COMMITTEE FOR ENTERPRISE, TRADE & INVESTMENT

OFFICIAL REPORT

(Hansard)

Energy Price Rises

1 May 2008

Members present for all or part of the proceedings:
Mr Paul Maskey (Deputy Chairperson)
Mr Simon Hamilton
Dr Alasdair McDonnell
Mr Alan McFarland
Mr Gerry McHugh
Mr Robin Newton

Witnesses:
Mr Fred Frazer ) Department of Enterprise, Trade and Investment
Mrs Jenny Pyper )

The Deputy Chairperson (Mr P Maskey):
I welcome Mrs Jenny Pyper and Mr Fred Frazer from the Department of Enterprise, Trade and Investment (DETI), who will make a short presentation, after which I will open the session up for questions and answers. I remind members that an accompanying briefing has been tabled.

Mrs Jenny Pyper (Department of Enterprise, Trade and Investment):
We understand entirely the Committee’s concerns about rising energy prices and their impact on consumers, particularly those on low incomes, and on the business community. We know that the Committee received a comprehensive briefing from OFREG.

Committee suspended.

On resuming —

Mrs Pyper:
The Committee and OFREG have a shared statutory responsibility. Their primary objective is to protect the interests of electricity consumers. The Department of Enterprise, Trade and Investment shares much of Iain Osborne’s analysis. The Committee knows that DETI cannot determine energy prices. I have only been involved in energy for about five years. However, since privatisation in 1992, our focus on electricity policy has been to try to address the gap between electricity prices in Northern Ireland and those in Great Britain.

The Committee will be fully aware of the legacy costs from privatisation, which are reflected in the Northern Ireland tariffs, and which come before any impact of global oil prices is considered. The fact is that domestic consumers in Northern Ireland are now paying more or less the same as electricity consumers elsewhere in Great Britain. Business consumers are in a slightly different position, because some business tariffs are higher here than they are elsewhere. As far as domestic consumers are concerned, however, tariffs here are 8% lower than they are in the Republic of Ireland. To some extent, then, the gap has closed.

Much of our focus on electricity policy in recent years has been concentrated on those legacy costs. We have examined various options to try to address some of the costs from privatisation. We have considered auctioning the contracts or re-negotiating them, or using public money to try to buy them out. Most of those options have proved unworkable. I went to Brussels on two occasions to argue the case for Government intervention and to try to reduce some of those legacy costs, but I was unsuccessful.

We have realised that there is not a great deal that can be done about those legacy costs. We cannot just spirit them away. As the regulator said, our focus has been on creating more competitive markets. We have tried to outline that focus in the briefing that we have submitted to the Committee. We have embarked on various initiatives to open the market up to competition; we have tried to create a larger and more competitive single electricity market; and we have examined the options and the potential of common gas arrangements between Northern Ireland and the Irish Republic and the consumer benefits that such arrangements might bring.

We have also examined more practical measures that have had a more direct impact, such as the energy efficiency levy, whereby Government money has been used to try to minimise the extent of any tariff increase and, at the same time, help consumers in fuel poverty by funding energy efficiency projects. We have considered the potential that renewable energy might have to shelter us from the increasing costs of carbon. We must also ensure that DETI’s contribution is joined up to the work of other Departments that have a particular role in supporting people on low incomes.

DETI is part of the inter-departmental group on fuel poverty which is chaired by the Department for Social Development (DSD), and the Committee will be aware that that group has an annual action plan, which was published this year by Margaret Ritchie. We play our part in that group in order to ensure that our actions dovetail with the actions that are being taken in other Departments, such as the Department of Finance and Personnel (DFP), DSD and the Department of Health, Social Services and Public Safety (DHSSPS). A joined-up mechanism has been established in order to examine energy costs. The regulator has had some thoughts and ideas, but has made it clear that he does not control the levers. DETI does not believe in a magic bullet. The pain of rising energy costs felt by consumers here is not unique to Northern Ireland. However, because of our situation, we feel the pain more than others.

That, in summary, is DETI’s position on the activities that are taking place in relation to rising energy costs. We are happy to answer the Committee’s questions.

The Deputy Chairperson:
Do members have any questions on the presentation or the briefing that has been submitted? The briefing states that the regulators, North and South, have been engaged on a work programme, but that Departments:

“will require evidence of tangible benefits of any possible future arrangements”.

Do you have any idea when the regulators will complete that work?

Mrs Pyper:
We are hopeful that the two regulatory bodies will produce work at an official level. We will have some indication in the summer of the likely scale of benefits that might be gained from a harmonised approach. It is not the same as a single electricity market; we are not talking about an all-island gas market. We are considering measures such as harmonised tariffs and IT systems, and examining whether we can make economies and efficiencies by having a single approach, rather than by duplication of effort.

