The Performance Assessment Framework for Economic Regulators (PAFER) was developed by the OECD to help regulators assess their own performance. The PAFER structures the drivers of performance along an input-process-output-outcome framework. This chapter applies the framework to the governance of Ireland’s Commission for Regulation of Utilities (CRU) and reviews the existing features, the opportunities and challenges faced by the CRU in developing an effective performance assessment framework.
Driving Performance at Ireland's Commission for Regulation of Utilities
The Governance of Regulators
Chapter 2. Governance of the Commission for Regulation of Utilities
Abstract
Role and objectives
The CRU is an independent multi-sector regulator with a range of economic, customer and safety functions and duties. It was initially established as the Commission for Electricity Regulation (CER) by the Electricity Regulation Act, 1999; however, as its mandate increased, the Commission updated its name to become the Commission for Regulation of Utilities (CRU) in 2017. Today, its sectoral responsibilities include the following:
Electricity: Electricity Regulation Act, 1999, and later the Energy (Miscellaneous Provisions) Act 2006 and Electricity Regulation (Amendment) (Single Electricity market) Act 2007;
Gas: Gas Interim Regulation Act, 2002;
Energy Safety: (Gas) (Interim) (Regulation) Act, 2002; Energy (Miscellaneous Provisions) Act 2006; Petroleum (Exploration and Extraction) Safety Act 2010 and Petroleum (Exploration and Extraction) Safety Act 2015;
Water: Water Services Act 2013 and Water Services (No. 2) Act 2013, the Water Services Act 2014 and the Water Services Act 2017.
The CRU’s positive track record in introducing competition, regulating pricing and delivering cost-competitive electricity and gas has contributed to decisions to expand its mandate to energy safety and water as well. The addition of new roles and functions, along with frequent amendments to existing legislation (particular in the energy sector and in relation to EU directives) have resulted in a complex and fragmented legislative framework governing the CRU’s operations.
The CRU operates in the framework of a Strategic Plan (2014-18) that sets the following key priorities:
Safe supply of energy and gas
Ensuring the security of electricity supply from production to consumption
Ensuring the security of and gas supply, including diversification of resources
Ensuring the reliability of clean water supply and efficient wastewater treatment
Fair energy pricing
Regulations according to international best practice.
In addition, the CRU defines a more detailed work programme annually. The 2017 work plan identifies the following key priority areas of work, each of which has a set of key performance indicators (KPIs):
Energy safety
Energy networks
Water regulation
Energy markets
Corporate services and customer support.
Table 2.1. Main features of sectors regulated by the CRU
Source: Information provided by the CRU, 2017.
Table 2.2. Main Irish state-owned energy and water enterprises
Note: The Department of Housing, Planning and Local Government (DHPLG) is the shareholder for Ervia Group.
Source: Information provided by the CRU, 2017.
Electricity
The CRU was first established as the Commission for Electricity Regulation (CER) by the ERA 1999, which authorised the regulator to: grant licences to generate and supply electricity as well as authorise the construction of generation stations; permit access to transmission and distribution systems by licence holders or eligible customers; monitor and regulate the wholesale and competitive retail electricity market. In 2007, the ERA was amended to give CRU authority to oversee the rights and obligations relating to electricity trade in the all-island Single Electricity Market (SEM).
The Electricity Regulation Act (1999; as amended) assigned the following functions to the CRU:
Grant licences to generate and supply electricity
Authorise the construction of generation stations
Grant access to transmission and distribution systems by licence holders or eligible customers
Monitor and regulate the competitive wholesale and retail electricity market
Oversee the rights and obligations relating to electricity trade in the all-island Single Electricity Market (SEM)
Advise the Minister on, inter alia, development of electricity and gas industries, on retail market monitoring and exercise of ministerial function under the gas and electricity regulatory legislation.
In 2005, the CRU began to phase out the regulation of tariffs in the retail electricity market. Progressive price deregulations for various consumer segments in the retail electricity market were carried out between 2005 and 2011.
The CRU regularly audits the compliance of electricity and gas suppliers according to the Electricity and Natural Gas Suppliers’ Handbook (CRU, 2017c). The Handbook comprises individual Codes of Practice that cover key customer protection items including: billing, disconnections, marketing, pre-payment meters, and vulnerable customers. The CRU chooses the specific aspects of the market to audit and either audits all suppliers active in that retail market or, in some cases, a particular supplier that has been flagged by a customer complaint or irregular market or data reporting.
The CRU regulates the revenues that can be recovered by network monopolies EirGrid (Transmission System Operator or TSO), ESB Networks (Transmission Asset Owner or TAO), and ESB Networks Ltd (Distribution System Operator or DSO) for providing access to transmission and distribution networks for energy suppliers. Energy suppliers may choose to pass on these costs to customers. The CRU sets the allowable revenue to reflect a combination of reasonable cost recovery of the DSO, TSO and TAO, as well as international benchmarks for comparable network operators and owners. The transmission revenue is collected by the TSO and distributed between the TSO and TAO as per SI445 of 2001 and the Infrastructure Agreement between the two bodies. The CRU conducts price reviews every five years while setting allowable revenues and tariffs every year within a price control period.
Ireland has a renewable energy target of 40% by 2020, to which a Public Service Obligation (PSO) levy and an updated renewable energy feed-in-tariff (REFIT) programme will contribute. The CRU is responsible for calculating and certifying the annual PSO levy to support electricity generation from sustainable, renewable and indigenous sources, as mandated by the DCCAE and approved by the European Commission. The calculation of the PSO levy is expected to increase in complexity going forward. When the PSO levy was first introduced, there was only one company holding renewable energy contracts. Now there are 56 companies holding renewable contracts, considerably increasing the CRU’s work load in this area, and role clarity of the existing legislation will be needed.
Gas
In 2002, the Commission’s remit was expanded to include the regulation of the natural gas sector. Similar to its functions in the electricity sector, the CRU became responsible for granting licences to ship and supply natural gas, permitting access to gas transmission and distribution systems by licence holders or eligible customers; and overseeing the monitoring and regulation of the wholesale and retail gas markets.
The Gas Act (Interim 2002) assigns the following functions to the CRU:
Grant licences to ship and supply natural gas
Provide access to gas transmission and distribution systems to licence holders or eligible customers
Monitor the competitive development of gas supply
Monitor the development and effectiveness of the competitive gas retail market, including tariffs to customers.
In 2005, the CRU began phasing out the regulation of tariffs in all sectors of the retail gas market. Progressive price deregulations for various consumer segments in the retail gas market were been carried out between 2005 and 2014, when the prices for residential customers were de-regulated.
The CRU is responsible for regulating charges in the natural gas market under the Gas (Interim) (Regulation) Act 2002. The CRU sets the tariffs for transporting gas through the transmission and distribution networks, which are operated by Gas Networks Ireland. The CRU regulates the level of revenue Gas Networks Ireland can recover from customers by setting the level of revenue to reflect reasonable cost recovery and international benchmarks against comparable TSO/DSOs.
Energy safety
The CRU is responsible for the designation and oversight of the safety supervisory bodies charged with monitoring gas installers and electrical contractors with respect to safety under the Energy (Miscellaneous Provisions) Acts 2006 and 2012. Where offences are identified under the Act, the CRU can and does undertake prosecutions.
The CRU is responsible for regulating the activities of natural gas and LPG undertakings with respect to safety under the Energy (Miscellaneous Provisions) Acts 2006 and 2012. This is carried out under the Gas Safety Framework, which covers shipping, supply, storage, transmission, distribution and use of natural gas, as well as with regard to certain specified LPG undertakings. The CRU’s main functions include safety licensing, compliance assurance (carrying out audits and inspections), incident investigations and enforcement.
