I beg to move
That this Assembly notes the high cost of electricity in Northern Ireland and calls on the Minister of Enterprise, Trade and Investment to examine and review the electricity supply market in this region.
Three weeks ago the Executive presented a draft Programme for Government to Members of the Assembly. It stated that its overriding purpose was to make a difference to the lives of the people of Northern Ireland. That is to be achieved by the Executive and the Assembly’s working together and listening to the interests of business and all the social partners to implement an imaginative legislative framework that could create opportunities for everyone in society. If the Executive and Assembly are serious about the task in hand, we must make a start and deal with policies inherited from direct rule, and whose effect is to hold us back from creating the sort of inclusive society and competitive economy that is at the heart of the draft Programme for Government.
The privatisation of Northern Ireland’s electricity network is one such hangover from direct rule. Over the last seven years it has put industrial, commercial and domestic users at an unfair disadvantage. I will draw the House’s attention to some statistics that graphically show the extent of Northern Ireland’s disadvantage when compared with the price of electricity in Britain, the Irish Republic and the rest of Europe.
For example, at the start of 1999 the typical domestic user in Northern Ireland paid 9·43p per unit, while in Germany the average domestic consumer paid 11·8% less, at 8·31p per unit, and in the Netherlands 32·5% less, at 6·36p per unit.
The comparisons with the rest of the UK and Ireland are equally telling. Northern Ireland’s domestic price per unit is 21% above that of Scotland, 27% above those of England and Wales, and 53% above that of the Irish Republic. This year domestic customers in Northern Ireland will pay around £305, whereas the average bill in Britain is £257.
The recent welcome liberalisation of the market in line with EU Directives will by 2003 allow around 420 of the largest commercial users to buy electricity from other companies such as the Electricity Supply Board (ESB). Despite that, the smaller small and medium-sized enterprises (SMEs) are, and will remain, similarly disadvantaged. Taking an average industrial user with a maximum demand of 500 kilowatts at a 40% load factor, the price per unit is 14% above that of Scotland, 38% above those of England and Wales, and 75% above that of the Irish Republic.
With the introduction of the climate change levy in 2001, the cost of electricity to industrial users is scheduled to increase by another 5%. It is important, therefore, that we address the problem of high electricity prices in Northern Ireland now. The statistics reveal the extraordinary disparity in electricity prices in the North of Ireland, Britain, the Republic and the rest of Europe. The public has entrusted the Assembly with the good governance of the region. It is only right that we should ask why consumers in Northern Ireland pay more than consumers anywhere else in western Europe for this essential resource. The reasons are complex, and concern the structure of the industry and the way in which it was privatised; the refusal of Northern Ireland Electricity (NIE) to abide by the price controls of the regulator, the Office for the Regulator of Electricity and Gas (OFREG); the lack of interest from the British Government; and, until devolution and the draft Programme for Government, a total absence of any coherent policy direction.
To understand why the consumer is getting such an unfair deal, we must look back to 1992-93 when the industry was privatised. Whether we agree or disagree for ideological reasons with the policy of privatisation, it has been stated that the previous Conservative Government, in the words of Adam Ingram, botched up the privatisation of Northern Ireland’s electricity. It was rushed through. The two main power stations, Kilroot and Ballylumford, bought overpriced and uneconomic long-term contracts. They were paid £320 million — almost twice as much as they were worth — for such low-efficiency levels of production.
The two main components of those contracts were the guaranteed fuel payments, in which the customer paid for the cost of fuel burnt through NIE, and the availability payments, through which the generators received payment for the time they were available, whether or not they produced output. That is like paying a taxi company for having taxis available and paying for the taxi again when it does a run. The availability of the generators increased from 70% before privatisation to over 90% in some instances after privatisation — a higher fixed cost to the consumer. The availability of payments accounts for almost 50% of the total generation costs, a figure considered by OFREG and the Northern Ireland Consumer Committee for Electricity as excessively high. At around 80%, generation costs account for the largest proportion of the bill for industrial users, and the proportion is 60% for domestic users.
After some resistance from NIE, the Coolkeeragh and Ballylumford contracts have been reconstructed, which has reduced the cost to customers to a certain extent. Work on the new combined cycle gas turbine plant at Ballylumford will lead to increased efficiency levels and a further reduction in costs. However, it is disturbing that NIE insisted that the capital expenditure should be written off over a period of 10 years instead of the normal 20, which would have brought greater savings to customers. In my opinion, plant like that could be written off over 30 years.
Furthermore, the Kilroot contract is in need of renegotiation, but to date nothing has been done. The restructuring of the Kilroot contract, according to the Northern Ireland Consumer Committee, would bring the greatest savings to customers.
However, it would be mistaken for this House to focus all its attention on the generators. In a consultation paper published by OFREG in April, the charges relating to the transmission and distribution of electricity represented the largest single component of the cost of electricity after generation, and accounted for 30% of the final electricity bill. Transmission and distribution costs are the most profitable part of the business for NIE and its holding company, Viridian. This has important consequences for domestic users in particular, as the transmission and distribution component is, as OFREG has stated, inversely related to consumption. Therefore the transmission and distribution costs for domestic consumers represent 40% of the bill, whereas for large industrial consumers they are less than 15% of the bill.
At this juncture it is interesting to compare the costs of transmission and distribution with those in Britain. According to OFREG, at the time of privatisation, transmission and distribution costs were around the GB average for the average customer. Although overall transmission and distribution costs are expected to be higher in Northern Ireland than in Britain because of the lower level of electricity production, over the last 10 years they have shown an increasing divergence. We have not benefited as much from privatisation as consumers in Britain.
This year, transmission and distribution costs will be around 57% higher than those in Britain. OFREG predicts that that divergence will continue, despite the growth in demand in Northern Ireland that should have reduced costs. Transmission and distribution costs in Northern Ireland are set to rise, and by 2001 this divergence will be close to 60%.
One cannot get away from the fact that transmission and distribution costs are a major factor in the high price of electricity in Northern Ireland. In its April 2000 consultation paper, OFREG says that it is worth taking into consideration that since privatisation, had transmission and distribution costs reflected those in Britain, consumers could have saved an estimated £200 million, and around £40 million in the year 2000 alone.
