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Summary

  1. Renewable Heat Incentive Inquiry examining botched energy scheme
  2. Ofgem technical expert Edmund Ward answers questions from the inquiry
  3. Inquiry set up after public concern over scheme's huge projected overspend
  4. Retired Court of Appeal judge Sir Patrick Coghlin chairing inquiry at Stormont
  5. Public evidence sessions expected to last until well into 2018

Live Reporting

By Iain McDowell and Robin Sheeran

All times stated are UK

  1. That's all for this week...

    It's Friday and Sir Patrick has declared we knock off slightly earlier than usual for the weekend.

    Mr Lunny needs another couple of hours longer to question Dr Ward so it looks like the witness will be back for yet another flying visit to Belfast.

    Stormont's Parliament Buildings

    We'll be back on the hill next Tuesday for a session with DETI official Stuart Wightman, who had oversight of the RHI scheme from midway through 2014.

    Do join us then but first have a great weekend.

  2. What happened today at the RHI Inquiry?

    BBC News NI

    A government body was a "passive participant" in allowing abuse of taxpayers' money in the RHI scheme, the inquiry was told.

    The criticism was levelled at Ofgem, which was administering the initiative.

    The RHI Inquiry

    It centred on a failure to clearly tell the Stormont department responsible for the scheme of a potential loophole than made it possible for claimants to collect more money than was ever intended.

    Inquiry panel member Dame Una O'Brien said the explanation offered by Ofgem was "very hard to swallow".

  3. 'Trigger for investigating boilers set extremely high'

    One critical factor in why the RHI scheme's budget spiralled so out of control was that some biomass boilers were being used for a far longer period of time that had been anticipated when the initiative was designed.

    The calculation behind setting the amount of subsidy on offer through the scheme was based on claimants using their boilers for 17% of the hours in a year.

    But were being run around the clock, allowing claimants to harvest a far bigger amount of money than was ever intended.

    A magnifying glass

    It emerges that Ofgem would investigate boilers being run at 85% of the time or longer, a figure that Mr Lunny says is an "extremely high" one given that it was fives times what the assumed running time was.

    Asked by Sir Patrick if Ofgem would tell DETI about cases in which boilers were being run for 60% of the hours in a year - again, far higher than ever intended - Dr Ward says normal practice was not to inform DETI.

    Mr Lunny suggests the trigger of 85% "could've been set a lot lower while still at a level where it wasn't creating lots of unnecessary work for the people who were doing the administration".

  4. '75% of applications involved multiple boilers'

    About 75% of all applications to the RHI scheme involved multiple boilers, according to a paper obtained by the inquiry.

    The figure comes from a document drawn up by the expert consultancy Cambridge Economic Policy Associates (CEPA), whose work for DETI formed the basis on which the scheme was designed.

    Wood pellets

    The percentage came from a sample of applications that CEPA had analysed in 2017 and Mr Lunny says applications for multiple boilers "seems to have been a significant issue throughout the life of the scheme".

    "I'm sure if the department have a more precise figure they'll let the inquiry know," he adds.

  5. 'DETI's proposals would've made things worse'

    long shot of inquiry in session

    After a meeting between DETI and Ofgem in January 2015 about the multiple boilers issue, the Stormont department set about trying to address the problem.

    "Some of the proposals DETI were making... would actually be making the problem worse, introducing other issues and ultimately DETI made a decisions not to progress those," says Dr Ward.

    It could've been fixed relatively easily if there had been more time, he adds.

  6. 'Civil servants labouring under significant misapprehension'

    DETI's Seamus Hughes, who was doing the day-to-day running of the scheme, passed Mr Hamilton's the email to Ofgem to seek clarity on what the position was.

    Ofgem official Nadia Carpenter replied to Mr Hughes, telling him that it was a "tricky area".

    She consulted with Dr Ward and afterwards she went on to tell Mr Hughes that unless systems were hydraulically linked "we consider them separate plants" and it didn't matter that the boilers were heating the same space.