The CRU is also responsible for upstream petroleum safety, including offshore safety under the Petroleum (Exploration and Extraction) Safety Acts, 2010 and 2015. The CRU’s main functions here include safety permitting, compliance assurance (carrying out audits and inspections), incident investigations and enforcement.
Water
In 2013, the water sector (residential water and public wastewater services) was added to the CRU’s mandate through the passing of two Water Services Acts, which outlined the functions and duties of the regulator as follows:
Serve as the economic regulator of Irish Water in the provision of water services, although there are no specific regulatory duties assigned to CRU in this Act. The Act more generally ascribes the CRU permission to “do all such things [following Section 27] as may be necessary or expedient for the purposes of the performance by it of water regulatory functions under any enactment passed after the passing of this Act.”
Advise the Minister in relation to the development of policy regarding the regulation of the provision of the water services
Fixing charges for water services and approving or requiring changes to the water charges plan
Specify minimum standards of service by Irish Water
Protect the interests of water consumers
Approve, reject or modify codes of practice on the standards of performance by Irish Water, including in relation to issues of billing and provision of information to customers
Direct Irish Water to comply with approved code of practice
Consult with Irish Water regarding its water services strategic plan
Request Irish Water to provide information as the CRU reasonable requires to perform its functions
Determine/approve the duration of Irish Water’s capital investment plans
Comply with Ministerial policy directions
Enter into a co-operation agreement with the EPA
Finalise a Water Statement of Strategy.
In 2014, further legislation outlined additional functions/duties of the CRU in the public water sector:
Provide a dispute resolution mechanism for customers of Irish Water
Act as Secretariat for the newly established Public Water Forum.
The CRU may approve or reject water charges proposed by Irish Water with or without changes. According to Section 22 of the Water Services (No. 2) Act 2013, Irish Water may prepare and submit to the CRU a ‘water charges plan’ that specifies the calculation of water charges to customers for the provision of water services, reflecting the costs likely to be incurred by Irish Water in performing these functions. Irish Water may also propose different charges to different customers for the provision of water services, subject to the approval of the agreement by CRU. The Minister may issue policy directions, to which the CRU has a legislative duty to comply under Section 42 of the Water Services (No. 2) Act. One such direction has been issued to date regarding water charges, in July 2014.
Inspection and compliance
The CRU carries out annual Supplier Audits to monitor compliance with the Electricity and Gas Supplier Handbook. The most recently published audit report was the 2016 CRU Audit of Compliance with the Code of Practice on Vulnerable Customers. The CRU expects its inspection and compliance related activities to increase in the near future.
The CRU has the power to conduct unannounced visits to retrieve documents, review and/or collect information from regulated entities in the energy sector. Inspections are typically carried out on entities that have been flagged as a risk or potential risk from company or market data.
The CRU carries out audits and inspections of the designated safety supervisory bodies to ensure compliance with the CRU safety supervisory scheme. At the close of 2015, there had been a total of 4 successful prosecutions since the introduction of Restricted Electrical Works into the Safe Electric regulatory scheme and 26 successful prosecutions since the introduction of the RGI regulatory scheme.
The CRU carries out a safety audit and inspection regime for the gas sector as part of its annual work programme as the regulator in charge of energy safety. The topics selected for review under the Audit and Inspection regime are chosen with consideration to previous audit and inspection findings, incident reports and safety case risk ratings. A total of 11 audits and inspections were carried out by the CRU on Gas Networks Ireland in 2015 (Information provided by the CRU, 2017). Findings from inspections are recorded on an internal database but not made public. In the case of prosecution, the CRU issues a press release. As inspections may lead to prosecutions, these findings are not published. Enforcement actions taken are reported publically in the CRU annual reports.
The CRU carries out an audit and inspection regime for the petroleum sector as part of its annual work programme. The topics selected for review under the Audit and Inspection regime are chosen with consideration to previous audit and inspection findings, incident reports and safety case assessments. 6 audits and inspections were carried out by the CRU on petroleum undertakings in 2016. Findings from inspections are recorded on an internal database, but the reports are not made public. Enforcement actions taken are reported publically in the CRU annual reports.
The Water Services (No. 2) Act provides the CRU with the power to request information as it “may reasonably require” in order to perform its statutory functions, and provides that Irish Water shall comply with such as request “as soon as reasonably practicable”. However, the CRU does not have the power, as in electricity or gas, to conduct unannounced visits to retrieve documents, or to review and/or collect information from Irish Water. Furthermore, unlike the companies in the energy sectors, Irish Water does not operate under a licence; therefore, the CRU does not have the legal powers associated with licensing or sanctioning Irish Water as it does in other sectors under its mandate. The CRU has expressed interest to standardise its authority to request information from regulated entities across the energy safety, electricity, gas, and water sectors.
The regulator has recently been granted sanctioning powers to fine certain but not all regulated entities in case of non-compliance, but how these powers will be used is currently being defined. Up to now, the CRU can only address non-compliance through notices or, in the most extreme case, licence revocation. Sanctioning powers are not applicable to Irish Water as of September 2017.
Single electricity market
The SEM Committee (SEMC) regulates the wholesale single electricity market of Ireland and Northern Ireland (Box 2.1). The Committee consists of three Commission for Regulation of Utilities representatives (the three Commissioners), three Utility Regulator representatives, an Independent Member and a Deputy Independent Member (SEMC, 2017). Legally, the SEMC is not cross-jurisdictional but rather two committees that meet at the same time, although in effect the same members of the committees make decisions for the all-island market. Correspondingly, there is no joint oversight mechanism for the SEMC in legislation; rather, an All-Island Joint Steering Group provides an oversight function, and regulators may individually or jointly appear before relevant bodies responsible for oversight in either jurisdiction (Northern Ireland or Ireland).
The All-Island Joint Steering Group (JSG) comprises representatives of the CRU, UR, DCCAE and the Department for the Economy in Northern Ireland (DfE).1 The main roles of the JSG are to facilitate policy consistency across both jurisdictions, and monitor implementation of SEMC decisions. The official terms of reference for the JSG calls for it to “maintain progress and ensure that developments in both jurisdictions complement the central goal of the mutually beneficial integrated system.” Meetings of the JSG take place on a quarterly basis. The future and the governance of the SEMC may be impacted by the form of Brexit, but this is uncertain at this time.
Box 2.1. All-Island Single Electricity Market
The United Kingdom (UK) and Ireland signed a Memorandum of Understanding (MOU) in 2006 to support the establishment of an all-island Single Electricity Market (SEM) that would link the wholesale electricity markets of Ireland and Northern Ireland, as well as legislation in both countries. The SEM and its corresponding governing authority – the SEM Committee (SEMC) – were established in 2007. Until the Moyle Interconnector between Northern Ireland and Ireland was built and operational, the two power markets of Northern Ireland and Ireland operated separately, with the power market of Northern Ireland operating as part of the UK system.
The creation of the SEM was broadly supported across government, industry and consumer groups in Ireland and Northern Ireland, as well as by the UK government. It was viewed to bring about many benefits including: increased security of energy supply, improved efficiency and cost-effectiveness for electricity dispatch, and greater competition in the wholesale electric markets which could help bring down prices.
The SEM functions as a pool market in which all electricity suppliers and generators above a minimum threshold are obliged to trade electricity. Generators bid into the pool market according to their short-run marginal costs, and a System Marginal Price (SMP) is determined for every half-hour according to a stacking of generator cost bids (starting from the least expensive) until the all-island customer demand is met. This facilitates the dispatch of the most competitively priced electricity to customers. All generators that are scheduled to run in the market are then paid the same SMP for the electricity they supply, in addition to a separate Capacity Payment for any periods that they are available to generate, which help contribute to generators’ fixed costs. In case of constraints in the pool, generators may be dispatched in a different order than the market schedule, with constrained plants compensated for the costs of out of market operations.
