Electricity prices for domestic customers are to rise by 8.9 per cent from Monday, the electricity regulator Mr Tom Reeves said yesterday.

The average two-monthly domestic electricity bill will rise by £5.70 to £70.70 (€7.24-€89.77) - an increase of around 10p per day - as a result of the rises.

Prices for businesses will also rise. Small businesses will see a 3 per cent increase in the average price of electricity, while tariffs will rise by 13 per cent for medium-sized businesses and by 14 per cent for large businesses.

However, large companies and many medium-sized businesses are so-called "eligible" customers and are free to source their electricity from licensed electricity suppliers other than ESB, said Mr Reeves. The number of eligible customers currently stands at 400, but is expected to rise to 1,600 by next February following the commission's second virtual independent power producers auction which will be introduced on October 5th.

The increases are effective from the October/November billing period and the new tariffs will appear in electricity bills received by customers during December 2001.Mr Reeves said the commission's tariff review showed that ESB is under-recovering generation costs, primarily due to substantial increases in international fuel prices. The ESB's fuel bill rose by £150 million - or 10 per cent of turnover - over the past 18 months.

If the increase in the price of fuel alone was to be passed on to the customer it would require a price rise averaging 11 per cent, the ESB said in a statement. "The regulator does not appear to have taken this fully into account," it said.

But Mr Reeves said his office would allow the ESB to pass through fuel costs from now on. "But fuel costs it has incurred up until now will not be allowed in the price increases," he said.

The increase in tariffs also reflects the substantial investment required in networks, the regulator said. The number of yearly connections has doubled since 1990 and this has further increased pressure on the existing inadequate network infrastructure, he said. The standard of the network in a number of areas around the State is such that certain types of industry requiring high quality supply cannot locate there.

"If this is not addressed in the very short term, you could see significant impediment to development," said the commission's manager of networks Mr Padraig Fleming.

The commission has approved £1.7 billion capital investment in the distribution and transmission networks over the next five-year period, compared to less than £0.7 million over the past five years.

"Our long-term interest is to have a sustainable industry and that requires tariffs on prices that will give a reasonable return to investors and also produce some cost reflective prices for customers and what we are doing today is the start of the adjustment. The price rise is the first for electricity customers since May 1997, the ESB said. "Over the last 15 years prices for electricity have fallen in real terms by over 50 per cent, leaving domestic tariffs 10 per cent below the European average even after this increase," it said.