    An email inbox

    She said that was due to the fact that the term "heating system" was not defined in the regulations for the scheme and could be open to interpretation and suggested that DETI might therefore want to amend them.

    That appears to be the first time in the lifetime of the scheme that Ofgem had set out "in clear terms" how it was interpreting the term "heating systems", explains Mr Lunny.

    Dr Ward says he "would've hoped that all of that would've been clearly articulated" more than two years earlier, before the scheme opened but he has "not seen a document that does that".

    Mr Lunny says that civil servants had therefore been left "labouring under a very significant misapprehension" of how multiple boilers would be dealt with.

  7. 'Would claimant be asked why multiple boilers were installed?'

    Confusion at DETI about which biomass boiler set-ups would or would not qualify for the RHI scheme meant that civil ervants weren't able to provide clarity to potential claimants who had queries.

    In December 2014, a man calld David Hamilton wrote to the department with a "theoretical" question about the scheme, saying that he hadn't found the scheme's guidance document helpful.

    Burning wood pellets

    Mr Hamilton said a "large industrial building is in need of being heated" with 500kW thermal of heat, and he suggested that the owner might install five small 99kW boilers rather than two large 250kW units.

    He asked if the separate boilers would qualify for the higher tariff on offer for the smaller boilers or whether it would be considered a single system, therefore only receiving the lower subsidy.

    Installing five small boilers would mean that much more money could be collected than if the potential claimant put in two large units, and Mr Hamilton also asked if the applicant would be "asked why he installed five small boilers".

  8. 'More information of scheme risks not passed to DETI'

    In May 2014, yesterday's Ofgem witness Gareth John gave a presentation about fraud prevention and the RHI scheme.

    A paper connected with this presentation identified "external gaming opportunities" and specified the risk of claimants who could "install multiple small boilers instead of larger ones".

    Mr Lunny asks a question

    The alternatives identified for addressing this risk were to bring in new legislation or do nothing and accept the risk.

    The mitigation listed is "engage with DECC to modify legislation or accept risk" but as Mr Lunny points out there's no reference to referring the matter to DETI.

  9. 'RHI installation would earn owner £11.6m'

    An internal Ofgem document of October 2013 refers to a proposed scheme for a poultry farm that had featured in the agriculture industry magazine Farmers Weekly.

    Arguably, Ofgem noted, it involved the installation of separate heating networks to enable the operators to "maximise" their returns from the RHI scheme by "exploiting the tiered tariff".

    Boiler

    "We have estimated the forecast total payments over 20 years for the 14 accredited installations... to be £11.6m," it said.

    The information was shared with DECC but not with DETI, even though the issues raised applied equally in Northern Ireland.

  10. 'Assumption that civil servants understood scheme rules'

    Two men in a meeting

    Mr Lunny asks the witness to explain why commercial firms were told "in very clear terms" what Ofgem's interpretation of the RHI scheme rules was but DETI was not until much further down the line.

    Dr Ward says that at the time the policy was being drawn up with DETI it was simply assumed by Ofgem that the civil servants at the department understood it.

    "It never came up in conversation with DETI - had DETI asked me about that I would certainly have shared it with them," he adds.

  11. 'Communication with those with commercial interest in scheme'

    The first time DETI received an expert report - mentioned this morning - containing the definitions of terms in the RHI regulations was when it was provided by the inquiry, says Mr Lunny (seen below).

    He says there's no sign of any documentation from before 2014 of Ofgem telling DETI how the term "heating system" would be interpreted.

    Mr Lunny says the inquiry will need to understand that "apparent lack of communication" with DETI, especially because Ofgem "appears to have been willing to communicate its interpretation of 'heating system'" to people in Northern Ireland with a commercial interest in the scheme.

    Donal Lunny

    He digs out an email from Ofgem to the boiler installation firm BS Holdings, which made an enquiry about what would be eligible under the scheme for a proposal it was working on for Stormont's justice department.

