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The civil servants’ refusal to believe that RHI was open to widespread abuse makes even less sense because of something which had happened just three months before they met O’Hagan.
After receiving CEPA’s report on expanding RHI, DETI opened a public consultation about doing so. Yet, one section of the July 2013 document – some eight months after the scheme had opened – proved that there was an awareness of the need for cost controls and that Foster was personally aware of this. In a foreword to the 45-page document, Foster made clear that she knew about the potential costs of RHI ballooning out of control, and therefore her department was proposing measures to prevent that. She wrote: ‘I am conscious that whilst this is a sector that requires significant support, budget levels are finite and cannot be breached.’ The document dedicated an entire section to cost controls, saying that ‘a method of cost control is to be introduced that will ensure budgets are not overspent and will hopefully remove the need for emergency reviews’. It went on to set out in detail – an indication of how officials had engaged in considerable work on the subject – just how the various cost controls would operate.
The department proposed to follow GB’s system of degression ‘in the future’ but said that ‘in the interim it is proposed that a simpler system is put in place’. Setting out the precise situation, which would develop two years later, the department said:
Whilst tariffs are designed to ensure that the budget is adhered to there is always a risk that renewable heat technologies might be deployed in greater numbers than what is forecast and payments exceed expectations. The risk of this increases as tariffs become available for larger technologies such as biomass over 1MW, biomass/bioliquids, CHP and deep geothermal. Therefore DETI must retain the right to suspend the scheme if budget limits could be breached; however this will only happen at a last resort and, at this stage, is not envisioned to happen.
The 2013 consultation document led to the existing non-domestic RHI regulations being amended in several areas – each of which was far less important than the need for cost controls. The fact that this happened shows it would have been straightforward to amend the scheme at that point if the issue had been prioritised. It also proves that the need for cost controls was not somehow overlooked by a team of busy officials. They had not only understood the issue, but had put proposals to the public, which were then consciously not implemented. Stemming from that is an obvious question: given that the problem had been identified and a proposed solution worked out in great detail, why – and on whose instructions – was that proposal abandoned?
Two years later, the then head of DETI’s energy division, John Mills, found himself having to explain to Stormont’s Department of Finance how he had allowed RHI to run out of control with calamitous financial consequences. In the behind-closed-doors meeting – in which minutes were kept, perhaps because by that stage civil servants were now worried about where the blame would fall – he was asked why the 2013 recommendation for budgetary controls was never implemented. Mills claimed that it had been down to a conscious decision by Foster – an explosive allegation, given what was to follow.
Minutes of the meeting recorded him saying that ‘it was a ministerial decision to look at [opening] the domestic scheme rather than pushing through the trigger points [cost controls] on non-domestic which would have significantly delayed the implementation of the domestic scheme’. Mills, a veteran senior civil servant, then repeated that claim in public to an Assembly committee in February 2016, saying that ‘the minister decided that the priority should be on the introduction of the domestic RHI scheme. So resources were devoted to that’. But Foster always robustly disputed that she had ever been presented with a choice about either implementing cost controls or expanding the scheme.
Then, two and a half years after Mills made that potentially career-ending claim about Foster, he retracted it. When called before the public inquiry, which by that stage had uncovered hundreds of thousands of pages of documentation, shedding much more light on the situation than would have been apparent to Mills at the time, he said that there was no evidence to support what had been his belief at the time. His claim about Foster, he said, had been ‘completely incorrect’. Explaining his original comments, Mills said that when he arrived in DETI at the start of 2014 he felt that ‘the course was set’ to expand RHI rather than work on cost controls and he ‘assumed there was some ministerial authority for it’. However, he went on: ‘As part of the inquiry, as I gradually went hunting for what I imagined to be a submission for ministerial approval, I didn’t find one.’ He said that in his view ‘there is no evidence of the minister being asked to make that decision’. Mills accepted that he was ‘at fault’ for not asking to either see a piece of paper in early 2014 showing that the minister had agreed to what was happening or, if that had not happened, then putting a submission to Foster. However, even if Foster never explicitly asked to delay cost controls, her actions may still have – even inadvertently – had that effect. Just as her impatience to get the scheme launched in 2012 appears to have influenced officials to press ahead with what they knew was a flawed scheme, so now the minister’s eagerness to expand the scheme led to her officials believing that it was this which she was keenest to see done first.
Mills said that he made the expansion of the scheme the top priority for those under him in response to Foster’s desire for expansion. During meetings with Foster every six weeks, he recalled that ‘my impression during those discussions was the minister’s disappointment that the domestic RHI scheme was not ready’. Foster and Crawford’s frustration at the delay in launching the domestic RHI is recorded in their own handwriting in this period. On the face of a submission sent to them by Stuart Wightman in September 2014, which proposed that the scheme would launch in November, Crawford wrote: ‘Can we not open the scheme before November 2014?’ On another submission later that month, Crawford wrote by hand: ‘Need to get this launched.’ Two days later, Foster wrote by hand on the same submission: ‘Get this launched ASAP.’ There was unmistakable ministerial urgency to expand RHI – yet no urgency about introducing cost controls. While officials should have done far more to put before Foster the critical need for an emergency brake for the scheme, it is possible to see how they came to believe that her overwhelming priority was expansion in an attempt to increase expenditure – not doing something which might dampen demand.
