Design of botched scheme outlined to Renewable Heat Incentive Inquiry
Economist Sam Connolly, who worked on scheme, returns to inquiry hotseat
Inquiry set up after public concern over scheme's huge projected overspend
Retired Court of Appeal judge Sir Patrick Coghlin chairing inquiry at Stormont
Public evidence sessions expected to last until well into 2018
Inquiry chair Sir Patrick Coghlin is a stickler for timing and as it's Friday he wants us out of here sharpish.
Mr Scoffield draws his legislation lecture to a close and the inquiry staff spill out of the Senate chamber.
There's no hearing on Monday but we're back on Tuesday at the usual kick-off time of 09:45, so join us then.
Have a great weekend!
BBC News Northern Ireland
An economist who signed off the controversial RHI scheme said it did not strike him as an enormous false economy.
Samuel Connolly had the job of checking that the project made financial sense before it was launched.
But he approved it even though a different option for the scheme would've been at least a couple of hundred million pounds cheaper and would've provided more renewable heat.
So, who's up for a Friday afternoon presentation on subordinate legislation?!
Well, that's what we've got to see us through to the close of play today, and the inquiry's senior counsel David Scoffield QC joins us to give us a run-through on how legislation is created.
Image source, Getty ImagesThat context is important for the panel in assessing how the RHI scheme came into being and was scrutinised.
Mr Scoffield says the creation of legislation is an area that many members of the public "may have limited knowledge of"... so listen up and you might learn something!
Quoting Leo McGarry from The West Wing, he says: "There are two things in the world you never want to let people see how you make them - laws and sausages..."
After nearly a full two days facing a fairly forensic questioning from the formidable Mr Lunny, we're sure Mr Connolly will be glad that he doesn't have anything more to answer.
The inquiry panel thanks him for his evidence and chairman Sir Patrick Coghlin wishes him well.
Image source, RHI Inquiry"I suspect [appearing before the inquiry] may be fractionally more intimidating that a casework committee," he adds.
"I'll never been afraid again of one of those," jokes a relieved Mr Connolly...
Setting about picking a number of holes in the RHI scheme's business case, Mr Lunny notes that it claims that DETI economists had "assessed the tariffs and assumptions behind the calculations and have deemed them appropriate".
Asked if that is an "accurate portrayal" of what he had done, Mr Connolly says: "No."
Image source, RHI Inquiry"That [remark in the business case], again, is a potentially misleading statement," says the inquiry counsel.
"I agree, yeah", replies the witness.
A draft copy of the business case for the RHI scheme's business was sent to Mr Connolly for him to consider.
In his written evidence, he says he was only able to give it a cursory examination and that given the time constraints he "focused on the high-level structure".
Image source, RHI InquiryMr Lunny asks him why he would have been satisfied with the section on monetary costs and benefit, which includes points which don't stand up well to scrutiny.
"This was considered under incredible time pressure," Mr Connolly says.
"It looks like mistakes were made with this document but that's what happens when things are rushed," he adds.
Minutes of the casework committee meeting show that those present heard that DETI's preferred option for the RHI scheme - an ongoing subsidy model - was judged by Mr Connolly to the "best value for money".
But as we know, the up-front grants option was in fact much more preferable in those terms.
Image source, Getty ImagesAsked if he raised the point that that analysis was incorrect when comparing the subsidy model to the grants fund, he says he didn't do so.
He says his initial judgement had been on the basis that the grants model had been "ruled out", but he acknowledges that the grants fund "certainly was discussed at great detail" during the meeting.
Mr Connolly attended the DETI casework committee meeting that assessed and approved the RHI scheme.
He didn't speak at the meeting, describing his role as a "reactive" one, although he would have been free to intervene if he felt it was necessary.
Image source, RHI InquiryIn reply to questioning from inquiry panel member Dame Una O'Brien, he says casework meetings are attended by senior officials and the discussion mainly takes place between them.
"Casework panels are quite an intimidating environment, but I'd like to think if there was something fundamental I would have made the point," the witness adds.
The inquiry breaks for a cuppa tea and a sandwich, so join us again from 14:00.
By far the best value option for the RHI scheme - the up-front grants model - was knocked off the table because DETI believed the initial £5m cost to administer it was prohibitive.
Instead, it chose an option that was more than £300m more expensive over the scheme's 20-year lifetime on that basis that its initial £1.5m admin costs could be covered, therefore saving £3.5m in the short term.
Image source, RHI InquiryMr Lunny describes that as a "false economy" and asks why Mr Connolly didn't say he could not sign-off on DETI's preference because it represented bad value for money.
The witness accepts that he could have drawn that to the department's attention but says he had never encountered such an issue before.
He goes on to say that it didn't strike him as a false economy at the time, and says the reasons put forward for going for the much dearer option "seemed reasonable".
In his value-from-money sign-off, Mr Connolly had not considered the up-front grants model to still be on the table for the RHI scheme - he believed it had been "taken off the table eight months" earlier.
But at the casework committee meeting a short time later, it was widely discussed by the assessors because it appeared to be the best value option according to CEPA's report.
Image source, Getty ImagesMr Connolly is asked whether when that was happening he raised the point that his sign-off had not taken the grants option into account - had it done so, his assessment is likely to have been very different.
"I didn't make any comment, no. No explanation [as to why]."
