being encountered by many public representatives. The issue has been borne out in the figures given to the committee by Mr. Tutty. There has been an inordinate increase in the number of disconnections. I am concerned more about those who cannot pay than those who will not pay. I expect that is the feeling of all members. I would like to pick up on Mr. Mullins's point. I was glad to hear him talking about the reconnection fee following disconnection. Such a fee may have to be paid by a family experiencing difficult financial circumstances. If one is in arrears with one's electricity bill, one may have to pay that bill and a further €200 in the form of the reconnection fee. I cannot understand this. It is wrong and will have to be addressed. As we approach the winter, this problem will increase rather than decrease. Perhaps Mr. Tutty will address it during his response to members' questions. We would like to establish where responsibility for this charge lies.

Deputy Liz McManus

I thank the Chairman and everybody who has come before the committee for taking the time to attend today's meeting at short notice. The points that have been raised are absolutely essential. Mr. Mullins made the point that we have to concentrate on solutions — that is absolutely right. Everybody understands that disconnection has always been a problem. We are now considering it in the completely different context of a severe recession with crippling unemployment. People who have never previously had difficulties paying their bills do not know where to turn now. The figures speak for themselves. The number of electricity disconnections so far in 2010 is almost 14,000, compared to just 9,700 in 2009. I am aware that Bord Gáis has said the debt problem is 40 times worse this year than it was in 2009. We cannot keep going the way we are going.

I appreciate that the utility companies are making genuine efforts to try to keep on top of this problem. There needs to be a fundamental change in how we approach it. It is interesting to examine the Northern Ireland model, which seems to have great merit. I ask the regulator — we cannot question the Government directly at this forum, but we should do so at a later stage — to ensure this problem is managed in a way that ensures people are not disconnected, while also providing that utility companies are paid. The key, at least in part, seems to be the provision of prepaid meters. I do not think the use of smart metering is feasible in this context, at the rate we are going. Smart metering is there for other reasons as well as ensuring bills get paid. It is a much bigger and wider issue. Perhaps the regulator can expand on his comment that the use of prepaid meters will be extended. Are we talking about a real expansion of the system to meet the need that exists, or about some kind of pilot scheme which would not meet that need?

How are we to tackle this problem? The issue of fuel poverty has not been faced. I would be interested to hear the views of those who made presentations about what needs to be done with regard to fuel poverty. I am outraged that last year, the Government returned to the Department of Finance €35 million that was due to be spent on energy efficiency, on reducing bills and on enabling people to manage their bills. In last year's budget, we were promised that the utility companies would get involved in providing money for energy efficiency. I dread to think such moneys will not be spent again this year. The utility companies are not responsible for this — it has happened simply because of Government incompetence. I would be grateful if the delegates could comment on that issue as well.

I would be very grateful if the regulator would outline clearly how we can socialise the costs of disconnecting and reconnecting energy supply in a way that ensures that we minimise unnecessary disconnections and so that people will have the essentials of life. This is as much a health and safety issue as anything else for many who find themselves in this position. I refer to the study conducted by Bord Gáis on 500 consumers which shows 59% of people disconnected were owner-occupiers, people who have nowhere to turn, who are being hammered by mortgages, unemployment and now by the threat or reality of electricity or gas disconnection. That needs to be managed very carefully. The regulator has a central role as it is the regulator who sets the price. I did not know this until recently and am amazed to hear that the regulator would have a role in this at all. However, since regulators do, we need to know what they will do about it. I assure the regulator that I will continue to issue press releases as part of my job. I have requested the regulator privately to please stop pursuing the idea that the ESB and Bord Gáis have to change their brand name. I understand from one of those companies that it will cost at least €40 million to do something that has no genuine effect, other than to cost money. One contribution the regulator could make is to acknowledge that we are in changed times and desist from placing the requirement to change the brand name on two major companies, who in the main have served the country extremely well. I take pride in the fact that we have major companies, commercial semi-state companies that are doing a job over decades. Will Mr. Tutty simply indicate that he will reconsider this requirement which comes from very flimsy evidence that the brand name must be changed with its attendant costs that will be borne by the customer? That would be helpful.

Mr. Tutty has indicated what is being done with regard to the utility companies. May I suggest what could be done? I will give examples. A customer who wished to move to Airtricity was told that unless she had a bank account, she would not be taken on as a customer. I would have thought that was a matter for the regulator. How can a company say that if one does not have a bank account, one cannot be a customer? If a person has only a post office account, one cannot be one of the customers. Will Airtricity consider that again? The ESB are raising the minimum amount to be paid up to €20. This has been raised by the Society of St. Vincent de Paul and the Money Advice and Budgeting Service. Will Mr. Tutty please reconsider that as minimum amounts of €5 or €10 paid can keep people afloat? I had an extraordinary case where a woman in difficulties with Bord Gáis had come to an agreement to pay off her bill. Her first payment was less than she had promised and when she realised that, she paid early on her second payment. However, because she had paid early she was found to be in breach of her agreement twice and as a result the whole plan collapsed. We must be very careful to ensure that everything is done so that we can ensure that at the end of the day, disconnection does not take place because other alternatives had been fully explored and developed.

Deputy Leo Varadkar

This is a useful and timely meeting. I thank Deputy McManus for proposing this topic for discussion. Those who have been canvassing, and knocking on doors have come across this phenomenon of a house in darkness. Initially one thinks that nobody lives in it but while canvassing one realises that somebody who has been "de-energised" lives in the house. Their electricity and probably their gas supply has been cut off. I can only imagine as we approach the winter what it is like to live in a cold dark house, where the person is just managing to pay the mortgage or rent but cannot do anything because there is no energy supply in the house. As has been pointed out — what may surprise people — is that it is a much more common phenomenon in new or private estates, where the recession has hit hardest, where people with big mortgages have lost their jobs and so on. We must do everything we can to ensure that people are not living without heat or power in the winter. We know that people die in cold weather and may die as a result of having no light or heat in their homes.

Will Mr. Tutty respond to the following questions? He suggested that before sending out a press release we should use the facilities of the Commission for Energy Regulation to check the facts. A certain Minister consistently says things that are totally untrue, for example he says that during his term of office electricity prices have gone down but if I compare the figures in the presentation, I can see in the period from November 2007 that prices have risen by 6.4%. He states that electricity prices are below the average in the European Union and yet when I look at EUROSTAT figures and ForFás figures and everybody else's figures, they actually show that our electricity prices are the third or fifth highest in the European Union depending on how one measures them. Given that Mr. Tutty used this opportunity to chide members, perhaps he might use the opportunity to refute the nonsense being put across by the Minister, Deputy Eamon Ryan on the claims he makes on energy prices, to balance things up and show that he is neither pro Government nor pro Opposition.

Has Mr. Tutty an estimated costing on socialising the cost of meters and cost controllers? At the end of the day, socialising costs means that everybody has to pay something extra and I would like a rough idea of what that would add to the average person's bill, if it costs €2 to €3 a year, who would object, but if it is more than that, people would have to think about it.

The cost of prepaid meters and cost controllers would be socialised. I understood that the decision has not been taken yet. Will Mr. Tutty clarify if that decision has been made and when it will be implemented. Does he intend to do anything about debt hopping, which is a genuine problem and is not just a problem in the electricity sector but it is a problem for small business across the country, where people hop from one supplier to another, essentially exhausting their credit and destroying business by doing that? We need to deal with that issue.

The public perception of Airtricity, whether this is fair, is that it is the bad guy when it comes to forbearance, that it is much less likely to take on unfavourable customers, is much more likely to disconnect people and that it does not apply a protocol of three phone calls and three letters. Is that a fair comment? I wish to learn the views of the delegation from Airtricity as to whether its staff are the hard bailiffs when it comes to this issue. Mr. Tutty mentioned that we could reduce energy costs by competition in transmission and distribution. I do not quite understand how that would be done. It is a natural monopoly and I do not understand how that would work, but the delegates might educate me.

I can understand why the ESB and Bord Gáis might say that the cost of the meters and cost controllers should be socialised because it is substantial at €300 per unit. I do not understand the reason he says that in relation to disconnection fees. When one thinks about it, someone who is disconnected has to pay roughly €80 to be disconnected from the electricity and probably another €60 to be disconnected from the gas supply and another €80 and €60 to be reconnected which adds up to €300 not because they used energy but because they were disconnected and then re-connected. That is a dreadful bill for somebody who is probably very vulnerable. Worse than that, the Government charges VAT on it. When a customer is disconnected, the Minister for Finance, Deputy Brian Lenihan, gets €39 in tax revenue. Surely there should not be disconnection and reconnection costs at all? There are many examples of utilities being provided without a connection or disconnection fee, such as cable television. Such fees are not justifiable. Instead of socialising the costs and passing them on to other consumers, the disconnection fees should be abolished and the cost should come out of the profits of the ESB and Bord Gáis, which were more than €500 million and €200 million last year, respectively. Last year was a very difficult year for everyone else in the economy. Surely instead of socialising the cost of disconnection fees, they should not be there in the first place.

Deputy Jimmy Devins

Like the other speakers, I welcome the delegates and thank them for their presentations. The reason for this meeting is to discuss the increasing number of people suffering financial hardship who, as a result, are being disconnected or are on the brink of being disconnected. I listened intently to the four presentations. I am struck by what seems to be a big schism between the regulator and the ESB on the one hand, who advocate that the disconnection and reconnection fee be maintained, and Bord Gáis on the other hand, which has come with an innovative statement that the fee should be paid for by social means.

We are all aware that there is an increasing number of people suffering due to the financial crisis. For those who cannot pay for genuine reasons, a disconnection fee and a reconnection fee are added burdens. Is this fee fixed in law, or is it down to a regulation that has come from the CER? If it has come from the CER, could the regulator look at abandoning it so that it can be absorbed into the wider population? While I accept that it is perhaps unfair that the general customer has to pay for this, the reality is that many people here cannot afford to pay at the moment. We have to look at innovative means, and I welcome Mr. Mullins's suggestion that this be paid for by social inclusion.

The regulator showed us a slide on disconnection policy and stated that the elderly cannot be disconnected for not paying in winter months. How are the elderly defined? If there is a policy that the elderly are exempt from disconnection, then surely we should look at extending that policy in the current financial climate to other areas.

I welcome the commitment of all the energy companies to engage with their customers. From personal experience, I know that many of them are engaging with the St. Vincent de Paul and with MABS and I congratulate them for that. The energy companies are asking people to engage with them if they have a problem. In my experience, most people who do so find a very satisfactory solution.

If somebody suffers disconnection, a fee of €86 plus VAT is added on and then a reconnection fee of €88 plus VAT is charged when the person comes back. This is ludicrous and I call on the regulator to see if it can be changed.