    BS Holdings was told that in order to successfully apply for multiple installations located in a single site, these criteria had to be met for each individual heating system:

    • They are completely independent heating systems (no connection exists in between elements of heating systems)
    • There is a separate generation plant serving heat for each of the heating systems
    • There are separate metering arrangements for each heating system
  12. 'Reports show boilers being used against scheme's spirit'

    Matters move to how installations of biomass boilers on the RHI scheme were inspected and audited for Ofgem.

    The administrator contracted the company Ricardo-AEA to carry those out, looking for non-compliances with the scheme' regulations.

    Sir Patrick uses an example of a claimant with four boilers heating a single space - that was allowed under the rules but was "contrary to the spirit" of the scheme, as the inquiry chair puts it, and he wants to know whether the auditors would have noted that.

    Wood pellets

    Dr Ward says the auditors were commissioned to report on non-compliances but may also have noted such instances, even though no sanctions would be imposed on the claimants.

    Mr Lunny says the inquiry has examples of reports in which the auditors have noted cases in which installations were running against what had been intended by those who set up the scheme.

    Ultimately, DETI didn't receive the inspection reports.

  13. 'Concerns not shared with DETI at the time'

    Ofgem's updated fraud prevention strategy from December 2013, covering both the GB and Northern Ireland RHI schemes, returned to the familiar risk of the installation of multiple separate boilers to maximise subsidy income.

    It stated that there was nothing in the regulations to address the issue of the fitting of multiple oversized or undersized boilers for gaming purposes.

    Dr Edmund Ward

    That information had been shared with the Department for Energy and Climate Change (DECC), which operated the GB RHI scheme, and consideration was being given to amending the regulations.

    Dr Ward says the document was not shared with DETI until spring 2015.

  14. 'Cut-and-paste job in list of RHI risks'

    Mr Lunny turns to Ofgem's 2011 RHI scheme fraud prevention strategy - it was under the inquiry's microscope when Dr Ward's Ofgem boss Gareth John gave evidence yesterday.

    It applies to the Great Britain scheme - by that stage the Northern Ireland scheme was not well advanced - and it identifies a risk that "participants may install multiple small installations in order to benefit from higher tariff rates".

    It suggests that if a claimant has a number of boilers on the one site their combined heat capacity should be taken together for RHI scheme purposes.

    The RHI Inquiry

    Dr Ward says that at the time the strategy was drawn up the regulations referred to sites, with which there was a difficulty, rather than heating systems.

    The following September, the same reference to sites appears in another version of the risk register and Sir Patrick asks: "How can that happen?"

    He suggests it was a "cut-and-paste job" and "wasn't going to be a great deal of help" to whoever would be using it as a reference to prevent fraud in the scheme

    Dr Ward says there was a "process failing" in drawing up the September 2012 paper.

  15. 'Ambiguities or inconsistencies in scheme definitions'

    In June 2012 Ofgem commissioned an expert paper addressing the definitions of terms in the RHI scheme regulations that was intended to ensure a "consistency of approach".

    It said that some of the definitions "are considered not to be meeting the needs of the scheme" due to "ambiguities or inconsistencies".

    Burning wood pellets

    Dr Ward explains that it was prompted after Ofgem received a "lot of enquiries" from applicants to the Great Britain scheme - which had been running for several months by that stage - about what was eligible under the rules.

    Those queries caused Ofgem to question the definitions in the regulations - the report provided clarity on them and was then used by the administrator as a reference point from that point on.

  16. 'Administrator a passive participant in wasting taxpayers' money'

    Ofgem was a "passive participant in allowing an abuse of taxpayers money", says inquiry panellist Dame Una O'Brien.

    Ofgem - a non-ministerial government department - has a primary role of regulating the UK's energy markets but a separate section of it administers energy schemes, like in the case of the RHI scheme.

