EU and Competition in Utilities

This story may only be relevant to Ireland or possibly similar small states but I feel it is worth telling, if only to demonstrate that not all change is for the better and that there should be exceptions to every rule. When Ireland joined the EU, it brought the country many benefits, not least the structural and development funds that allowed us to improve our infrastructure. We also benefited greatly in agriculture although this was at odds with our huge loss in the fisheries sector. Ireland, being an island was surrounded by rich fishing grounds which were coveted by some of our EU partners who eat far more fish than us. Unfortunately we ceded far too much in return for access to EU markets for our agricultural produce. 

But these are just general remarks. In my view, joining the EU has garnered far more benefits for us as a nation than down sides. However, one of the areas which annoy me is this EU insistence on competition in every sector. Don’t misunderstand me – competition is good and it generates high standards and promotes growth in most sectors of the economy. By contrast, monopolies are often stale and lazy and lead to low productivity and poor services. 

There are exceptions to the rule though. Let’s take electricity or more specifically, the generation thereof. Back in the 1920’s, when electricity began to take off as the new power, everyone could see the benefits of it both for industry and domestically. Countries recognised that a reliable supply of electricity was the key to much greater levels of productivity and ultimately sustained economic growth. When you look at where and what we use electricity for, its presence is essential for probably ninety per cent of our world. But back then, and arguably even now, electricity generation was costly. It involved the construction of hydro-electric dams on our rivers or the construction of coal, oil or peat burning stations. No one in private industry could afford the investment required or if there were any companies, they were not prepared to take the chance. 

So, in stepped the State, not just in Ireland but in most countries worldwide. In the US, there were enough customers generating enough money for the service to be generated privately from very early on. Similar practices occurred with other utilities such as the phone service. So, in the US, you had power companies named after inventors such as Edison and a phone company called Bell, named after Alexander Graham, the inventor of it. But I digress; in Ireland and most countries of Europe, the State invested heavily in electricity and telephone infrastructure. My recollection of this is that the electricity was generated by the State Electricity Supply Board, known as the ESB for short. Everyone signed up for the service and everyone received a bill every two months for the amount of electricity they had consumed. Sounds simple, and it was. To the best of my knowledge, I can never remember anyone complaining about the cost of electricity. It brought enormous benefits to the country and was, in my recollection, modestly priced. The ESB was a large semi-State body, but it was subject to and controlled by the State. It made a profit but not an excessive one. Profits were reinvested in newer and more up-to-date power stations and generating infrastructure. Similarly our national phone service was provided by the State. My recall on this was that it was not as efficient as the ESB but had been the subject of much political interference.

Nevertheless it did provide an efficient and effective national phone service, right up to the time that mobile phones (cell phones) began to be introduced in the late 1980’s. 

And then what happened? Well, having joined the EU, we had to abide by its rules and regulations and one of these rules stated that there should be competition in every sector. This was fine for big economies like Britain, Germany or France but far less so for smaller nations like Ireland. The problem was that while there was a queue of companies who wanted to enter the markets, none of them was prepared to invest in power generation or distribution or telephony infrastructure. But the power and telephone grids were already there you say? Yes they were but they had been paid for by the Irish tax payer over the previous seventy years.

What then happened was that the ESB was split in two – the power generation arm produced the power as Eirgrid but sold it to the other part, the supplier, who became Electric Ireland. But Eirgrid also had to sell their power to anyone else who wanted to enter the market. There was no fee for generation, just payment for the power produced. Of course it introduced competition and some of the newer power supply companies initially reduced their prices in an attempt to encourage people to switch. Many did and today, I think there are more than thirty different companies from whom it is possible to purchase electricity. But all these companies have CEO’s and staffs and associated costs so instead of one organisation, consumers are paying the overheads of thirty companies. There is still only one main producer of electricity, Eirgrid, the State owned company. I believe one of the other companies does generate some of its power from windmills but the others just slavishly purchase it from the State and then sell it at a profit. 

What has been the result of this? You’ve guessed it – soaring electricity prices which people are constantly complaining about, so much so that the State has had to subsidise electricity bills over the past two winters. Would it not have been a lot simpler to leave it as it was? Of course it would but hindsight is a wonderful thing. Similarly, our phone services have been dragged through all sorts of controversies and scandals. The main phone company, Telecom, was initially privatized but the shares were over-priced and collapsed very soon after launch. The company was sold to private interests and has subsequently been re-sold many times. The mobile phone service was the subject of a major scandal when the company who were awarded the second licence was shown to have bribed the then Minister for Communications. The head of that company is now one of Ireland’s richest men and the then Minister is still an elected Member of Parliament. So it appears that we have treated the precious infrastructure built up by our forebears very badly. Some of this was through the necessity to comply with EU law; more was through corruption and neglect. 

The ironic thing is that we are doing it all again with the introduction of fibre broadband. Once again, no one in the private sector was prepared to invest in a fibre network so the Government stepped in and formed SIRO. Now I understand that this company have made good progress throughout the length and breadth of the country and should have completed the installations very soon. But what happens then? Will they be allowed to charge for the service they have introduced? No, wrong again – they have to hand over the fibre to multi-national suppliers like Vodafone, Virgin or 3. Once again, the tax payer pays the main up-front costs and then we allow other private organisations to step in, charge for the supply and reap the benefits.    

I may sound like an old fogey trying to turn back the clock but can anyone argue with me that the changes in introducing competition in the utilities sector has brought benefits to our economy or our country? I am not a card carrying Socialist much less a Communist. I have worked in the private sector myself so I have no problem with capitalism or profit-taking but I think it is high time we introduced a level of fairness to the provision of utilities and gave our citizens a fair choice and value-for-money.