The energy regulator, Mr Tom Reeves, has said he intends to approve a controversial 8 per cent rise in ESB prices due to the escalating cost of oil and other fossil fuels.
Mr Reeves said he would confirm his decision in early September, after studying submissions from interested parties, but the draft decision is unlikely to be reversed, according to most observers.
The 8 per cent increase would kick in from October, Mr Reeves said. The ESB wanted the increase to begin in September, but a few weeks ago Mr Reeves decided this was too early.
The decision will impact on virtually all households. It is understood the average household bill (over two months) comes to €106.65.
Based on an 8 per cent increase, this will add approximately €8.50 to each bill.
While the rise is likely to prove deeply unpopular with businesses and consumer groups, further ESB price rises are looking increasingly likely.
Mr Reeves said an ESB request for a further rise of 4.5 per cent, this one to kick in from January 2005, was also awaiting a decision.
He said even by granting the 8 per cent rise, the ESB would still have to deal with a revenue shortfall of €196 million. "Its recovery is being deferred for the moment," he said.
The ESB's 2004 accounts are likely to be severely affected by the escalating fuel costs, although the company is highly profitable and in 2003 managed an operating profit of €325 million. It also paid a record dividend to the Government of €67 million in 2003.
Mr Reeves explained the background to his decision. "The proposal to approve an increase in electricity prices by 8 per cent next October is due exclusively to the current very high fossil fuel prices and the forward market prices from publicly available indices," he explained.
"ESB power plant is heavily reliant on fossil fuels - oil, coal and gas. Over the past year the price of oil has been extremely volatile, with a new crude oil high being seen again this week. Furthermore, in the past year coal prices have increased by 75 per cent and gas by 38 per cent. Fuel prices are expected to remain volatile around these levels for the foreseeable future," he added.
Mr Reeves said in order to improve the whole system of pricing he was introducing a new "fuel cost variation" system. This system should allow consumers to get the benefit of falling fuel prices and not just the higher prices associated with rising fuel costs.
He said the new system should work relatively simply. "From July 2005 onwards the necessary ESB billing systems will be in place to allow prices to automatically track fuel costs and customers will be able to view this fuel cost variation as a separate line item on their bills. The charge may be positive or negative, depending on fuel cost trends," he explained.
The ESB declined to comment directly on the price increase, but welcomed the idea of introducing a new "fuel cost variation" system.
"This will capture the volatility and increasing prices of the raw materials used in generating electricity, and reflects similar changes in other markets. Fuel cost increases are also experienced by independent suppliers and generators," said a statement.