Deputy Noel J. Coonan

I welcome the delegation who have come in this morning to brief us on what is becoming an increasingly serious issue. We have been told that 80 disconnections take place every day. Since we started this morning, up to 40 households may have been disconnected. Why have we the fifth highest domestic electricity price out of 31 European countries? Why does the regulator insist on these reconnection charges? If businesses want to provide services, they are happy enough to get customers without charging them for the privilege of becoming a customer.

I welcome the approach of Mr. Mullins from Bord Gáis. I am sure everybody would agree with his idea on a social approach, but I wonder how it can be improved. If I want to get in touch with the ESB, it is very difficult to get in touch with an individual. I pick up the phone and I am told to dial 1 for this and 2 for that, and then I get through eventually where I am put through another series of numbers, before being told to wait. While waiting I might be listening to "Have I told you lately that I love you?" while I am hopping mad to get through to somebody. The closure of local offices has posed difficulties for people trying to get in touch. Ms Horan outlined how the ESB contacted people and how its representatives wrote to them, phoned them and texted them, but does anybody call to them? Can people deal consistently with somebody directly by name? I often end up talking to somebody different when I call back and I have to go through the whole rigmarole again. The Minister said recently that he would introduce legislation in this area, and there should be a zero policy on disconnection. At what stage are we with that proposal?

I do not doubt the sincerity of what the delegates have said to us today, but there is a great deal of frustration out there. There was an article posted on The Irish Times website on September 24 which contained a letter to Airtricity. The following is taken from that letter. “We have renegotiated our bills continuously with various institutions, including yours, depending on our finances. The day you came to cut us off was the same day we received your letter informing us that the bank debit had not gone through.” Surely that is not the right way to deal with a customer. The letter goes on to state the following. “Today we received your letter informing us that we were to be cut off last month.” In other words, two days after they were cut off, they got a letter from Airtricity telling them they would be cut off. That does not sound good to me. Perhaps there is an explanation for it, but it is typical of what is happening out there.

There is a serious problem and with children going back to school, September has been a difficult month. Household costs will rise due to the need for winter fuel. Why is the cost of our electricity so high? Why is the price of electricity going up? I am pleased to hear from the ESB delegation that there will be no disconnections in winter. If that is the case, when do they take place? How long does disconnection last? What is life like after disconnection? I know a mother of ten children who had her electricity cut off and it stayed cut off for several years. When she applied to the ESB for reconnection, she was told that her house would have to be rewired because it was idle for so long.

This is a serious matter. I welcome the contribution of the delegates this morning. I ask all the suppliers to take another look at this and to come up with remedies to the problem. I accept that they cannot allow people not to pay their bills. The ESB said it paid out €500 million to reduce everybody's bill. I suggest some people did not need that help and others needed much more help but did not get it. I look forward to a response.

Senator Jim Walsh

I join in the welcome to those who made the presentations. The Chairman put his finger on the issue when he mentioned those who genuinely cannot pay and those who will not pay. Those who will not pay will probably always be with us. Is any attempt made to distinguish between those two categories because I agree with the Chairman that our interest is in those who have difficulties and find it impossible to pay as a result of their current financial position?

I refer to socialising the disconnection charge of €200 which was suggested by Bord Gáis. I presume that means it becomes part of Bord Gáis's overall cost and is, therefore, factored into what it charges for energy. It should only be applied to those who genuinely cannot pay. I would not like to see everyone else subsidising people playing the old soldier, which is generally what happens in this scenario. That is why my earlier question is important.

Members honed in on the charge for disconnection and reconnection but I would like to hone in on the cost to the utility company of disconnection and reconnection. That brings into focus rates of pay, the manning levels involved, productivity and the amount of time given to people. It would not be noted for efficiency in many areas of cost. That is a criticism and I will not dilute it by saying otherwise.

The ESB mentioned that bad debts this year amounted to €20 million. I assume that includes business and commercial debts as well as domestic ones. Will the ESB break down the debts between both of those because it will give us a flavour of where the bad debts lie? It strikes me that given business difficulties, business debts might be a very significant proportion of those bad debts.

It did not come up but I noted a report recently that the ESB is moving to a minimum bill payment of €20. Will it comment on that? The Society of St. Vincent de Paul and perhaps MABS, which are at the coalface in dealing with people in financial difficulties, expressed serious concern about that proposal. I know the ESB is following the Eircom model. Losing energy supply has a far greater impact on families than losing communications connections. Will the ESB deal with that? Does the CER have any role in that area?

Airtricity mentioned competition and opening up the network. That is a very important point but perhaps somebody would like to spell out precisely what is meant by competition. I would like to ask a question about competition but I appreciate witnesses may not be able to answer it. It is, to some extent, related to what we are talking about, namely, the cost of supplies. Will the ESB, Bord Gáis, Airtricity and the CER state what has been the salary movements in each organisation since the summer of 2008 when this crisis first manifested itself? If they cannot give us that information today — I appreciate they may not have come armed with it — I would like it within the next week or two weeks because it is an area at which we must look.

Deputy Michael D’Arcy

What percentage is €20 million of the moneys the ESB collects in a year? When something good happens it should not be ignored. The ESB should be commended for insulating 3,000 homes. More information should be provided to ensure the most needy get the benefit of the 3,000 home insulations each year.

Bord Gáis probably hit the correct tone in regard to this matter. I do not know if people remember the particularly cold spell last winter but I knocked on the door of a house and a guy came out and said he had a problem that his electricity was to be disconnected the next day. That was during the coldest snap in history. I had a chat with him and he asked me what he would tell the children. It was a hard question for me as a public representative to answer but he then said the children would lose Sky. The reality is that there is no focus in some people's minds that the priority must be the ESB bill and not Sky. The man was paying his Sky bill but not his ESB bill. I would like to think these are not the people we are trying to ensure do not experience fuel and electricity poverty. It is important we state that clearly.

There is a divergence between the suppliers. I would like to think the industry could ensure a fairly uniform structure. I do not know whether Airtricity, the ESB or Bord Gáis is the good guy or the bad guy in this scenario but I would like to think there is a structure in the industry whereby there is a level playing field. I have not met a constituent who is a customer of Airtricity so I do not know if it is better or worse.

The ESB is sometimes good and sometimes bad. As my colleague said, if one gets through to the ESB, sometimes people are helpful but at other times they are particularly unhelpful. I would like people in credit control to know that when public representatives contact them it is because people who find themselves in a difficult position come to them. As I said, sometimes people are helpful but at other times they are particularly unhelpful.

Debt hopping is a real bother for every business. I am sure there is a data protection issue here but if somebody changes supplier and he or she owes money to another supplier, is that information made available? If that is not allowed, the matter should be resolved either by the CER or the Data Protection Commissioner to ensure nobody is able to debt hop.

Mr. Mullins touched on socialising some of the cost. There is a clear divergence between two semi-state companies. If I understand correctly, the ESB is saying that everybody else should pay for it while Bord Gáis seems to be saying that it is prepared to take some of the hit. I am a little confused. I know they are different entities but they are both semi-state companies.

The grid cost for Airtricity is a bother. I am fairly convinced that EirGrid is doing a particularly bad job on behalf of the State, and I would say that if EirGrid was sitting across the table. The industry seems to be completely prohibited from the construction of the grid. We are being told by the CER that the grid is a cost. For the 5% PSO levy to be levied on domestic customers and businesses at this time is madness. This country is obsessed with process. A law was passed which will be enacted in October or November. It is crazy to impose a further 5% increase when our costs are already high. I have a few questions for the CER.

I refer to the disconnections on which others touched and the extent to which they are genuine disconnections from properties or dwellings in which people live. Are there any demographics in that regard? We must have a clear figure in terms of houses in which families are living. I would like to ask the CER about the differences between the suppliers. Is it possible for the industry to do this itself or to do it with the CER's input to ensure the playing field is level? How much is the PSO levy likely to accumulate in the 12 months? Whatever the cost for the ESB, Airtricity or Bord Gáis for 2009 and the projected figures for 2010, what is the 5% because people and businesses will have to pay more? Everybody knows businesses are stretched enough at this stage.

Deputy Mattie McGrath

I welcome our guests from the four groups. I will not go over the ground covered but I have a few basic questions. Why are the charges so high? Have the companies looked at their costs, which were referred to? There were wage increases and salary raises for senior people in these companies. That is very frustrating for ordinary customers.

The cost of connection and reconnection is very unfair. I am a small businessman. Many businesses throughout the country have no way to get what one could call ‘hello' money for the connection fee. That is not a very fair start for a customer and for a good relationship. The cost of reconnection is also very unfair for those who cannot get paid.

I thank Bord Gáis and the ESB for their support for the Society of St. Vincent de Paul and for the energy insulation scheme. Speakers referred to money going back to the Department of Finance. I am part of a voluntary group in County Tipperary which is trying to do these insulations but we cannot get going because of bureaucracy. The system is too slow.

I compliment ESB staff who work hard in all types of weather. In the past, we knew the staff who were part of the community, but nowadays the work is farmed out and these workers do not talk to anybody. They are like the clampers; they do a job and there is no human engagement. Is there any personal contact? We heard about the letters and the telephone calls but human contact is important.

I disagree with Eircom which will not allow people who are struggling, people on social welfare and on low incomes, and small businesses that are in trouble to pay small amounts off their bills through An Post as they have been doing for years. That goes against what we are talking about today. Has the regulator any power to stop Eircom? The ESB also proposes to do this. People made small payments when they could. If people cannot pay small amounts off their bills, they will go into greater arrears. Surely, that is not helpful.

I welcome the approach by Bord Gáis in regard to socialising the cost. We should be able to separate the rogues from the good people so that everybody is not paying for rogue activity. We cannot condone that and such people must be dealt with. The committee and everybody involved should encourage anybody who is in any kind of difficulty to engage early on and to devise a payment structure. I thank MABS and all the voluntary groups for their input.

Deputy Joe McHugh

Why are prices still high? The regulator went into it to some extent, and that was on foot of a press release on the differential between Northern Ireland prices and those in the Republic of Ireland. What happens when the ESB hits 60% of market share? Where sits the consumer then in terms of confidence and knowing the prices will come down?

The regulator gave reasons prices are still high, whether level of usage and VAT, which is a function of Government. His organisation is also a function of Government. He touched on the 4.9% PSO. People who live in the real world are frightened that prices will continue to go up. We have evidence that this is happening already and I mentioned the 4.9% PSO. The real fear is based on the model at which we are looking. We have the regulator and the participants and it smacks of cartel-ism. That is not just coming from me. People on the street do not believe one can manufacture competition. That is what the regulator is trying to do. It is laudable in terms of two new entrants into the market and creating competition. We do not want one dominant player or a monopoly. What the regulator is trying to do is laudable but in terms of whether it will work in the long-term, there is a fear and lack of confidence in that model.