If it is to fulfil the mandate given to it by the electorate and make a real effort to deliver social justice for all sections of our community, then the Assembly must address this serious issue. There is no justifiable reason why NIE’s transmission and distribution costs should be so much higher than those of comparable regional electricity companies in Britain. As OFREG says, NIE is unique in that it is the only electricity company not to have a price control set by the regulator. The regulator, unfortunately, has no teeth in Northern Ireland. The first price control was set by the Government in 1992-93, and ran until 1996-97. It allowed NIE to raise revenue by 3·5% above the rate of inflation, and its transmission and distribution prices by 1% annually above the rate of inflation. According to OFREG, that gave NIE £301 million to invest in improving the network. One third of that money was not used for network investment, but for the benefit of shareholders. Consumers experienced the consequences of this during the storms of Christmas 1998, when many had to go without electricity for days.
In 1996, NIE rejected the second price control set by the regulator. The case was referred to the Monopolies and Mergers Commission (MMC). In the end, a compromise was agreed. However, it did not adequately deal with the problem of high transmission and distribution costs. Unfortunately, customers have also paid for the capital underspend, as NIE was allowed to claw back an additional £25 million from customers in what the MMC referred to as "underpaid depreciation charges". The customer paid twice. That is staggering when one considers NIE’s "super profits" since privatisation and the dividends paid to shareholders, which have surely and steadily increased.
It has been estimated that Northern Ireland’s total electricity bill between 1992-93 and the current year was £3·8 billion before tax. Fifteen per cent of this figure (£573 million) represented NIE’s share of the profit, and 7 per cent (£267 million) of this sum was the generators’ profit. NIE also made healthy returns for its shareholders. In 1993 the dividend was 10p per share, rising to 25.3p per share in 1999. NIE’s transmission and distribution asset base also increased considerably, from £402 million in 1993 to approximately £520 million in 1999. Of course, it must be acknowledged that since 1997, particularly after the 1998 Christmas storms, NIE has made amends by making significant improvements to the network, thus fulfilling their capital expenditure requirements. It has also invested in new customer communication systems.
Another welcome development came in April of this year when NIE agreed to a price control for the supply component of its business, which is responsible for billing, meter reading and customer advice. This accounts for only 5% of the average bill and will save customers about £16 million between now and 2005. However, it remains to be seen whether NIE will accept the regulator’s price recommendations where they really count — the transmission and distribution costs where NIE makes about 80% of its profits — before the third price control is due to come into effect in 2002.
Devolution provides the Assembly with the opportunity to develop policies tailored to meet the needs of the people of Northern Ireland. If we are to have the confidence to implement and benefit from an all-Ireland, and indeed, a Europe-wide energy market as laid out in the draft Programme for Government, the Minister and his Department must seize the initiative, strike a fair balance between the interests of shareholders and consumers and end this electricity surcharge. The Minister and the Department of Enterprise, Trade and Investment need to provide a clear policy framework to enable the electricity regulator to do his job without hindrance and to represent the interests of the consumer effectively. In this private monopoly situation, NIE are the price makers, and we the consumers are the price takers. Therefore it is imperative that the regulator be allowed to do his job.
It has been estimated that if Northern Ireland’s electricity prices had tracked those in Britain following privatisation, the consumer would be much better off overall. I tabled this motion because world energy and fuel prices are rising, and I have been led to believe that NIE are currently considering increasing consumers’ electricity bills by about 9%. Also, there will be a 5% increase in April due to the climate change levy. It is imperative that this issue be addressed now.
Given the number of Members who wish to speak, and that interruption must come and the Question be put no later than six o’clock, I have no option but to restrict the time for speeches. Therefore I ask Members to limit themselves to six minutes each, with no longer than 10 minutes for the moving and winding-up speeches. There is also an amendment to be considered, and 15 minutes has been set aside for the Minister to respond at the end of the debate, before the winding-up speeches.
I beg to move the following amendment: After "electricity supply market" insert "and distribution system".
The electricity industry in Northern Ireland was privatised in the early 1990s, and concerns have been raised about aspects of that privatisation. European Directives governing the electricity internal market have been issued since then as well.
Given this background, I agree with Mr Byrne that there is a need to review the electricity supply market in Northern Ireland.
I start by commending the work of the electricity regulator in Northern Ireland, who has done a lot of work in highlighting failings in the current system and in trying to act on behalf of the consumer. I commend also the Northern Ireland Consumer Committee for Electricity for its timely briefing, which, no doubt, we have all received, and which contains some useful content for this time of the year.
The purpose of my amendment is to clarify the motion and ensure that any review would cover the electricity distribution system in Northern Ireland. What I understand to be the electricity supply market is a relatively new arrangement, which has resulted in the largest electricity consumers, currently 32% of demand, being able to trade directly with independent generators. This has introduced a degree of competition between generators.
However, there is also a need to review the electricity distribution system in Northern Ireland. I welcome the fact that when moving the motion my Colleague used a much wider interpretation, and I commend him for doing so. I hope that the Minister will take on board that he is not speaking with a narrow focus, but on a much wider range of costs that impinge on the electricity supply industry in Northern Ireland.
According to OFREG, input into the 1998-99 transmission represents 39% of all costs to a typical domestic consumer. That is a very significant proportion. Also, the Northern Ireland Consumer Committee for Electricity has highlighted the fact that there is a growing divergence between the cost of electricity transmission and distribution of electricity by NIE and that incurred by companies in Great Britain.
For domestic consumers, the cost of transmission and distribution in Northern Ireland this year will be about 57% higher than for customers in England and Wales. The estimated cost by the end of the current control period will be about 2p per unit of electricity in Northern Ireland, compared to about 1·3p in Great Britain. This additional cost must be borne by the consumers.
The Northern Ireland Consumer Committee has highlighted that if, since privatisation, we had maintained parity with England and Wales, electricity consumers in Northern Ireland would have saved £200 million. We are talking about very substantial sums of money on the transmission side.
Although we are unlikely to match the transmission costs of England and Wales because Northern Ireland is of a more rural nature, there is still real cause for concern over the degree of divergence that has occurred. I will outline my areas of concern with the past distribution system and also on future possible conflicts of interests, and I hope that I will demonstrate that there is a clear need for a review of the distribution system.
