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Summary

  1. Cash-for-ash funding outlined to inquiry into botched Renewable Heat Incentive scheme
  2. Department of Finance witnesses answer questions from inquiry counsel
  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 Robin Sheeran and Iain McDowell

All times stated are UK

'This is taking longer than expected...'

We've run over time yet again, and Mr Brennan will have to return another day after his brief stint this afternoon went unfinished.

"As is becoming rather clear, this takes a bit longer than everybody anticipated," Sir Patrick comments wearily.

Parliament Buildings at Stormont
BBC

Everyone heads for the car park, ready to return tomorrow for a session with CEPA, the consultancy that prepared an economic appraisal in 2011 - join us at 10:30 GMT.

Have a great evening.

'Radically different approach would've been taken'

With Ms McAfee's evidence at an end, Mike Brennan, who briefly gave evidence before lunchtime, returns to the Senate chamber, and Joseph Aiken replaces Mr Scoffield in posing the questions.

If you've joined us since then, you'll need to know that Mr Brennan is from the Department of Finance and heads its central expenditure division.

A man making calculations
Getty Images

He says that the department would have taken "a radically different approach" to assessing the business case for the RHI scheme if it had known what it does now.

Reiterating an earlier point, he says the approval of the case only lasted until March 2015 and there had been a request for a review of the RHI scheme in 2014, which made for a "safety net".

But he adds that the safety net became "completely and utterly irrelevant".

'Reluctance to challenge the magic spreadsheet?'

Dr MacLean asks about civil servants managing the work of consultants.

"You don't need to be trained as an economist to pick up a lot of the problems," he says.

He wonders whether there is a "reluctance to test any of the numbers because it's been done by the magic spreadsheet" rather than just working out whether or not they roughly make sense.

Ms McAfee
RHI Inquiry

Ms McAfee says that in some cases the work of consultants can be very detailed.

Dr MacLean says the consultants appear to have entered the wrong numbers into the table, which was then used in the business case.

When he looked at the tables, he says the first thing he did was to get his calculator out "and I couldn't get the number that they said was the answer".

Ms McAfee says she would have been checking the basic arithmetic: "If there's maybe a calculation that doesn't make sense in a table but ultimately it doesn't impact on the overall position, it might not be something that I would raise in a note."

'Did you notice contradictory rationale?'

Looking at Ms McAfee's witness statement regarding the CEPA report and the business case and their reasons for not including tiering of tariffs, Mr Scoffield makes an observation.

"You know now that the rationale for not including tiering appears to be contradictory - that's not something you identified at the time?"

"No," Ms McAfee replies.

'Missing overgenerous tariff flaw was an oversight'

It's well known by now that the tariff on offer in the RHI scheme was higher than the cost of the fuel used to power the biomass boilers that claimants installed through the initiative.

That flaw meant the scheme was wildly overgenerous, was one of the key reasons why the scheme went so badly wrong, and, as we heard yesterday, it was clearly laid out in the business case.

Sir Patrick questions Ms McAfee as to why she, in her role with DFP - "the public spending guards" - did not raise issue with it when she reviewed the case.

Dr Keith MacLean
RHI Inquiry

"I can only say that it's an oversight," says Ms McAfee.

Dr Keith MacLean, the adviser to the inquiry, asks whether Ms McAfee reviewed the "basic arithmetic".

"I'm just interested whether it would be par for the course to actually check the basic numbers in there as part of the challenge function and the kicking of the tyres," he adds.

She says she would have looked at that but "wouldn't have appreciated the technical detail" of the model used to calculate the tariff.

'Challenge fund option over £200m cheaper'

Mr Scoffield takes Ms McAfee through some aspects of the CEPA report, including comparisons of the costs of two potential options for the RHI - a continuing subsidy scheme and a challenge fund option, with grants awarded up front in a competitive application process.

"The challenge fund was well over £200m cheaper over the life of the scheme than the option which DETI was recommending," he says.

Mr Scoffield
RHI Inquiry

He asks Ms McAfee if she appreciated this when she was considering value for money.

She say she does not recall in detail, but she would have seen it in the report.

'We review with fresh set of eyes'

The value of the finance department's role in business case reviews is questioned by Mr Scoffield, given that some officials involved in the process have said they do not have sufficient expertise to challenge some of what is contained in the documents they assess.

Given that individual departments should have the specific knowledge in the areas in which they work, he asks what is added by the finance department's review.

Ms McAfee says she believes that the function of her branch is to look at the business cases "from a different perspective... from a fresh set of eyes".

'Review that didn't happen was crucial for scheme'

A review of the RHI scheme that was planned for 2014 was "crucial", says Ms McAfee.

