ESB seeks go-ahead for 20% increase in prices

 

The ESB wants to increase the price of electricity by more than 20 per cent in the next five years, it has emerged. The State-owned company is known to have informed the independent regulator who sets tariffs that it cannot sustain prices at their current level because of higher fuel costs.

In submissions to the Commissioner for Electricity Regulation, Mr Tom Reeves, the company is understood to have indicated that increases well in excess of 20 per cent will be required to meet rising costs by 2005.

The company is also believed to have argued that the cost of supplying domestic customers is not reflected in the prices they pay, which were last increased in 1993.

There is an effective cross-subsidisation from its business with commercial users of power. The ESB wants to "rebalance" the rates paid by all customers. That process is separate from a review of tariffs being conducted by Mr Reeves, and any such restructuring would impose further increases on domestic customers.

The commissioner is expected to conclude his review of tariffs for 2001-2005 this autumn and is considered very likely to grant an increase.

But while the ESB wants most of any increase front-loaded, informed figures believe Mr Reeves is likely to reject that demand. Instead, it is believed Mr Reeves is likely to grant a rise of about 8 per cent from the start of next year.

Such an increase would be in keeping with comments by the ESB chairman, Mr Tadhg O'Donoghue, who recently said there would be "no question of double figures" when asked what rise was likely.

The average two-monthly bill of £55 would rise by £4.40 if Mr Reeves granted an 8 per cent increase. Such a rise would push the cost of the average annual domestic power bill to about £356 from £330.

An ESB spokesman would not comment when asked about the price rise implied by the company in its correspondence with the commissioner. He said the company had not sought an increase per se, but had pointed out in a series of submissions that its costs were rising.

That meant prices would have to rise, too, he said. The cost of power generation, which accounts for 55 per cent of tariffs, would increase by £12 million this year after a £125 million rise in 2000.

Mr O'Donoghue has suggested that the threat of price rises would diminish if fuel costs fell.

OPEC, the cartel which largely controls world oil prices, said yesterday it would take whatever measures were necessary to maintain stable rates. The organisation has a price mechanism band of $22-$28 a barrel at present. Oversupply in 1998 and 1999 drove prices down to about $10 a barrel.

The likely increase in power prices comes despite deregulation of the industry. The object of competition is to drive down prices, but industry insiders argue that the fuel-cost increases have not yet been absorbed by the market.

Mr Reeves moved yesterday to decrease the cost to independent power-generators of distributing power through the national network.

Electricity generators will benefit from that decrease, but domestic customers will not. That element of the cost of power is outweighed by the price of fuel.