Friday, July 11, 2008

Government must block ESB price hikes

The news that the ESB is to seek a 20pc price hike will if granted, drive the average annual bill up to a staggering €1,100. It is up to the Commission for Energy Regulation to sanction all such rises. Before it does so, it had better think hard about the hardship they could bring and factor in the human as well as the financial cost. If granted -- and it could be in early autumn -- it would add about €45 to the average two-monthly bill and push the average bill for a year to more than €1,100. And this from a semi-state that made profits of €440 million last year. Sustainable Energy Ireland (SEI) has estimated that 10% (144,171 homes) were experiencing fuel poverty -- meaning they spend more than 10% of their disposable income on heating costs. In Ireland, electricity prices have increased 61% over the past five years- this is the highest energy price inflation anywhere in Europe. The cost of electricity has also recorded the highest rate of increase since 2000- up 41% in a move that could threaten the competitiveness of Irish businesses. A study of European gas and electricity markets shows the cost of electricity in Ireland since 2000 has soared to almost nine times the average EU inflation levels. A major and immediate concern facing the Irish enterprise sector is the need to have an energy supply that is secure and also competitively priced. The price of electricity in Ireland has risen from below the EU-15 average in 1996 to 13% above in 2006. The SEI report focuses on key energy trends in the residential sector since 1990 and found that while energy used by the sector grew by one-third, the residential sector’s share of overall energy usage dropped. This is because energy use in other sectors such as transport is rising even faster. Irish households spend €2.5 billion a year on energy, and this figure is likely to rise sharply as fuel prices continue to increase. The report notes that electricity prices have doubled since 2000, and natural gas prices have risen by 87 per cent.

Of course, this once more highlights the gross inefficiency of the ESB in particular and the public-sector in general in this country - a cause of growing annoyance to the public. There exists a litany of damning evidence for this - in 2006 a consultants report found that high labour-costs and inefficiencies were adding €100 million on bills, compared to other European homes. These inefficiencies are certainly not unconnected with the position of the ESB as a state-owned monopoly that lacks incentive to lower prices and therefore - as the profit-motive would dictate - costs. In that context, the failure of former and current Energy ministers Noel Dempsey and Eamon Ryan to implement the Government White Paper on Energy Regulation is to be lamented. It stands to reason that were the transmission-grid to remain in the hands of the ESB, a conflict of interest would exist between allowing competitors in the electricity-market to utilise it on the one hand, and maintaining such ownership on the other. A preview of what I am talking about can already be seen in the telecoms market where the mistake was made of maintaining Eircom's ownership of the local-loop at the time of privatisation. As a partial consequence of that decision, Ireland has remained in the slow-lane in the growth of broadband in this country - even behind some Eastern European EU members. A Government-commissioned 2006 Deloitte Report calculated that the average wage of an ESB worker was more than double the average industrial wage at €92,000 - rising to €142,000 at the Poolbeg power plant. As an economic liberal, I firmly believe the solutions to rip-off Ireland can be found primarily in the opening up of the electricity, gas, public transport, legal-profession and other sectors to greater competition, in a context where barriers-to-entry and the dead hand of the State are removed. This seems as good an example as any of why this is needed. In the context of a continuing semi-state monopoly, price hikes like these constitute a tax-increase to all intents and purposes, and experience from the 1980's shows the folly of such an approach during a recession. The public and the private-sector can no longer afford to be sacrificed on the altar of public-sector extravagance.

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