Competition was mentioned once today by Mr. Ennis from Airtricity. The call for competition in regard to the sharing of wider costs must be heard by the regulator. We cannot have one dominant player having complete monopoly on the grid and then try to facilitate new entrants into the market which do not have that parity or equality when trying to deliver their product.

How will the regulator ensure post the 60% market share tipping point that prices will come down? Can he ensure prices will come down at that stage because I and the public are concerned when all the main participants sit around the table being very nice to the regulator that it smacks of cartel-ism. We need to ensure that proper competition happens. The regulator is trying to ensure it, which is laudable, but it is not working and we need to be very careful about it post the ESB being at the 60% tipping point.

Senator Maria Corrigan

I thank the various members of the groups for coming in today. They have been asked many questions so I will try not to repeat anything anybody has said. However, I would like to make a couple of points. The Chairman made the point that the people in which we are interested are those who cannot pay as a result of hardship. We are not interested in people who leave the country or who refuse to pay.

We must be very clear that electricity and gas are essentials. They are not optional extras for people. There is a greater onus or responsibility on us to ensure people have the essentials for a basic quality of life. Do the utility companies have figures on non-payment as a direct result of hardship? There were some figures in the documentation we received today but there does not seem to be differentiation between non-payment as a result of hardship and non-payment as a result of choice or other circumstances.

I missed Ms Horan's presentation but I was struck by everybody else's in that they advocated a very person centred approach to helping people experiencing difficulty to manage. What mechanisms are in place to monitor that? Words are great but throughout the summer I heard from constituents who have not experienced that person centred approach. In some situations, they got on very well and it was very positive but in other cases, they did not get on well. From an organisational point of view, what mechanisms are in place to ensure that what is said to us is put into practice? Ultimately, it a question of dignity and it is difficult for people to speak to somebody on the telephone. When a person cannot pay a bill such as an ESB or gas bill, his or her world comes down on top of them and they are in a really black place. Having to pick up the telephone and talk to a stranger to try to work out a payment arrangement is really difficult.

Other speakers referred to the ESB proposal to accept only minimum payments of €20. Is it intended to implement this proposal? How can this proposal be stopped? I do not regard it as acceptable. I do not regard it as acceptable coming from a semi-state body. We are working with people who are on very tight budgets and in some instances they do not have much in the way of a weekly income. We encourage them to engage in budgeting strategies whereby they put money aside and physically pay an amount every week which may only be €10 or €15 a week. However, if they are forced to wait to the following week when it adds up to an amount in excess of €20, that money may not be there as some other priority may have arisen in the meantime. This runs the risk of rolling debt occurring. I would like that question answered by the delegation.

I welcome the policy of not disconnecting elderly customers during the winter. Another speaker said that no customer is disconnected during the winter but I understand this is not the case. The figures before us show clearly that disconnections took place throughout the winter and it is only the elderly or people on life-saving machines who cannot be disconnected. In circumstances, for instance, where an elderly person has been disconnected at another time of the year, what arrangements are in place to facilitate reconnection? Are the figures available?

I welcome the commitment from the regulator that the cost of the installation of the prepayment meters are to be, so to speak, socialised. I have not noted any proposal to socialise the costs of disconnection and reconnection. I have no desire to see disconnection and reconnection fees waived for people who chose not to pay, for whatever reason. I would not like to see that socialised, but I would like to see a proposal or some way to phase in the cost of reconnection, preferably socialised, because it is very difficult. The expectation that people would pay the disconnection fee in advance of reconnection makes it more difficult for them to come back into the payment system.

I understand that if there is an existing debt, the prepayment meters will have to be recalibrated to recover that debt. What is the formula for calculating the level at which the meters will be calibrated? Everyone's circumstances will be different. While a person is discharging his or her debt, the cost of supply will be more expensive than for those who do no have a debt. Obviously, we want the customer to be able to access the service. If the new calibrated level is too high, is there some form of appeal mechanism?

The last time the ESB appeared before this committee, it set out clearly the case as to why it was taking out prepayment meters and said that it would be very difficult to support the installation. Is there now a change of policy on this? Will the ESB now install prepayment meters? I raised this issue at the time because I was very conscious of people with disabilities who were living in supported living accommodation, who depended on prepayment meters but were unable to access them. At that meeting, the person from the ESB — not Ms Horan — gave an undertaking to look at that issue. It is now 18 months later and prepayment meters are becoming a real need for many people.

Senator Joe O’Toole

I welcome the delegation. It is noted that at times such as this, the two main parties shift to the left and suddenly become very caring and very worried about people. We have heard all this before such as the suggestion to nationalise Eircom, that there was no need to worry about the price of calls afterwards and then it is forgotten that the company is there to make a profit. The delegates in their response will need to explain in Ladybird steps that if the ESB reduces its numbers from 14,000 to 8,000, for instance, this will require people to push buttons on a telephone when calling the ESB because that is how jobs are done away with. The delegation explained to my colleague, Senator Walsh — who takes every available opportunity to have a cut at the public sector's lack of efficiency — that the company cannot absorb the debts of those who do not pay and then expect the cost of electricity to go down. I have to listen to Senator Walsh all the time. Important things need to be said this morning but important things need to be subtracted from some of the other stuff. I am completely opposed to creating a moral hazard and I am very reassured by what all groups said about how they deal with debt. It reflected a caring attitude from all the groups. I was not here for Mr. Mullins's presentation but I have read his submission. I am not convinced on the socialisation issue because I do not think it is the business of the delegation to deal with it. It is our business as politicians to introduce methods to deal with people who are unable to live in the economic and social climate we have created for them. It is not the business of the delegation to take up the slack for the mess we have created.

My esteemed colleague, Deputy Michael D'Arcy, referred to EirGrid. I opposed the establishment of EirGrid for sound political reasons but I believe it will be a very short time when some Government will come in and decide it is a nice little package in the middle between generation and network which it can sell off for €500 million and that will be the end of EirGrid. I was completely opposed to its establishment. Ms Horan referred to the way it was set up in different areas. The point made by Mr. Ennis about the equality and fairness of access to the wires is an important one and I look forward to Mr. Tutty's response as it is an issue we need to examine.

Ms Horan said the public service obligation costs would be 4.9%. I ask how this is calculated because we need to know what the implications of our decisions. EirGrid does a superb job although I wish it did not exist. It is superbly efficient in what it does and its spot price regime is very important. However, we have decided that it cannot buy the cheapest electricity. We have decided it cannot buy electricity that might come from nuclear power. It is very important that our decisions on this side of the table be put into the context of all we discussed this morning. I agree with some of my colleagues that the ESB should take a long look at the issue.

Everything the delegation has said about dealing with people in difficulty is very positive. However, I cannot relate it to the decision not to accept payments of less than €20. This policy should be reversed immediately. Decent honourable people are trying to pay on a week to week basis and if the IT systems people in ESB and Eircom and other places cannot find enough flexibility in their system to deal with this, then I have serious questions about the efficiency of their systems. The policy is wrong and unacceptable. I support the views of various groups such as the Society of St. Vincent de Paul and others. It would be an ease to the committee to hear that this policy would be reversed.

On the question of VAT charges on disconnection fees, that is a problem to be dealt with by politicians rather than the delegation. The political classes have made the decision to charge VAT. We do not have a difficulty opposing disconnection and reconnection fees and making speeches about it while at the same time knowing that the Government and the parties making the speeches will not change the law to waive the VAT on those fees. I want the delegation to know there are a few of us here who can see the conflicts in what we say. If one reduces the workforce from 13,000 to 8,000 and increases productivity by that amount, there is a cost in higher salaries. It is an efficiency that everyone has applauded. There are no easy ways of doing this. I support what is going on. With my background, I have been a supporter of the ESB but I have always supported competition in everything. I welcome the involvement of Bord Gáis and Airtricity in this business. They have created something of great importance to the marketplace. I take it the delegates referred to the network being between EirGrid and people's houses. In that regard, the issue of access was raised and I am conscious of the amount that has been invested by the ESB over decades. We had the same discussion with eircom about copper wire, who owns it, who can use it and unbundling. We have been through this before.

I do not want to send a simple message from this meeting that there should be no disconnections or that the cost of disconnections should be charged to all other consumers. I refer to the points made by Senator Corrigan. This must be done in a fair and humane way. If people cannot pay, they must be dealt with in the easiest way possible. We have responsibility as well as the delegates. I have been reassured that the approach taken by all three groups is positive, welcome and shows humanity.

Sometimes we ring up and we do not get positive support. This customer service issue must be examined. There should be no negativity in that regard. This should be about a humane approach. It may seem a small thing to the board of the ESB but the decision on the minimum fee of €20 should be reversed. It is unfair and it does not work. It does not fit with what was said this morning. There is also the legal matter of whether one can take action against someone paying a penny per month. I am not suggesting we go down that route. In these hard times, honest people are doing their best to discharge their responsibilities and their dignity should be respected.

Deputy Martin Ferris

I thank the stakeholders for their presentation. The increase in disconnections is striking and reflects the financial situation of many families and individuals in society. The stakeholders have said they take a humane approach to people who find themselves in that situation. In the case of one person, whose daughter was studying for the junior certificate, disconnection would have gone ahead but for the approach of the individual carrying out the disconnection. The same person made a payment of €1,000. The sum built up not through the customer's fault but because he was away from home most of the time and the electricity bill was estimated. The electricity use was far greater than the estimate, amounting to €2,400. The person paid €1,000 there and then to decrease the amount to €1,400 but within a few weeks he had received a letter and would have been disconnected if he had not gone public and chained himself to the doors of the head office of the ESB.

I am aware of another person with a large family who was disconnected due to mismanagement. I intervened to make contact with the ESB at a high level. Thankfully, it was resolved in a caring way. For people lucky enough to have someone to represent them and open doors for them, the circumstances are very different to the person who phones customer care and has to dial one, dial two or dial three, spends half an hour on the phone and gets nothing at the end of it. Through frustration and anger, a person may give up in this situation. It happens regularly.

Speakers referred to prepaid meters but this matter concerns the financial situation people find themselves in and the great increase in the number of people who have been disconnected. It does not make sense to charge someone €86 to disconnect and €88 to reconnect. A person in debt through no fault of his own finds himself disconnected and to reconnect, he must find an extra €174, which is added to the debt. This does not make sense.