Mr Connolly's value-for-money sign-off came in March 2012, ahead of the meeting of DETI's casework committee to assess the RHI scheme.
Mr Lunny draws attention to one particular phrase in the sign off, where Mr Connolly stated that the approach adopted by DETI "represents value for money and is the most effective way" of spending the money set aside for an energy initiative.
Image source, RHI InquiryMr Lunny says that appears to represent an endorsement of DETI's choice of project that Mr Connolly has said he would not have engaged in.
The witness doesn't see it this way, saying: "I don't believe that's an approval of the project... it's simply an opinion or an assessment."
But he accepts that his value-for-money sign-of is a "poor document" because it lacked clarity and is open to interpretations that he had not intended.
In 2016, after the scale of the RHI scheme disaster had emerged, a senior economist at the Department for the Economy - formerly DETI - did a retrospective analysis on the subsidy calculations of 2012.
The results showed that higher usage of the biomass boilers on the scheme resulted in much higher rates of return in subsidies, effectively becoming pure profit.
Image source, Getty ImagesSuch calculations - looking at what might happen if fuel prices dropped or claimants used their boilers for longer than was assumed - had not been done originally.
Mr Connolly accepts that analysis like that could've been done at the time and says he advised it, but the "very firm position" from CEPA and DETI's energy team then was that the subsidy level would be monitored continually to spot changes.
That, of course, didn't happen.
There was "always a recognition" that the factors on which the calculation for setting the RHI scheme's subsidy rate would change, says Mr Connolly.
A planned review of the scheme was the means by which changes could be made to the subsidy rate, preventing it from being overgenerous, he adds.
Image source, Getty Images"I had an expectation that after six months of applications this would be looked at again," he tells the inquiry, adding that he believed it would be "constantly looked at".
But CEPA's reports had said that review of the scheme was to be carried out within two to three years.
Matters move to the setting of the fuel subsidy on offer through the RHI scheme, which was one of the key mistakes that led to the ballooning budget.
The subsidy that claimants were receiving was greater than the cost of the fuel, allowing people to collect a generous return and be "perversely incentivised to overgenerate heat", as Mr Lunny describes it.
Mr Connolly says he missed that detail - in fairness, just about everyone else who worked on the set-up of the scheme did, too.
He says he "understood the complexity" of the calculations used by CEPA to set the tariff and felt he "wasn't in a position to really challenge" it.
Mr Connolly puts up a defence of his role, saying he discovered the significant carbon saving and flagged it up to DETI's energy team.
He says it was up to the energy team "be over and take responsibility for their numbers".
Image source, Getty Images"They weren't alert to this, they hadn't spotted this - I thought I was fulfilling my role," he adds.
Mr Lunny says it was an "important point - it could have significant consequences", and asks whether Mr Connolly think he should've taken it up with the consultants at CEPA to see if his analysis was correct.
The witness says he didn't feel that was an option to him because its work had concluded and the scheme's development was moving to the next stage.
In the CEPA addendum of 2012, the amount of renewable heating generated remains the same as the 2011 report but, strangely, the mass of carbon saved has gone up.
Inquiry panel member Dr Keith MacLean asks Mr Connolly why he didn't pick up the phone to Peter Hutchinson at DETI's energy division or to CEPA to ask: "What on earth's happened here?
Image source, RHI Inquiry"The renewable heating's stayed the same but the carbon savings have gone up?"
Mr Connolly says he believes he spoke to Mr Hutchinson but "there was a reliance on the CEPA analysis, there was an acceptance of it and maybe that was misplaced".
Given that the cost of the RHI scheme had jumped by £111m, all of the options for the type of model to be used should have been reconsidered, according to economic guidance for civil servants, external.
There were five options initially considered, with two - the up-front grants fund and the subsidy scheme - being the main ones DETI had in mind.
Image source, Getty ImagesDETI's casework committee was to assess and approved the scheme later in February 2011, and Mr Connolly contributed to a synopsis that was supplied to it.
He accepts that circumstances had changed due to the cost increase show in CEPA's February addendum report and says he didn't reassess all of the options, as the guidance instructs.
Mr Lunny turns to the tables included in the CEPA addendum that indicated changes to the RHI scheme's subsidy tariffs, compared with the June 2011 report, and Mr Connolly confirms that he did notice the differences.
Mr Lunny puts it to him that the first time he mentioned to the inquiry that he did this work was in a statement given on Monday this week.
Image source, RHI Inquiry"I appreciate that was short notice," Mr Connolly says, adding that it came to his mind after he watched his former boss Shane Murphy give evidence to the inquiry.
"It struck me that this just can't be right - how could I have missed £100m of a cost?" he says.
Having heard Mr Murphy's evidence, he says he re-examined tables at the end of the addendum and realised he had looked at them before and then remembered entering all the figures into a spreadsheet.
DETI based its RHI scheme on work carried out by energy consultants at the London-based Cambridge Economic Policy Associates (CEPA), with a final report supplied to the department in the summer of 2011.
The department then put its scheme out to public consultation, and later commissioned further work from CEPA in the light of responses to it and new evidence about fuel costs.
Image source, CEPAThat new report was published in February 2012, external, and gave more details about the subsidies on offer and how the overall cost would be affected.
It outlined (above) that the cost of the scheme would increase from a projected £334m to £445m, and that is the next issue Mr Connolly is facing questions about.