Switch on to energy costs

It has been a bad couple of weeks for those of us with an interest in keeping warm this winter. Last week the price of gas climbed by more than a third, adding €300 to the average yearly household bill. Later this week the ESB is expected to be given the final go-ahead to up its prices by 20 per cent, adding at least €150 to the average yearly bill.

The Bord Gáis increase, like last year's 25 per cent hike, was given the thumbs-up by the Commission for Energy Regulation (CER) after Bord Gáis approached it cap in hand to complain that the growing cost of gas had added €150 million to its costs.

The CER said it regretted the unprecedented rise, which will see the average annual gas bill climb to €1,208 from €902, but claimed it was needed to promote competition and safeguard supplies in the long term. For its part, Bord Gáis also described the savage price hike as "hugely regrettable" but added that it was unavoidable and attempted to soften the blow by saying that wholesale gas prices were expected to stabilise from next year, and price reductions would be passed on to consumers if this happened.

AND IT IS happening. On international markets gas fell by 12 per cent in a week at the end of September and the sharp decline - brought about by better than expected news of gas reserves, a quiet hurricane season and forecasts of a mild winter in the US - has caught some investors off guard. One US-based hedge fund which had invested heavily in gas futures reported losses of $3 billion (€2.4 billion) last week because prices had fallen farther and faster than it has anticipated.

The news of a collapsing market has come too late to be of much use to the Irish consumer this winter, although lobby groups are sure to keep a keen eye on Bord Gáis to ensure it keeps its promise of price reductions next year.

Taking a leaf from the Bord Gáis Bumper Book of Price Hikes, the ESB was next in to the CER's office looking for an increase which it believed to be essential. This was unwelcome news for ESB's customers who already pay 51 per cent more for electricity than the European average, the second highest in Europe. The comparative figures were published in a Deloitte report commissioned by the Government and published last week.

DESPITE ALL THE apparent waste and the high costs to the consumer, the ESB still managed to do a fair impression of Oliver Twist when seeking its price rise. Although the precise details of its submission to the CER were not published this year, it used higher oil prices as an important justification for seeking its increase.

In early September, the CER published a draft decision granting an increase of just under 20 per cent from January 1st. As part of a consultative process it invited submissions from interested parties, including consumers, and is expected to announce its final decision this week.

No sooner had the ESB been given the provisional thumbs-up to up its prices, one of its principal justifications for the hike started to fade away as the price of oil on the international markets started to fall. Within weeks it had dropped more than 20 per cent from a high of $78 (€61) in August to a low of just over $60 (€47) last week - the fastest price drop since the end of the first Gulf War more than 15 years ago.

So did the ESB immediately return to the regulator and say "Good news! Oil prices have fallen so much that we don't need the 20 per cent price increase any more?" Of course it didn't, it kept schtum and it was left to Ann Fitzgerald of the National Consumer Association to call on the regulator to stop both the ESB and Bord Gáis hikes in the face of falling energy prices on the international markets.

"It is now generally accepted that oil prices have peaked in July 2006 and have subsequently dropped by approximately 20 per cent. Bearing this context in mind the proposed increases should be shelved without delay," she said. You could almost hear the utilities sniggering behind their hands at this lone voice calling for the Irish consumer to be afforded some protection from the price increases.

While the gas price hike has now been approved and implemented, there is still a chance - albeit a small one - that the regulator may heed the pleas of the NCA and consumers and decline to approve the 20 per cent ESB price rise. "We are going through the responses and carrying out the analysis now and as part of that we will also be assessing what impact the lower oil prices will have," a spokesman for the CER told PriceWatch last week. He said that the final decision on the ESB price increase would be published later this week and although he was unable to say what the decision would be he admitted there was a "possibility that the increases will not be 20 per cent".

HE SAID THE CER had received a great deal of feedback from consumers during the three-week consultation period and that it would be taken into account. "We have to find a balance between protecting the interests of consumers and protecting the economic stability of the companies involved."

Consumers shouldn't be overly optimistic that the increase will be significantly (or even marginally) less than the proposed 20 per cent. Reasons given are that while recent falls in the price of oil have been significant, the price on international markets is still higher than this time last year. Another argument is that part of the tarrif increase is accounted for by the need to recover €150 million lost because of fixed prices in 2006.

While the downward spiral of the price of oil is unlikely to have any effect on the energy suppliers' price increases, at least petrol prices on the forecourt have started to fall in line with international markets. At the beginning of August in Carrigaline, Co Cork, a litre of unleaded petrol cost €1.21 whereas today it costs just over €1.03.

The AA keeps a watch on petrol prices by carrying out a monthly survey of some 200 garages across the State. The September prices showed that the average was €1.15 per litre but the October survey due out next week should, if our price comparison elsewhere on this page is anything to go by, show a significant fall.

If only the energy providers were so responsive. Another notable element of the Deloitte report which showed that we pay more for our electricity than almost anyone else in the EU said that the ESB wasted €100 million a year through high labour costs and poor plant maintenance. This is something it perhaps should look closely at before it goes looking for its next price rise.