I welcome the fact the stakeholders are taking a caring approach to this in consideration of the circumstances people find themselves in at this point. I concur with Senator O'Toole on the €20 fee. I assume the delegates consider the economic situation of the person they are about to disconnect. Is it true most people who are disconnected are on jobseeker's allowance or on social welfare benefit? Is it correct that there has been a great increase in the number of people dependent on those payments to feed their families? This will not get better in the short term. The ESB graph shows that the number of people disconnected has increased from 9,700 to 13,800 so far this year. Is there a strategy to ensure everything possible is done to maintain energy in people's houses? This applies in particular to those with young families, the elderly and people are disabilities.

Senator Joe O’Reilly

This discussion brings into sharp focus the reality of a recession for so many people. Many people are in a very bad place. I spoke recently to a small wholesaler who has a sound tradition of dealing with local retail outlets. He told me he was getting six bounced cheques a week. In this case we are talking about 80 disconnections from electrical power per day. People are in a shocking place. I welcome the speakers and I congratulate Deputy McManus on the fact that this is on the agenda. People outside the House want us to have many more such discussions and to talk about the reality of their lives. This is unfortunately a reality for so many people.

There should be no debate about removing the disconnection and reconnection charges. It must happen but the ideological issues addressed by Senator O'Toole arise. The financing of the removal of the disconnection and reconnection charges should be achieved from profits, as identified by Deputy Varadkar. A certain level of efficiencies can be achieved within the context of maintaining proper practices. The VAT question goes back to the Oireachtas. We should support the removal of VAT here because what is at issue is small in VAT terms but it is significant for the people affected. It should be abandoned if a combination of strategies are adopted. The starting point should be its abandonment. The least we can do for people who are in this awful place is ensure that they do not have a disconnection and reconnection charge. That is beyond acceptable. It almost perpetuates the debt and leaves people in an impossible position from which to recover.

The prepayment meters are vital. I am interested in the statement from Ms Horan from the ESB on progress to date and where she sees it going in the future in terms of the provision of prepayment meters. It would be worthwhile to hear what it would cost suppliers. The cost should be minimal to socialise it, in other words all consumers would pay for the metering process. It would be interesting to get costings on the achievement of that ambition because prepayment meters would assist many people. They would certainly help the people who are trying their best. I would welcome a response from the delegates on the implications and the exact costings of providing the prepayment meters.

One area that did not get much attention today but which merits mention is the need for considerable emphasis on conservation and insulation. I would like a response from the delegates on the degree to which they believe their contribution to the SEI funding could be increased. That must have significant implications. If we could get people to insulate their homes it would have major implications in addressing electricity bills, green awareness, conservation and in terms of job creation. It would matter in practical terms. We must bear in mind that the debate is taking place on the eve of winter when the issue under discussion will become a stark reality. It is even cold today.

Debt hopping should be addressed because it is causing a problem and will ultimately cost the people who are genuinely trying to pay. I will not labour the point but I would welcome a response.

The extra cost of electricity here has come up many times today. Senator O'Toole says the problem lies predominantly at Oireachtas level. That is a valid point. I invite the delegates to comment on the issue and to give their view on why the cost of electricity is so high.

I reiterate the point made by my colleague, Deputy Varadkar, to Mr. Tutty that there has been a 6.4% increase in electricity charges in the period delineated by him. Will he clarify the matter for the committee and indicate whether suggestions to the contrary by the Minister and others are unfounded? That level of clarity will give people confidence in the process. I am interested in the response but I am more interested in hearing that disconnection charges will not be imposed and prepayment metering will be introduced.

Will Ms Horan specifically address the following point? It is absolutely criminal that it is unacceptable for someone to pay €5 or €10 towards a bill. We could not tolerate that. I appeal to the ESB to reconsider that approach. I am aware from my clinics and anecdotally that the ESB is very good in terms of giving people chances to pay but it is unrealistic to suggest that the minimum payment should be €20 given that in many instances the people we are talking about are in a hopeless position. Many people in middle class estates and big houses behind gates are now unable to pay their bills. The matter is very serious.

Deputy Peter Kelly

I welcome all the groups. They look like one big, happy family. It is good to see them all together. In fairness to the companies present, they are companies of which we can be proud. They have served the State well over many years.

The companies should tell the Minister they do not want the proposed 5% increase in the public service obligation levy. They are doing such a good job in other ways that they should be able to come up with an idea for how not to put it on the bottom of the bill. Many people have been asking me about it. If one has €20 it is not much but if one does not have it, it can be an awful lot of money. The minimum payment should be revised.

Chairman

I understand Mr. Ennis has an airplane to catch so perhaps we will call on him to respond first on Airtricity issues.

Mr. Mark Ennis

I have set myself up by being first into the lion's den to answer questions but I will do my best. To respond to the specific question about the customer with no bank account who tried to move to Airtricity — that is not correct. I cannot answer about individual cases but I would be happy to take up the matter with the Deputy afterwards.

Deputy Liz McManus

I have the customer's name and address.

Mr. Mark Ennis

That is perfect. We will follow up the matter because the story goes against our process. She might have asked for the same discount as someone who wants to pay by direct debit but that is different. I am more than happy to take up the matter.

To respond to Deputy Varadkar's question of whether Airtricity is composed of hard-nosed guys. I do not believe so. We want to engage with customers. Disconnection does not help anyone. It is not good business. It does not make sense for the customer or for us. We have processes in place. A series of letters have to go out and that is if the customer does not engage at all. We contact people by letter and try to make telephone calls as in the example I illustrated to the committee. We have a fairly proactive service to prevent disconnection taking place that includes prepayment plans. Deputy Varadkar's view is based on a misapprehension. It was not helped by the fact that a letter was printed in The Irish Times. We are conscious of that letter. We have tried to trace the person involved but we have been unable to do so. We would like to trace the person if it is a genuine case. We send out letters 14 days in advance. We are required by the regulator to send out such a letter seven days in advance. We do so to ensure that they arrive in time in spite of the vagaries of the postal service. It is difficult to comment on a specific case. We have seen the letter and people have made many copies of it. It makes a number of points to different suppliers in the market not just ourselves. We tried but failed to address the specific concerns in the letter but we have not been able to locate the person. However, we are addressing the general concerns expressed. We would be more than happy if someone could tell us who it is.

Deputy Noel J. Coonan

Is Mr. Ennis implying that something of that nature did not happen?

Mr. Mark Ennis

I do not know. That is my problem. As Deputy McManus said——

Deputy Liz McManus

I have telephone details which I will pass on to Mr. Ennis.

Mr. Mark Ennis

That is perfect. We will follow up. We do not claim to be perfect. We try to give the best service we possibly can.

Senator O'Reilly spoke about encouraging customers to insulate their homes. Airtricity has a community fund which is generating more than €500,000 per year. We are targeting such customers, especially in rural communities that are close to our wind farms. We are targeting homes to specifically award grants and support to allow people to insulate their homes and improve energy efficiency. We are also launching an education programme campaign to make people aware how much they can save if they appropriately insulate homes and so on.

In terms of brand, Deputy McManus has been on record a couple of times on this issue. There is an absolute reason for this as there is a European requirement for a change of brand in the same circumstances. We can agree to differ and I am happy to have the discussion. In effect, if one examines the marketing budget of the semi-States here and apply that——

Deputy Liz McManus

I do not want to confront Mr. Ennis but I do not agree with him on that.

Mr. Mark Ennis

I will agree to disagree. As far as we are concerned, this is absolutely essential. The very reason one needs to do it was highlighted by Deputy McManus's own comments at the last committee I saw published at which she rightly stated that the ESB has a fantastic reputation and that it is the company that put the wires into Ireland — the quote was along those lines. That is absolutely correct. The ESB did a fantastic job. The problem is that the customer associates the wires company with the provision of the service. We heard the ESB representative today say there is an absolute distinction between the supply business and the network business. That is not clear in the customer's mind. As a new entrant to the market, we have to compete with the customer who may decide not to sign up with Airtricity because it does not own the wires so the customer believes he or she might not get service. That is the issue.

Deputy Liz McManus

It is not worth €80 million to the customer. Generally speaking, customers are pretty intelligent and they make their own choices. However, let us continue as I do not want to be adversarial.

Mr. Mark Ennis

I did not set the €80 million budget. The brand can be changed for significantly less than €80 million but I assume that is the figure Deputy McManus has been given and I cannot make any comment on that.

In terms of competition in the wires business, ESB Networks currently has the monopoly on putting down the wires. The point I make is that we have an expertise within our business that we bring to the country through our holding company, Scottish and Southern Energy. We would like to be involved in building out that infrastructure on the island of Ireland, we want to be a long-term player on the island and we want to invest in that infrastructure. If we were allowed to do that it would bring competition that would drive down the cost of putting that infrastructure in place. We have an example in one of our own wind farms, where we went to competitive tender on a piece of interconnection and it turned out to be half the price we were being charged by ESB. There are savings to be made for customers by bringing down the whole price of infrastructure. What we will all end up paying is a return to those companies that have built those assets. That return is based on the cost of the infrastructure that is put in place. Therefore, if we can lower the cost, we benefit all customers.

The last point is probably the most thorny one, if I have not touched on some thorny ones already, namely, the concept of socialising the disconnection charges. There is a dilemma in regard to how one differentiates between those customers who are deliberately not paying their bills and those who have hardship. Every supplier at this table would be in favour of socialising cost to those who are going through a period of real hardship. Although this is coming off the top of my head rather than being a well thought-out solution, perhaps if the Department of Social Protection, which will be more aware of people's personal circumstances than anyone else, got the disconnection bill, it would be able to handle that bill for those individuals.

The issue that arises if one socialises the cost into the general wires cost is that everybody paying bills normally has an added cost to pay, namely, the increased cost due to disconnection. That may well end up pushing the person who is genuinely paying their bill over the edge. While I do not have the figures with me to state exactly what the impact of socialisation would be, it is a very thorny issue and one that has to be grasped and dealt with openly. It is easy to say "socialise costs", but who actually pays for that socialisation? Somebody, at some stage, has to pay for it. Therefore, I urge caution and warn against a knee-jerk reaction to socialise cost for everybody. Let us understand exactly how that has to be done. We would certainly support it if it can be done in a way that does not impact other customers.

I have probably said enough to land myself in plenty of trouble.

Chairman

I will call Mr. Tutty shortly. To take up Mr. Ennis on one point, he referred to socialisation of the cost. If the individuals implementing disconnection are permanent and pensionable members of the ESB staff and if the number of disconnections is increasing, then the unit cost of disconnection must be coming down. Yet, we have this figure of €200. Clearly, as the numbers go up, the unit cost comes down. I suggest a profit is being made on it.

Mr. Mark Ennis

That is a very valid point, although it is obviously not for me to answer as I am not in the networks business. There needs to be a review of the cost of disconnection as opposed to the charge which is currently applied. We need to know if the charge reflects the cost, because if not and profit is being made on it, that is a terrible situation.

