DÁIL ÉIREANN AN COMHCHOISTE UM CHOMHSHAOL, CULTÚR AGUS GAELTACHT JOINT COMMITTEE ON ENVIRONMENT, CULTURE AND THE GAELTACHT Dé Máirt, 21 Deireadh Fómhair 2014 Tuesday, 21 October 2014 The Joint Committee met at 2.15 p.m. MEMBERS PRESENT: Deputy James Bannon, Senator Hildegarde Naughton, Deputy Ruth Coppinger, Senator Ned O’Sullivan. Deputy Barry Cowen, Deputy Robert Dowds, Deputy Michelle Mulherin, Deputy Catherine Murphy, Deputy Brian Stanley, In attendance: Deputies Richard Boyd Barrett, Joe Higgins, Denis Naughten, Éamon Ó Cuív, Kieran O’Donnell and Senator Brian Ó Domhnaill. DEPUTY MICHAEL MCCARTHY IN THE CHAIR. 1 Water TARIFFS: COMMISSION FOR ENERGY REGulation The joint committee met in private session until 2.45 p.m. Water Tariffs: Commission for Energy Regulation Chairman: We will consider the matter of water tariff principles and proposals with repre- sentatives of the Commission for Energy Regulation, CER, from which I welcome Mr. Garrett Blaney, chairperson; Mr. Paul McGowan, commissioner; Ms Aoife MacEvilly, commissioner; Ms Cathy Mannion, director; Ms Bríd O’Donovan and Ms Aoife Crowe. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by abso- lute privilege in respect of the evidence they are to give the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. I also advise them that the opening statement and any documentation they provide for the committee may be published on its website once the meeting has concluded. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an of- ficial either by name or in such a way as to him or her identifiable. The issue we are discussing, the water tariffs Uisce Éireann is putting in place, is a source of serious concern for everybody in the country. People are worried about their ability to pay and the fairness of the charges being imposed. I empathise with them and hope this discussion can help to alleviate their concerns in some way. Other issues concerning Uisce Éireann have been raised in the past week. Although they are important and must be addressed, I ask members to stay within the parameters of the issue to be discussed - the water tariffs to be charged. The other issues will be addressed in due course. We intend to invite representatives of the board of Ervia to appear before the committee in the near future to address the issues of the tariffs, governance, management within Uisce Éire- ann and bonuses. That is a job of work to be done, for which beidh lá eile. We will issue the invitation when the new board which will be an amalgamation of the boards of the former Bord Gáis and Uisce Éireann has been announced. We expect this to occur next month. I now call on the Commission for Energy Regulation to deliver its opening statement. Mr. Garrett Blaney: Gabhaim buíochas leis an gCathaoirleach, leis na Teachtaí Dála agus leis na Seanadóirí as ucht an tseans teacht anseo agus labhairt leo faoi chúrsaí agus rialáil Uisce Éireann. Má tá suim ag duine ar bith ceist a chur i nGaeilge nó i mBéarla, táimid breá sásta glacadh leis sin. Déanfaimid ár ndícheall gach ceist a fhreagairt. Mr. Paul McGowan is our lead commissioner in the area of water and will cover the major- ity of the questions that arise. Ms Cathy Mannion is director of water and will help Mr. Mc- Gowan in that task. Ms Aoife MacEvilly is a new commissioner who has joined us in the past two weeks. We thought it important to have the full commission present, given the importance of the subject. 2 JOINT COMMITTEE ON ENVIRONMENT, Culture AND THE Gaeltacht I will talk briefly about the role of the CER, of which many members of the committee are probably already aware. We will then discuss the water tariffs, the process of revenue, how we assess revenues for the water tariffs and customer protection. The CER is the independent energy regulator. We started with the regulation of electricity prices, followed by gas prices. That started in 2000 and was very much driven by European legislation and the requirement to have independent regulation in the energy market. We have broad functions in the economic area and have also recently been given functions in safety regulations which cover the exploration for oil and gas, both onshore and offshore. They also cover the gas network and contractors in the home for gas and electricity systems. Our func- tions in the area of economic regulation are set out in legislation and began earlier this year. The key function is to protect the consumer which is at the core of all our activities. I will hand over to Mr. McGowan who will run through the specifics of Irish Water. Mr. Paul McGowan: Our role relates to the economic regulation of the water and waste- water sectors. We have put forward to the Minister our economic regulatory framework and he has accepted it. It is based on the retail prices index minus X, RPI-X, model, a typical model used for the regulation of utilities throughout the world and one that represents good inter- national practice. We find ourselves in a situation similar to that in 2000, when we assumed responsibility for the regulation of the electricity industry. At that stage there had been decades of under-investment, as well as a high cost base and quality and security issues associated with the electricity industry. Added to this scenario in respect of water and wastewater services in Ireland we have the establishment of a new utility. Our starting point is that Irish Water, waste- water services and the system are not fit for purpose. We have three core areas on which we focus as an economic regulator. First, we aim to drive efficiencies in Irish Water and its cost base to ensure value is delivered to all those who receive water and wastewater services. Second, we aim to allow an economic regulatory frame- work to be in place to ensure Irish Water has access to capital markets and borrowing in order that it can carry out the vital and necessary investment in water and wastewater services. Third, we aim to ensure the appropriate customer services standards for those who are receiving water and wastewater services from Irish Water. In July we consulted on a proposed water charges plan which covered a range of matters. I do not intend to go into all of them, but suffice it to say it covered domestic charges and the in- terim revenue review, that is, the amount of money we were willing to allow Irish Water to earn through charges and other means. In response to this consultation we received 345 comments, all of which we reviewed and assessed as part of our decision-making process. They covered a range of issues, including impaired water services such as boiled water notices, the size of allowances and discounts. Having considered all of the comments made, we issued a direction to Irish Water on 17 September on its final water charges plan. This was informed by the policy direction from the Minister, our review of Irish Water’s costs and the review of all the responses to the domestic tariff and non-domestic tariff proposals. It also took on board the Government’s decision on 6 May on water charges. I will not go through in detail the slides on the Minister’s policy direction because we have spoken about it before to the committee, but I will be happy to take questions. The policy di- rection covered the stipulation that there be no standing charges for primary households, that provision be made for customers with medical conditions, that there be a free household allow- ance and that effectively there be free usage for children. Furthermore, we had to make provi- 3 Water TARIFFS: COMMISSION FOR ENERGY REGulation sion for circumstances where water services were impaired, allow for rebates in the event that a customer’s bill was lower once he or she moved to a metered charge and for assessed charges to be a proxy for metered charges insofar as it was possible to do so. The next slide summarises the decision on Irish Water’s overall revenue. The bottom line is probably of most significance. Effectively, Irish Water asked us for €2.26 billion in revenue for the period 1 October 2014 to end December 2016. As part of our analysis, we decided to allow the company €2.08 billion, a reduction of 8%. We made this reduction in the interests of consumers. We set what we considered to be challenging but realistic targets for Irish Water in terms of the amount of operational expenditure it would incur during the period. We also reduced the level of capital expenditure in terms of customer charges. This was to recognise, first, that we expected Irish Water to deliver efficiencies in its capital programme and also that it had put forward a very large capital programme. We were concerned about the volume of work it had identified and its ability to have the work done in the two and a quarter year period.