The SEM is considered to be a relatively concentrated market, with Ireland’s Electricity Supply Board (ESB) accounting for the largest share of installed capacity (46%) as well as the largest share of the spot market (47.5%) in the SEM.
The SEM is operated by the Single Electricity Market Operator (SEMO), which is run as a joint-venture by two transmission system operators in Ireland (EirGrid) and Northern Ireland (SONI). SEMO is responsible for administering the market, which includes calculating the SMP, paying generators and invoicing suppliers.
The SEM is regulated by the SEMC, which comprises representatives from the Irish Commission for Regulation of Utilities (CRU) and the Northern Ireland Authority for Utility Regulation (UR), as well as an independent member and a deputy independent member, all of whom work together to ensure the effective delivery of policy decisions related to SEM matters. The stated goal of the SEMC is to protect consumer interests on the island of Ireland by effectively promoting competition between persons engaged in, or commercial activities pertaining to electricity trade through the SEM.
In physical terms, the electricity grids of Ireland and Great Britain are currently connected by two High Voltage Direct Current (HVDC) interconnectors: a 500 MW Moyle interconnector connecting Northern Ireland and Scotland (owned by Mutual Energy), and another 500 MW East West interconnector connecting Ireland and North Wales (developed and owned by EirGrid). Capacity on both interconnectors is sold via auction. As of June 2017, the East West interconnector is operating at full 500 MW capacity, while the Moyle interconnector is operating at 250 MW due to long-running cable faults.
The TSOs in Ireland and France are also exploring another HDVC interconnector between the two countries called the Celtic Interconnector, which would have an import-export capacity of 700 MW. If built, this subsea interconnector between the south coast of Ireland and the north-west coast of France will become Ireland’s only direct energy link to an EU member state once the United Kingdom exits the European Union. In addition, a proposal for a further 500MW interconnector between Ireland and the United Kingdom, the Greenlink project, is being progressed by a private sector developer.
Presently, the SEM is undergoing an update in order to better integrate with the emerging single wholesale electricity market in Europe, which aims to start operations in May 2018. The SEMC is developing a new market design for the SEM called an Integrated SEM (I-SEM) which will facilitate coupling with the rest of the European power market via interconnectors with Great Britain. I-SEM aims to bring wholesale trading arrangements in line with European power trading models as established in the EU Third Energy Package, which requires several core changes to the SEM design including a significantly different system for Capacity Payments. Phase I and II of the I-SEM concluded in September 2014 with a high level design for the new I-SEM (SEM-14-085a). The I-SEM project is now in Phases III and IV of detailed design and implementation.
It is worth noting that, following the exit of the United Kingdom from the European Union, that the I-SEM market may face uncertainties in its operation and designs going forward. In the meanwhile, progress on the Celtic Interconnector between Ireland and France continues with financial support from the European Commission, which has designated the linkage as a “Project of Common Interest” for a more integrated electricity system in Europe.
Sources: SEM Committee (2017), About Us; SEM Committee (2017b), SEM Monitoring Report Q4 2016; Mutual Energy (2017), Moyle Interconnector; EirGrid (2017a), All Island Interconnection Imports and Exports, July; EirGrid (2017b), Celtic Interconnector, July.
Co-ordination
Co-ordination with other government and regulatory institutions
Table 2.3. Co-ordination in gas and electricity sectors
Source: Information provided by the CRU, 2017.
Table 2.4. Co-ordination in energy safety
Source: Information provided by the CRU, 2017.
Table 2.5. Co-ordination in public water and waste water services
Source: Information provided by the CRU, 2017.
Co-ordination with other governments and the European Union
The United Kingdom and Ireland signed a Memorandum of Understanding (MOU) in 2006 to support the establishment of the Single Electricity Market (SEM). Prior to the operationalisation of the Moyle Interconnector between Ireland and Northern Ireland, Northern Ireland operated its electricity market as part of the UK while Ireland operated its own market separately. Following legislation in both countries in 2007 establishing the SEM, the CRU assigns representatives to the SEM Committee (SEMC) together with the Northern Ireland Authority for Utility Regulation (UR), with which it jointly oversees the regulatory framework for the wholesale electricity market in the SEM.
Previously, the CRU and the UR had been leading a project called the Common Arrangements for Gas, which seeks to operate the gas systems on a single all-island network basis. However, the project has since been overtaken by the European Network Codes, which require implementation of enhanced trading arrangements across all Member States. Ireland would need to continue co-operation with the United Kingdom and European Commission to ensure that regulatory decisions beyond Ireland’s border do not negatively impact its gas market.
Box 2.2. National Smart Metering Programme
In late 2007, the CRU launched the first of a five-phase National Smart Metering Programme (NSMP) to assess the costs and benefits of introducing smart meters to provide dynamic records of electricity and gas consumption to energy providers, as well as receive instructions to switch electricity supply on or off. In 2009-10, Electric Ireland (ESB) and the Sustainable Energy Authority of Ireland (SEAI) conducted a trial that installed smart meters in over 5 000 residential homes and small and medium sized enterprises (SMEs). Results of this trial showed that customers responded positively to smart meters by reducing electricity consumption and their costs, and a decision was taken in July 2012 to roll out energy meters for all residential homes and SMEs in Ireland.
In January 2013, Phase II of the NSMP advanced high level design and procurement of smart meters, and the CRU subsequently published a Decision which outlined the high level function, methodology, objectives and pricing structure. Phase III followed in 2015 with a focus on procurement planning and building activities for suppliers. Phase IV on building and testing was originally scheduled for late 2018, with full deployment of smart meters by 2020. However, following technical delays on procurement and a review of the programme, the CRU and ESB announced in October 2017 that the rollout would proceed on a phased basis, with the first 250 000 meters to be delivered in 2019 and 2020.
Source: CRU (2017), Overview of Smart Meters and information provided by CRU, December.
As part of Ireland’s efforts to achieve its decarbonisation goal and align with the EU Clean Energy Package, the CRU has introduced a Strategic Innovation Fund as part of the electricity networks price control (PR4) which seeks to facilitate and incentivise the transformation of the DSO to ensure inter alia:
Flexible DSO operation including TSO-DSO Interaction
Electrification of transport
Flexibility in power systems
Resilient smart electricity grid used to defer capex investment
Demand-side response which plays a role in managing imbedded generation, leveraging smart meters (Smart Grids)
Relations with the executive
Participation in the legislative process
CRU makes official submissions on key national and EU policies relating to energy, and engages in informal discussions with the Ministry/DCCAE. The CRU also participates at ACER meetings and provides input to relevant issues in the European context through that platform.
The CRU has the power to make regulations concerning the electricity sector under the Electricity Regulation Act 1999 (amended). The CRU drafts statutory instruments where legally allowed.
Regarding EU-level energy legislation, the DCCAE primarily relies on CRU to provide technical input and guidance.
The CRU can advise the Minister on, inter alia, development of electricity and gas industries, on retail market monitoring and exercise of ministerial function under the gas and electricity regulatory legislation.
CRU provides input to national and European legislation on energy safety issues via informal inputs to DCCAE, such as by email and meetings. In recent years, CRU provided significant input from Ireland for the Offshore Safety Directive 2013/30/EU and the resultant Petroleum (Exploration and Extraction Act) 2015, with PAD/Europe leading these legislative developments.