Chairman

Perhaps Mr. Tutty has the answer to that.

Mr. Michael Tutty

There were a great number of questions; whether I have the answers is another matter. To begin on the question of differentiating between those who cannot pay and those who will not pay, that is the key issue. I certainly do not want to be the one who will have to take those decisions. A new arbitration body would have to be set up to do it. To some extent, we are doing it already, or at least the supply companies are. The prepayment meters we are allowing Bord Gáis to install and the budget controllers we are allowing ESB to buy and install, and which are socialised, are to be given to those who are in difficulties. Therefore, it is already happening in some way; whether there are enough of them is another matter.

The general opinion here is that those who will not pay should still be charged for disconnection and this should not be socialised, and if they want prepayment meters, they should pay for them. We can certainly consider how much more we can do. The cost of not charging people for disconnection is not huge if it is socialised. My understanding is that it would only be perhaps €3 per customer per annum at present. However, if there was no disconnection charge, there might be many more disconnections because people would not have the incentive to pay their bills, so that figure might increase.

The cost of disconnection and reconnection is not huge. The cost of installing many meters and budget controllers is much more significant. Mr. John Mullins said to me before we began the meeting that the cost of installing a prepayment meter is approximately €400. If that is done on a wide scale and the cost is socialised, that will certainly be at least evident in the bills. If it is a step towards smart meters and if those prepayment meters can be used later, that may be useful. What we are doing on the electricity side is trying to get a low cost solution in the interim stage. The availability of the budget controllers is limited, I am told, but we are examining what else is available.

We are all on the same wavelength here. We and the supply companies have been trying to put mechanisms in place for those who are not able to pay. We will consider how much more can be done without it adding too greatly to the costs of those who are paying and continue to pay.

Deputy Liz McManus

To clarify, in his presentation, Mr. Tutty said the CER was extending prepaid metering. What are we talking about? Are we talking about a 50% increase?

Mr. Michael Tutty

The question is on what scale we will install prepayment meters. If we——

Deputy Liz McManus

That is what I am asking Mr. Tutty. He stated that the commission would extend free prepaid metering. What is the exact scale of the extension?

Mr. Michael Tutty

On the electricity side and according to the figure on the slide, we agreed to an additional 17,500 units being made available. This is a small proportion of the total number of households in the country. The availability of these budget controllers is limited. We are considering whether there is something else that would be low cost and could be used in the interim until we move to the smart metering of electricity. If we are discussing a limited extension, the cost might not be high. If we are discussing something more widespread, that is, everyone would have a prepayment gas meter and a budget controller or other device for electricity and it should all be socialised across the general population, the cost would be significant. If we can distinguish clearly between those who will not pay and those who cannot pay, the number will be limited. This is already being done and the supply companies are getting advice from the Money Advice and Budgeting Service, MABS, and the Society of St. Vincent de Paul on trying to distinguish between those groups. There is no gap between us on where we want to go as long as we are only discussing how to distinguish those who cannot pay from those who will not pay.

I will address the issue of prices before I forget. I do not want to get into a row with the Minister or anyone else. From a factual point of view, however, we have been setting out figures for the price changes since 2007. These show some increase in ESB customer supply charges over that period. I do not know what figures the Minister used, but were he taking account of the discounts available from other suppliers, he would find that prices had decreased.

In terms of the comparison with eurozone countries, there has been a significant change in our relevant position in recent years. People still talk about us as having the highest prices in Europe, but this is not so. As I stated when discussing the comparison with Northern Ireland, whether we are above or below average depends on what level of consumption one examines. People can get different results by examining different categories. EUROSTAT uses five bands for electricity consumption. The band covering the highest levels of consumption puts us as being at 86.5% of the eurozone average at most while the band covering the second highest levels puts us at 98.4% of the eurozone average, seventh highest in the category. At the lower levels, we are above average. One can be right in saying we are below or above average depending on which category one examines.

Deputy Leo Varadkar

Is Mr. Tutty using purchasing power parity or is he using the real figures?

Mr. Michael Tutty

No, we are not using purchasing power parity, only the EUROSTAT figures as published by Sustainable Energy Authority of Ireland, SEAI.

I will not get into a detailed defence of rebranding. Mr. Ennis has made his point well. We are not rebranding because he and Airtricity want it, but because the networks end in a competitive market should be branded differently than the competitive end. The latest European directives agree on this point.

Deputy Liz McManus

They need to be separated in terms of brand names. Mr. Tutty specifically stated that the retail name needed to be changed, which is not a requirement.

Mr. Michael Tutty

We specifically stated that if ESB Customer Supply is to be deregulated on its prices at a level of 60% market share, which is a high share from a competition point of view and we were not supported by the Competition Authority or the ESRI in setting such a high level, then the retail end should be rebranded. The company would be going into competition with a large share of the market.

Deputy Liz McManus

And the customer would pay.

Mr. Michael Tutty

The customer would pay, but the cost of €40 million per company that Deputy McManus cited and on which Ms Horan will speak will not be the expenditure on rebranding.

Senator Jim Walsh

Does the commission know what the cost will be?

Mr. Michael Tutty

The ESB is working on it. I do not know the cost, so I will leave that question to Ms Horan. The rebranding will be necessary at some stage to comply with European directives and to ensure we have a fully competitive market.

Senator Jim Walsh

In what is almost an economic depression, are we committing to a project without calculating its cost in advance? It seems like a cavalier approach. This is one of my concerns about the manner in which regulatory systems in general, not just the CER, work. In the current economic situation, is the accurate calculation of cost not one of the first actions that should be taken when one embarks on any sort of venture that adds to the cost of essential utility services in particular? I am amazed to hear that the representative of the CER is not in a position to provide the figure.

Mr. Michael Tutty

At the moment, the ESB does not have to do it and does not have to be deregulated if it does not want to be. While we are on this point, a question was asked as to——

Deputy Liz McManus

This is not about the ESB. This is about customers having a choice. They were offered choices by Airtricity and Bord Gáis has been successful in getting people to change over. Let us not under sell the matter. It has been working well. Although there is a long way to go, people have taken up the option because customers tend to be intelligent.

I have no idea of how much this will cost. I suggested a figure because it is what I had heard and I may be wrong, but changing the name of one Department approximately four years ago cost more than €2 million. I do not want to see the customer carrying an undue burden of cost at a time when people are being disconnected because they do not have enough money to keep going. It is not a question of the ESB and whether it makes choices. It is about protecting the customer against unnecessary cost increases. That is all.

Mr. Michael Tutty

On the related question of what will happen when the prices are deregulated, it will be a matter for the ESB, as we will not control its prices. As I have often pointed out and will continue to point out, we do not keep ESB or Bord Gáis prices artificially high to generate competition. We determine a price that is in line with the costs those companies incur. I do not expect the ESB or Bord Gáis will suddenly be able to have large reductions in their prices simply because they have been deregulated. If they were able to do that, it would certainly suggest that we have been keeping their prices too high and we do not accept that at all.

Debt-hopping has been mentioned. We have considered the issue on a number of occasions and my understanding is that in the rest of Europe, only the UK has a block on debt-hopping. We have consulted publicly on the matter but we have never had much support from consumers for it. The supply companies certainly like it as a consumer is told that his or her supplier cannot be changed if there is an outstanding debt. We are looking at it again and the idea has been mentioned that the new supplier could get information on the debt position and on whether there is an outstanding debt. We should certainly consider that. I understand this happens in Northern Ireland, although there is not much switching there because the systems are not yet in place. To the extent that the systems are in place, the new supplier is allowed the information, and we must consider if this is possible under data protection issues. It is certainly a good provision but whether we, as regulators, should state that consumers with a debt cannot change is a difficult issue. The consumer may be in dispute with the company that he or she wants to change, for example. It is not an easy issue but we will certainly look at it again.

On salary movements since the beginning of 2008, the Commission for Energy Regulation has been subject to the same reductions as the public service generally. Its members, including the commissioners, are subject to the pension levy and the reductions applied throughout the Civil Service and public service. My salary went down by approximately 25%. That is to confirm that we have been subject to those cuts.

With regard to the wires, Mr. Mark Ennis was exercised about having competition. For generators wanting to connect to the transmission and distribution system, contestability is there now for transmission and lately for distribution. If it has not quite come in it will be introduced shortly. The legislation has been passed to allow the generators to build the transmission or distribution systems if required.

Senator Joe O’Toole

Would that be in competition with EirGrid?

Mr. Michael Tutty

Yes, but EirGrid would then take it over.

Senator Joe O’Toole

I guarantee this committee would be very exercised about a new set of power lines going across the country.

Mr. Michael Tutty

The generators only pay for the shallow connection. There is contestability and if they do not like the price charged by EirGrid or ESB Networks, they can do it themselves and then hand it over to ESB Networks. Nobody is suggesting that we should have parallel transmission and distribution systems and duplicate them around the country. Not even Mr. Ennis is arguing that.

In terms of costs, we carry out a full review on a five-year basis of the costs of EirGrid, ESB Networks and Bord Gáis. We completed a further review on the electricity side recently and published proposals for the next five years as the targets that the networks and EirGrid should achieve, including the reductions they should achieve in costs. There have been very significant reductions in costs over the past ten years or more and there will be further reductions coming up on the basis of the proposals we have put forward. We make every effort to keep the costs down as low as possible and continue to do that.

There are probably many other questions which I failed to answer. One concerned the definition of "elderly", and my understanding is this takes in people of pension age. The wider these concepts are extended, the more difficult it is to run the system. If we say nobody should be cut off during the winter, bills are built up which can cause significant problems. Currently, people of pension age are included in the definition.

Deputy Jimmy Devins

As a follow-up to that question I asked if the decision is enshrined in legislation or if it is a decision of the CER.

Mr. Michael Tutty

It is enshrined in our code of conduct, not in legislation.

Deputy Jimmy Devins

So it can be extended by the office.

Mr. Michael Tutty

It can be extended.

Deputy Leo Varadkar

With regard to the public service obligation cost, I asked about the impact and if there are any estimates on how much it will rise over time as more subsidised electricity comes on stream. It is 4.9% now but will it be 10% or 15%? I know it is not done as a percentage but as more renewables come on stream will the PSO increase?

Mr. Michael Tutty

It depends partly on whether the price of fossil fuels increases or stays down. The lower the price of fossil fuels, the higher the subsidy for renewables. There is a connection between the two. We expect over the period to 2020, when we will have 40% wind on the system, that there will be increases in the PSO levy. It can be offset to some extent by lower prices in the market because when there is more wind on the system, it can bring down the single market price in the electricity market. There is some offset in that respect. It is difficult to provide a figure for where it will be in 2020 and how much of it will be offset by lower prices in the market.

