I am aware that the chairman of the ESB, when recently announcing the 2003 financial results of the company, intimated that higher electricity prices could be a possibility in the short term given the increase in oil, gas and coal prices over the past six years. However, I do not have a function concerning the pricing of electricity. The Commission for Energy Regulation was given responsibility for regulating ESB tariffs to its franchise customers under the European Communities (Internal Market in Electricity) Regulations 2000. Previously, the ESB would, by custom and practice, have sought Government approval before increasing its tariffs.
The CER set about a process of rebalancing tariffs ahead of full market opening in 2005, which is required to ensure that all tariffs fully reflect the cost of supplying different categories of customers and to prevent the under-recovery of generation costs. I am advised that the CER has commenced its review of the tariffs to apply from 1 January 2005 and it intends to announce the outcome of this review in September next.
The operations of State companies such as the ESB are increasingly taking place in the context of liberalised competitive markets and they are also increasingly engaged in activities outside their core business. In these circumstances, it is appropriate that they pay dividends to their shareholders out of their profits.
The Electricity (Supply) (Amendment) Act 2001, while providing for the establishment of an employee share ownership plan, ESOP, also repealed the company's break-even mandate which had existed since 1927. This, in essence, means that the ESB may declare and pay dividends in a manner akin to a commercial public limited company.
An agreement was reached between the ESB, the Department of Finance and my own Department on the question of ESB dividends. The agreement provided for a payment of 25% of profits for 2002, growing to 33% by 2005. It should, however, be pointed out that decisions on annual dividend payments to shareholders are ultimately a matter for the board of the ESB.
As regards the 2003 results, the board declared a total dividend of €67.1 million for the year. Some 95% of that amount, €63.7 million, is appropriate to the Exchequer and the remaining €3.4 million, representing 5%, is appropriate to the ESB ESOP.
The CER allows reasonable returns in the regulated segment of the ESB's business. There is no direct link between the CER's decision on prices and the ability of the company to pay dividends. In the circumstances, the question of forfeiture by the State of its portion of the 2003 dividend payment is not on the agenda.
