Second week of public inquiry hearings into botched Renewable Heat Incentive scheme
Inquiry set up after public concern over scheme's huge projected overspend
Retired Court of Appeal judge Sir Patrick Coghlin chairing inquiry at Stormont
Origin and introduction of initiative examined by inquiry panel
Key witnesses will start to give evidence later this month
Public evidence sessions expected to last until well into 2018
It's been a long aul' day on the red benches of the Senate chamber at Stormont.
Inquiry chair Sir Patrick Coghlin draws proceedings to a close for this evening, and announces that the inquiry will meet at 09:30 tomorrow.
Be sure to join us then for more live coverage of the RHI Inquiry.
Goodnight!
In an email to Peter Hutchinson of DETI's renewable heat branch in March 2012, Mr Connolly gave his sign-off on the value for money of the RHI initiative in the form an continuing subsidy scheme, which was eventually adopted.
But the note accompanying the sign-off is short on detail, with Mr Lunny describing it as "curt".
Image source, Getty ImagesHe later said that his approval was given in the context of an up-front grant scheme "no longer being seen as a realistic option" by the department's energy division.
That exchange, Mr Lunny says, may be an example of where "misunderstanding can arise" in the overall scrutiny process", and he questions what reliance was placed on the sign-off further down the line.
And he asks whether Mr Connolly, by accepting that an up-front grant scheme was off the table, "effectively endorsed" a scheme "potentially costing hundreds of millions of pounds more" on the basis that the rejected option was "£2m to £3m more expensive to administer".
First up for examination is Samuel Connolly, the DETI economist, who will appear before the inquiry for questioning in a couple of weeks' time.
Image source, Getty ImagesHe had told the inquiry in his written evidence that his role, among other things, to "ensure that a project makes sense and challenge... something that appeared odd or contradictory or suggested the potential for poor value for money".
Mr Lunny outlines examples of when Mr Connolly had fulfilled that role in "considerable thoroughness".
Next on the agenda for Mr Lunny are the issues of the review, scrutiny and approval of DETI's proposal for the RHI scheme.
He says he will give an overview of the evidence the inquiry has found and will consider the purpose and value of the roles of the following elements in the scrutiny process:
Image source, RHI InquiryThat is necessary, he says, because "in spite of the very many layers of scrutiny, certain important points were overlooked".
The "repeated failing" on the overgenerous tariff level for small biomass boilers on the scheme is one that the public "rightly demands an explanation".
More on that startling internal email from CEPA's Kirby Owen, its final paragraph begins: "Ouch..."
He goes on to say that the 2012 report for DETI "happily... says a lot of words about monitoring is necessary, though I don't think it meant watching out to correct the mistakes we made is necessary".
Image source, RHI Inquiry"The tariff design error... was indeed an error, but we won't call it that."
Inquiry chair Sir Patrick Coghlin describes the correspondence as "colourful", and Mr Lunny agrees, joking that it is "absolutely a lot less prosaic than the language I have used all afternoon".
As we heard at the inquiry last week, CEPA has rowed back considerably on its admission to the Public Accounts Committee last year that it should have noticed the need for tiering in the RHI scheme.
Mr Lunny says it has stated in "robust terms" that a consideration of tiering was outside what it was asked to do.
He pulls up an email from CEPA's Kirby Owen to a colleague on 16 November 2016, in which he says the first economic report for DETI "wasn't all that bad" but whoever did the 2012 follow-up "missed completely, or skated over" the fact that the subsidy value in it was greater than the fuel cost.
There was a "clear statement" in the 2011 report, Mr Owen adds, that tiering wasn't necessary because the subsidy was less than the fuel cost, but that "reversed" a year later.
"Foolishly, whoever wrote it ignored, or didn't understand the stated logic in the 2011 report," he goes on.
He acknowledges that after the scheme was introduced following the analysis in 2012 "people were heating empty barns because you could make a financial profit on the whole thing even if you just vented all the heat", and the recommendation was "truly bad".
Mr Lunny asks whether - even if tiering was outside its terms - CEPA should have alerted DETI to the need for it.
CEPA has been asked by the inquiry as part of the witness statement process: "What difference might tiering of tariffs have made to the Northern Ireland RHI scheme?"
Mr Lunny says the reply includes the "fantastic phrase" that "it might have allowed DETI to save a non-negligible amount of expenditure".
Whether or not tariff tiering is actually a cost control is a matter for debate, says Mr Lunny.
CEPA's Mark Cockburn has told the inquiry that it is not - a scheme can still burst its budget even if it has tiering in place if a sufficiently large number of boiler installations are accepted on to the scheme.
Image source, Getty ImagesBut Mr Lunny points out that, while that is the case, tiering can reduce the overall cost of a scheme.
It can reduce the total sum paid to a single claimant compared with what the subsidy would be in an untiered scheme, and it can also discourage people most likely to abuse the scheme from applying.
Mr Lunny says there has been much interest in the media and among the general public about whether the need for tiering should have been seen by DETI and CEPA.
He says there is a number of potential contentious issues concerning tiering, including:
Image source, RHI Inquiry"Happily there is one apparently uncontentious issue in relation to tiering," Mr Lunny says.
That is that both DETI and CEPA have accepted that the scheme "ought to have had a tiered tariff for the 20 to 100 kW band" of biomass boilers.
Last year, ahead of his appearance before the Northern Ireland Assembly's Public Accounts Committee inquiry into the RHI scheme, the Department for the Economy - formerly DETI - permanent secretary Dr Andrew McCormick asked his officials for a "retrospective analysis" on the tariff calculations of 2012.