Deputy Leo Varadkar

Are there any estimates as to where it will be next year or the year after?

Mr. Michael Tutty

I do not have a figure but it should go up somewhat. Some elements should come down as they were on the peak side this year; special maintenance had to be done but this will not be there——

Deputy Leo Varadkar

I am looking for a ballpark figure. This increase exists to subsidise the Government's renewables policies and although I am very much for renewable energies, I am concerned about the economics and the potential creation of a green bubble. It will now be approximately €2.50 per month on everybody's bill but will that increase to €7, €10 or €12 next year or the year after? Will it be a very small increase?

Mr. Michael Tutty

I would not expect it to rise that fast but I will give an answer when I can find it.

Deputy Leo Varadkar

Should we have figured out the cost before we embarked on the policy? I appreciate that we were in the middle of a boom in 2006 when the policy began and we threw money at everything, including green issues. We are in an economic crisis now and cannot afford to go down the route of a particular gamble like this if we do not know what it will cost us. It seems very unwise to go down a policy line like this while not figuring how much it will cost consumers and businesses during a major recession.

Mr. Michael Tutty

We can estimate the cost based on the number of wind farms that will be introduced over the next number of years.

Deputy Leo Varadkar

It was not done before the policy started. Did we really decide to go down this route without working out what it would cost? It is like the hotels all over again.

Mr. Michael Tutty

A subsidy figure for each type of renewable energy has been fixed so it is a matter of multiplying this by the numbers installed over the coming years. I am sure the Minister and the Department have their figures but I do not have one here telling me that next year it will be X and the following year it will be Y.

The CER did some estimates extending to 2020, but I do not have them with me. Some of the figures in the PSO at the moment will fall out over time. They are all time limited subsidies. It is not something that goes on accumulating forever.

Deputy Leo Varadkar

Some people have suggested they would like to close their wind farm for a year and reopen it under the subsidy. Has anybody approached the regulator on that basis, namely, that when the subsidy runs out they will close it down and reopen it the following year?

Mr. Michael Tutty

Nobody approaches the CER about subsidies in any case because it is not a matter we deal with, other than calculating the cost. They will approach the Department about subsidies.

Deputy Leo Varadkar

Is Mr. Tutty aware that people have approached the Department on the basis that when the subsidy runs out they will close down the wind farm for a year, repaint it, call it a new wind farm and get the subsidy again?

Mr. Michael Tutty

I doubt that the Department would be foolish enough to allow such things to happen. It is an issue for the future rather than an immediate one.

Deputy Michael D’Arcy

I have a question for Mr. Tutty in regard to 2011. I have numbers that suggest this will have a cost for domestic and commercial consumers. Mr. Tutty must have some idea about the costings.

Mr. Michael Tutty

We published figures for 2011.

Deputy Michael D’Arcy

Does that refer to the PSO costs?

Mr. Michael Tutty

Yes. They are in the paper that we published on 30 July 2010. For domestic customers the cost is €32.76 for——

Deputy Leo Varadkar

Is that for October?

Mr. Michael Tutty

The figure is from 1 October 2010 to 30 September 2011.

Deputy Leo Varadkar

What about from October 2011?

Mr. Michael Tutty

We have not calculated the numbers.

Deputy Leo Varadkar

Mr. Tutty must have some projections or some idea.

Mr. Michael Tutty

In the first place it depends on the level of prices in the market. I said we had made a calculation out to 2020 just on the basis of the number of wind farms to be brought in and on assumptions of the level of prices in the market. I do not have with me a set of figures calculating what the figure will be for each year.

Senator Joe O’Toole

In fairness to Mr. Tutty, it is like asking what the price of oil will be in two years' time. One issue is not clear to me, however. In order to achieve the level of wind power required by 2020, the potential required is to have the generating capacity of wind farms to bring it up to between 70% and 75%. When the capacity reaches that target there will be no further need for wind farms to be built or developed. What does it mean if there are time limits? At this stage EirGrid can outline for us the number of wind farms that will come on stream over the coming ten years. In answer to Deputy Varadkar's question, surely we should be able to see that by 2020 the capacity on the grid will be such as to bring it up to the 40% or 60%. In order to have that the potential must be about 75%. That will be the total number of wind farms. This is a big issue for people involved in this industry at present who want to know whether they should build wind farms. The answer, for quite some time, is they should. However, is it not also the case that the public service obligation will die eventually when we reach that capacity? Is that correct?

Mr. Michael Tutty

Again, that is a matter for the Minister and the Department. The Government commitment is to a 40% renewable target so I assume the refit scheme is geared towards achieving that. We know there are many more people who want to build wind farms, that would go beyond the 40%. The issue is whether we can accommodate any more on our grid. Even at 40% we have to examine whether it is feasible, from a technical point of view. Much will depend on interconnection with the rest of Europe and whether we can export electricity generated by wind and, even more important, get paid for it.

Deputy Leo Varadkar

If the cost of generation is much higher than the market cost, who would buy it? One cannot export something that costs more than it could be made for at home.

Mr. Michael Tutty

The marginal cost of generating from a wind farm is fairly low. It is the capital cost which has to be repaid. We are getting into a debate that I was expecting to have this afternoon at another Oireachtas committee.

Deputy Leo Varadkar

I am concerned that we might be subsidising exports.

Chairman

I am conscious we might be straying a little.

Deputy Leo Varadkar

It is one thing to subsidise renewable energy to use here but another to subsidise it so that people in a foreign country can have cheap power.

Mr. Michael Tutty

There are possibilities that other countries will not be able to reach their targets for renewable energy and will need to import such energy from us. This is an area that needs study and for some time we have been calling for it to be studied.

Deputy Leo Varadkar

It should have been studied before the policy was embarked upon.

Mr. Michael Tutty

The 40% policy exists and is fine. We can achieve 40% on our system. I am talking about going beyond that and accommodating all the other wind farms that are lining up.

Deputy Leo Varadkar

It is amazing that the idea of exporting green energy has not been studied properly.

Mr. Michael Tutty

We have not worked out how it can be done and who pays the cost of the extra connection.

Senator Joe O’Toole

In order to achieve the 40% target on the grid there must be potential for 75% because the wind blows in different places during the year. If our peak electricity demand is approximately 5,000 MW we need to have the capacity to generate three quarters of that by wind — a finite figure. That is one issue. The issue Mr. Tutty just touched on is that the people have not yet been told we will be driving wasted wind electricity into the ground because we have not developed a storage capacity. As Deputy Varadkar pointed out, in many cases we will not be able to get a market because we will not be competitive. That is a big issue. There will be wasted energy if we do not do something about storage. Nothing is happening in that area.

Deputy Liz McManus

The Joint Committee on Climate Change and Energy Security will have a presentation from Mr. Tutty. He is working hard today but it is not really relevant to the subject of this meeting. We should concentrate on issues raised by members of the committee.

Senator Jim Walsh

I seek one point of clarification from Mr. Tutty and thank him for answering the question on salary movements. He mentioned a reduction of 25%. Can I take it that just under half of that figure was the pension levy? Second, am I correct to assume there have been no increases in the CER, including incremental increases, since summer 2008?

Mr. Michael Tutty

Yes.

Chairman

We are going to move on.

Mr. Michael Tutty

I am sorry. Including increments, that figure is not correct.

Senator Jim Walsh

They would be salary increases. We should look for that information.

Chairman

That is a separate issue. We will move on.

Mr. John Mullins

I will not elongate the discussion but, as a practitioner investing almost €1.2 billion in wind farms, we have done the long-term models. The reality is that onshore wind is economic in this country. The situation at the moment is that the gas price is at a nadir but if we all lived our lives on the basis of short-term nadirs and short-term vision we would have a real problem. The situation is that for a number of years the PSO levy has not kicked in for onshore wind. I predict that probably from 2012 onwards it will disappear on the renewable side. Clearly, it will not disappear on the peat side. That is purely on the basis that onshore wind in this country is equivalent to $70 a barrel. Currently there is a disconnect between gas and oil prices. The oil price hovers above that but gas prices will increase. We made our decisions in case there is collateral damage in this area. We have made our business case on the basis of our long-term models in terms of supplying demand on a macro basis and taking all the research advice from investment bankers and commodity traders worldwide. From my perspective, it is important in the debate the committee will have later.

I am aware of the issue Deputy McManus raised, which is very regrettable. When one has a machine that works on a certain cog base and which goes wrong, one has to get fitters to fix it. I have the fitters working on the machine and it will be worked on. This is an issue I take very seriously as I do all customer service issues, unlike other people who run companies here.

Deputy Joe McHugh

That is more like it. It sounds like competition.

Senator Joe O’Toole

Like airlines.

Mr. John Mullins

No comment. In terms of investment, the Senator asked how we can promote this effectively. We have now developed a new home team business. We are recruiting almost 150 new people in our business in the private sector, who are now supporting the business in terms of delivering retrofit. In addition, I took a view about 18 months ago that it was time to go back to the 1970s and the 1980s when utilities such as the ESB and Bord Gáis put things on the bill and allow people a form of financing that they cannot get in the outside world. We have made €2,500 available to allow people to insulate their homes or whatever. It may not contribute everything but thanks to the SEAI agreement, we are now offering a one-stop shop. We will take all the work off the customer's hands in terms of dealing with grants. Our front end will now deal with that area and offer finance as well. Those products will be advertised on television very soon.

However, in terms of retrofit I assure the committee that our business in terms of that space is up by 45% already, year on year, although I cannot confirm what has been said on the €35 million. There is a latent market now for retrofitting because many people will not move homes in the next few years.

On the costs of socialising, on current rates running in our gas business we are installing a maximum, say, of 80 prepayment meters because this mitigates hardship in line with the payment plan. The majority of people sign on to payment plans and honour them. The prepayment meter cost on the current run rate is about €3 million a year. That is the gas industry cost. I cannot comment on the electricity industry. In terms of reconnection and disconnection costs, on the current run rate we are looking at €1.2 million. In comparison to the total value of the energy industry, that is not an enormous cost. I take the Deputy's point to the effect that we should absorb it. We do other things in the community, clearly, as cited by Mr. Ennis in reference to his company. I have no difficulty in making a contribution, but we all have to contribute to meeting the current crisis.

These are two very good solutions, certainly the first one as supported by Mr. Tutty in terms of the prepayment meters. There is a difference between the technology provided by the ESB and ours. Our technology is effectively a smart ready meter. One can get one's tokens in a payzone, like a SIM card. One goes into the newsagent and essentially prepays. There is an emergency limit on it as well. In fact the technology provides that one can actually change supplier if one is on a prepayment meter. When one logs back into the newsagent, it recognises that there is a change of supplier code. This is recorded on the SIM card and now the person is an Airtricity or ESB customer. That is now in position for prepayment meters. We launched that system 18 months ago. It is available in 400 outlets.

