Revenues & Tariffs (Price Controls)
The CRU is responsible for ensuring that customers and network users receive value for money while the network companies earn a fair return on their activities to make the necessary network investments. Those investments go towards the efficient operation, development and maintenance of the networks.
CRU achieves this by:
- Administering a five year price control regime
- Reviewing and updating annual revenues
- Setting the tariffs for use of the system
- Reviewing and approving other network charges
5 year allowance
The CRU sets a 5 year revenue allowance through what is called a Price Control in Gas and a Price Review in Electricity. The first step in that process is for the CRU to carefully consider the business cases put forward by the network companies outlining their required spend in the upcoming 5 year period. In addition, we review the expenditure incurred by the network companies during the previous 5 year period to assess it for efficiency and to ensure the outputs agreed were delivered by the network companies.
When the initial review period is complete the CRU publishes a consultation paper which sets out the CRU’s proposals on the level of revenue that the network companies should recover over the 5 year period. The consultation paper seeks the views of the public and the CRU considers all responses received. Having considered these responses the CRU then publishes a decision paper setting the allowed revenue. The 5 year revenue allowance is split into annual allowances which are then recovered through network tariffs.
The price control process also sets incentives which are designed to encourage the network companies to operate, maintain and invest in the network appropriately and as efficiently as possible.
The current price control for electricity (referred to as PR4) runs from January 2016 to December 2020, while the current price control for gas (referred to as PC4) runs from October 2017 to September 2022.
We monitor the network companies’ compliance with the price control through their licence conditions and can take enforcement action if these licence requirements are breached.
Rate of Return
The CRU sets the rate of return that the regulated companies can earn on the efficiently incurred capital investments in its RAB. This is known as the Weighted Average Costs of Capital or WACC. This is essentially a weighted average of the cost of debt and the cost of equity (as most businesses are financed with a combination of debt and equity). The CRU, assisted by economic advisors, sets a WACC that is used to derive a fair return on the capital investments made by the utility while also endeavouring to ensure that regulated companies sit comfortably within an investment grade credit rating.
As part of the annual process of setting customer tariffs, we collect annual cost information from each of the regulated companies. The cost data is thoroughly reviewed and the allowed revenues are updated as appropriate on a yearly basis.
This approach enables CRU to:
- ensures the most up to date information is captured
- update the costs as appropriate to smooth out the impact on tariffs of any major under or over recoveries as part of the next five year review
- build an understanding of how network costs are driven, and affected on an annual basis
- provide regularly updated information on costs for the public and industry.
The allowed revenues feed through to setting tariffs and charges for Transmission and Distribution customers. The tariff period runs from 1st October to 30th September the following year.
Tariffs and charges
- Network tariffs are set for periods that span two calendar years (from 1 October in one year to 30th September the following year).
- Network tariffs cover the costs for network companies to operate, safely maintain and expand the transmission and distribution networks respectively
- Based on the approved tariffs, electricity and gas suppliers can choose to make changes to their tariff offerings and systems to consumers.
- About 25% of a domestic or business customer’s electricity bill relates to distribution tariffs and 7% to transmission tariffs. For further details on Irish electricity prices please see our “Electricity Prices in Ireland” factsheet.
- About 33% of a domestic or business customer’s gas bill relates to distribution tariffs and 10% to transmission tariffs.
- Other all-island tariffs are reviewed and approved between the CRU and UR. These can be found on the SEM Committee website, here. Those tariffs are displayed in the table below.
|All-Island – electricity||Other System Charges||OSC|
|Single Electricity Market Operator Tariffs||SEMO Tariffs|
|Generator Transmission Use of System Tariffs||GTUoS Tariffs|