RHI uncertainties unfold

The Independent Public Inquiry into the Non-Domestic Renewable Heat Incentive (RHI) Scheme was established by former Finance Minister Máirtín Ó Muilleoir in a statement on 27 January 2017. agendaNi provides a brief update on the Inquiry’s proceedings.

The purpose of the Inquiry, as outlined by Senior Counsel to the Inquiry David Scoffield, is to conduct a “measured, objective, independent and publicly-transparent investigation”. Within this context, there are several questions which have been identified as requiring particular consideration. These include allegations of fraud, the cost which will be met by the Northern Ireland taxpayer and if opportunities to fix flaws in the scheme were missed.

Within its core objectives, the Inquiry seeks to establish:

• whether a renewable heat incentive scheme was the correct way to promote an uptake in renewable energy;

• whether there had been “improper patronage”; and

• whether officials within the Department of Enterprise, Trade and Investment (DETI) had a “different attitude or culture” because they mistakenly believed that the scheme’s funding stream was Annually Managed Expenditure (coming straight from the Treasury rather than the Northern Ireland Executive’s block grant).

The legislation pertaining to Northern Ireland’s RHI scheme is almost identical to its Great Britain counterpart, aside from the omission of a single section which details costs controls. The Inquiry has heard that Arthur Cox solicitors hired to help department officials draft regulations mirrored the regulations of the Great Britain scheme, ensuring that cost controls were included. However, in 2011, when the scheme was opened to public consultation, these controls were omitted.

Unbeknownst to Arthur Cox, Cambridge Economic Policy Associates (CEPA), a London-based economic consultancy with clients in energy, had provided a report to DETI which erroneously indicated that cost control ‘tiering’ was not required as the cost of biomass fuel, such as wood pellets, was, in all cases, higher than the subsidy offered. This mistake, labelled as a “fatal footnote” by Scoffield was included in the business case which enabled the RHI scheme to be signed-off.

Tiering would have ensured that an upper rate of subsidy is paid for a set number of hours after which there is a reduction. Having raised the issue with DETI, Arthur Cox was told that the department was monitoring the efforts of its British counterpart, which was exploring long-term measures. A decision was made to wait before adopting the final suspension mechanism, rather than introducing an interim measure.

In the event, there were two versions of regulations drafted for the RHI scheme, one containing the cost controls present in the British counterpart and one excluding them. When asked to review its draft regulations after public consultation, Arthur Cox, unware of the CEPA recommendations, revisited, updated and forwarded them to DETI in March 2012. DETI officials subsequently removed tiering for a second time without informing Arthur Cox. That autumn, the scheme went live without any cost controls.

The sequence of witnesses called before the Inquiry has been consciously constructed on the basis of what would best facilitate the Inquiry’s work. As such, more junior civil servants have been called first in an effort to enable these witnesses to speak without fear of contradicting comments made by more senior officials. However, it is expected that former DETI Minister Arlene Foster, her former special advisor Andrew Crawford and the now Head of the Northern Ireland Civil Service David Sterling (formerly DETI Permanent Secretary) will each face their evidence sessions sooner than initially anticipated. Of particular interest will be Foster’s instructions to her officials regarding a deadline for implementation of the scheme and the resulting perceived pressure.

It was revealed that the then DETI Minister was made aware of an alternative scheme, known as a ‘challenge fund’, capable of delivering the same volume of renewable heat as the RHI option at a £200 million reduced figure. However, as officials made no clear recommendation on the options, according to Senior Counsel to the Inquiry, “the decision was essentially left to the Minister’s own judgement”.

Informed by a draft report from CEPA (as opposed to the final version with revised calculations), DETI energy officials recommended a subsidy scheme as the optimal option to the Minister in 2011. Asked why the challenge fund was not identified as the most value for money, DETI economist Sam Connolly told the Inquiry: “I had learned that the Minister had made her decision. It was kind of settled. There was nothing I could do.”

Former Chair of the Assembly Enterprise Committee Patsy McGlone informed the Renewable Heat Incentive Inquiry that “those levels of savings [offered by a challenge fund] were not presented” to the Committee, which was responsible for scrutinising the scheme. McGlone, the first elected representative to provide evidence, agreed with the Inquiry’s Technical Advisor, Keith MacLean, that the Assembly’s committee members are “entirely reliant on full disclosure to you by the Department of the relevant information”.

“I had learned that the Minister had made her decision. It was kind of settled. There was nothing I could do.”

In 2012, Office of Gas and Electricity Markets (Ofgem), the scheme administrator, sought to advise DETI officials that the RHI scheme should be delayed until emergency measures had been introduced in Great Britain and could be replicated in Northern Ireland. As per Ofgem evidence, these officials responded by emphasising the Minister’s eagerness to proceed ahead of the adjustments to the British scheme. A review of Northern Ireland regulations was proposed to take place in summer 2013 in order to incorporate the new British cost controls, and while a consultation occurred, no measures were implemented. As such, Ofgem’s “clear recommendation” and “significant concerns” relating to the DETI scheme were ignored. Fiona Hepper, in charge of the team which introduced the RHI scheme, indicated that the Minister was not initially made aware of Ofgem’s warnings made during a teleconference in June 2012. At a later date, Hepper informed the Minister about the warnings, but Foster, she said, was content to continue with the launch if a consultation on cost controls was brought forward.

Emails sent by Marcus Porter, a lawyer in Ofgem subsidiary E-serve, indicate a perception that DETI was taking “unnecessary legal risks” and he advised that E-serve refrain from administering the RHI scheme in Northern Ireland unless a suspension mechanism was incorporated which could be triggered in the event of an overspend risk. DETI officials told E-serve that they wished to uphold a commitment to the Minister to implement the scheme by autumn 2012. The risk of launching the scheme without cost control amendments was “hammered home” and the relationship between DETI and Ofgem became “fraught” and “unsatisfactory”.

The Inquiry seeks to establish the basis for the belief that the Minister was adamant that the scheme be implemented without delay. The suggested delays were projected to last up to one year, meaning that money allocated by the Treasury in London would have to be returned.

In significant volte-face, appearing before the RHI Inquiry, CEPA Chairman Mark Coburn, who had originally told a Stormont Public Accounts Committee that it should have “definitely raised the need for tiering”, asserted: “In terms of overall responsibility, at the end of the day, this was DETI’s scheme, not CEPA’s. On reflection, we went too far in terms of assuming responsibility [in our PAC evidence].” CEPA’s current assertion is that DETI should have identified the potential for abuse as the subsidy tariff passed into the regulations.

Ultimately, cost controls were not introduced as per what was enacted in Great Britain. Consequently, the latest estimate of the projected overspend is £700 million over the next two decades if cost controls are not enforced.

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