Mills also said that when he joined the department at the start of 2014:
The concern was that [RHI] take-up was very slow and we were handing money back to Treasury and certainly in early January, February, in the ‘lines to take’ [for Foster] that I remember – the question that we didn’t want to be asked was ‘how much money are you giving back to Treasury’ and there were a lot of lines about trying to defend why [that was the case].
He said he had a ‘general recollection, across a number of meetings, of being asked [by Foster] about timelines and the need for progress’ on expanding RHI and that ‘the predominant tenor of that time was: We’re underspending, or we’re giving back money to Treasury and the risk of overspend is not high up the risk profile.’ One explanation for how cost controls came to be abandoned – and apparently without any express ministerial authority to do so – was that the department was chaotic in this period after the entire team working on RHI was replaced within a few months.
In December 2013, Hepper – despite having presided over the creation of such a disastrous scheme – was promoted to become a deputy secretary in the Department of Education, one rung beneath the most senior civil servant in the department responsible for Northern Ireland’s schools. The following month she was succeeded by Mills, a history graduate who, like her, was not an energy expert and had been in charge of water policy prior to joining DETI. Four months after Hepper’s departure, Joanne McCutheon, who had been directly beneath her, left on a career break. For 12 weeks after her departure she was replaced by Dav
ina McCay, a mid-ranking civil servant within energy division who acted up until a replacement could be found. That replacement ultimately arrived in June 2014 in the form of Stuart Wightman, someone who had worked as an engineer in the Roads Service before working in public transport policy and then water policy. Just a month after McCutheon left, Hutchinson – who was immediately beneath her – also left, moving to Stormont Castle. He would not be replaced for about six weeks. At the end of June his successor arrived. Seamus Hughes, an experienced official who over the course of more than 30 years had slowly worked his way up from the lowest grade of administrative assistant to the mid-ranking deputy principal, was now the man who would be overseeing the scheme on a daily basis as it slid into chaos the following year. He candidly told the public inquiry that he had ‘close to zero’ knowledge of energy policy when he arrived in DETI.
On his first day, Hughes was given electronic links to hundreds of pages of complex background material on the RHI policy, including CEPA’s bulky reports. Having just arrived from the Department of Agriculture’s farm policy branch, Hughes said: ‘They didn’t make a lot of sense to me, to be honest, on an initial reading of them.’ With the exception of the minister and her spad, who would also soon be moving on, all those who had designed the scheme had now gone. It was the trio of Mills, Wightman and Hughes who would be left holding the parcel when the music stopped the following year.
But there had been another change. DETI’s top official, Permanent Secretary David Sterling, had also moved in June 2014 to be replaced by Dr Andrew McCormick, a cerebral Oxford-educated geologist who had spent nine years as permanent secretary of the Department of Health, the Stormont department with the biggest budget and constant challenges. Sterling’s deputy, David Thomson, left at the same time as him, with a brief gap before he was replaced by Chris Stewart. On his first day, the experienced McCormick received a detailed briefing about his new department. It contained 53 issues, 17 of which were energy issues. RHI was in final place on the energy list. It would be more than a year later before RHI was brought to him for a substantive discussion.
In the space of six months, almost the entire spine of DETI, which was handling RHI, had been moved to be replaced by individuals who had no expertise in energy. In most cases there seems to be have been little – if any – contact between the old and new teams. The problem was exacerbated by the failure to recognise that RHI was a vast financial commitment over a 20-year period, and therefore it needed formal structures to ensure that all of those who would be running the scheme would know what had gone before. Both in Whitehall and Stormont, the civil service had been emphasising the use of formal project or programme management to ensure continuity and clear lines of accountability for the implementation of policies involving the expenditure of huge sums of public money. Prior to RHI’s launch, McCutcheon had asked Hepper if it should be reviewed to see if project management was appropriate. Hepper said that she did not think it was necessary and that they were ‘too late in any case’, as the scheme was about to be launched. But, although allowing so many key staff to leave at once was almost certain to create problems, and the absence of project management exacerbated that risk, there was some effort made to warn the incoming team of potential problems.
