The Commission for Energy Regulation (CER) has said a 2.5 per cent increase in electricity prices next year is justified. This would equate to around €3 on the average bimonthy bill of €120.
The ESB's cost and revenue requirements next year justify this increase according to analysis published yesterday by the CER.
The regulator has also said that while electricity price increases should allow for higher generation costs, increases in cost claimed by the ESB relating to investment and depreciation by the ESB should not be fully reflected in price increases.
The ESB annually presents evidence of its cost increases to the regulator, which is responsible for recommending the final tariff applying to consumers. It also caps the rate of profit that the ESB can earn with the aim of preventing profiteering by the semi-State company.
Earlier this month members of the Joint Oireachtas Committee on Communications, Marine and Natural Resources, which examines the electricity market, reacted with hostility to a CER report warning that escalating fuel charges could lead to double digit price rises. The ESB has refused to mention a specific price increase that might be consistent with the cost increases it submitted to the regulator, possibly due to the strong sensitivity surrounding the issue.
But at the presentation of its annual report, ESB chairman Tadhg O'Sullivan indicated that an increase in electricity prices of 10 per cent might be acceptable to the semi-State company. A source within the ESB says that it would be content with price increases reflecting the rate of inflation and allowing for the impact of fuel costs. In addition to refusing to comment on any desirable price increase, it is unclear whether Mr O'Sullivan's comment - a response to a question by a journalist - reflects any consistent calculation of the ESB's pricing needs.
Breaking down its analysis of ESB costs into generation, transmission, distribution and supply, the CER have allowed for a rise in generation costs of 14.4 per cent in its calculations, reflecting in part escalating fuel costs. But it has disallowed the full cost of investment in the areas of transmission and distribution network which are necessary to sustain future operating capacity, according to the ESB. The regulator has also said that the ESB's assets should be be depreciated over a longer period, lowering the future costs.
The ESB must comment on the proposals by August 19th. The regulator will publish a draft decision paper in September and finalise the tariff in October. Price increases will apply from January 1st, 2006.