    Dame Una asks "how it could be" that a public body could stand by when it knew the RHI scheme was open to abuse.

    Pound coins

    "That cannot be allowed continue into the future," she adds, saying that it's "very hard to swallow" - a point that Dr Wards says he understands.

    Dame Una suggests that Ofgem should have pressed further up DETI's hierarchy for it to change to regulations of the RHI scheme in order to close the loophole allowing claimants to earn subsidies from multiple boilers.

    And Dr Ward agrees when Sir Patrick tells him that it "could've been made a bit clearer" to DETI and even "put across in a more robust way" that there was a "potentially exploitative option" for people to "milk the system".

  17. 'You knew there was a real risk of exploitation'

    DETI didn't act on the suggestion from Ofgem that the term "heating system" should be tightly defined in the RHI scheme regulations.

    Inquiry panellist Dr Keith MacLean wants to know if Ofgem just accepted that, even though it knew the looseness of the regulations left the potential for the "perverse outcome" of claimants with several biomass boilers being able to collect multiple subsides.

    Sir Patrick Coghlin

    Dr Ward says his understanding is that "we were administering in line with the law" and that doesn't amount to abdicating responsibility because there had been a policy decision on DETI's part not to legislate on the matter.

    "Our audits were designed to capture non-compliance not perverse outcomes," he says.

    Inquiry chair Sir Patrick Coghlin (above) says Ofgem knew there was a "real risk of people exploiting the system" but when DETI didn't act on the warning the administrator "simply continued knowing that the system was being exploited on the basis it wasn't your responsibility any more". Dr Ward agrees.

  18. 'Chance to tighten multiple boilers loophole'

    In a legal review of the RHI scheme's regulations, carried out by Ofgem in November 2011, the issue of multiple boilers is addressed.

    It states that "some participants may install... multiple smaller and potentially less efficient units in order to meet... higher tariff thresholds".

    A biomass boiler

    The suggested solution is that claimants with multiple boilers heating the same space could be "considered to be part of the same heating system" and that would amount to a "tightening of the definition of a heating system" - that proposal is attributed to Dr Ward.

    But at that stage there was no actual definition of a heating system in the scheme rules.

    Mr Lunny says the document emphasises that the term "heating system" would be crucial and should be defined and Dr Ward agrees, saying that if that wasn't addressed it was "clear" that there "are some risks".

  19. 'Common practice to install multiple boilers'

    Dr Ward was one of three Ofgem officials who appeared before the Northern Ireland Assembly's Public Accounts Committee in October 2016 (below) to answer questions about the RHI debacle, just as the scale of it was emerging.

    Mr Lunny looks back the part of that session in which Dr Ward said the practice of installing multiple boilers was "common" in the Great Britain scheme as well as in Northern Ireland.

    The Ofgem delegation at the PAC in 2016

    MLAs on the committee wanted to know whether Ofgem had flagged that up DETI and Dr Ward said the department would've been aware through its own knowledge of how the GB scheme operated.

    But he couldn't pick out a "documented record" of Ofgem ever having informed DETI about the issue.

    Looking back on that now, Dr Ward tells the inquiry that since then Ofgem has found papers that show it did flag the issue up to DETI.

  20. 'Confusion about policy on multiple boilers'

    The issue of claimants installing multiple small boilers at their premises through the RHI scheme instead of a single large unit to meet their heating requirement is a particularly hot topic in this inquiry.

    That was permitted under the regulations of the scheme and it allowed people to 'game' the scheme by collecting a higher subsidy that was on offer for the smaller units.

    A biomass boiler

    Claimants could have several boilers on their site, all heating the same space but as long as they weren't physically connected the units would all be considered as being separate under the scheme's regulations, explains Dr Ward.

    Inquiry barrister Mr Lunny says there was "apparent confusion" and "lack of understanding" of that by the two "key" civil servants at the Department of Enterprise, Trade and Investment (DETI) who were responsible for the day-to-day running of the scheme.