Mention was made of it in DETI's business case for the initiative, but ultimately it did not happen, and that has been identified as one of the critical mistakes in the scheme's lifespan.

Rachel McAfee
RHI Inquiry

Mr Scoffield asks if the original plan for review contained within the business case would mean she would take a "lighter touch" in her scrutiny of it because problems could be spotted further down the line.

Ms McAfee says her level of examination would be the same whether or not a review was planned, but she would have "taken comfort" from the assurance that it would happen.

Had one not been planned, she says she would have asked for one.

'Differences in tariffs between GB and NI schemes'

Mr Scoffield asks Ms McAfee about RHI tariff calculations in the business case, quoting an email she sent making reference to certain parts of the business case.

"The method of calculating the tariff rates is the primary difference between the NI and GB schemes," she had written.

Mr Scoffield asks a question
RHI Inquiry

Mr Scoffield asks what Ms McAfee what she meant by the comment.

She replies that it was evident that there was a difference in what was being presented in the two schemes, "particularly in terms of tiering".

There was no tiering planned for the Northern Ireland scheme, which was a major factor that ultimately led to the project's overspend.

'Business cases examined for value-for-money'

The questions Ms McAfee will be asked will focus on her role in approving the business case for the RHI scheme, and you can read her written witness statement over at the inquiry's website.

She explains that the finance department's economic appraisal branch, of which she is a part, provides economic advice on business cases and training for other departments on how to prepare them.

Rachel McAfee takes the oath
RHI Inquiry

Mr Scoffield rewinds to April 2012, when the RHI case was reviewed and approved by DFP.

Ms McAfee outlines her role, saying that she would check whether there is sufficient information within a case to justify the selection of a particular project and prove its value for money.

All change for inquiry's afternoon session

Back in the Senate chamber, the inquiry proceedings resume, and there's been a change of plan - Mr Brennan, who was being questioned before lunch, isn't in the witness chair.

Instead, Rachel McAfee, a Department of Finance economist who was involved in the approval of the business case for the RHI scheme in 2012, is here to take question, and she takes the oath.

There's also a change of counsel - Mr Aiken is gone, and senior counsel David Scoffield QC will be asking the questions.

Speaking of Mr Scoffield, here's an interesting tweet from some of his school pals...

View more on twitter

It's beginning to feel a lot like...

Time for lunch...

A cup of tea
BBC

The inquiry pauses there for lunchtime, so we'll get a quick cuppa tea and a stretch of the legs, and we'll be back at 14:00.

'Don't know of queries over new funding model'

Mr Aiken asks if, even though there were unusual features to the funding set up for the Norther Ireland RHI scheme, any steps were taken to establish the Treasury "why this funding was in the form it was being described?"

"I dont know that there were specific questions or conversations about the new type of AME," Mr Brennan replies.

'Why didn't finance officials ask more questions?'

The type of funding formula for the RHI scheme was not appropriate, says Mr Brennan.

That is because the initiative did not have a "demand cap" - an essential feature to control AME spending - when it was set up.

But Mr Aiken notes that Stormont's finance department did not raise that issue when it gave permission to DETI to run the scheme.

Sir Patrick Coghlin
RHI Inquiry

When DFP looked at DETI's business case for the scheme, it imposed two conditions, says Mr Brennan - the approval was only to last until March 2015 and DETI was to review the scheme in 2014.

Inquiry chair Sir Patrick Coghlin says he's finding it "difficult" to understand why the finance department - "the department responsible for spending public money" - did not ask more questions.

Mr Brennan says DFP took "comfort" that DETI's top civil servant had already rubber stamped the business case.

'AME spending highly volatile and variable'

Mr Brennan explains that it is "incredibly difficult" to control AME spending because it is typically demand-led.

A man points at numbers on screen
Getty Images

He gives the example of welfare payments saying that initial forecasts could end up being wide of the mark if the economy changed dramatically and unemployment increased.

"Therefore welfare payments would go up," he said, adding that AME spending is "highly volatile, highly variable".

'Alarm bell would have gone off'

Mr Aiken draws Mr Brennan's attention to the settlement letter from the Treasury regarding funding for the NI RHI scheme, and asks whether the content of the letter "set off any alarm bells " for Mr Brennan.

"No," he replies.

Mr Aiken turns to the similar settlement letter sent by the Treasury regarding funding for the GB RHI scheme.

RHI Inquiry
RHI Inquiry

It included the warning that "a condition of this is that DECC will need to contribute towards any overspend".

Mr Aiken asks Mr Brennan if such a sentence had appeared in the Northern Ireland letter: "What do you anticipate your reaction would have been, and why?"

"An alarm bell would have gone off instantly because the primary concern would have been to protect the integrity of the DEL block," says Mr Brennan.

