PSO levy (ctd)

My piece in yesterday’s Sunday Business Post builds on my post of last week. I also included elements of the discussion (thanks!), particularly expanding the bits on import substitution. Having studied in the Netherlands, import substitution was long ago and far away, so I would understand why the average Dutchie would be oblivious to its drawbacks. In Ireland, on the other hand, this policy was tried in living memory.

One of my recommendations is apparently already being followed up.

11 thoughts on “PSO levy (ctd)”

  1. @Richard,

    A vote of thanks for persisting with your efforts and for bringing an analysis of this ridiculous levy to wider attention. Even though its impact is unlikely to have a major economic impact most of it is a deadweight loss and it is a symptom of a much deeper malaise.

    Not surprisingly I found your final paragraph encouraging:

    “The government is deeply involved in electricity: it regulates the entire sector, and owns and operates substantial parts. Over the years, the sector has accumulated a number of ‘‘social obligations’’ – a euphemism for political fads and special interests. This has driven up costs. The PSO levy is the latest example. It is time for the government to disentangle itself.”

    This is equally true for gas, peat and public transport.

    Given the layers of regulatory complexity, requirements to comply with (often ill-thought through) EU directives and regulations, elaborate corporate strategies and policy concessions to special interests, I’m sure many readers and commenters on this site would welcome your thoughts on how this ‘disentanglement’ might be achieved. I would even hazard a guess that Colm McCarthy and his colleagues in the State Asset Review Group (now entering the folklore as An Bord Strip) might have a passing interest.

  2. @Richard
    “Energy security does not come about by trying to do things ourselves – just think of Corrib – but rather by having good relationships with stable suppliers.

    Some of the countries that supply energy to the world market are less than reliable, in the short run at least. However, in the long run, they are just as dependent on our money as we are on their energy. The Arabs and Russians will not turn off the tap for more than a few months.”

    The best hedge against disruption of the world market is energy storage. A gas reserve that covers a cold winter’s worth of heating and electricity demand provides energy security.”

    “Good relationships with stable suppliers” (of energy) Of course, assuming that we structure our “internal all-island” market to take advantage of world market prices.
    What kinds of agencies are going to work on “our behalf” to develop and maintain these relationships, in a world where much of the oil/gas resources are controlled by state entities directly or by states run a corporatist basis?
    To what extent do these agencies (and many others) bring what I term “cargo-cult” (http://en.wikipedia.org/wiki/Cargo_cult) cast of mind to how things are done here?

    “The best hedge against disruption of the world market is energy storage. A gas reserve that covers a cold winter’s worth of heating and electricity demand provides energy security.”
    Of course. Which agencies will control it, in practice? How will it be paid for? Will it too be financed by a PSO? Or by “capacity payments” built into some other other fee/levy/charge?
    Have you recently examined the extent to which and the manner in which current “strategic” stocks of oil and gas are now being managed here?
    This too deserves a post on its own.

  3. I know plenty of families who could use an extra 33 euro. I honestly can’t believe there’s not more media scrutiny of this country’s lunatic energy policies – you’d think people would be interested in not wasting their disposable income.

  4. @Dave,

    I fully understand your incredulity at the lack of sustained media interest. I’ve spent the last 7 years trying to interest various journalists in aspects of these consumer-damaging policies. There are two problems. First, there is no resource or capability in the media for sustained investigative journalism; an announcement on an energy matter is reported with, perhaps, some comment and it then disappears without trace. There is no attempt to join up the dots; and there has to be a ‘human interest angle’ – how much is the CEO of the ESB (or the average ESB worker) being paid.

    Second, succesive governments, the Department, the regulator and the two principal semi-states have constructed an elaborate and complex edifice since regulation was established in 1999. Various overt and hidden policy objectives are being pursued, but governments have removed themselves quite cleverly from direct responsibility by legally transferring an enormous amount of policy responsibility to the regulator. This PSO levy is a perfect example. This complexity gives many of the poor dears in the media a headache and trying to explain it to them is like telling a pig about a Bank Holiday.