The CRU provides a range of formal and informal inputs to consultations with Government Departments if and where appropriate. According to Section 40 of the Water Services Act (2) 2013, the CRU may also advise the Minister on the development and delivery of water services.
The CRU is a member of the Water Policy Advisory Committee (WPAC), which was established under the European Union (Water Policy) Regulations of 2014 and advises the Minister on various water policies. The WPAC involves 12 national bodies. CRU is also a founding member of the European Water Regulators (WAREG), a group of 27 economic regulators (24 full members and 3 observers) from European countries that share best practice in terms of water regulation via quarterly meetings and have prepared common position papers on relevant EU policies.
To date, the CRU does not directly provide input for negotiations of relevant EU legislation relating to water matters except through WAREG, as the CRU’s remit in the water sector is primarily limited to domestic economic regulation of the provision of water services by Irish Water.
Independence
Relations with the government
The CRU is an independent regulator that is accountable to the Oireachtas, or the parliament. As a multi-sector regulator, its relationship with the executive and the clarity of the legislative framework, as well as the extent of relevant EU legislation, differ across sectors.
The CRU falls under the aegis of two line Ministries: the Department of Communications, Climate Action and Environment (DCCAE) and the Department of Housing, Planning and Local Government (DHPLG). The CRU is one of several economic regulators under the aegis of DCCAE, and the only one under the DHPLG. Each year, the CRU formally provides annual work plans to the two Ministers and annual reports to the Oireachtas, the Irish Parliament, via the DCCAE who lays it before the Oireachtas. This channel of communication reflects the requirements of the legislation for the communication of such documents to the Oireachtas rather than any formal approval or appraisal of the documents by the Department. The CRU does not envision any opportunities to streamline this reporting process.
Commissioners are appointed by the Minister, sometimes but not always following a competitive procedure. In the case of the latter, this is run by the Irish Public Appointments Commission on behalf of DCCAE. The Chair of the Commission is selected by the Minister from the serving Commissioners on a rotating basis for a period of typically two to three years, but there is no prescribed term for this. According to the Electricity Regulation Act (1999, Section 8.5), a member of the Commission may “at any time resign his or her office by letter addressed to the Minister” or “be removed from office by the Minister if, in his or her opinion, the member has become incapable through ill-health of effectively performing his or her duties or for stated misbehaviour and the Minister shall cause to be laid before each House of the Oireachtas a statement of the reasons for such removal.” To date no Commissioner has been removed from office.
In the energy sector, the DCCAE formulates policy and legislation for the electricity and gas markets, which serve as a guideline for the activities and targets of the CRU. The CRU also provides informal feedback to DCCAE on legislation and takes part in formal consultation processes. The CRU and DCCAE operate on a “no surprises” basis that entails frequent and regular informal and formal interactions on energy and regulatory issues.
In the energy sector, national regulation is largely governed by European regulation; this is not the case for water, although adherence to the Water Framework Directive is referred to in CRU Water legislation, section (39)(2) of the Water Services Act (No.2), 2013. The cross-jurisdictional remit of the CRU in the case of the Integrated Electricity Market is seen to enhance the independence of the regulator in its decisions for the energy sector.
In the water sector, the DHPLG sets policy and legislation, is a shareholder in Irish Water and oversees the governance and funding of the national utility. The CRU, as economic regulator of the utility, approves its allowed revenue, associated charges where they are in place, and codes of practice regarding its customer service. CRU also works with the Environmental Protection Agency (which is under the aegis of the DHPLG), with whom the CRU has a Memorandum of Understanding and discusses water issues in structured meetings every quarter.
In the water sector, as in the energy and electricity sectors, legislation foresees that the CRU can advise the Minister in relation to the development of policy in the regulation of the sector. During the water sector reform process, the CRU made numerous written submissions to a Special Joint Committee on the Future Funding of Domestic Water Services, and was called to appear six times to provide presentations and answer questions from the Oireachtas. The CRU has a legislative duty to comply with Ministerial policy directions. To date, one such policy direction has been issued regarding water charges in July 2014.
In all sectors that the CRU regulates, it formally provides a work plan including financial information to the Oireachtas, the Irish Parliament, via the DCCAE who lays it before the Oireachtas. This reflects the requirements of the legislation for communicating such documents to the Oireachtas. Likewise, its annual reports are laid before the houses of the Oireachtas but there is no formal approval process by either the Ministry or the Oireachtas. The CRU is entirely funded by revenue from the regulated sector and its annual budget is presented for information to the executive and legislative.
The CRU generally enjoys a good public image and is perceived as independent from the executive, although as implementing government policy the CRU sometimes becomes the public face of policy that it has minimal part in developing. This perception can be exacerbated by the in-depth stakeholder consultations that the Commission also organises, in addition or complementary to the consultations led by the DHPLG e.g. on water reform and river basin management.
Relations with the regulated sector
The CRU implements inclusive and transparent consultation processes via its website in which the regulated industries can take part. All consultations are published, along with explanations from the CRU on which decisions were taken and why.
The CRU may engage in early stage consultation with key stakeholders before the online consultation, depending on the topic.
For consumer representatives, the CRU has established the Customer Stakeholder Group, the Public Water Forum (as required by legislation), and the Non-Domestic Water User Group as formal consumer consultative groups. The CRU also engages with consumers through public consultations.
As Irish Water is the only public industry operator in Ireland, the CRU continuously engages with Irish Water directly on both a formal and informal basis.
Input
Financial resources
The CRU is funded entirely through levy and licence fees from relevant electricity, gas, petroleum safety, and water industry participants. Levies from market participants comprise the bulk of the CRU’s income. The relevant undertakings that are liable to paying levies are described as follows:
Electricity levy from any person engaged in the functions of electricity generation, transmission, distribution and supply;
Gas levy from any person engaged in the functions of natural gas transmission, distribution or supply. An LPG levy was added in 2015;
Petroleum safety levy from any relevant petroleum safety activities since May 2013;
Water levy on Irish Water, in turn funded by government revenue and/or charges where in place.
A number of changes to funding regulations for the CRU have been made in the recent three years, in correspondence with the expansion of the CRU’s statutory functions and the need to ensure effective allocation of resources per function.
Table 2.6. Summary of changes to funding regulations 2015-17
Source: Information provided by the CRU, 2017.
In general, across senior management it is felt that the CRU disposes of sufficient financial resources to meet its strategic objectives and targets. Constraints are more to do with how these funds can be used on human resources.
The CRU sets its own budget without requiring government participation, in line with the Schedule to the Electricity Regulation Act 1999 (amended). There is no direct government contribution to the CRU budget and the regulator’s annual budget is approved by the Commission without approval or ex ante assessment by the Oireachtas. In this sense, the CRU has the highest financial independence by statute of any economic regulator in Ireland.
Annual budgets for the electricity, gas, petroleum and water are allocated by the CRU to each sector. Revenues, expenses and capital expenditure directly incurred by each sector are recorded in the separate budgets of the electricity, gas, petroleum and water sectors. Shared costs are allocated to each sector in proportion to the staff numbers engaged in the relevant sector. Costs linked to shared administrative functions such as finance, HR, IT, and Communications are pooled for all sectors. A common budget for contingency is also shared between the sectors underpinned by a risk assessment, to enhance the CRU’s financial flexibility beyond the once-a-year opportunity to set the budget, and serve as a buffer to any unexpected work including litigation. Where annual expenditures exceed revenue, the balance is offset against the levy income for the subsequent year. Table 2.7 provides a summary of the annual operating budgets and expenditures of the CRU in the recent three years.