'Department guidance urged need to exercise caution'

The AME arrangement that was put in place for funding the RHI scheme had not been seen in Northern Ireland before, says Mr Brennan.

"There would've been no awareness, no previous expertise of its treatment," he adds.

Mike Brennan
RHI Inquiry

The Department of Finance and Personnel (DFP) issued guidance to the other Stormont departments in April 2011 saying that there was a "need to exercise caution" when it came to understanding how it operated.

He confirms that the way in which the RHI scheme was funded and operated was a new concept to Northern Ireland.

"I'd never come across anything like that before."

Second witness appears before inquiry

Up steps Department of Finance official Mike Brennan, the second witness to appear before the inquiry, to be questioned by Mr Aiken.

Mike Brennan taking the oath
RHI Inquiry

Mr Brennan, the head of the department's central expenditure division, takes the oath.

You can read his written witness statement on the inquiry's website.

'No intention for a more generous scheme'

Mr Aiken outlines the "parity principle" as it applies to AME.

Under the Barnett formula, government funding remains in proportion to that enjoyed in GB, but this does not apply with AME funding.

Boiler
BBC

"The fact that there's an AME programme in GB applying this policy, it ought not to mean on the face of it that Northern Ireland was entitled to say: 'Well, you've got an AME for this, we're entitled to our Barnett consequential of it,'" he explains.

Mr Aiken says that the DfE (Department for the Economy, formerly DETI) has explained to the inquiry "that it did not intend to have a scheme that was more generous than its GB equivalent".

'Is the funding policy appropriate?'

Mr Aiken refers to two documents issued by the Treasury on 20 October 2010 regarding annually managed expenditure (AME) funding and the Barnett formula that appear to be contradictory.

One of them applies directly to the funding of the Northern Ireland RHI scheme, and the other is a briefing given to MPs on AME and Barnett funding.

Wide shot of the inquiry
RHI Inquiry

He says that on the same day that the settlement letter is issued giving Northern Ireland an AME consequential Barnett budget for RHI, "the statement of funding policy that applies to Northern Ireland and the other devolved administrations says, according to the Treasury, this is not appropriate".

'Budget limit restricted number of claimants'

The GB RHI scheme could never truly be a demand-led scheme and in fact could only ever have a limited numbers of members, because it was given an annual budget limit, says Mr Aiken.

"Not everyone who might, in theory, be entitled to become a scheme member could become a scheme member," he explains. "There was only, in theory, room for a certain numbers of members."

Mr Aiken
RHI Inquiry

That reinforced the need for Stormont's Department for Enterprise, Trade and Investment (DETI), which set up the Northern Ireland scheme, to regulate the numbers of people who could claim from its initiative's budget.

That is a separate issue from the overcompensation of claimants because tariffs on offer were too high, he says, which was a critical flaw in the Northern Ireland scheme.

'Spikes could be critically damaging to budget'

Looking at DECC's business case for the GB RHI scheme from October 2009, Mr Aiken points out that its officials had identified several risks posed by the initiative.

The unpredictability of fuel prices - a sharp rise in fossil fuels costs or a fall in biomass prices, for example - may cause a spike in uptake, DECC said back then, and that could be "critically damaging" to the ability to manage a budget for any scheme.

Wood pellets
BBC

Mr Aiken says those are "strong words" for an official to use about the consequences of a scheme on a department's overall budget.

It was a major spike in applications to the Northern Ireland scheme in the autumn of 2015 that ultimately burst its budget and led to the colossal projected overspend of £700m, if permanent cost controls aren't introduced.

'Treasury may have had its fingers burnt'

Why the Treasury did not tell Stormont more about the funding arrangements for the RHI scheme will be something the inquiry will have to consider, says Mr Aiken.

He says its knowledge of how the funding for the Great Britain RHI scheme operated would've been relevant for Stormont to have access to.

He adds: "It may be... that it was not an intentional: 'We're not going to tell them.'"

£10 notes
BBC

"But it may be something that just slipped through the net - nobody thought of communicating it."

Inquiry adviser Dr Keith MacLean says it could be seen that the Treasury had previously "its fingers burnt by trying to interfere in matters that were devolved" and it was simply "obeying an instruction" not to get involved.

Sir Patrick suggests that Stormont's attitude may have contributed to the situation, with its insistence from the outset that the RHI scheme for the region had to differ from the GB scheme.

'Treasury could've given straightforward answers'

Sir Patrick continues to appear less than impressed by the Treasury's answer to the inquiry on what it told Stormont about the funding for the RHI scheme.