In 1999, the director-general of OFREG in Northern Ireland advised that NIE had been allocated £301 million between 1993 and 1997 for capital expenditure but only spent £204 million on the distribution system. The net benefit was an additional £14 million profit to NIE shareholders. It is clear that this should not be allowed. If money has been allocated for upgrading the system, it should have been spent on that. It should not have ended up benefiting NIE shareholders.
Of course, there have been dramatic changes since a winter storm caused huge disruption to the transmission system in Northern Ireland. I hope that this underspend will be unlikely to occur in the future, but, nevertheless, it should never have been allowed to occur in the first place.
I will touch on NIE profits. According to Viridian’s annual report for 1999-00, NIE made a profit of £64·9 million in the transmission and distribution of electricity, with a turnover of £500 million. It is in a monopoly position, and the conditions in which it operates have enabled it to be one of the most profitable Northern Ireland companies. But what huge technological risks has it taken? How can it justify such high profits? What huge improvements has it brought to the system?
NIE is a monopoly distributor. It has a safe number of consumers and a captive market. According to business analysis, NIE investors have had a 28% return per annum. Its share prices have increased by 20% per annum, and a dividend of approximately 8% per annum is payable to them. It has been a very healthy business for NIE and its shareholders — at the expense of Northern Ireland’s consumers.
That is in the past, but NIE’s parent company, Viridian, has diversified into other interests. As I have said, NIE is a monopoly distributor in Northern Ireland and has access to details of the demand of all electricity users in Northern Ireland. That is potentially sensitive information. Viridian Power Resources, NIE’s sister company, has decided to generate electricity at Huntstown combined cycle gas turbine (CCGT) station in the Irish Republic, so there is clear potential for a conflict of interests. Any review of the Northern Ireland distribution system must clearly address this. There must not be any conflict of interests with a monopoly provider of electricity.
Considering today’s announcement that there is going to be a 9% increase in electricity prices in Northern Ireland, the need for a review of the electricity supply market and of the distribution system becomes more urgent. I urge everybody to support my amendment.
We all agree that electricity prices in Northern Ireland are too high, and the consumer falls for it every time. That is the real issue. Perhaps the Members who moved the motion and proposed the amendment can come together on the thrust of the issue and find accommodation.
This issue hits the pocket of every household in Northern Ireland, and it is a topic very much in the public domain. Consumers in Northern Ireland face stiff charges for electricity. They are forking out about £2 million more than the United Kingdom weekly average for their light and power. We have already heard the statistics. To put it into perspective, it is £3·10 extra for each household in Northern Ireland each week. Over a year, that adds up to a substantial amount.
Is it any wonder that consumers are considering alternative methods of power and heating? Is it any wonder that gas is making inroads in the Greater Belfast area? Phoenix Gas is an alternative method that is available in my borough. Many people are considering that option because the prices are much lower. People are constrained and focused upon the price and the bills that they have to pay.
The people who suffer most from the price increases are those who can least afford them — the elderly, single parents and families on low income. Very often they are also the people who use the most electricity. The result is that many are facing the stark choice that the elderly have to face every year — purchase food or heat the house. They have to choose whether to buy food for the children, put extra coal on the fire, or turn the electric up. How do you make those decisions? The decisions are dictated by your purse.
As winter approaches, so does the possibility of confronting a subject that many try to avoid — hypothermia. Many senior citizens face this problem every day of the winter.
Figures show that consumers in Northern Ireland are charged much more for electricity than are all our European neighbours. The figures are in front of us. I had made arrangements to get the figures, but the information that we received in the post today indicates a real difference. We are paying approximately two and a half times the sum our European neighbours pay. Northern Ireland consumers also pay more than the average prices in England, Wales and Scotland. Why do we pay a whopping 9·43p per kilowatt? That is the question we are all asking.
Perhaps one way of alleviating the price difference is to be more energy efficient, but I know that NIE has tried to do that. Those are things that we can do. At a fuel poverty show in the Long Gallery we saw people’s ideas on energy efficiency. NIE could spend more and make more money available, through loft insulation, hot water tank insulation or whatever. Those measures would help, but they would only partially address the issue. If the cost of electricity is still above the national average, the problem of price is still crucial. Full domestic competition is available on the mainland, but not in the Province — only 26% of the market is available and open. There is little chance of our having an alternative supply from another electricity company, because the source has to come through NIE. That concerns us.
There has been much discussion about a two-tier tariff system. That could also address some of our problems. If there were a lower charge for essential power and then a higher charge for non-essential power, as in England, that could create an incentive for customers to use their electricity more wisely. In England consumers have not been disadvantaged. NIE should carefully consider that plan. Two thirds of Northern Ireland customers could benefit from such a proposal, and the cost gap could fall from £25 million to £9 million. That is a significant differential.
We have been told that there may be some electricity coming in from Scotland. That may bring the price down. We are also aware of the possibility that the Republic of Ireland may supply electricity to Northern Ireland. A substantial and significant reduction could be made through those measures. At the same time there has to be a commitment from NIE to make the system work. At present, many customers — who are also our constituents — suspect that NIE could do more but is constrained by its shareholders. There is an onus on NIE to be more proactive in convincing customers that its primary concern is to supply a satisfactory service at a reasonable and equitable price.
Go raibh maith agat, a Cheann Comhairle. The motion is very timely — it has just been announced in the media that there will be another price hike — but it does not go far enough. We need to be radical, innovative and imaginative on the whole issue of energy, not just electricity.
First, we need to look at an all-Ireland electricity supply. It is illogical for a small country like Ireland, with a population of less than half that of many European cities, to have two electricity systems. That has resulted in gross inefficiency and the disparity in costs that we have today. An all-Ireland energy strategy makes sound economic and strategic sense. We should also examine the expansion of natural gas networks. At present, the networks on the island of Ireland are clustered on the east coast, to the detriment of people in the west. That does not create a level economic playing field. It is grossly inefficient that only some of the population benefit from alternative energy resources.
We also need to open up the potential for renewable energy resources — wind and wave power would be the most suitable. It is not an exaggeration to say that Ireland could export electricity if we harnessed it in that way. Not only would it make sound economic sense to use renewable energy resources in the long term, but it would also have a beneficial environmental impact. For example, Governments now have to adhere to the Kyoto protocol. It will also remove our reliance on fossil fuels. At present, NIE’s ECO tariff is more expensive to use. NIE should make a firm commitment to eco-energy and the ECO tariff should be cheaper to use.