Before he left, Hutchinson put together a 14-page handover note – initially for McCay and then for the permanent replacements, Hughes and Wightman. Alongside it, he printed out voluminous documentation about the scheme’s background, leaving it for his successors in two large lever-arch files. The 14-page handover note contained basic information, such as who to speak to in Ofgem and where to find documents in the TRIM record management system. But it also gave his successors critical information about pressing issues. Hutchinson wrote:
Tariffs – it is becoming apparent that the payments made to installations are higher than would have been expected … many installations had a higher demand (time of operation) than had been assumed in the tariff calculations; this is especially true of certain sectors. As the demand is higher than what has been assumed, the tariffs can become over-generous. This issue would need to be considered as a matter of urgency. The email from Janette O’Hagan [in brackets he included the TRIM reference so they could find the email] is also relevant to this point, where applicants could over-use technologies for financial gain … the solution would be to ‘tier’ tariffs … certainly this should be considered for biomass under 100 kw as a matter of urgency. This has been discussed with Edmund Ward and he advised that Ofgem would be able to implement without too many changes to existing systems.
That paragraph demonstrated remarkable understanding of most of the central flaws in the scheme. Hutchinson was passing this to his successors, and his use in two places of ‘urgency’ indicates an attempt to impress upon them the gravity of the situation. It is clear that Hutchinson – particularly in light of some of the later conspiracy theories, which surrounded the RHI – was not someone who was deliberately attempting to keep a money-making scheme open when it should have been reined in. But why had it taken him so long to realise this and how could it be that on his departure the issue would be abandoned?
It appears that in Hutchinson’s final weeks in post in spring 2014 the problems with the scheme were crystallising in his mind and it was becoming clear to him that too much public money was going to claimants. In his final week, Hutchinson received from Ofgem’s Ward an eyebrow-raising case study of a timber manufacturer claiming RHI which he said would help DETI with ‘any considerations on tiered tariffs’. He did not name the company but it subsequently emerged that it was Eglinton (Timber Products) Ltd in County Londonderry.
Hutchinson did not even have to do the calculations himself, but was told that the firm’s RHI boiler ‘operates for 153 hours a week, which is 7,956 hours of operation in a year’. The payments, Hutchinson was told, were £100,484 a year. The case study was all the more striking because the company had installed a single 990 kW boiler rather than ten 99 kW boilers, meaning that it was getting a subsidy level which was almost a quarter of what would have been on offer.
Hutchinson later told the inquiry that the figures, along with O’Hagan’s email and a presentation by a boiler installer at a biomass event he had attended, had gradually concerned him. But there was no sense of panic in DETI or an urgent submission to Foster. On his final day at DETI, Hutchinson drew up an update for the Assembly committee, which scrutinised the department. The update, which was copied to Foster and Sterling, highlighted that the majority of biomass boilers on the scheme were getting the most lucrative subsidy available and ‘it may be appropriate to review’ the tariff.
Central to his belated appreciation of the problems with RHI was a renewed contact from O’Hagan. In Hutchinson’s final week, as he was preparing the handover note, he received an email from O’Hagan, which was typically forthright about what was going on. The businesswoman told him:
Buildings are using more energy than before because it pays them to do so. The flat rate means that there is no incentive at all to be efficient so the heat in buildings in [sic] all year round with the windows open everywhere. When we had spoken, you did not believe that people would do this, but please believe me that it’s happening with almost everyone that we approach. It’s making it impossible for us to sell energy efficiency equipment to these buildings, even when that’s exactly what should be happening as the first step and indeed what is happening in GB. The building owners there know that it’s in their interests to be efficient, in Northern Ireland it is not – it’s in their interests to be wasteful with what’s strictly not a renewable energy source.
The blistering email went on: ‘We’ve been told by a well established biomass company here to remove the saving detail on our product’s literature because their clients were no longer interested in making any savings. I think that you’d agree that there is something inherently wrong with that approach to funding and it’s going to put companies like ours out of business.’ O
’Hagan concluded her email in explicit terms: ‘If you need proof of what’s happening on the ground, I’d be happy to provide information. It’s got to a stage now where it simply cannot be ignored any longer.’
Hutchinson did not reply to the email and instead passed it to McCay, who was succeeding him. However, it seems to have been the moment at which various pieces of evidence came together in his mind and he realised that there was a potentially serious problem. Having received no response, the following month O’Hagan emailed Hepper’s secretary who replied to say that both Hepper and Hutchinson had left. McCay then replied to say that DETI intended to review RHI tariffs over the coming months and that ‘the issues you have raised are on our radar’. A relieved O’Hagan replied that the news was ‘most comforting’. Several months after leaving, Hutchinson returned to DETI to brief Hughes, his replacement, about the plans for expanding RHI. But during more than an hour the focus of the questions was on making RHI bigger – not reining it in. Hughes did not ask about the ‘urgent’ need to review the existing scheme and Hutchinson did not raise the issue.
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In late 2013 an issue arose which brought an RHI problem right to Foster’s ministerial desk and contained a huge clue as to the lucrative nature of the subsidy. Ofgem had initially advised that those with loans from the Carbon Trust – a green energy body, which funded environmental investments by businesses – could apply to the scheme. But a few months later Ofgem changed its mind, believing that such loans would be unlawful because the money being lent came from the government and therefore claimants would be getting a double incentive from public funds – a prima facie breach of EU state aid law. However, EU law allows a de minimis exemption for low-level state aid that does not exceed €200,000 over three years.