Dáil Éireann - Volume 685 - 18 June, 2009

Priority Questions. - Energy Prices.

Deputy Simon Coveney asked the Minister for Communications, Energy and Natural Resources when he will change the regulatory model for gas and electricity prices at a domestic household and small business level to facilitate direct price competition in a effort to bring prices down; and if he will make a statement on the matter. [24369/09]

  Deputy Eamon Ryan: In 2006 the Commission for Energy Regulation, CER, ended the regulation of tariffs for large energy users. Some 90% of large energy users have now switched to independent suppliers. The CER has signalled that it intends to cease regulating ESB public electricity supply prices when sufficient competition has taken hold in the domestic and small and medium enterprise market. This is in line with EU legal requirements for the internal energy market.

In recent months domestic customers have been switching to independent suppliers in unprecedented numbers, thereby availing of the significant discounts available from these suppliers. However, it is important to note that there are close to 2 million domestic electricity customers and that the ESB still retains approximately 90% of the market share. The ESB also retains a market share of approximately 43% of the SME market. I am advised that discounts of between 10% and 20% are available to SMEs from competing suppliers and I strongly encourage small businesses to shop around in the interest of obtaining competitive quotations.

Energy price regulation is designed to ensure that a dominant player does not engage in uncompetitive short-term pricing practices which could undermine or drive out emerging competition. Regulation should cease once competition has taken firm hold in the domestic market. The ESB’s tariffs are set by the CER at a level that reflects the costs borne by the ESB in supplying that electricity. Effectively, that means that if it can lower its legitimate costs the regulator will permit it to charge a lower tariff. What is not permitted under the regulatory model is below-cost selling of electricity or other anti-competitive practices.

The CER has also exited from the regulation of gas tariffs for large users. In that sector around 88% of business, in volume terms, has switched to independent gas suppliers. The gas market has been fully opened up to competition since July 2007. Experience in other markets has shown that there is a time lag between full market opening and the emergence of viable competition. The potential for ending tariff regulation in the domestic gas market is limited by the size of the Irish market, which is very small by international standards. Of the companies [291] that supply gas in Ireland, Bord Gáis Energy has approximately 600,000 residential customers, while Flogas has approximately 9,000. Neither Vayu nor Energia currently supplies residential customers.

Additional information not given on the floor of the House

Bord Gáis Energy also has a dominant market share in the small commercial users’ market segment and tariffs in this sector are also regulated by the CER.

The nature of regulation is to drive improved efficiencies and lower costs in areas that are under regulatory control. This is designed to benefit customers primarily. The CER will continue to review overall energy tariff structures in the coming months, taking account of global fuel prices, the importance of regulatory and market certainty for the energy sector, and the competitiveness challenges facing industry.

  Deputy Simon Coveney: We have had this debate before, and I will continue to make the same point, particularly with regard to the electricity market; I accept that the gas market is slightly different. We have a crazy situation in which the ESB could supply households in Ireland with electricity for at least 10% less than the cost of producing it at the moment. Yet it is not allowed to do so because of regulation, in an attempt, as the Minister has clearly outlined, to promote competition and to allow competitors of the ESB in the household market to gain a foothold. In other words, we are waiting for Bord Gáis Energy and Airtricity, which are the two main competitors for the ESB, to get more customers before we will allow the ESB to reduce its prices.

One can consider this from the perspective of the ESB, in which it is not allowed to compete to keep its customers, but more importantly, one can consider it from the perspective of the 2 million households which are paying 10% more for electricity than they should be. If BGE and Airtricity can produce electricity and sell it at a price that is not considered to be anti-competitive or below-cost selling but the main supplier of electricity cannot, we are essentially overcharging households that use the main supplier. That accusation is backed up by all the evidence which suggests that when one compares Ireland to other countries across the EU, Irish households are paying too much for electricity.

  An Leas-Cheann Comhairle: The Deputy must ask a question.

  Deputy Simon Coveney: At what point in the electricity market will the Minister insist on opening up the household market to competition so the ESB can compete? How many customers do BGE and Airtricity have to take from the ESB before the Minister will allow an opening of the market so everyone can benefit?

  Deputy Eamon Ryan: We have a competitive market in electricity for many users — the big users, the business customers——

  Deputy Simon Coveney: We are talking about households. That is what the question was about and I ask the Minister to stick to that.

  Deputy Eamon Ryan: These users have at least four large international suppliers competing fiercely for their business.

  Deputy Simon Coveney: What about households?

  Deputy Eamon Ryan: Such competition is the best way to bring down prices. The way we do that is through proper regulation and that is what we are doing, similarly, in the residential sector.

[292]   Deputy Simon Coveney: Ireland is the most expensive market in Europe outside the household market, so that is not a good example.

  Deputy Eamon Ryan: Anyone seeking a 10% or 13% reduction in his or her electricity bill can make a phone call today and switch supplier, which brings down the price. This is a highly competitive situation which has been delivered by the regulated market. That regulatory market works. It is bringing about the price reductions that anyone can see are available.

  Deputy Simon Coveney: To 150,000 people.

  Deputy Eamon Ryan: Yes. They are available and 200,000 people have picked up the phone and made the call.

  Deputy Simon Coveney: What about the other 1.8 million who are being overcharged?

  Deputy Eamon Ryan: There is nothing stopping any one of them from making a transfer in the morning without the slightest difficulty. It only takes a single phone call. We have a successful, competitive market that is delivering lower prices because we are forcing competition through. That is what works. Once we start moving away from that we are doing customers a disservice because we are going back to a protected monopoly in which the main suppliers crowd out everyone else and keep prices high in the medium to long term. That is not in the customer’s interest or the country’s interest. What we are doing is working. I do not think the Deputy opposite has an alternative that would not destroy the competitive process.

  Deputy Simon Coveney: The Minister is talking nonsense. He claims that competition works, yet he is preventing the largest supplier in the market from competing. We have a controlled market in terms of price. It is true that people can pick up the phone and switch to Bord Gáis as long as they can be sure their bank account details are safe——

  Deputy Eamon Ryan: Or Airtricity.

  Deputy Simon Coveney: I am coming to that. They can also switch to Airtricity. I encourage people to switch. Both Bord Gáis and Airtricity are fine companies that can provide reliable electricity. However, this idea that by allowing the ESB to reduce its prices we will drive Airtricity and Bord Gáis out of the market is utter nonsense. These are large, powerful companies with big backers, particularly in the case of Airtricity. Bord Gáis is currently building power stations in order to supply electricity at more competitive prices than the ESB. It is committed to that expenditure. It will not be driven out of the marketplace by the ESB; it is fanciful to suggest that. At present, whether the Minister likes it or not, 1.8 million of the 2 million households in Ireland are paying 10% more for electricity than they should be because the ESB is not allowed to reduce its prices.

  Deputy Eamon Ryan: Bord Gáis will not leave the market when the ESB reduces its prices. That is what happens when the proper regulatory system is applied.

  Deputy Simon Coveney: Why is the Minister delaying it?

  Deputy Eamon Ryan: The regulator will assess the ESB’s costs and set the conditions again for October. That is the regulatory process that works effectively here and in every other liberalised market. We are delivering competition and lower prices.

  Deputy Simon Coveney: It is not the regulatory market that works anywhere else.

[293]   Deputy Eamon Ryan: It is the regulatory model which brings down prices and it is working in the large business and residential market——

  Deputy Simon Coveney: It is not the market in the UK.

  Deputy Eamon Ryan: ——because we are sticking to a good competitive policy that is delivering price reductions.