I was instructed by my party to propose to the Assembly Commission the use of wind turbines on the Stormont estate. The estate is the responsibility of the Department of Finance and Personnel, and the proposal is going through the Finance and Personnel Committee. I hope that the Department will look favourably on this option. However, there is no reason why, in the short term, the Assembly cannot transfer to the ECO tariff. By doing this, we would be demonstrating a political commitment to eco-energy, and we would be setting an example in this field.
I support this motion. However, it does not go far enough, though it is good that these issues are being aired. Go raibh maith agat.
I support the motion and the amendment, but there is a certain air of unreality about this debate. As we debate the issue, NIE stands poised to increase substantially the cost to the consumers. It has been suggested that the increase will be by between 9% and 10% and it will cite the very high cost of fuel, particularly oil, as its justification for this. However, Coolkeeragh power station is the only station that burns oil to generate electricity nowadays. While Kilroot has the capacity to burn oil, it burns coal, and Ballylumford uses natural gas.
This issue of electricity energy costs has been ongoing for many years. In the 1970s there was over-dependence on the use of oil for electricity generation, and some changes were made as a result of putting too many eggs in the one basket. The real problem to be addressed nowadays is the absolute mess that was made of the privatisation of Northern Ireland Electricity. Not only were long-term contracts provided that were not in the interests of the consumer but, as I said at the time, the Northern Ireland electricity market was too small and there was no competition. That has brought about many of the problems that we face today.
NIE needs to scrap all its contracts with the generators. It should go back to the drawing board and develop contracts which will provide electricity prices in line with the total operational costs. As Mr Byrne pointed out, the overly high cost of transmission and distribution of electricity in Northern Ireland is one of the major factors that contributes to high consumer costs. I also agree with Dr O’Hagan’s suggestion that we look not just at electricity, but at natural gas and other forms of energy.
I hope that people have come to accept that if we are to provide an energy distribution facility for the people in Northern Ireland, it must not just be provided on an all-island basis. While the introduction of the new Moyle interconnector has been opposed for environmental reasons, we must accept that we are now becoming part of a UK-based energy distribution.
The Enterprise, Trade and Investment Committee has been considering a number of energy issues and will continue to do that. We have worked hard on the proposed natural gas pipeline to the north-west, where Coolkeeragh would be the anchor tenant, so to speak, and would generate electricity through a combined cycle gas turbine.
Last week, I joined the Minister and Mr Beggs for the cutting of the first sod for the new power station at Ballylumford. It is important to create a level playing field, but I am irked by the suggestions coming from the Republic’s Government that there should be a levy on the gas flowing along the North/South gas pipeline, which will obviously provide resources for a new power station north of Dublin. The Republic of Ireland’s Government are doing us no favours, and the Committee recently decided to approach them to ensure that the levy is not imposed. Such a levy could have a wide-ranging negative impact on the development of energy provision in Northern Ireland.
One of the Assembly’s main aims is to increase investment in Northern Ireland. We will have energy prices that are substantially higher than those in other parts of the UK and in the Republic of Ireland, but it is vitally important that we develop prices that can attract the necessary investment.
Finally, I echo the praise for the work of the regulator.
I have listened with interest to Members’ contributions. It was a shock to learn that electricity prices could rise by a further 9% in the coming months — by January, perhaps. I call that electric shock treatment. Do NIE’s decision-makers have no understanding of the difficulties faced by their customers? I think particularly of those who cannot afford to heat their homes at present prices and are about to be hit with a further increase. I do not know whether the increase will take effect slap-bang in the middle of winter or at the end, but I know that it shows an incredible lack of sensitivity and understanding.
NIE claims that the rising price in Northern Ireland is a reflection of rising world energy prices. Why are NIE shareholders shielded from the rise, when NIE customers are forced to bear the brunt? I understand that profits of between £65 million and £70 million were made last year. In a normal market, if suppliers put prices up too high they price themselves out of the market and people go elsewhere. In this case that cannot happen because there is a monopoly on distribution, or at least on all but 32% of supply. Prices go up and up, and consumers can do nothing about it.
But we can do something about it. That is why we are debating this issue today. Let us take this opportunity to show the people of Northern Ireland that, as their representatives, working together, we can do something for them.
So, what can we do? First, we can call on the Minister to review the energy supply and distribution market, as proposed in the motion and the amendment. We can, as Mr Byrne said, find a system to ensure that price controls are properly exercised through the regulator. We can, as Mr Shannon said, differentiate between the prices of essentials and non-essentials. We can insist, demand, cajole, and put pressure on NIE to adopt greater social responsibility to its customers and use its profits to soften the blow of high energy prices, particularly for low income families. And we can, as Dr O’Hagan and Mr Neeson suggested, look at the issue of energy from a more strategic point of view, whether it be north, south, east or west, as well as renewable and alternative sources of energy — a vital component in this whole strategic plan.
Lastly, and perhaps most importantly, we need to promote energy efficiency and, above all, to protect those in need. I do not know whether this House is aware that in 1988 there were more than 600 deaths — they are called "excess winter deaths" — directly linked to the cold. That is an astounding figure. These are people who cannot afford to turn on an extra electric bar because the prices are so high. We have got to do something to combat that: it is a matter of urgency.
We need to research the cause of these deaths on a cross-departmental basis covering health, age, housing, and economic issues. We must not just accept a domestic energy efficiency scheme. We must go further than that and adopt a wide-ranging scheme with no limitations on age or income, particularly of those over 60. We need an adequate national fuel poverty strategy, combined with an overview of energy prices and all the other issues. Let us hope that the Minister will do that when conducting his inquiry.
Monopoly has been a way of life in Northern Ireland. It thrived during the long, dark days of direct rule when essential services stagnated and little changed. The storm of two years ago starkly illustrated just how critically ill the electricity industry had become. The same could be said of railways and other public utilities that suffered under the neglect of our absentee minders. We are now, I hope, in a position to address a range of issues critical to the emergence of a modern economy, finely tuned to compete with the rest of Europe. Electricity is central to that, so it is right that this motion should be debated today.
