A major review by the energy regulator, Mr Tom Reeves, into the €216 million profits made by the ESB's networks division has got under way.
The consultants PA Consulting have been appointed to carry out the review which will look at the kind of return on investment ESB is allowed to make in the period between 2006 and 2010.
A spokesman said the review would benchmark the ESB against comparable utilities across Europe and look at the kind of operational expenditure incurred by the networks division and the ESB's supply arm.
In 2003 the ESB made almost two-thirds of its profit (before interest and tax) from the networks division.
This key division produced a turnover of €849 million and profits of €216 million. If the review reaches a negative conclusion about the ESB's return, it could significantly impinge on the company's profitability.
Mr Reeves, who is chairman of the Commission for Energy Regulation, controls the level of return ESB is allowed to make from monopoly services like the network. While the networks division is highly profitable, it is highly capital intensive and in 2003 the company spent €671 million on this division. The ESB is currently involved in one of the largest capital investment projects ever undertaken in the history of the State.
However, some groups have questioned the scale and benefit of this programe.
The Institute of Engineers in Ireland released a report recently which suggested that the scale of the investment could ultimately result in higher electricity prices.
"The accelerated rate of investment now proposed by ESB in transmission and distribution assets could have an adverse impact on prices and could result in overheating of the labour market in this area, at a time when the level of new connections is at record levels," it stated.
"Thus we believe that a review of the scale and timing of the investment proposed be undertaken in the context of increased emphasis on electricity prices," it added. Its views were included in a submission on the National Development Plan submitted to Government earlier this month.
The ESB is expected to report strong operating profits for 2004 within the next two months. However, it faces several critical issues going forward. One of these is a €511 million pension deficit. Unions want management to address this deficit, but so far talks have failed to reach a conclusion.