He says that if the Treasury had answered "competently and straightforwardly", it would have simply have said it didn't tell Stormont's finance department about the RHI scheme arrangement with DECC, the 5% monetary penalty it would impose if the budget was exceeded, and its requirement for emergency reviews in the initiative.

The Treasury building in London
PA

"That would be a straightforward, open, honest answer to that, would it not?" he asks.

He acknowledges that the inquiry cannot compel the Treasury to appear before it, but says that will not prevent an examination its direction regarding the scheme's funding.

'Opaque statement with big repercussions'

Last evening, Mr Aiken was looking at the arrangements between the Treasury and Stormont's departments about how the RHI scheme would be funded.

Now turning to the Treasury's witness statement, he says it was asked by the inquiry if it had told Stormont about the process it had gone through with the Department for Energy and Climate Change (DECC), which ran the similar RHI scheme in Great Britain.

The Treasury says it "holds no records" that suggest detailed discussions were held with the Northern Ireland Executive about the design of the RHI scheme.

Sir Patrick Coghlin
RHI Inquiry

But it says the design of the initiative "would be the sole responsibility" of the executive "within the funding policy and restrictions" set by the Treasury.

Mr Aiken interprets that as the Treasury saying that it didn't have to tell the executive about its arrangements with DECC because what happened with the money set aside for the RHI scheme in Northern Ireland was a matter for Stormont's finance department.

Inquiry chair Sir Patrick Coghlin takes issue with the latter part of the Treasury's statement, describing it as "fairly opaque" and saying it would have had "pretty big repercussions in Northern Ireland".

'Yet to find the yeti'

Proceedings are under way and inquiry counsel Joseph Aiken - sporting a snazzy new pair of clear-framed spectacles - picks up where he left off yesterday in his presentation on the funding of the RHI scheme.

Joseph Aiken
RHI Inquiry

Mr Aiken used an interesting analogy involving a yeti yesterday, and he begins by saying that he'll not be returning to it until we find a better photo to accompany it for our live page coverage.

We'll take that as a 'must try harder', but it's good to know you're a fan, sir!

What is the RHI Inquiry?

BBC News Northern Ireland

An independent inquiry into the RHI scandal was established in January by the then finance minister Máirtín Ó Muilleoir.

He ordered it in the wake of the huge public concern and what was then a developing political crisis surrounding the scheme.

Sir Patrick Coghlin
Pacemaker

The RHI Inquiry began earlier this month and Sir Patrick Coghlin (above), a retired Court of Appeal judge, is its chair and has been given full control over how it will operate.

It is looking at:

  • the design and introduction of the RHI scheme
  • the scheme's initial operation, administration, promotion and supervision
  • the introduction of revised subsidies and a usage cap for new scheme claimants in 2015
  • the scheme's closure

For more information on the RHI Inquiry, you can read our handy Q&A.

RHI scheme - the fallout

When the scale of the overspend emerged, public and political concern rocketed.

As the minister in charge of the Stormont department that set up the RHI scheme, the Democratic Unionist Party (DUP) leader Arlene Foster faced calls to resign from her role as Northern Ireland's first minister in December last year.

Martin McGuinness and Arlene Foster
PA

She resisted, and Sinn Féin's Martin McGuinness then quit as deputy first minister in protest at the DUP's handling of what had by then become a full-blown political crisis.

That move brought about the collapse of the Northern Ireland Executive, and as we near a year on from that Northern Ireland remains without a devolved administration.

You can find much more detail on the RHI scheme in our need-to-know guide.

RHI scheme - the flaws

Critical mistakes were made in the way the RHI scheme was set up that left it open to abuse and that later saw its budget spiral out of control.

Crucial cost curbs that existed in a similar scheme in Great Britain were not replicated and claimants could effectively earn more money the more fuel they burned.

Wood pellets
BBC

That was because the subsidies on offer for renewable fuels were far greater than the cost of the fuels themselves.

As a result, the scheme racked up a huge projected overspend - £700m at the most recent estimate, if permanent cost controls aren't put it place - and the bill will have to be picked up by the Northern Ireland taxpayer.

RHI scheme - what was it?

Quick refresher before we start...

The Renewable Heat Incentive scheme - or RHI for short - came to the fore of the Northern Ireland public's knowledge in autumn last year.

Few people, if anyone, would have expected it to have the consequences it has done in the months that followed.

Burning wood pellets
BBC

It was set up by the Northern Ireland Executive in 2012, as a way of encouraging businesses to switch from using fossil fuels to renewable sources for generating their heat.

Those who signed up were offered financial incentives to buy new heating systems and the fuel to run them.

Good morning

Welcome along to the second session this week of the RHI Inquiry.

The view from Stormont's Parliament Buildings
BBC

We're up at Stormont's Parliament Buildings and proceedings will begin shortly.