Table 2.7. Annual operating budgets and expenditures at CRU 2015-17 (million EUR)
Source: Information provided by the CRU, 2017.
The balances for the electricity, gas, petroleum and water sectors are recorded in their respective accounts, and audited on an annual basis by the Office of the Comptroller and Auditor General, which reports to the Public Accounts Committee of the Oireachtas. The CRU also conducts an annual internal audit, which is outsourced to an audit company).
In general, the CRU’s procurement process is obligated to comply with EU Procurement Directives as transposed into law by the Department of Public Expenditure and Reform. The Office of Government Procurement commenced operations in 2014 and, has responsibility for sourcing all goods and services on behalf of the Public Service. In general, for amounts under EUR 5 000 EUR the CRU can directly procure goods and services; for amounts between EUR 5 000 EUR and EUR 25 000 EUR the CRU can use a restricted procurement procedure; for amounts above EUR 25 000 the CRU has to carry out an open tender on the central government website with the process taking up to two months; and for amounts above the EU threshold of EUR 209 000 EUR the CRU has to carry out an open tender for a longer period with the whole process taking 4-6 months. The CRU can use an accelerated procurement process for urgent requirements e.g. services that may be required for safety cases.
The Senior Financial Manager of the CRU is responsible for: core internal financial services including budgeting and accounting; procurement support services (2006 to date); integrated business planning and risk (since 2015); project management and support (2016); the administration of the pension scheme as well as trusteeships.
Human resources
The CRU’s overall staff headcount is approved by the Department of Public Expenditure and Reform (DPER), according to the government’s Employee Control Framework (ECF), introduced as part of the public sector reforms following the financial crisis. These sanctions are issued to CRU parent departments by DPER at the beginning of each year. Changes are advocated via a Business Case that is presented by the parent Department(s) to DPER, as part of the overall envelope under the jurisdiction under the parent Department (i.e. the parent Department may be obliged to make trade-offs between different entities that it oversees). Typically, the CRU would advocate for additional headcount with its parent Departments and by extension DPER when it takes on a new function, and generally has not sought to increase headcount outside of these occasions. The CRU supplements internal staff expertise with support of specialist consultants where required, for example, to deliver major projects such as I-SEM, the National Smart Metering Project, and the establishment of the Water Regulatory Framework.
Table 2.8. Sanctions on staff headcount by DPER for 1 January to 31 December 2017
Source: Information provided by the CRU, 2017.
The CRU workforce has steadily increased from 78 full time employees in 2013 to 103 as of May 2017 in line with the increasing functions given to CRU. Professional staff account for more than 80% of total staff.
Table 2.9. Breakdown of CRU supporting and professional staff
1. Total headcount for 2017 as of May 2017 does not add up to 105 as some posts are not filled.
Source: Information provided by the CRU, 2017.
Nearly 80% of professional staff is comprised of technical staff (Table 2.10).
Table 2.10. CRU professional workforce
Source: Information provided by the CRU, 2017.
The CRU has achieved a high level of female representation across the organisation. Female staff count outnumbers male staff count at every professional level, even in the absence of specific HR policy to this aim.
Table 2.11. Breakdown of male and female employees according to staff categories (2016)
Note: Total headcount for 2017 as of May 2017 does not add up to 105 as some posts are not filled.
Source: Information provided by the CRU, 2017.
Historically, staff retention and terms and conditions for hiring flexibility appear to be the principal human resource challenges, rather than the cap on staff count, although this may change in the future as the scope of work of the CRU expands. The CRU follows government remuneration policy (scaled down following the 2008 crisis) and, as such, the CRU’s pay scales are generally not competitive with those offered by industry especially at less senior grades. The terms and conditions of hire, as well as salary scales, are defined by DPER in line with public sector norms which are considered to lack flexibility to compete with industry. All positions have to be appointed at the bottom of the salary scale, which challenges efforts to recruit more experienced staff. Overall, the CRU faces challenges to recruit staff with industry experience that are above entry level, and CRU employees are more likely to take up positions in industry than the inverse. Despite holding open recruitment campaigns to attract senior external candidates with sectoral experience in recent years, vacancies have primarily been filled by internal candidates – the latter of which has not necessarily been a negative as CRU reports that staff have felt encouraged by internal promotion opportunities. Hiring technical expertise in safety has also been a challenge due to salary scales.
To address this challenge, in January 2016, the CRU restructured its salary scale following approval from DPER to include two levels for the position of analyst (analyst and senior analyst), allowing for the hire of analysts at a higher starting salary (Table 2.12). Salaries of all staff recruited since January 2016 comply with the new salary scale.
Table 2.12. CRU salary scales (EUR) before and after January 2016
Source: Information provided by the CRU, 2017.
The shortfalls in staff capacity or inability to easily hire staff on flexible terms to meet temporary demands have led to the CRU relying on external consultants in certain areas. The CRU reports drawing especially heavily on consultants for major projects outside of the annual planning cycle, such as the five-year pricing review, judicial reviews, or unexpected safety cases that suddenly draw away existing staff resources. The heavy reliance on consultants can at times pose difficulties in terms of knowledge transfer, continuity of institutional memory.
Staff turnover rate at the CRU has been perceived to be high, averaging around 11% between 2010 and 2015, and reaching 15% during that period. Turnover is especially severe at the junior levels, as newly trained CRU staff become increasingly attractive to industry which can offer much higher salaries. Since 2016, the staff turnover rate has decreased to 6%, which the CRU attributes to a number of factors including the renewal of the leadership team, the restructuring of pay scales, and greater efforts to improve workplace flexibility and promote staff training and development. However, contracts pre-January 2016 could include a performance-related payment of up to 15% (averaging 7.5% across the organisation), which could no longer be applied to new contracts. It is anticipated by the CRU that where there is no flexibility on terms and conditions and where the CRU staff are attractive to industry, retention of staff will continue to be a challenge, particularly as the economy picks up.
The CRU senior management team meets to discuss human resource management across the organisation and work force planning as needed. The HR team also issues recruitment plans for each year. To assess and plan for current and future staff capacity and performance, the HR team aims to complete competency frameworks for all grades in the CRU and develop an integrated skills matrix for the 2018 planning cycle. The CRU recently launched a new three-year HR strategy in June 2017.
All of the CRU’s permanent staff below director level (inclusive) is recruited through open competition by the CRU. Interviews panels can vary dependent on the positions. Psychometric tests or written tests have been given during the recruitment process, although they are not routinely used. Screening and interviews are typically conducted with two Directors and one HR staff, depending on the grade.
Within its allowed annual budget, the CRU offers a number of training and development opportunities for its staff including: in-house courses, knowledge transfer sessions, external courses relating to specific areas of work, including managerial skills, and general health and safety training courses. The CRU also runs a graduate programme for new graduates. Each year, a number of analysts complete the Annual Training on Regulation of Energy Utilities at the Florence School of Regulation and a water regulation training course for staff operated by the Hungarian regulator.
Staff performance objectives are set in January of each year, with an interim review in June and a final review of performance for the year in December. The CRU follows best practice with respect to performance assessment. There is no formal 360 degree performance review process, although this is offered periodically to members of the Senior Management Team and may be considered for other grades in the future.
Half of the CRU staff are currently employed under contracts that include performance-related pay, which was part of the original pay model when the CRU was established. This component of pay is being phased out following engagement with DPER since January 2016.
Process
Decision making
The CRU has a three-person Commission responsible for setting the strategic direction for the CRU, monitoring its performance, and ensuring CRU’s compliance with the law as well as the organisation’s constitution and policies. The Commission also represents the CRU with respect to national and EU institutions. The CRU does not have a non-executive Board.