From an IT perspective we have absolutely invested, and that was all sanctioned with the CER, with our gas map and market messaging system that controls the market. In respect of competition I know there is frustration. What I can tell the Deputy, however, is that we are making a real effort to provide value on the ground for customers. Certainly, the feedback we are getting is to the effect that this value is being recognised. I understand there will always be debate on the absolute level of tariffs. I have indicated to this committee in the past — and it was commented on last week when I had people in Whitegate power plant — that it is time, with the demand destruction we have had in recent years, to consider the accelerated retirement of some of the older plants, to change the fleet, become more efficient, bring on the onshore wind and absolutely change the marginal cost of electricity for the island. That is the one big thing we can unilaterally do in the context of any dividend out of the recession in terms of drop in demand, to reduce the cost of wholesale electricity in the market.

Formerly I was a colleague of Mr. Ennis in the private sector, in NTR when Airtricity was established. I also spent time in Britain as a consultant, working on deregulation out of London — on the deregulation of the electricity market in 1998. The big names in Britain, as I knew them then, SWALEC, which is part of the SSE group, Southern Electric and Scottish Power, have not changed brands. That is a fact. If I went to Glasgow where I worked for a year with Scottish Power, and asked it to change its brand, I know I would get a one-way ticket back to Cork. The reality is that branding in the retail sector has not changed. It has changed in that E.ON took over a company, as did EDF and RWE. However, British Gas is still on the bill in Britain. When I had gas in London it was supplied by British Gas and that is still the position.

On the cost of branding, if one looks at the campaign Aviva had to undertake to convert people from Hibernian Insurance, it went on for 18 months. First, it was Hibernian, then Hibernian Aviva and then Aviva. The cost of its investment in the stadium, for example, to propel it to the same level of brand awareness in terms of its insurance product was phenomenal, much higher than €40 million. The issue here is that the retail brands have not changed for the British incumbents in the UK. I therefore find it ironic that SSE would come to Dublin and require our brand to change when its own brand in the retail sector has not changed.

Deputy Leo Varadkar

What does Mr. Mullins believe it would cost to rebrand?

Mr. John Mullins

Up front, I would say €20 million. Over time to get to the same level of brand awareness we have today, it would probably cost another €20 million. That is based on hard facts. We have external consultants in. I do not know what the ESB's commentary on this would be, but I am only interested in the cost to my business and its customers.

Deputy Leo Varadkar

Am I correct in saying Mr. Mullins would be allowed to keep Bord Gáis on the electricity side but not on the gas side?

Mr. John Mullins

On the gas side, no. It is a duel-fuelled package and we are moving towards a duel-fuelled market in urban areas where one has to have the one brand. Otherwise there would be real confusion in the marketplace over and above the apparent confusion we have right now.

On competition in the network business it is quite ironic because we actually employ Scottish Power and Southern Electric in our gas pipeline business to take care of our maintenance in Scotland. If I wanted to lay a pipe or a wire in Glasgow or Edinburgh I probably could not get a licence to do it. That is also a fact under Ofgem's licensing arrangements. The subsidiary here in Dublin does not portray the reality of where the parent company comes from. This is not about Airtricity, Scottish Power and Southern Electric versus Bord Gáis, but it is important that I correct those points.

In terms of disconnections and reconnections there is a reason our costs are the way they are. By the way, it is practically all private sector contractors who work for us. Looking at the Bord Gáis model, we have in total 850 permanent staff for the whole island. The majority of our work is done on an outsourced basis, as it has been since the acquisition of Dublin Gas in the 1980s. Many members will remember that this was also a very bleak period in terms of the energy industry.

Senator Jim Walsh

Does Mr. Mullins have a figure for the average cost per employee?

Mr. John Mullins

I do, absolutely. It was €67,000 when I came in. It is now at €66,000. We have just come to an agreement with the unions on a pay reduction as a contribution towards pensions. They have been balloting in recent weeks to take a pay reduction to support their members' pensions.

Senator Jim Walsh

Does the average cost include the total cost of pensions?

Mr. John Mullins

That is the total average salary cost, inclusive of all overheads, effectively.

Senator Jim Walsh

That covers all the overheads.

Mr. John Mullins

Yes, it does. The majority of workers in the company are now more white collar than blue collar because we outsource the majority of blue collar work right across the country. Senator Corrigan asked about the level of customer care. When we opened up in FEXCO, Killorglin, County Kerry, there were 120 people working in that location. As a result of the big switch there are now 210 people working in FEXCO on behalf of this company. In customer service terms, this company achieved the best customer contact in Ireland and Britain last year across all sectors and we are up for 11 nominations in Glasgow in November on a whole raft of customer service and complaint handling issues. Dealing with people's problems is a core issue for us. As a result of the plethora of payment plans we have, we now need to build a new call centre in Clonakilty, with about 40 people to be employed over the coming months to deal with the issue of debt and payment plans. In that respect the experience is similar to that of a private sector operator.

Deputy Ferris mentioned the new unemployed. I spoke about this in my submission when I mentioned that 59% of those disconnected were owner-occupiers and, interestingly, that 23% of those disconnected were in AB1 areas. I do not want to pick on any particular area but we are talking, for example, about vast tracts of south County Dublin. There is no area in the country whose people are immune from being in the 120-day category. Clearly, we have had to try to improve payments up front to try to balance our books in terms of bad debts. We have worked on that in recent years.

Senator Jim Walsh

What is the bad debt provision?

Mr. John Mullins

Our bad debt provisions at the moment are about €26 million. That is on an ongoing basis. In accounting terms, at the end of the year there are still amounts that are not invoiced, so we actually hold a full provision of about €26 million. We will raise this and we have raised it over the course of the year. Similarly to what Ms Horan said about ESB, it is a real issue.

Allied to this is the problem of debt-hopping. For example, in May Airtricity took 253 customers from us who owed us more than €1,000. I join Mr. Ennis in saying that there is an issue in this regard. The regulator has heard me say this on several occasions in Tallaght.

Deputy Michael D’Arcy

What percentage of the company's turnover does the total of €26 million represent?

Mr. John Mullins

The total turnover of our supply business is approximately €1.1 billion. In terms of bad debts, we are looking at less than 2%. In the economy at the moment there are 40 times as many bill-payers with arrears of more than 120 days than there were at the start of 2009. That is the critical statistic. It tells one the scale of the problem. That is why we need to put 40 people into Clonakilty — to deal with this specific issue. Then there are the 210 people in the call centre in FEXCO, who must deal with the aftermath, whether it is reconnection, physical movement or something else. The real difference between our sector and the telecommunications and Sky sector is that telecommunications connections can be turned on and off remotely, but this cannot be done with locks and meters. It is a physical activity. The man in the van must go out and fix it. One cannot compare reconnection and disconnection costs in the two sectors. It cannot be applied.

To go back to the core point I talked about this morning, the total socialisation of costs within the industry is not very large, but we need to consider a tiered approach to deal with the issue. That means that companies such as ours, ESB and Airtricity will have to invest in a sufficient number of people to deal with the problems of today. The secret of success is to make sure that as few people as possible move from a payment plan discussion to a prepaid meter discussion, because that will limit the socialisation cost of prepaid meters, which will, as a consequence, reduce the socialisation cost of reconnection and disconnection within our business.

I hope I have given members a flavour of how we are approaching this issue. It will not be a massive cost to bill-payers to make a contribution towards those in real hardship. I have already stated that we will make a contribution and I hope we can come to an agreement with the regulator and the other industry participants to come up with answers to these questions. It is important, however, that we do it ahead of the winter.

Deputy Michael D’Arcy

The cost of the meter is €373, but did I hear that there is also a €400 meter?

Mr. John Mullins

No; that is the total installation cost.

Deputy Michael D’Arcy

The total for the purchase of the meter and installation?

Mr. John Mullins

The average unit price is about €150, and smart meters are more or less the same as prepayment meters because all the technology is converging.

Deputy Jimmy Devins

I am a little confused. Is Mr. Mullins saying that if a bill-payer is to be disconnected, the company charges a disconnection fee?

Mr. John Mullins

At this point in time?

Deputy Jimmy Devins

Yes.

Mr. John Mullins

Our networks company — which, by the way, works for all gas suppliers and shippers in the market — charges by invoicing our supply company. There are clear divisions between our networks company, which operates its own regulatory set of accounts, and our supply company. The networks company will charge Airtricity, Bord Gáis Energy or ESB in the gas market, and it is exactly the same in the electricity market. That invoice must be paid.

Deputy Jimmy Devins

So when Mr. Mullins talks about socialisation, what exactly is he talking about?

Mr. John Mullins

I am talking about what happens with prepayment meters in cases of hardship in the gas industry. The cost of that is in the networks company charge, and this goes into the standing charge. Thus, effectively, the market pays for it in the standing charge. It might be an incremental amount in the standing charge — €2 or €3 over the course of the year for all the good payers, if one wants to put it that way. It is exactly the same in the case of the electricity market. However, as I said already, the shippers, the regulator and the market can come to an agreement in dealing with these costs.

The fundamental point is that if we do not put in the effort, have the right number of people and establish the systems and telecommunications required to agree payment plans, the scale of what we have to deal with is impossible. As Ms Horan said, the equivalent figure for the ESB is €10,000 per month, and in our case we are looking at a backlog of 20,000 people, which is an enormous amount to get through over the next six months. I can assure members — I have given a clear order in this regard to my people — that unless we have that final conversation, there is no disconnection for any of those 20,000 people.

Ms Bríd Horan

Somebody said it is useful for us to come and hear what members have to say, and I endorse that fully. There is nothing like hearing about on-the-ground experiences, as well as the kind of representative experience that members can bring to us. I was particularly struck — perhaps this is out of order for me to say — with the level of participation, including the constant attendance here this morning, which is notable. It is clear to us how serious the issue is, and it is a serious issue for us as well. I also welcome the element of balance in the comments that have been made, which have been very fair to us.

I am disappointed to hear of any adverse experiences people have had in dealing with the ESB, but I ask members to accept that we put a great deal of effort into making sure, to use somebody else's words, that the treatment customers receive is humane and fair. I assure members that we put a great deal of effort and training into creating that culture of respect among our staff. Our service levels and behaviour are closely monitored by the regulator through surveys of customers and we perform well in those surveys. I reassure members that a very small number of complaints go to the regulator each year and, in those cases, the regulator invariably finds that we have behaved properly with regard to debt management.

