ESB Consumers Sacrificed to Ideology

6 May 2005

Irish electricity prices are now higher than the European average because of "a vain attempt to encourage competition in the electricity market," according to Paul Sweeney, economic adviser to Congress.

"The consumer is paying the price for the ideological obsessions of some politicians," Mr Sweeney told delegates at the ESB Officer's Association (ESBOA) annual conference, in Killarney.

"Common sense policies, with regard to the electricity market, have been hijacked by ideologues. The government and the Regulator have allowed very high prices in a vain attempt to encourage competition," Mr Sweeney said.

When the ESB was the only player in the Irish market prices were lower than the European average, but now consumers pay more because government is trying to entice competitors with high prices.

In a small island economy, with no interconnections, there are economies of scale with a well run, vertically-integrated utility like the ESB. The market it too small, the ESB is competitive and new entrants are very slow to emerge.

In the interim, the consumer continues to pay higher prices.

Mr Sweeney told delegates that the lessons on the privatisation of the Eircom monopoly have still not been absorbed:

  • As a privatised monopoly Eircom now has huge debts, which it did not have when state-owned;
  • There has been massive value extraction by shareholders;
  • A dramatic shift from profits to losses;
  • It has reduced its capital expenditure to one third of the level that obtained when under state ownership;
  • There has been little reduction in prices;
  • Broadband rollout has been poor;
  • Forced duplication of broadband by the state will cost €300m;

Today with the high prices, the ESB is making exceptional profits and paying large dividends to the state. This does help its huge investment programme in Ireland. However, the price of electricity impacts on all else in the economy and Mr Sweeney said that a competitive economy needs competitively-priced electricity. To order high prices in a vain attempt to boost competition is self-defeating, even if it pleases the ideologues.

The ESB must strive to keep prices down, Mr Sweeney concluded, and this can best be done with the economies of scale of a vertically integrated utility.

Mr Sweeney said that an all-Ireland electricity market, with interconectors to the UK, would help boost competition.

The company must not be broken up while the regulatory regime must have social and environmental objectives, not just economic ones. The regime should also be reviewed regularly, in light of technical developments.

 

ends