The Electricity Supply Board is preparing to seek its sixth price rise in four years. If its latest application is approved by the Commission for Energy Regulation (CER) it will bring to over 46 per cent the cumulative increase in the price of electricity since January 2002.
The increase can be partially but certainly not fully explained by the increase in the price of crude oil, which has risen from around $20 a barrel to its present level of $60 in the same period. By the ESB's own admission the price of oil accounts for only 30 per cent of the cost of supplying consumers.
If prices are the yardstick by which policy is judged, then the Government's policy with respect to the electricity market can be said to be failing. The gradual introduction of competition, which commenced in 2002 and was completed with the opening up of the domestic market in February of this year, has not delivered lower prices for the consumer. It has not even delivered price increases that are in line with consumer price inflation.
The CER has justified the increases in the price of electricity on the basis that if the electricity market is not strongly profitable for producers, there is little prospect of encouraging new players to enter and take on the ESB. The cost of building a new power plant is so high, they argue, that no-one will be interested unless they can see a steady stream of profits stretching into the future to pay for it.
Unfortunately for consumers, despite the price increases of recent years there is not a long queue of companies looking to get into the Irish market. Those which have built plants here are concentrating their efforts on selling to large consumers, such as industry, the Government and the ESB itself. By the CER's own admission there is unlikely to be any serious competition to the ESB in the domestic market for at last another two or three years. This in turn implies there is no prospect of a fall in prices, or even an end of above inflation increases.
The CER's strategy cannot be said to be working in the interest of consumers. If anything it seems to be forcing them to pay over the odds for electricity now in the hope that this will in time bring lower prices in the future, when and if new players enter the domestic market. The strategy has, however, produced strong profits for the ESB, totalling €675.5 million in the three years to the end of 2004. Of these some €144.5 million has been paid over to the Government as dividends.
The winners and losers in this game are clear, but perhaps it is time to take a look at both the rules and the referee.