Some of those benefits are tricky to quantify, and some modelling will have to be carried out. Nevertheless, we are hopeful that we will see the beginning of that work in the summer, and that, in the autumn, we will have something to present to the Committee that it and the relevant Ministers can endorse. Implementation of those plans will require primary legislation, and we have made provision for that in the legislative programme of the next session.

Mr Hamilton:
I wish to draw attention to a couple of the issues that were touched on in your opening remarks and in the briefing that you provided to the Committee. We are concerned about domestic customers, not least from our own experience; but as a Committee, we also have a particular remit to investigate the problems experienced by the business sector. The high price of electricity here, compared with other regions, is an issue that arises constantly when we have discussions with business. I know that countless efforts have been made in that regard, and you have mentioned some of them. Is it simply the case that nothing can be done until the current contracts have run out, and that we are going to have to wait for that?

Interestingly, the regulator said last week that, even when those contracts come to an end, it might not be advantageous to negotiate, because of the impact that the rising price of gas will have on electricity prices. It may even be that, at that stage, nothing can be done because of the market conditions. Speaking of the market, it is obvious that we cannot force people to come into the gas market here. However, what progress has been made towards introducing competition into the local gas market?

I understand that Firmus Energy has a monopoly, for the period of its licence, to establish itself. The greater Belfast market is now reasonably well established, yet there is no competition there except for some marginal business interests. However, the difference will really be seen on the domestic side. There is nothing happening there, and we cannot force companies to come in. What could be done to encourage them?

Mr McHugh:
I have two questions. The first is about the Government’s tax take on road fuel compared to five years ago. What are they doing with the difference? Does a difference exist? Could they not give that back to road users now? It is something that they are obviously not making much use of.

My second question is about savings on the cost of electricity. Do we really need to have floodlit private houses, floodlit public buildings and overheated offices? Every office in Europe is heated to 90 degrees, and the windows are open. Savings could certainly be made in this Building, but there are many buildings that have not caught on to the savings that could be made. There is pressure on the electricity grid at certain times because of schools opening early and in the dark evenings. Is it possible to make more energy savings rather than just trying to produce more energy?

Mrs Pyper:
The contracts are the result of legacy issues. The only contract that remains untouched from privatisation is the Kilroot contract. There is a clause in that contract that allows the regulator to decide whether or not to continue the contract in 2020. However, as he said last week, the regulator will also have to decide whether there are any benefits to be gained from continuing the contract. It is by no means a done deal.

Those contracts have been the focus of electricity policy for a long time. The regulator will have to examine the choices that have been made about the future energy-generation mix for Northern Ireland and the benefits that might accrue from security of supply. Fuel diversity is also important. The regulator will have to make a decision about the cost of retaining a coal-fired station in Northern Ireland. The benefits of a diverse supply have to be balanced against the costs of wind turbines, for example. That links in to Mr Hamilton’s previous point.

Mr Hamilton made valid points about competition in gas and about Phoenix Natural Gas, which is operating in an area where gas is more established. The regulator published a consultation paper recently on how to get more competition into electricity and gas. I will let Mr Frazer say a bit more about that.

Mr Fred Frazer (Department of Enterprise, Trade and Investment):
The natural gas market in Belfast is dominated by Phoenix Natural Gas, which has approximately 116,000 domestic-use customers. There are two or three industrial or commercial customers. Firmus Energy has a licence, as does Energia, which is a subsidiary of NIE. To my knowledge, those companies do not have any domestic customers. It is still a relatively small market. It is to be hoped that in due course there may be interest in that market from those suppliers. Firmus Energy is building markets outside Belfast, in the north-west urban areas, and, from the South/North pipeline, in areas such as Banbridge and Craigavon. We will consider those developments in conjunction with those companies, in light of the regulator’s consultation document.

Mrs Pyper:
The regulator’s consultation paper outlines several possible actions that he could take to encourage more suppliers into the gas market in particular. As part of his consultation exercise, he will have to consider how other players in the market would react if he implemented some of these measures. That will be a useful starting point for the dialogue on that issue.

Mr McHugh’s question about returning the road fuel tax take to consumers is, I am afraid, beyond my remit. That is an issue for the Exchequer, the Treasury or the Department of Finance and Personnel. I know that approaches have been made in the past on the issue of road fuel tax, but without success. I have to defer to DFP colleagues on that matter. Those are much wider tax-related issues.

However, Mr McHugh is right about energy efficiency; action must be focused on that issue. My division has some European money in the budget for the next few years, and we will be working on energy efficiency in particular. Again, we do not control all the levers; other Departments have a role to play. The Government estate and the public sector in general recognise that they must take the lead, and DFP has accepted that it has a role.

The Deputy Chairperson:
We have covered the areas that we intended to.

Mrs Pyper:
We will be able to reflect the Committee’s concerns at next week’s meeting of the fuel poverty action group.

The Deputy Chairperson:
Thank you very much.