Mr Lunny outlines an email Dr McCormick sent after receiving the data, which showed that higher usage of the biomass boilers on the scheme resulted in much higher rates of return in subsidies.
In the email, Dr McCormick notes that as usage increased, the subsidy effectively became pure profit.
He wrote: "I fear this kind of analysis could have been done in 2012..."
Mr Lunny says that begs the question of whether that type of analysis was originally undertaken - if not, why not?
Based on how the RHI subsidy was calculated, there was a "real danger" that if a claimant used his or her biomass boiler for longer than the assumed amount of time each year they would be "potentially significantly overcompensated", says Mr Lunny.
In his detailed analysis of the how the subsidy was calculated, he says that danger existed even if the subsidy on offer was lower than the cost of the fuel used.
As we now know, the fuel cost dropped below the tariff on offer.
After a quick break, the inquiry panel returns "suitably refreshed", says chair Sir Patrick, for the final session of today's hearing.
Image source, RHI Inquiry"Ready for a bracing consideration of a table and then maybe a spreadsheet?" asks counsel Mr Lunny, with a smile.
He's met with joking winces and sharp intakes of breath by the panel members...
DETI commissioned further work from CEPA in the light of responses to the consultation, and the result of that was published in February 2012.
Inquiry chair Sir Patrick Coghlin notes that within the space of two or three pages in the report the reader is shown that biomass is cheaper than oil, and that it is significantly cheaper than the proposed tariff.
Image source, RHI Inquiry"Why would you not use biomass if it was cheaper than oil?" he asks.
Mr Lunny replies that it would be reasonable to expect people to use a cheaper fuel if they had the right type of boiler "and we know biomass boilers are a lot more expensive to buy than oil boilers".
Several questions are raised by the public consultation on the RHI scheme, says Mr Lunney.
He asks whether the submission to Mrs Foster in June 2011 contained "accurate and comprehensive details" about the funding on offer, the options available for the scheme's model and CEPA's analysis.
Image source, RHI InquiryHe also wonders whether she was given sight of "certain important information".
The inquiry, he says, will need to ask whether Mrs Foster was asking questions, challenging recommendations and asking to see documents related to the RHI scheme.
Consultation on the RHI scheme opened on 20 July 2011, and the related documentation said that DETI would review the initiative in January 2014, and any amendments to it would be made at the start of April 2015.
That, of course, did not happen.
Image source, DETIIt also asked consultees whether or not they agreed with the decision to proceed with the continued subsidy model, rather than the other options, which included the up-front grant scheme and Northern Ireland joining the Great Britain scheme.
But Mr Lunny says only fleeting details about why the other models were turned down and questions whether consultees could have given an informed view in answer to that question.
Another submission about the RHI scheme was sent by DETI's Fiona Hepper to Arlene Foster and her adviser Andrew Crawford on 5 July 2011, containing the final CEPA economic report on a potential renewable initiative.
There was no more debate about the type of scheme that should be adopted within the submission, Mr Lunny explains, and there was no attempt to highlight the key points in CEP's final report.
The reasons for those omissions will have to be looked at by the inquiry, he adds.
Mr Lunny returns to the June submission to the minister, which he was focusing on before lunch.
In that document, CEPA's recommendations are characterised as: "If there's no funding guarantee after 2015, go with a grant and a challenge fund in particular. If there is confidence that there will be additional funding post-2015 then an RHI should be introduced".
Image source, RHI InquiryThe recommendation to the minister is to consider the overview of the CEPA report and indicate her preferred option for a challenge fund or an RHI scheme.
In Ms Hepper's statement to the inquiry she refers to a meeting with Mrs Foster on 13 June 2011, which Mr Lunny says very little is known about.
Ms Hepper states that: "At this meeting, the minister, having considered the options laid out in the submission, communicated her decision to move to the next stage with an RHI."
Mr Lunny runs through the submission to Mrs Foster and picks out some "curious" statements within it.
Regarding the up-front grant fund option for the RHI scheme, the author writes that is is "not certain that such a fund would be in the spirit of the terms" under which the Treasury was providing the funding.
But that is at odds from what the Treasury told DETI just a few weeks earlier.
Image source, Getty ImagesThe author also says that the ongoing subsidy scheme is the "preferred approach" and offers the "highest potential renewable heat output at the best value".
As Mr Lunny observes, that is "totally at odds" with the analysis in the CEPA draft report that concluded that it was in fact the up-front grant fund that came out on top in that regard.
What is contained in the submission "does not appear accurately to reflect" what DETI was told.
With that, the inquiry breaks for lunch and we'll be back at 13:05.
Without the final CEPA report, Mrs Foster was effectively being asked to make a decision based on "incomplete and potentially incorrect or inaccurate" material, suggests Mr MacLean.
Image source, PAMr Lunny says that the materiel was "certainly incomplete" but points out that the "basic message doesn't ultimately change" in the final report from that which was included in the draft report produced a month earlier.
That message, as we heard earlier, was that the challenge fund scheme "outperforms" a continuing subsidy scheme "in almost every way", he adds.
In July 2011, DETI opened a public consultation into the proposed RHI scheme.
Mr Lunny refers to a submission made to the then enterprise minister Arlene Foster by Fiona Hepper of DETI's energy team on 8 June - but it could not have been based on the final CEPA report as it was not issued until the end of that month.
Image source, RHI InquiryIt is unclear whether the final draft report of 31 May was attached to the submission, says Mr Lunny.
Mr MacLean wants to know whether it would be expected for a minister to read such a report, with mr Lunny then explaining that it is a highly technical document running to 150 pages.
"Whether it's reasonable to expect a minister to either (a) read it, or (b) understand it" is "a very important question" that the inquiry will have to explore," he adds.