Historically, this part of Ireland was at the forefront of providing electricity. There is hardly a town or village that does not boast that it was among the first in Ireland with some type of innovative production of electricity. Today, of course, electricity is not a novelty or a luxury, but an essential service affecting every one of us, whether as individuals, businesspeople or employees. From the moment we are born until we finally depart, we are dependent on electricity in one way or another.
We have a right to be concerned about the cost of electricity and its impact on not only our personal lives but on the modern economy that we wish to create. Following the reunification of their country, the Germans treated provision of a modern electricity industry as their highest priority. Old, inefficient plants that were uneconomical and highly damaging to the environment were taken out of service and replaced with efficient new equipment. Wind farms strategically placed in the areas where they have least impact on the environment are playing a vital role in ensuring that the electricity consumed comes mostly from renewable energy. That helps to redress the environmental cost of producing electricity and acts as an incentive for further development in the field.
The question of cost is critical to our attempts to enable existing industries to remain competitive and to attract new inward investment. Such attempts are already severely handicapped by the strength of sterling and the disincentives created by corporation tax laws. The development of a European grid that would create economies of scale and increase competition between providers is an objective that must be pursued with full speed. The integration of electricity supplies on the island of Ireland is a key element in the eradication of inefficiencies and duplication. We must create a cost-effective industry that is capable of playing the role required of it to allow the Assembly to oversee the rebuilding of an economy severely damaged by the troubles of the last 30 years. Indeed, gross inefficiency has been present in public utilities for much longer.
The motion goes to the heart of the issue. We are entitled to ask the British Government to recognise their responsibility to provide us with the resources to rebuild our infrastructure, just as German industry is being rebuilt with the help of generous contributions from the federal Government. The production and supply of electricity at a reasonable cost is central to our objective.
I welcome Mr Byrne’s motion and the amendment moved by Mr Beggs. I understand that they have come to an agreement about the motion. The Democratic Unionist Party will support whatever the Members have agreed. It is good to see that not all members of the SDLP suffer from the Dallat syndrome and can put forward practical and useful motions.
Well, I shall deal with Germany later on, perhaps. We know that the Member had a good time there last week as he mentioned it three or four times in his speech.
I shall return to the matter in hand. In Northern Ireland the costs of energy use are higher than in any other part of the United Kingdom. Households here expend 15·7% of their budget on energy use, as opposed to 12·5% in the rest of the United Kingdom. Northern Ireland householders spend 7·7% of their budgets on electricity, whereas in the rest of the United Kingdom it is only 6·3%. So, for the ordinary man and woman in the street, the senior citizen or the family with young children, the cost of electricity is a higher component of their living costs than for those in the rest of the United Kingdom. Northern Ireland was sold short in the privatisation Bill that was brought forward by Sir Richard Needham. I had a wry smile last week when I heard Richard Needham telling us about the benefits of moving into the Euro zone. I thought of the fiasco that he organised then and the prices that we now have to pay as a result.
Such high prices affect families, pensioners and other ordinary consumers, but they also have a damaging effect on industry in Northern Ireland. Companies such as Michelin and Montupet agree that electricity costs have a detrimental effect on their output and sales.
It also has a downside. When the IDB tries to sell Northern Ireland abroad, companies with high electricity usage look at the cost of energy in Northern Ireland and compare it to that in Portugal, Spain, and other European countries. They say "Hold on a minute — the price of energy is very expensive in Northern Ireland", and then consider setting up in other countries.
The increase of around 9% announced by NIE is shocking, and it is important that this House unite to say that it is not acceptable. It is not acceptable practice, and it is not an acceptable policy. Having said that, privatisation has put NIE in a position to do such things. Recently I looked through a book listing the top 100 companies in Northern Ireland. The most profitable company was NIE — or Viridian, or whatever it wants to call itself. Premier Power was eighth, and NIGEN was tenth. Three companies involved in electricity are among the top ten most profitable companies in Northern Ireland. That says a lot when consumers are suffering as a result of the cost of electricity.
Some time ago the regulator began looking at electricity generating costs and how they could be addressed. I understand that an arrangement has been agreed for Ballylumford power station, which could reduce the cost of generating electricity there.
During the last two years there have been proposals for Kilroot that would significantly reduce costs, certainly in the short term. The Minister has to make the call on that matter. A decision has to be made — it is one that could significantly reduce costs and benefit our community — and it concerns the proposal to burn ore emulsion in Kilroot. The Minister has to make that call, and there will be an environmental impact. There is also the long-term aspect in that the deal in situ will run out in 2016, whereas a new deal for Kilroot would continue until 2025. The advantages to be gained now must be weighed against possible future disadvantages.
As regards the environmental impact, burning Orimulsion with a proper flue gas desulphurisation process would significantly reduce the emissions currently produced by Kilroot power station. While it would not be as beneficial as combined cycle gas turbine transmission, it would be more beneficial than the coal burning system currently in use at Kilroot. There would also be a significant reduction in costs up to 2016, compared to those we currently face. The Minister has some room for manoeuvre, and we look forward to an early outcome.
With respect to Viridian, the Minister must use all his pressure to bring it to heel and reduce the cost of electricity to consumers and to industry.
I thank my Colleague Mr Byrne for moving this very important motion. For the life of me, I cannot comprehend how consumers on low income can afford to heat their homes. On average, the cost of electricity is 20% higher in Northern Ireland than in England. This is a major issue, which needs to be addressed seriously.
Electricity costs make possible investors think twice about where to locate industry. My constituency of West Tyrone and all areas west of the Bann can offer no alternative to oil — at least Greater Belfast can offer gas to industry. The cost of electricity in the Republic of Ireland is 50% lower than in the North, and that may be one reason why its economy is booming.
A considerable number of Housing Executive tenants heat their homes with the Economy 7 system. This type of heating can be costly if not used properly, and residents living alone can find it impossible to heat their homes properly. The average expenditure on lighting and heating is 6% to 8% of household income. Lone pensioners need to spend an average of 23% of their income on heating. However, they are more likely to underspend on fuel because they cannot afford the expense and want to avoid debt. For every degree centigrade drop below the winter average, there is a corresponding rise of up to 8,000 deaths in Great Britain.
