Belfast Telegraph

Sunday 21 September 2014

Watchdog report sparks row over electricity costs

Large industrial electricity users here are paying up to 30% than in Great Britain
Large industrial electricity users here are paying up to 30% than in Great Britain

The Electricity Regulator, Shane Lynch, has opened the door to a critical examination of the way in which the mixed electricity systems, partly regulated for households and small volume users and partly open to competition by rival suppliers, are working. Large industrial electricity users here are paying up to 30% more than in Great Britain.

The surprising conclusion from the comparative evidence is that, whilst domestic households pay prices for electricity that are close to the prices elsewhere across the EU, larger industrial customers face some of the highest prices in the EU. Having established these comparative details, the regulator does not offer an explanation of the causes of the differences. An agenda is set for further discussion.

This study of electricity prices merits a pro-active response.

The regulator makes the plea that, having collected the evidence, there is now a second stage where comments and further evidence are invited. Then the analysis will move on to examine the explanation, causation and consider possible policy proscriptions.

The picture painted by the Regulator is stark It needs to be broadened to ask questions about the possible role of the Regulator in contributing to this divergence. Some of the unseen decisions on the allocation of network charges and transmission costs are not detailed in the generalised pricing overview.

Essentially, if household charges, and charges for smaller businesses, which are regulated, have come close to the prices elsewhere then if medium and larger sized businesses are heavily disadvantaged, one of the first questions must be the internal one in Northern Ireland of why the spread of prices is so different from other places.

Household prices early in 2012 are illustrated as being about 7% above the UK average and close to the EU average. For larger and medium sized electricity users, the gap widens to around 20%.

For ‘large' sized users, the gap widens to nearly 30%. Relative to EU countries, large users face prices which are higher than any other country except Italy and are similar to those in Germany. The contrast between small and large user prices is more conspicuous than in other EU countries.

On this evidence, there are serious questions about cost allocations, regulatory adjustments and regulatory and government policies which should be considered. The regulator has not yet confronted these possible internal tensions where there are questions to answer.

The pricing review refers to the small number of medium or large users: less than 4% of 62,000 business customers. However, what the review underplays is that 3.7% of business customers account for over 65% of the volume of electricity used.

This smaller group of 2,200 customers is a critically large part of the local economy.

Larger scale electricity users do pay less per kwh than small customers. Approximately, small customers (and households) paid in 2011 about 14p.p.kwh. Large users paid just above 9p.p.kwh.

However, in terms of economies of scale and service costs this differential, whilst significant, is smaller than in other countries.

An interesting feature of the regulator's review is that, although Northern Ireland is part of the all-island Single Electricity Market, the large users in the marketplace for the Republic of Ireland are offered significantly better prices than in NI. This difference merits an explanation.

Another feature which the regulator has tended to understate is the degree to which the lack of interconnection capacity, north-south and east-west, is frustrating the competitive market particularly for larger users who might have the expertise and interest in seeking external supplies. The regulator has problems to solve in securing a commercially viable extension of interconnection for cross border/cross-water trading and, at the same time, insisting that interconnection should be self-financing.

Northern Ireland industrial electricity users now have the evidence to sustain their complaint that the mix of market economics and indirect regulation is giving an unacceptable outcome.

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