    I will offer the following as a classic piece of economic illiteracy:
    http://www.independent.ie/opinion/columnists/martina-devlin/martina-devlin-semistates-have-to-show-us-the-money-2293558.html

  5. @Richard,

    Despairingly I’m compelled to agree with your observation. I also accept – and salute – that you have gone beyond the call of duty in highlighting the nonsensical economic aspects of this levy.

    In most parliamentary democracies – and probably more so in Ireland given the extent of executive dominance – the only, but not foolproof, way a government may be compelled to amend or reverse a specific policy is either for widespread popular revulsion to be communicated or for the constituents of a number of members of parliament (on whom the gpvernment relies for its majority) to express their strong opposition to this policy to these members – with a responsible media would acting in the public interest. (This is sometimes referred to as the ‘nuclear option’ and is operable only when the government’s political life is hanging by a thread.)

    If the Dail were sitting, I think a bigger head of steam might build up, but this will probably get washed away in the usual media ‘silly season’. (In passing it is interesting that most of the key decisions made by the CER appear during the summer adjournment of the Dail. This announcement on the PSO levy appeared on 30 July. The ‘consultation’ on the ESB networks’ 5-year price contol closed on 13 August and a decision will be made in a few weeks. It is similar for the gas industry which operates the UK ‘gas year’ form 1 Oct. to 30 Sep., so that decisions are made in the summer prior to October. Indeed the CER has moved its ESB-related determinations from the calendar-year basis (from 1 Jan. ) to the ‘gas year’ related basis. Probably not good to be publishing price decisions during November in the run-up to Xmas, facing cold weather and with the Dail in full cry.)

    I can’t see the Government budging on this. The ESB’s financial arithmetic is too tight. This levy is simply a quid pro quo for the carbon (windfall) levy. The three-year pay freeze just announced (with some natural wastage) should allow the ESB to meet the CER’s proposed opex profile, but the CER will find it very difficult to make any concessions. Given the fiscal deficit the Government probably has little scope to allow the ESB to defer dividend payments.

    I suspect the Government fears that any unpicking of the complex deal between itself, the CER and the ESB would cause the whole garment to unravel. All parties have an incentive to hold tightly on to their corners and let consumers take a hike.

  6. @Richard
    Just because our population is small, does that mean that in-depth articles should not be written to inform that same proportion of people who read such articles elsewhere?

    Now that you have raised the issue of energy subsidies in the press, I hope you will return to this again when the World Energy Outlook is published in November http://www.worldenergyoutlook.org/subsidies.asp
    This ” will include a special focus on energy subsides, building on the findings outlined above. This analysis also forms part of a Joint Report prepared by the IEA, OECD, World Bank and OPEC that will be considered at the G20 Leaders’ Summit in Ontario from June 25-27, 2010.
     The G-20 has highlighted that increasing the availability and transparency of energy subsidy data is an essential step in building momentum for global fossil fuel subsidy reform. As a contribution to the process, the IEA will be establishing an online database to allow the public to access data on fossil-fuel subsidies, including breakdowns by country, by fuel, and by year. ….”

    In the interests of providing us with a broader perspective on the immediate issue of the PSO levy, perhaps you might find time to prepare an update (using the breakdown by country data promised by the IEA) of the briefing published by the European Environmental Agency(EEA) in 2004 on Energy Subsidies and Renewables (http://www.eea.europa.eu/publications/briefing_2004_2) even within the limitations pointed out in that briefing.

    I would be particularly interested in knowing whether “the average Dutchie” still benefits from the “Preferential treatment under the regulatory energy tax for medium and large users of electricity provided a subsidy in excess of EUR 1.5 billion in the Netherlands.” which the EEA reports as having been in effect in 2001( http://www.eea.europa.eu/publications/technical_report_2004_1).

    If so, how does this now compare with current practice elsewhere in EU-15 and/or EU-27 or whatever other entities you consider appropriate for benchmarking?

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