Another major problem is the threat of disconnection. It can cause untold anxiety to young mothers with children and to senior citizens. I appreciate that there are several ways to pay the outstanding bill before disconnection, but sometimes the householder might be ill or disabled and have difficulty in paying.
My constituency of West Tyrone is a rural area, and electricity charges can be crippling to small farmers. Young married couples with a mortgage, who have never been mentioned in these equations, can also find these costs crippling — a major burden on their income and a factor in their outgoings.
Landlords who own flats and install their own meters for individual flats can charge whatever they want for a unit of electricity, and it is generally higher than the normal tariff charged by NIE.
One way of easing the burden of electricity charges might be to remove the standing charge that is applicable to all households in Northern Ireland. I ask for a special task force to be set up to examine the issue. I also suggest that charges be restructured to target social need in all areas of Northern Ireland.
I support the motion.
I add my voice to those who have congratulated the Member for West Tyrone for bringing us to a very happy occasion of both a substantive motion and a proposed amendment before the House, with which we can all agree. Like my Colleague from Strangford, I hope to be able to come to an agreement about the final motion. Then we can send out a clarion call that we are opposed to what NIE is doing to Northern Ireland and electricity prices in the Province. We need to be certain about the signal we send from the House. It is good that we have that agreement, and I hope we can finalise that by the end of the debate.
One comment with which I disagree was made by Ms O’Hagan. She said that she was opposed to having two systems of electricity power and distribution on such a small island. Her suggestion that we create an even bigger monopoly on the entire island of Ireland is something that I hope the House deplores. That would do even more harm to the consumer and undermine further the consumer’s rights. I hope that the House will knock on the head the bad economic case that she constructed. It would not make any economic sense at all.
Competition in this field is what is required. Failure to have real price competition is what has caused some of the consumer’s problems. That is also one of the reasons why Mr Byrne has brought forward this motion. We do not have the necessary price competition to give the consumers what they deserve.
Like all other Members who have spoken in this debate, I am deeply disappointed by how NIE has acted today. It appears to have wanted to get its blow in first, saying at lunchtime today, before this debate and in the knowledge that it would take place, that prices are to be hiked. That is disgraceful and is not only a snub to this place and to elected representatives from across Northern Ireland who have found agreement tonight, but also an insult to the consumer. NIE should reflect upon its actions and realise that it is in the dock tonight and is being held accountable and found wanting.
I believe that the sooner it wakes up to that reality and start to reflect the needs of the consumer, the better for this society.
We have heard questions from right across this House tonight. Why is it that electricity prices are considerably lower in other European member states? Electricity is generated there in the same way as it is generated in Northern Ireland. In Scotland, prices are about 14% lower than in Northern Ireland. In Spain they are over 50% lower than in Northern Ireland.
Why is it that in Northern Ireland such an inflated price is put on a necessity? As other Members have said, electricity is not a luxury — but a vital utility for the entire community. The reason cannot be the price of crude oil, because crude oil is the same price in the Republic of Ireland and Spain as it is here. It is due to other issues, and I suggest that one of them is the way in which the industry is structured here. Indeed, Mr Neeson said that the structure of NIE privatisation is the error that lies at the bottom of this problem. I agree with him on that point. I believe that the structure of the industry is wrong, and it goes back to the mismanagement of privatisation by Sir Richard Needham.
The House should reflect very carefully on the economic advice that he is now purporting to give to people in Northern Ireland about the future of other parts of our economy. People should draw back from taking advice from that particular gentleman when we are living with the consequences of one of his most major decisions, which, as we can see, drastically affects the pockets of all our constituents.
NIE has been wrong in what it has done. It has been found to be wrong, and I hope that the Assembly will send out the clear signal that NIE must change its policy, that it must change its prices, and that it must favour the consumer, not the fat cat.
I support the motion, but I think it is somewhat ironic that we are discussing this issue when the impact of climate change upon the world is becoming more and more evident. This time last year we might have thought that there could be terrible storms, droughts and other climatic upheavals, but that they would not affect us. They might affect Venezuela, Bangladesh, the Maldives or the Seychelles, but the United Kingdom would be safe. However, even as I speak, a large proportion of Great Britain is under water, and if the forecast is to be believed, the same will happen to a significant proportion of Northern Ireland.
The penny is beginning to drop that the main reason for this is the generation of greenhouse gases by Western society. We will have to learn that we cannot continue to pour vast amounts of these gases into the atmosphere and not pay a terrible price for doing so. We have to be very careful, because if we demand a price cut in electricity — and many of us feel that the price is too high in the Province — we will simply increase demand and the emissions into the atmosphere. The price cut has to be structured in such a way that it encourages energy conservation here — something that we, as a society, are extremely poor at. One of the suggestions that has been put forward is that we should target price reductions at those who are most in need — pensioners, the unemployed and the disabled. I would subscribe to that.
It has been suggested that the pricing for the first 5,000 or 10,000 units, for example, should be deliberately reduced to enable those who are the low users — the people who are on low incomes — to enjoy basic heat, light and other facilities. However, once one gets above what could be ascertained to be a reasonable level, price increases would start to cut in to discourage people from wasting electricity.
I also believe that there should be greater emphasis on insulation and the conservation of energy in the Province. NIE is to be applauded — and perhaps this is one of the few bouquets that it will get this evening — for introducing the eco-energy tariff. This is a tariff by which consumers can buy electricity from a pool that is generated through environmentally friendly methods, such as wind power and wave power.
The Member mentions the eco-energy tariff. However, we have to pay a higher price for electricity under that tariff. Does the Member think that it would be appropriate for renewable and alternative energy sources to be subsidised so that we would be paying a lower eco-energy tariff and a higher price for other energy?
Great minds — what are they doing in the Women’s Coalition?
It is unfortunate that the wrong signal has been sent out regarding the eco tariff. It is, in fact, 1·2p per unit more expensive than standard fossil fuel electricity. NIE should send out the correct signal to society and say "We will actually price that tariff at a lower or similar cost to the standard tariff." That would encourage more consumers to use eco-friendly electricity.
No matter what we do, we must be extremely careful with the private consumer and industry, because the last thing we can afford to let happen in this society, or anywhere else in Europe, is a rapid expansion in the use of electricity generated through fossil fuels.