Commissioners are appointed by the Minister, sometimes but not always following a competitive procedure. In the case of the latter, this is run by the Irish Public Appointments Commission on behalf of DCCAE. Commissioners’ terms are prescribed in legislation (Electricity Regulation Act, 1999) as being no less than five and not more than seven years, usually five. Their mandates can be renewed once, for a total maximum number of years of ten. Commissioners’ terms are staggered so that no more than one vacancy should arise in any one twelve month period. The Chair of the Commission is selected by the Minister from the serving Commissioners on a rotating basis for a period of typically two to three years, but there is no prescribed term for this.
Each Commissioner is assigned lead areas and responsibilities for the benefit of an effective division of tasks (Figure 2.1).
The Commissioners make all key policy decisions, which are taken collectively and, in the case of a vote, by simple majority. Commission decisions are often based on proposals and recommendations prepared by CRU Directors and staff. Clear and predictable functioning of the Commission is set out in in the Commission Rules and Procedures, approved on 1 May 2013 (CRU, 2017b). This foresees inter alia that two members of the Commission form a quorum. In the current composition of the Commission, decisions are made on a consensual basis and have not been put to a vote. Each Commissioner has lead responsibility for specific technical and managerial areas; these rotate between the Commissioners ensuring a high level of engagement in the quality of decisions. Commissioners may delegate authority to Directors as appropriate for technical decision making.
Figure 2.1. Lead areas assigned to CRU Commissioners, as at October 2017
Source: Information provided by the CRU, 2017.
Apart from key policy decisions, Commissioners may also delegate decision-making authority to Directors as appropriate, based on custom and practice. For example, the Commissioners handled the first few safety cases at the CRU, whereas now safety cases are more often handled by Directors.
The Commission meets once a week in meetings chaired by the Chairperson, together with Directors. Presently, three Commissioners and four Directors comprise the Senior Management Team (SMT). Where appropriate, Managers may also join the weekly Commission meeting.
Organisational structure
The CRU is led by three Commissioners (one of whom is appointed as Chairperson of the Commission), in place of a Board. Below the Commissioners are four Directors, each of whom leads a division. The divisions are structured according to the substantive areas of work of the Commission (Water, Energy Markets, Energy Networks, and Energy Safety) with horizontal Corporate Service functions absorbed across the Divisions (Customer Affairs and Operations with Water, and Legal with Energy Networks) (Figure 2.2).
Figure 2.2. Internal structure of the CRU
Source: CER (2016), “CER Integrated Business Plan: Year 2017”, Internal Report for Management Team, December.
The lack of separate Divisions for corporate or cross-cutting functions to date is not viewed as hindering operations as staff appear to communicate fluidly and efficiently across Divisions. CRU management and staff are able to access HR, finance, customer affairs and legal personnel directly, irrespective of the vertical structure. However, it is unclear whether Directors in charge of overseeing cross-cutting functions as well as sectoral functions would benefit from a more distinctive separation of responsibilities as the functions of the CRU continue to increase. More analysis is required to stress-test whether CRU would benefit from having corporate HR and Legal functions separated from any substantive work stream. Going forward, given the evolution of workloads and the need for specialised professional leadership for all areas of technical and corporate functions, this structure may need to be revised.
The CRU’s Energy Safety function – which has its own Division and Director, is increasingly being embedded into CRU functions pertaining to licence issuing in other Divisions. For example, the CRU issues an overall licence for gas suppliers, which is underpinned by a mandatory safety case.
There is potentially a conflict of interest in the Safety vs. Economic functions of the CRU, although this does not yet appear to have occurred. According to the ALARP Guidance (2016), the CER is first required to undertake a detailed assessment demonstrating that safety risks are managed to an appropriate level (including the costs of implementing the necessary safety measures). Where the outcome of such an assessment is inconclusive, the ALARP guidance requires the application of a Precautionary Principle is applied to assessment decisions, whereby “safety is expected to take precedence over economic considerations” and that “in this decision context, the decision could have significant economic consequences to an organisation in conjunction with the safety implications” (ALARP, 2016: 18).
Strategy and planning
The Commissioners set and approve the Strategic Plan of the CRU, in consultation with the Senior Management Team (SMT). There are regular strategy meetings involving Commissioners only, and an SMT meeting involving both Commissioners and Directors.
The CRU strives to focus its operation and management processes on creating a link between its medium-term strategy planning (the active Strategic Plan is for the period 2014-18), annual and quarterly work planning and reporting – including linking personal objectives to CRU strategic goals. Based on its Strategic Plan, the CRU drafts annual work plans that are presented to the Minister and parliament. The annual plan is based on divisional annual work plans, that are elaborated using a mixture of top-down (parameters set by senior management) and bottom-up (business plans generated by managers responsible for delivering specific work items.) approaches.
As stated in the CRU’s Strategic Plan, the Commission is in the process of introducing an Integrated Business Planning Process, which aims to provide clear linkages between strategy, risk, resources, work plans and reporting processes. The annual plan includes the following components (is finalised in December):
Baseline work plan (to be reported to the Minister on 30 November)
Human resources plan
Budget
As part of this Integrated Business Planning, the CRU will break down the annual business plan into quarters and conduct ex post monitoring and implementation, meaning that Managers will have four opportunities to assess whether the business plan is on track, and make adjustments as needed in an iterative exercise. Managers will need to estimate staff resource time per project / output to help set more realistic deliverables and timelines. CRU will also make estimations of the levies to be collected from industry over a three-year period which, beyond supporting longer-term financial planning, will improve the CRU’s financial transparency and help industry anticipate coming costs. It is hoped that the Integrated Business Plan will continue to improve target-setting within yearly work programme and better project management outcomes.
Accountability
The Commissioners are accountable to parliament. Formal and structured accountability mechanisms include submission of annual work plans and reports to parliament (which are submitted to the Oireachtas via the relevant Minister). The annual report describes the work delivered by the CRU over that calendar year with reference to the targets set in its annual work plan. Annual plans are published on the CRU website. The CRU is also subject to more ad hoc correspondence, presentations and questioning by the Oireachtas committees responsible for energy and water sectoral policy. All Oireachtas committee meetings are open to the public and recorded.
At the parliamentary level, the Joint Committee on the Future Funding of Domestic Water Services was disbanded following the publication of the April report. Going forward, the main standing committees to which CRU shall report its activities are the Committee on Housing, Planning and Local Government (the standing committee for the Department with oversight of Irish Water) and the Committee on Communications, Climate Action and Environment (newly set up in September 2016). This Committee is relatively new and is still defining its role and responsibility. Given the highly technical work of the CRU, the Committee would likely require more help from the CRU in terms of language simplification and explanations to better understand the CRU’s work and provide the appropriate level of accountability oversight. The Committee has expressed a need for more capacity to analyse highly technical issues.
The CRU keeps financial accounts and these are audited each year by the Comptroller and Auditor General. The accounts are also laid before the Oireachtas and published each year as part of the annual report.
The Commission has also established an Audit and Risk Committee which reports regularly to the Commission. The Management Accounts are presented every quarter by the Finance Manager to the Commissioners. As provided under the Code of Practice for Governance of State Bodies: The Commission has a duty to act in the public interest. The Audit Committee has a particular role, acting independently of the management of the CRU, to ensure the interests of Government and other stakeholders are fully protected in relation to business and financial report and internal control. The roles and responsibilities of the Committee are set out in a written charter.
The CRU is governed by existing relevant government wide legislation with regard to ethical conduct, such as the Ethics in Public Office Acts 1995 and 2001(SIPO, 2017). Commissioners are subject to a one year cooling-off period during which they cannot hold office where they might use or disclose information obtained during their time at the CRU. Similar rules do not exist across the board for senior management or other CRU staff.
