Review calls for more staff cuts and flexible work practices at national electricity company

The publication of a review of the electricity sector by consultants Deloitte & Touche, along with the launch of a government green paper on energy, has once again put into the spotlight the question of high labour costs and inefficient work practices at the state-owned electricity supply company ESB.

Management and trade unions at the state-owned Electricity Supply Board (ESB) received some adverse media attention after the government decided to publish a review of the electricity sector by Deloitte & Touche. The review helped to inform the government’s green paper on energy policy, Towards a sustainable energy future for Ireland (4.7Mb PDF), published on 30 September 2006.

Despite the negative publicity, there was good news for ESB and the unions, with the government rejecting a suggestion by the consultants that the network division of ESB should be hived off to another state company, thus ending the vertically integrated unit (VIU) structure of ESB. Trade unions and the company’s management have consistently lobbied governments to retain this VIU structure.

Meanwhile, the Deloitte & Touche review acknowledges how the current market structure in the Republic of Ireland makes the development of competition in the electricity sector extremely difficult. It agrees that where competition has developed, this has mainly been due to direct government or regulatory intervention.

At any rate, no Irish government would make such a radical structural change in a key public sector company such as ESB prior to a general election, which is due to take place in 2007. As the government is aware that ESB has a strong reputation with the general public, it knows that any changes which may appear to threaten the level of services provided to customers should be avoided in the period before an election.

High costs of labour and supply

The company and the unions remained tight-lipped about the issues concerning labour costs raised by the Deloitte & Touche review. The consultants found that high labour costs and inefficiencies are adding an extra €100 million to costs, when compared with similar operations outside of Ireland. Moreover, electricity prices for small users are 51% ahead of the European average.

A range of factors are blamed for these high costs, including a large dependency on imported oil and gas, and the extremely high demand for electricity. Higher than average labour costs represent an added problem. Based on a benchmarking of the ESB Power Generation, the review outlined: ‘We estimate labour costs generally to be 20% to 30% above European comparators… Secondly, ESB generation availability is notably below benchmark, with approximately 80% availability at present (i.e. the facilities are only able to generate, on average, 80% of the time, compared with a benchmark of more than 90%).’

The average annual salary at ESB stands at €60,437, which is just over twice the average annual Irish industrial wage of €29,787. The review indicates this is 23% above the average salary in the electricity, gas and water sector (€49,282).

Limitations of industrial relations agreements

While the review agrees that the two partnership-based industrial relations tripartite agreements negotiated since 1996 – namely, the Cost and Competitiveness Review (CCR) and the Programme for Competitiveness and Transformation (PACT) (IE0603029I) – have achieved much in terms of reducing staff numbers, and the company has made notable efforts to modernise, its benchmarking of the generation, transmission and distribution sides of ESB reveal that there is ‘excess cost, poor availability of performance and outdated working practices remaining in the business which contribute to higher cost’.

In other words, the CCR and PACT agreements have failed to achieve the high level of change that they aspired to, although the two agreements have been partially successful. For example, they have succeeded in cutting staff numbers by around 4,000 workers; the latter estimate is in fact a conservative figure that does not include those workers who were forced to leave due to the closure of six peat-based power plants over the past six years, along with other workers who were let go in various areas, such as retail.

Need for more efficient practices

The Deloitte & Touche review calls for further staff reductions, continued improvement in flexible working practices and culture, and better performance – a point reiterated by the Irish regulator in the course of a recent price-control review.

The independent weekly publication, Industrial Relations News (IRN) commented: ‘It is in the oldest and least efficient plants that the highest labour costs are incurred… Maintenance levels are also high as the plants are old and they require expensive upkeep.’

ESB, due to its market dominance, has been limited in its ability to build new plants with more efficient labour practices. Where it did build plants in two midland power stations in recent years, the company and the unions were able to achieve change through the cessation of many older labour practices using a much smaller workforce.

Brian Sheehan, IRN Publishing