I do not want to sound like a latter-day soothsayer saying "Woe, woe and thrice woe", but if what we have seen over this past few weeks is anything to go by, this Province, and the entire world, is facing an ecological catastrophe. We must devise some system that reduces the cost of electricity to those most in need, and one that encourages all of us, including the people who run this building, to conserve electricity and energy, but that also ensures our continued economic growth. This is a difficult issue, and I do not envy the decisions that the Minister has to make. One option is the adoption of Orimulsion as one of the fuels to be used in the Province for electricity generation. NIGEN has examined this, and it will lead to a reduction in greenhouse gases, but let us not rush into a knee-jerk reaction by saying "Cut prices". We have to think of the consequences to society, because we are doing no one any favours by giving them more heat and warmth at a cheaper price if they are up to their necks in water as a result of flooding. Let us think long and hard before we go down this route.
We have had a very good debate. I thank the proposer for the motion and the proposer of the amendment for creating an opportunity for the Assembly to discuss seriously an issue that is of interest to almost every Member and our constituents.
When I took on this job, I was surprised at the extent to which my time was taken up by energy matters. I had not appreciated the amount of activity, given that the energy market is privatised. Nevertheless, a substantial amount of time is taken up because so many different things are currently happening in the energy field. Not only is there the question of the gas industry and how it develops, but there is also the question of the all-island market, and I will come back to that. There are questions relating to pricing and to Northern Ireland’s competitive position alongside other European regions. There is the overall European dimension and a whole range of issues that I will try to cover in the time available.
Mr Byrne asked "Why do Northern Ireland consumers pay more?" This matter was brought up by several Members. We pay more because in Northern Ireland it costs more to generate and distribute electricity. Most of the plant is 20 to 30 years old and is inefficient. Until recently, the choice of fuels has been limited, although fortunately that is now changing.
The competitiveness of the local industry and our ability to attract further inward investment are not helped by higher prices. They also impose an unacceptable burden on families with a low income, and Members placed great emphasis on that. However, I challenge Mr Byrne’s comment that there is no coherent policy direction, because energy issues are referred to in the Programme for Government. I assure him that we are developing a policy to create a more competitive market.
We are in this position because a bad deal was made in 1989-90. We were given contracts that no one would enter into in the present circumstances. We are paying for the availability of plant and the generation of electricity. The cost of fuel is significant, and that is part of the price we pay. We have been wrestling, as has the regulator, with this unfortunate legacy. None of us wants it, none of us would agree to it today, but we are left to clean up the mess.
Mr Byrne said that nothing was being done about Kilroot, but I assure him that much has been done. Members have referred to several issues, including generation with Orimulsion, and I assure Mr Byrne that much time and energy has been spent on seeking the best options for Kilroot and the best policy framework in which the Department can help tackle the issue.
I accept the amendment put forward by Mr Beggs — a total review is a good thing. It is pointless to review parts of it, and I hope that we will be resolving the motion, as amended, at the end of the debate.
Many comments have been made about the monopoly situation and about the percentages of increases, and comparisons have been made with other regions. Some of the statistics were accurate, others slightly off, but the fundamental point has been grasped — we should not be in this position.
Regarding today’s price announcement, the regulator does not have the equivalent powers, but we are planning to correct that. Great Britain has a Utilities Act 2000, and next year we hope to bring in a Bill to cover the utilities area and the role of the regulator. Members are unhappy, and this legislation will reflect their concerns. I had hoped to introduce this legislation in the first half of next year, but it is complicated. However, we will try to have it later next year if progress goes to plan. It would give the regulator specific powers for the generation section that do not apply currently in Great Britain, so perhaps the Assembly can make a difference.
NIE price increases are governed by the terms of the privatisation contract. The regulator has a role, and will have to examine the proposals. I will be paying close attention and will consult with the regulator. He will have to satisfy himself that there is economic justification for the increases.
This does not address the social questions raised. People involved with constituency work in Northern Ireland will know that we are in dire straits, particularly our senior citizens. Mr Shannon and others have made this point. We are concerned and horrified that 600 excess deaths are deemed acceptable. Changes in the social security system have reflected what can be achieved. Unfortunately, the Social Security Agency (SSA) has been slow to realise that Northern Ireland is starting from a much higher base. Many houses are poorly insulated, but alleviation schemes are in place. Many elderly people are huddled round small fires. In this day and age it is a terrible indictment on all of us that people are freezing to death in this country. The Assembly must address this problem.
The climate change levy, to be introduced in April 2001, will increase the equivalent of between 5·5% and 8·4%, depending on demand and load factors. The levy can be offset by a reduction in employers’ national insurance contributions. Intensive energy users will also be able to take advantage of this, which will have some impact. There was a battle with the Treasury over the gas industry. We were partially successful in securing an exemption for the industry so that for at least five years it will not be subject to the levy. The new gas industry will be able to get off the ground and will not be penalised before it has a mature distribution system in place. We also secured some additional assistance for the liquefied petroleum gas (LPG) sector, on which many people in rural areas are dependent. I welcome the fact that there is no time limit on that assistance.
Reference has been made to the potential for wind and wave power. Experiments are already under way, and local surveyors Kirk, McClure & Morton have been employed on behalf of the British and Irish Governments to examine the potential for wind and wave power on the island. The initial licensing has been granted for the first tranche of experiments, and we will continue to look at it closely.
Mr Neeson referred to the "mess" of privatisation and to the possibility of scrapping all business contracts, but it is not as easy as that. This is a difficult situation, but alternatives should be considered. I can assure everyone that we are looking at radical alternatives. The regulator has been struggling for the past few years to try to deal with the problem. When contracts are viable and lucrative, it is difficult to say to people "Show your social responsibility and let the people off the hook." Private business does not operate in this way. Consequently, our method of dealing with the problem needs to be examined, and we are trying to produce radical proposals to alleviate the difficulties. I cannot say whether the Treasury will permit them or whether they will be viable. The Treasury earned twice the expected revenue for privatisation, and we are left paying the price.
Mr Neeson mentioned the levy being imposed by the Irish Government on gas. This is a huge issue which could potentially pose a threat to our ability to open the gas market.