In addition to this, the CRU has established its own Code of Business Conduct for Employees of the Commission in 2004, subsequently revised in 2004 and 2014 (CRU, 2014). The Code holds all CRU staff accountable for following CRU values of integrity, impartiality, professionalism, transparency and effectiveness. The Code of conduct tackles, for example, issues linked to disclosure of interests, holding of shares in regulated companies, exclusivity of service, confidentiality of information, hospitality and gifts, and standards of behaviour. The Code of conduct does not lay out mechanisms or responsibilities for monitoring or reporting of inappropriate behaviour or whistle-blowing.
The CRU is considered to be transparent in publishing submissions by regulated entities during public consultation, including results of consultations and explanations of why certain suggestions will or will not be taken on board.
The online document management system of the CRU is considered to be well-organised for facilitating user search and retrieval. The CRU reviewed its website in line with its recent name and branding change. Updates will aim to improve the website’s functionality for users, including improvements to the document search facility. The CRU launched its new site by October 2017.
The CRU’s communications to both parliament and the general public is considered quite technical. Clearer language and communication from the CRU may help with building transparency.
Stakeholder engagement
The CRU implements a consistent, transparent and predictable stakeholder engagement strategy. The CRU carried out an inclusive review of its consultation practices in 2008 which led to the redefinition of some its activities. In general, the attributes of the CRU’s stakeholder engagement strategy are positively recognised and welcomed by stakeholders, including feedback on comments. In some instances, it is felt that the CRU could take a more strategic and discretionary approach to decision-making in favour quicker outcomes, rather than always systematically engaging in consultations.
All consultations are published on the CRU website and are open to all; a mailing list serves to alert key stakeholders to the publication of a new document online. A minimum consultation period is generally set at four weeks, or six weeks for major consultations. Consultations may also be extended to eight weeks depending on the topic. Comments received are published and addressed in a consultation response paper that is also published online. Depending on the topic, a draft decision paper may be published with the consultation response, before the publication of the final decision paper.
In addition to the regular online consultation process, the CRU may also engage in early stage consultation with key stakeholders beforehand, as in line with best practice, should the CRU decide that the complexity of the policy area warrant it.
In addition to these practices, in 2014 the CRU established a structured stakeholder engagement forum, the Consumer Stakeholder Group (CSG) that meets regularly (usually 4 times a year) and brings together representative stakeholder organisations to hear their views. The CRU presents key points and issues that are contained in current consultation papers, and informs participants of upcoming consultations. In the context of ISEM, the CRU and SEMC organise ad hoc stakeholder engagement workshops on policy proposals as necessary.
In the water sector, the CRU engages with the Public Water Forum (PWF) as part of its overall consultation process on water matters, and initially served as its Secretariat until 2016. The PWF was set up by the DHPLG in the Water Services Act of 2014 to represent the diverse interests of Irish Water customers in the controversies surrounding the establishment of the national utility company. As of 2017, the PWF may be expanded (pending legislative decision) beyond a public forum to debate issues specific to Irish Water, to become a broader National Water Forum. The forum comprises 30 individuals, of which 10 are sector representatives from business and industry associations such as IBEC and various trade unions.
The CRU has also set up a Non-Domestic Water User group in order to update non-domestic customers on the CRU’s work in relevant matters.
Appeals
The CRU’s regulatory policy decisions can only be appealed by regulated entities through judicial review in the High Court or the Commercial Court. According to the CRU, there has been an increasing use of this procedure since the past five years (Table 2.13), which has made the CRU be more proactive in managing legal risks and incorporate legal review earlier in its decision-making processes.
Table 2.13. Appealing CRU Decisions
Source: Information provided by the CRU, 2017.
In general, a judicial review will assess only the adequacy of the processes leading to CRU decision making rather than on individual decisions. The court defers to the regulated entity to provide proof demonstrating that the CRU decision is “unreasonable.” There is no intermediate option for challenging CRU decisions before going to judicial review, such as in the case of labour or competition courts, or independent expert panel review. In general, regulated entities report that they do not easily resort to using judicial review which can be seen prejudicial to their relationship with the sector regulator. Smaller regulated entities tend to lack resources to initiate and carry out judicial review.
Operators can appeal CRU decision-making processes linked to licences (such as failure to grant or modify a licence) by requesting an appeal by an appeal panel to be constituted by the Minister for DCCAE. The panel can adjudicate on proposed licence modifications. Under the legislation, the CCPC may advise on the membership of the panel, including its duration and criteria. As of the end of October 2017 the first request for an appeals panel to address CRU licence modifications had been received.
Customers can file unresolved complaints directly with the CRU’s Customer Care Team relative to Irish Water as well as to the electricity and gas sectors. Complaints can be submitted online, via post, email or phone and they are addressed on a case by case basis by the CRU team. The CRU team engages with the regulated entity and the customer to reach a resolution. The CRU reports annually on the activities of its customer care team.
Table 2.14. Appealing SEM committee decisions
Source: Information provided by the CRU, 2017.
In order to appeal to SEM Committee (SEMC) decisions, regulated entities can only refer to the respective judicial review processes that apply to the CRU in Ireland and the Utility Regulator (UR) in Northern Ireland. There is no legislative body to which the CRU and UR are jointly accountable. In this view, the only appeals process for decisions of the SEMC is via a judicial review, as is the case with the CRU. To address cross‑jurisdictional legal issues, the SEM primarily relies on external lawyers.
Regulatory quality tools
Generally the CRU and its regulatory processes are positively regarded as transparent and predictable by stakeholders.
The CRU is not required by law to carry out ex ante assessment of cost and benefits, although the Government Policy Statement on Sectoral Economic Regulation (2013) recommends the use of Regulatory Impact Assessments (RIAs) where certain conditions apply, such as in the case of significant policy changes. As per this recommendation, the CRU has implemented RIAs on a pilot basis for certain cases, such as the National Smart Metering programme, the Integrated Single Electricity Market, or the Twinning of the Southwest Scotland Onshore System. In these cases, RIA has been carried out by the relevant project teams, with the support of external advisors. Industry stakeholders suggest a more systematic use of RIA would help improve transparency and understanding of the impacts of the CRU’s work as well as major decisions undertaken by the CRU. The CRU is committed to continuing to use RIA as a tool where appropriate.
The CRU is not required by law to carry out ex post assessments of its regulatory activities, but it carries out ex post assessments of Irish Water’s performance against the CRU’s decisions regarding its allowed revenue. CRU also carries out ex post assessment of revenue and investment levels as part of the electricity and gas price control processes.
The legal team advises on licensing and compliance issues relating to the areas of supervision under the CRU’s remit, as well as internal legal requirements for the CRU including procurement, contract negotiations and contract review.
The SEMC has undertaken RIA for major policy changes, although it is not otherwise used systematically for all decisions. Key decisions do tend to include an ex ante impact assessment, albeit on an informal basis.
Output and outcome
Assessing the performance of regulated entities
The CRU holds power to request and collect a large amount of information from regulated energy entities. Licenced suppliers that account for over 5% of market share are required to report a full set of data to the CRU, while those who account for 1-5% of market share report limited data. The main challenge is getting data from small suppliers that account for less than 1% of market share, as they are not required to report to the CRU.
The CRU’s demands for data are generally not considered to be overly burdensome by regulated entities, although some doubt whether the information is used effectively to achieve policy objectives and whether the CRU processes to respond to requests for information through the Freedom of Information Act treat sensitive information submitted by regulated entities with due confidentiality.