I appreciate that complaints are coming to members, but they are coming at a late stage from people who have been through a long process and who are understandably frustrated. However, much effort has gone into trying to avoid this. I assure members, in terms of how we deal with them as public representatives, that we recognise that they often hear about these problems at a late stage and we try to deal with them as helpfully as possible. To the extent that we do not achieve that, all I can do is assure them that we will continue to strive to achieve it. We are engaging well with customers and we are working strongly with the help agencies.

There has been much comment about distinguishing between "can't pay" and "won't pay". That is an unfortunate term and not one I would leap to use. We are trying to work with any customer who is having difficulty in paying his or her bills, and we are also working with agencies who are working with them.

One of the members of the committee said that we looked like a happy family on this side of the table, and I smiled to myself. Somebody else referred to a schism between two of the parties over here. Members can judge for themselves whether or not we are a happy family. Competition is alive and well in the electricity and gas sector in Ireland. That is all I can say.

The particular issue on which the schism remark was made was that of whether to socialise the costs of disconnection and reconnection. Somebody said I did not believe it should be socialised, but I did not take any view on this. It is clear from the comments made throughout the morning that everybody recognises that whether to socialise is a complex issue. I would not like anyone to go away from here thinking that the ESB has not made any contribution in this respect. We do not advertise the fact that in many cases we waive or reduce debt, including disconnection and reconnection charges. We treat all individuals who come to us humanely and seek to make the kind of distinctions mentioned. Mr. Tutty spoke about people trying to make decisions. We work with agencies to try and make the decision in a helpful and humane way. Therefore, we make a contribution in terms of mitigating debt, whether we are speaking of disconnection and reconnection charges or other elements of debt. I would not like anyone to go away with the impression that we are not already involved in mitigating the debt problem for people. That is part of our ongoing business. I agree it would be useful for the industry to reconsider the best mechanism to deal with debt. Ultimately, as mentioned by Mr. Mullins, the problem is that when it comes to the point of disconnection or reconnection, a man or woman must physically go out and be involved and there is a cost involved in that. To be honest, it is not often a woman who has to go out, but I thought I would mention it. The issue is that there is a cost involved.

I do not intend to get into the issue of competition on the wireless front. As I explained, the company structure in the ESB involves a division between networks and the rest of the ESB. However, in respect of the ESB group as a whole, over the past ten to 20 years, we have been consistently driving greater efficiencies and reduced costs in all of our businesses, including networks. This is driven by our friend at the far end of the table, the regulator, by our good business sense and by competition. As we enter full competition in the domestic and retail sectors, we are faced with having to drive even further efficiencies in all these aspects of our business. Deputies and Senators have recognised that as one drives out costs, it becomes more challenging to keep up a good level of service. It is that balance we try constantly to achieve.

I will not comment in detail on rebranding. When the CER had a public consultation on the issues relating to deregulation, the ESB was a sole voice in saying rebranding was not necessary. The regulator has responsibilities and it has made its decisions and set out conditions in terms of what is an appropriate market share at which to deregulate. We recognise that. Over the years our share of the market has been cut away in various ways in different parts of the value chain in generation and supply of electricity and we are currently working towards a rebranding programme because that is required of us to achieve deregulation at a certain level of market share. We have not worked out a detailed cost programme for this, but are working actively on it. We will work to minimise the cost and our objective will be to have the rebranding exercise carried out with minimum confusion to customers and minimum damage to our brand, because we have a valuable brand in ESB.

Deputy Liz McManus

Let us be clear on the issue of the brand. The ESB is now required to come up with a new brand that has no connection with the current ESB brand. Whatever brand name is selected must be completely different. The name of the brand as it is cannot be incorporated in a new configuration. Therefore, the company cannot hold on to what is good of the current brand, but must abandon that and charge the customer. This will happen at a time when, as Ms Horan pointed out, efficiencies must continue to be made. I know this final point is not Ms Horan's problem, but it is not necessary for the regulator to continue on this crazy path at a time when people are under such pressure.

Ms Bríd Horan

I will not comment on that other than to say that we will seek to implement any branding programme we must do in such a way as to minimise the cost and we will manage it as part of our general marketing costs. Obviously, in a competitive market we will be engaged in a general marketing programme and we see an association between that and branding and will manage the costs in that way.

I have learned that I should have covered the issue of the €20 payment in my opening statement and I apologise for not doing so. A story was printed in the newspaper and we issued clarification on it and thought that would be the end of it. I did not realise it was such a significant issue for all here. There is no minimum payment to the ESB and there will be no minimum payment. What we are considering is whether in respect of the An Post payment channel there should be a minimum. In the consideration of efficiencies and cost savings, part of the costs in the supply business are related to the payment transaction and the costs associated with payment through An Post are very high. We have 1,500 other channels available throughout the country, through Payzone and PayPoint outlets which people use daily for their mobile phones and other purposes. There is no minimum in any of those channels and there will be no minimum. If there is a minimum anywhere, it may be through An Post. I understand the views expressed here on the issue of a €20 minimum, but I hope what I have said has some effect on members views of the issue of a minimum payment.

Senator Jim Walsh

What percentage of customers use An Post?

Ms Bríd Horan

It is a reducing percentage, but I apologise that I do not have the exact percentage at hand. It would have been a huge percentage in the past, but in recent years we have been building a broader base of payment opportunities for customers, including on-line, direct debit, laser payment over the phone, through the bank, through the post office and through ATMs.

Senator Jim Walsh

It strikes me that those who have the greatest difficulty meeting their payments would probably tend to take the An Post route. This should be factored into the decision being made.

Ms Bríd Horan

I assure the Senator it will be factored in.

Senator Jim Walsh

I would like it if Ms Horan could get the figures for us on the numbers paying through An Post. I appreciate she does not have them at her fingertips.

Ms Bríd Horan

I would like to mention that An Post offers a valuable facility which we are working to promote with An Post and the help agencies. That facility is the ability for people receiving benefits through An Post to allocate a percentage of those benefits towards their utility costs. This helps spread the cost across the year and there is no minimum payment. The media coverage has, unfortunately, created a great deal of concern, but we will consider all the issues. We have not made a decision on a minimum, but somebody — not us — alerted the press on the matter.

The issue of prices and relative prices is complex. The price depends on the level of usage as outlined by Mr. Tutty, but I will not get into that other than to confirm that our understanding of the numbers is exactly as he outlined. We are very much in line with or below European averages and there are issues relating to VAT relative to Northern Ireland. Comments have been made on debt hopping. I agree that the industry needs to examine this issue with the regulator. We would welcome any move on that issue.

On the question of socialising and the costs for meters, I would like to clarify that individual customers have not been charged up to now for prepayment meters. That cost was borne by the ESB. We welcome that the regulator now proposes to socialise that across the whole industry. With regard to our commitments on prepayment meters, we have been working with the regulator to try to find a better solution. We are keen to install prepayment meters but as Mr. Mullins said, this type of meter is just an alternative to the payment arrangement. Many people arrive at and honour satisfactory payment arrangements and work with us on them. However, we will work hard on the current pilot programme and at investigating whether there is any better option.

Somebody asked about the bad debt write-off I mentioned — the €20 million — and wanted a breakdown of how much of this was domestic or business. It is 70% domestic. The write-off amounts to approximately 1.5% of overall sales. Members may not think this is a huge percentage, but the electricity supply business runs on a very tight margin. Currently we are running on a margin of 1.3%. Therefore, the write-off is significant in terms of the profitability of the business. This should be borne in mind in respect of anything that has to do with supply costs. The real profit on the supply of electricity is very thin and very small per customer. In terms of our cost base, we have been managing and seeking to get efficiencies and will continue to do so. On the topic of competition on wires, that is a complex issue. There are good reasons many countries decide the wires are an important part of infrastructure and, therefore, should be maintained as a combined service.

A question was asked about the formula for recalibration to clear debt on prepayment meters. There is no standard formula. Like a payment arrangement, that is something on which we work individually with customers and we tailor the time and the amounts to reflect the amount of debt and the customer's ability to pay. It is very much tailor-made solutions. A member asked if there are appeal mechanisms. There are appeal mechanisms to the CER.

I will wind up on two points. The level of debt has increased and I do not wish to underplay that. Obviously, different companies have different experiences depending on their customer profile and so on. We have a very broad mix of social classes and geographical areas in our customer base as the historical electricity supplier. From our perspective we see an increase in the level of debt. We are managing it effectively. On receipt of an ESB bill a customer should pay it by day 14. We start to look at debt from day 25 to try to manage it. The number of customers entering into the debt follow-up cycle has doubled during the past three years.

On conservation and the use of energy, I emphasise that this is an area in which we have been investing a great deal. At our own cost we insulated 3,000 homes. We were asked if we targeted our customers. The homes involved were where the people were in receipt of free electricity allowance so they were elderly customers. We targeted areas where the warmer homes scheme run by SEAI was not that predominant. We targeted areas geographically that were not getting that coverage. That worked well and helped those people. It is a very important area. We are investing in that side of our business and will offer direct installation services to install energy efficiency measures for our customers on a one-stop shop basis because we think that is what will help people to manage their expenditure into the future.

Chairman

On behalf of the committee I thank all the guests for their presentations.

Deputy Jimmy Devins

I have a brief question for the energy regulator. In light of what he has heard today from the industry and the committee, will he consider changing the regulation where there is a charge for disconnection and reconnection?

Mr. Michael Tutty

I thought the opinion here was that the charge for those who cannot pay should be looked at but the charge for those who will not pay should still continue. I will certainly not look at a blanket removal of the disconnection charge. We will look at how we can better develop the services for those who are in difficulty through prepayment meters and so on, and, perhaps, socialising the cost for them but not a blanket withdrawal of the cost and requiring all the other consumers to pay the disconnection charge for those who are cut off for reasons other than hardship.

Chairman

Given that we are approaching winter, I request that be done as a matter of urgency for those unfortunate individuals and families who will be affected. If this change is to be made it should be made sooner rather than later.

Mr. Michael Tutty

It is a development of what we have already. The prepayment meters that are being rolled out by Bord Gáis——

Chairman

We are talking about the reconnection fee for individuals who cannot pay. I ask Mr. Tutty to look at that issue and to revert back to the committee. I thank all the guests for their presence today.

Senator Jim Walsh

May I ask the regulator to look at the rebranding issue?

Chairman

The last word.

Senator Jim Walsh

I am concerned about the cost. I see some breaking of consumer loyalties from the point of view of generating real competition. I ask him to look at it and come back to the committee with a cost. It is unconscionable that we would impose any regulations totally oblivious to the cost.

Chairman

Perhaps Mr. Tutty will come back to us with that information.

Mr. Michael Tutty

I will ask ESB to estimate its costs.

The joint committee adjourned at 1.28 p.m. until 9.45 a.m. on Wednesday, 6 October 2010.