Dr O’Hagan and a number of others mentioned the all-island issue. Even if one takes the whole island, the energy market is tiny. It makes sense only if one links up with Great Britain and, from there, to mainland Europe. That is what we are doing with electricity. The interconnector from Scotland will, we hope, be in operation by this time next year, and we wish to ensure that the gas supply between North and South is connected. Most gas comes from Scotland in any case, but the Corrib field off the west coast of Ireland must also be included.
In this way, we shall have a gas and electricity market that is genuinely open to competition. By next April, we hope to increase the proportion of the energy market exposed to competition to 35% for larger commercial users, the maximum we are allowed at present. However, that figure could grow, and I do not doubt for a moment that the European Union will eventually open up most of the market.
The question of transmission and distribution charges was raised by several Members, including Mr Byrne and Mr Dallat. After generation, they represent the largest single component of electricity costs. The regulator has embarked on a transmission and distribution price control review, with new price controls coming into operation in April 2002. This matter is under close examination for I understand that our region requires a large number of distribution networks in isolated rural areas. Nevertheless, the amount of money is huge, and any review would have to take that into account.
Mr Poots represented the downside for the IDB. I could not agree more. It is not very nice trying to market this Province against a backdrop of high charges. That issue was raised by several Members.
Mr McMenamin, and others, raised the issue about areas west of the Bann where gas is not available. We must face the fact that there are, quite frankly, certain parts of the Province in which it will not be available. However, we must try to get it to those areas if we possibly can.
I am approaching the end of my allotted time. The Department has listened very closely to the substance of the debate, and officials are present and are taking notes. We shall take seriously what Members say, and I am committed — as the Programme for Government commits us — to reviewing the whole energy situation. It is almost a fundamental right, for one can do nothing in life or in business without it.
I wish to cover all issues, including distribution as well as generation. I assure the House that, together with the regulator, the electricity consumers’ committee and other interests, we shall actively pursue the review to realise our objective of achieving a competitive market whose prices give us a playing field level with that in neighbouring regions. That is one of my principal objectives for the Department.
I thank the Members who took part in the debate. I appreciate their comments about the timeliness of our discussing this issue. It is fair to say that there is a consensus that electricity costs in Northern Ireland are too high. People are asking why this is so.
The Minister has said the reason is privatisation, whose mishandling in 1992 has given Northern Ireland this high-cost relic. Several very good points were made about the high cost of electricity, particularly for low-income families and pensioners. Mr Shannon made a very strong point that NIE should consider some way of introducing differential tariffs relative to electricity use.
Other Members emphasised the handicap currently being experienced by Northern Ireland industry. I say to the Minister that if the climate change levy is increased in April, as scheduled, it will be imperative that this Assembly try to ensure that Northern Ireland industry is not disadvantaged as it is at present.
Mr Wells, Dr O’Hagan and others made strong environmental points. I fully agree that we need a radical examination of how we generate electricity. However, there is a real world and there is a make- believe world, and essentially this debate has been about the real world — how consumers are paying such a high charge for their electricity. There should be a radical appraisal of how we generate electricity in the future, and I concur with the general sentiments in favour of assessing alternative sources. I recognise that there has been an increase in one type of electricity generation in Northern Ireland, which is more eco-friendly, but the cost is prohibitive. In the short term we should not handicap domestic or commercial consumers as we have done to date. We have had seven years of high electricity prices; the issue has not been confronted. Therefore — and I say this to the Minister — we look forward to his bringing forward new proposals and working constructively with the regulator.
I am not blaming the current Administration and their Programme for Government. They are going to address the issue, and I welcome the statements made by the Minister in that regard. Consumers want this issue treated with urgency.
This afternoon’s proposal by NIE to increase electricity costs by a possible 9% from January steps up the pressure. There has been some annoyance about NIE’s making this announcement today. It does not concern me that much; it only adds to the debate and increases the urgency.
Mr Beggs moved a constructive amendment, and I fully accept its merits. The electricity market is not just about the generation and supply of electricity; it is also about its transmission and distribution. We have certainly heard a lot about the transmission and distribution costs that pertain here.
I am all in favour of economies of scale and of opening into a wider electricity grid, be it on an all-Ireland or on a European scale. The Minister has referred to the benefits that can accrue from the Scottish electricity interconnector; he is also trying to get a wider distribution of natural gas to other parts of Northern Ireland. Mr McMenamin, my Colleague from West Tyrone, and the rest of those of us who live in the west, have no alternative to electricity. This is a severe handicap. A potential industrial investor, thinking about setting up in my part of the world, was put off because there was no available supply of natural gas.
This debate has been constructive and worthwhile. It is timely, and I welcome what all Members have said. Ms Morrice suggested we benefit from wider economies of scale and tap into the wider network of electricity generation and supply. All these points are welcome at this time.
Lastly, many Members paid tribute to what the OFREG regulator has done in Northern Ireland. He and his dedicated staff are paid from the public purse, and until now their views have largely been ignored. As this is a devolved matter, it is important that the Assembly address the discretion and area of competence of the regulator. This will allow us a real impact on electricity prices in Northern Ireland. The Minister referred to the Utilities Act 2000, which will come into operation in Britain in 2002. This piece of legislation will have at its core the duty of the regulator to protect the interests of the consumer.
Several Members referred to the need for balance between the interests of the shareholders of NIE — and, indeed, the power stations, — and the interests of the consumer. The consumer has no option but to accept the price that is determined by NIE. Therefore this Assembly must now in the short time that is left put its weight behind the regulator in the interests of social justice. There is no great desire for the Minister to establish a review group to report on transmission, distribution costs and the remaining Kilroot contract to the Assembly before the final proposals for the third price control are submitted in July 2001. These proposals will come into effect in 2002. I welcome what the Minister has said in this regard, and I hope that the 630,000 domestic consumers and 43,000 business consumers in Northern Ireland will reap some dividends from our deliberations. The only real issue is that time is of the essence, and it is in the public interest that these contracts be renegotiated.
Main Question, as amended, put and agreed to.
That this Assembly notes the high cost of electricity in Northern Ireland and calls on the Minister of Enterprise, Trade and Investment to examine and review the electricity supply market and distribution system in this region.
Adjourned at 5.36 pm.