Up to now, the CRU is primarily analysing aggregated market data to deliver better information to the broader industry and external stakeholders, although the CRU is starting to collect disaggregated data – for example on the types of contracts held by customers – and plan to follow up with more analysis.
The CRU does not publish information it collects in relation to safety or performance reports from regulated energy entities, although this may not necessarily be undesirable given the relatively small scale of Ireland’s energy industry and the limited number of regulated entities involved.
Data requested from the industry includes:
The Transmission System Operator (TSO) (EirGrid) and Transmission Asset Owner (TAO) (ESB Networks) must undertake regular reporting on all transmission projects with capital expenditures exceeding €10 million to the CRU. Such large projects are also subject to a formal review and strict monitoring regime by the CRU, in order to ensure that the TSO and TAO Boards have undertaken appropriate due diligence.
The TSO and TAO are required to conduct a joint ex post review of performance against development targets and milestones. The results are presented to the CRU in the form of an annual report called the TSO/TAO Evaluation Report. The TSO is also required to publish an annual report on its business performance, in accordance with their licence.
The Irish Distribution System Operator (DSO) submits an annual performance report to the CRU.
Gas Networks Ireland (GNI) is required to provide the CRU with data in two reports concerning its system performance and customer performance, respectively, on an annual basis.
All regulated entities subject to the Petroleum Safety Framework are required to submit quarterly safety performance indicators with reference to a list of KPIs set out by the CRU.
All regulated entities subject to the Gas Safety Framework are required to demonstrate suitable management systems and procedures are in place to manage risks relating to gas leakage.
Licence holders are required to submit to the CRU quarterly or annual reports with updates on compliance to the conditions of the licences they hold.
The CRU has recently introduced an Irish Water Performance Assessment: Framework of Reporting Metrics (CRU, 2016) in order to assess Irish Water’s performance over time. Irish Water is currently collecting and monitoring data, and will submit the information to the CRU for review and publication in 2017. The CRU is also developing a monitoring regime to report on Irish Water’s delivery of capital investments under the revenue allowed by the CRU.
The CRU has the power under the Water Services (No. 2) Act 2013 to request information from Irish Water, with which Irish Water must comply. Pending legislation may also require the CRU to implement an open data policy for water data collected for research purposes.
In the past, the CRU has suggested the establishment of an Output Monitoring Group to share relevant water data between the CRU, EPA, and both parent Departments, although the idea has not yet advanced due to difficulties in obtaining appropriate baseline data from Irish Water. The CRU will continue to co-operate with EPA and the relevant Departments on this initiative.
Assessing the performance of the regulator
The CRU has a multi-year Strategic Plan. For the 2014-2018 planning period, the six strategic goals of the CRU focus mostly on the outcome of the regulator’s activities, with one high level objective that refers to management of resources and regulatory processes. Each of the strategic goals has attached measures of success (Table 2.15) as well as implementation strategies with identified actions.
Table 2.15. CRU strategic goals and measures of success 2014-18
Source: CRU Strategic Plan 2014-18.
It is unclear if the measures of success count with baseline measures (these do not appear in the Strategic plan, nor does the plan indicate how they will be measured or reported on). For example, the 2015 CRU Annual Report does not pick up on or report on the measures of success that are identified in the 2014-18 Strategic Plan.
The CRU is currently working on its Strategic Plan for 2019-2021, which is set to be launched in early 2019.
The CRU also develops annual work programmes (Integrated Business Plans) that are aligned with CRU strategy and objectives as per the Strategic Plan, but are structured according to the internal organisation of the agency. In the 2017 Business Plan, these five areas were: Energy Safety, Operations, Water and Customer Affairs, and Energy and Legal Affairs. This may be linked to the elaboration process of the integrated annual work programme, whereby divisions submit their plans linked to division targets rather than CRU-level targets.
Key Performance Indicators (KPIs) have been a feature of annual work plan reports to the Minister for a number of years following an agreement with DCCAE. On an annual basis, the Integrated Business Plan includes KPIs to monitor the achievement of goals in the five areas. In total the Plan includes 34 KPIs. Some of these seem to mix output and outcome rather than focusing on one area (i.e. enhance competitiveness of electricity and gas markets (outcome) by robustly monitoring retail markets, and publish quarterly and monthly monitoring reports (output). The Plan does not include information on a baseline or quantitative targets for the monitoring of the KPIs.
The Government Policy Statement on Economic Regulation 2013 requires the relevant sectoral Departments to agree with sectoral regulators appropriate performance indicators benchmarked against key competitor countries on an annual basis. These indicators are reported on in the annual report.
The CRU provides its annual work plans to its two line Ministers and annual reports to the Oireachtas, via the DCCAE which lays it before the Oireachtas. The report is not formally approved by the Ministers, nor is it formally presented to the Oireachtas by either Ministers or the CRU. The history of CRU annual reports is available on its website.
References
Commission for Regulation of Utilities (2017a), “Overview of Smart Meters”, www.cer.ie/electricity-gas/smart-metering.
Commission for Regulation of Utilities (2017b), “Commission Rules and Procedures”, approved May 2013.
Commission for Regulation of Utilities (2017c), “Electricity and Gas Suppliers’ Handbook Version 1.2”, Dublin, April, www.cer.ie/docs/001028/CER17060%20Electricity%20and%20Gas%20Suppliers'%20Handbook%20April%202017.pdf.
Commission for Regulation of Utilities (2016), “Irish Water Performance Assessment: Framework of Reporting Metrics (CER/16/308)”, November, www.cer.ie/docs/001090/cer16308%20irish%20water%20performance%20assessment%20-%20decision%20on%20framework.pdf.
Commission for Regulation of Utilities (2016b), “CRU Integrated Business Plan 2017”, internal report shared with OECD.
Commission for Regulation of Utilities (2016c), “ALARP Guidance –Part of the Petroleum Safety Framework and the Gas Safety Regulatory Framework”, https://www.cru.ie/docs/001054/cru16106%20alarp%20guidance%20v3.pdf.
Commission for Regulation of Utilities (2014), “Strategic Plan 2014-2018”, https://www.cru.ie/wp-content/uploads/2014/07/cer14751-cer-strategy-plan-v11.pdf
EirGrid (2017a), “All Island Interconnection Imports and Exports”, http://smartgriddashboard.eirgrid.com/#all/interconnection.
EirGrid (2017b), “Celtic Interconnector”, www.eirgridgroup.com/the-grid/projects/celtic-interconnector/the-project/.
Electric Ireland (2016), “PSO levy rates from 1 October 2016 to September 2017”, https://www.electricireland.ie/business/help/billing/what-is-the-pso-levy.
Electricity Regulation Act (1999), “Criteria for Determination of Authorisations”, S.I. No.309.
European Union (2014), “Statutory Instruments No. 350 of 2014, European Union (Water Policy) Regulations”, www.irishstatutebook.ie/eli/2014/si/350/made/en/pdf.
Mutual Energy (2017), “Moyle Interconnector”, www.mutual-energy.com/electricity-business/moyle-interconnector/.
OECD (2015), Driving Performance at Colombia’s Communications Regulator, (updated in 2017), OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264232945-en.
SEMC (2017), “About Us”, https://www.semcommittee.com/about-us.
SEMC (2017b), “SEM Monitoring Report Q4 2016”, https://www.semcommittee.com/sites/semcommittee.com/files/media-files/mmu%20public%20report%20q4%202016.pdf.
SIPO (2017), “Guidelines for Public Servants”, www.sipo.ie/en/guidelines/guidelines-for-public-servants.
Note
← 1. The DfE is responsible for overseeing the energy sector in Northern Ireland.