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Information Note on Advice to Minister regarding the Establishment Costs of Irish Water

Published on Friday, 10 Jan 2014

Information Note on Advice to Minister regarding the Establishment Costs of Irish Water

10/01/14

Information Note on Advice to Minister regarding the Establishment Costs of Irish Water

14th Jan 2014

The establishment of Irish Water as a regulated utility operating in a commercial environment and the expected introduction of domestic charges, has necessitated expenditure relating to the initial phase (project management, company establishment, etc.) and of a more enduring nature (billing systems, customer contact, function establishment, etc.). 

To the greatest degree possible, systems are being developed by Irish Water from existing Bord Gáis systems and this is providing for lesser cost of establishment than would otherwise arise.

As part of the development of the overall funding model for Irish Water, the Minister sought the advice of the Commission for Energy Regulation (CER) under section 27 of Water Services Act on this expenditure. In particular:-

  • The benefits which would be expected to accrue and the time period over which they would reasonably be expected to accrue from the Irish Water Programme expenditure to ensure that the investment is expected to result in value for money from a customer perspective;
  • The reasonableness of the proposed expenditure which has not yet been committed; and
  • Assuming that the economic regulatory model will include a regulated asset base, confirmation that the establishment costs efficiently incurred by Irish Water will be included in the opening regulated asset base.

 

In response, the CER conducted a short review, based on information supplied to it, and gave an initial view to the Minister in this context, that pending the full regulatory review to be undertaken in 2014, most of the proposed establishment costs appear to be reasonable and can be expected to result in value for money from a customer perspective.  The in-depth review of costs by the CER will be critical in validating this view in relation to the full costs. 

As part of this process, the CER noted that

(a)  the establishment of Irish Water as a separate business unit within the Bord Gáis Group and the roll-out of the national metering programme, has been to date, a significant undertaking.  Nevertheless, the primary goal of the CER, when ultimately provided with the full regulatory powers of the Irish water services sector, will be to protect the interests of the water services customer.  Setting revenues at a level that only includes expenditure efficiently expended is central to this, and

(b)  In relation to the costs already incurred at the time of their review (November 2013), the preliminary advice from the CER indicates that:-

  • all of the activities undertaken by Irish Water are core to the delivering the objective of a national integrated water service provider with associated benefits to customers and other stakeholders in Ireland
  • Irish Water has drawn heavily on BGE personnel and processes, which is the most efficient means of establishing Irish Water ie the most cost-beneficial, and

 

Following on from this advice, the Department has put in place appropriate procedures to seek to ensure that any proposed expenditure commitments which need to be made in advance of full regulator review will ultimately meet the tests of cost reasonableness and long-term value to the Customer.

 

Ends

 

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