I am pleased to be here in the Seanad to introduce this small but important Bill. It gives expression to an agreement reached between the unions, management and Government on the ESB during the time of the CCR in 1996, that is the giving of 5% of the ESB's holding in shares to the workers.
Two amendments to the Bill were accepted during the Dáil debate. One provided for relaxing the 18 month rule to give that shareholding to any worker employed in the ESB in 1996, when the CCR was signed. That has met with great approval. The other amendment relates to combined heat and power, CHP, allowing for it in a slightly greater measure than was provided in the original Bill.
The main purpose of this Bill is to give effect to a 5% employee shareholding scheme in the ESB without waiting for the passage of legislation to change the status of the company from a statutory corporation to a plc under the Companies Acts. As that would take some time, we wanted to proceed with the Bill.
The concept of an employee shareholding scheme for staff of the ESB was one of the main provisions of the Cost and Competitiveness Review between the Department, ESB management and unions. This Bill will provide the necessary legal basis to allow this to happen.
The CCR agreement provided that a 5% shareholding in the ESB will be made available for an employee shareholding scheme; the employee shareholding would be earned out of profit at 5% per annum; and the detailed mechanisms of the scheme would be agreed between management, unions and the relevant Government Departments.
The tripartite CCR agreement was designed to prepare the ESB for competition. The agreement was submitted to and approved by the previous Government on 3 April 1996. Over the following three years 2,000 voluntary staff exits provided for in the agreement were achieved as well as the targeted cost savings.
Since then the ESB has been setting aside 5% of the company's annual profits for 1997, 1998, 1999 and 2000 for the purpose of the employee shareholding scheme. A total of £46.8 million currently stands in a special reserve in the company's balance sheet to be passed to the trustees of the employee shareholding scheme when it is established shortly.
The establishment of the employee shareholding scheme and allocation of shares to staff will be an important element in promoting a further round of change in the ESB. At present, ESB management and unions are finalising negotiations on a further major change programme for the company before the electricity market opens fully to competition in 2005. The new round of change derives from the February 2000 tripartite agreement between my Department, ESB management and unions. That agreement sets out a framework for the future electricity industry in a competitive environment.
The implementation of an employee share ownership scheme is not straightforward. The ESB is a statutory corporation without a share structure. For some time the ESB and my Department have been working on a proposal to create virtual shares under existing ESB legislation. The Attorney General recently deemed that proposal to be ultra vires the provisions of section 4 of the 1954 Act, as that Act empowers the ESB to issue debentures or stock to the public but only for the purpose of raising borrowings. The Attorney General has advised, therefore, that the ESB proposal requires amending legislation to render it intra vires existing ESB legislation. The Bill before us will authorise the board to create and issue capital stock representing its net assets and permit the allocation of not more than 5% to the staff, the balance going to the Minister for Finance. The allocation to staff would thus fulfil the commitment made in the CCR agreement. The Bill provides that the capital stock created shall carry the right of conversion into ordinary share capital once the ESB is established as a plc.
The holders of such stock will enjoy dividend, voting rights and board representation. Those rights and obligations will be set out in regulations to be made by the board with ministerial consent, such regulations to be laid before each House of the Oireachtas for the customary 21 days.
I draw the attention of the House to section 10. This provides for the repeal of section 21 of the 1927 Act and the effective termination of the break-even mandate under which ESB has operated since its establishment. It is an important and historic change.
The virtual shares provided for in this Bill will carry the normal entitlement to dividends for staff and the State. This, in turn, requires that legal provisions be made for profits, out of which dividends would flow, and legal recognition of profit-making by the ESB inevitably requires the repeal of the break-even mandate. The continuation of that break-even mandate is no longer tenable in a liberalised market where the ESB becomes a player just like any other in the market and must be allowed the same level playing field as other commercial players, including the legal right to make a profit. The repeal of the break-even mandate will effectively bring the ESB into the 21st century from a commercial operating perspective.
Section 21 specifies that electricity prices are to be set at a level consistent with the achievement of a break-even mandate taking one year with another. The repeal of this provision will not give carte blanche to the ESB on electricity prices. Regulations made by me last year give the independent commission the power to examine electricity charges to franchise customers, in effect, domestic consumers, the costs underlying such charges and the right to issue directions to the ESB regarding the nature or amount of any charge or proposed charge.
The foregoing provisions aim to achieve, through the vehicle of an independent regulator, a proper balance between electricity consumers and the rights of the ESB as a commercial player. They afford protection to electricity customers against the possibility of excessively high electricity prices. At the same time, they allow the ESB to argue its case before an independent regulator for a reasonable level of charges including, in particular, a rate of return sufficient to service its borrowings and remunerate its investment programme.
I draw the attention of the House to another significant feature of the Bill in section 9. The aim of that section is to provide for the full liberalisation of electricity generated by combined heat and power plants, otherwise known as CHP plants.
The distinguishing feature of such plants is the requirement for a major heat input. That, in turn, can allow the simultaneous generation of electricity, a considerable portion of which is usually surplus to the plant's own requirements and, thus, available for sale.
Under existing legislative provisions, independent CHP plants may only supply electricity to the single premises of the main heat customer of the CHP plant and to eligible customers under an ordinary supply licence. CHP electricity may not be supplied to any other final customers. Those provisions are now seen as unduly restrictive. The amendment proposed would allow any final customer to buy electricity from CHP plants. Electricity generated from CHP would, thus, be put on the same footing as green electricity, the market for which is already fully liberalised.
I received strong representations from the IDA, Forfás, IBEC and other interests urging the liberalisation of CHP as proposed in the Bill. There are clear advantages to be derived from encouraging the development of CHP. They include high operating efficiencies and knock-on environmental benefits in terms of greenhouse gas emissions and the potential of CHP plants around the country to strengthen the electricity network and power supply. EU policy is strongly supportive of CHP on grounds of security of supply and environmental protection arising from its efficiency. The generation and sale of electricity from CHP plants will be subject to licensing by the electricity regulator.
The Bill provides me with the opportunity to present a short overview of the electricity sector and the ESB's role within it. The last four years have been a period of intense activity in the energy area. Some of the key milestones have included the CCR process in 1996; the extensive public consultation process in 1997 on the EU electricity directive; publication of the Electricity Regulation Bill in 1998; enactment of that legislation in 1999; establishment of the Commission for Electricity Regulation in 1999; the tripartite agreement of February 2000 on a future framework for the electricity sector; the 30% opening of the market to competition in 2000; the establishment last year of the national grid part of the ESB as a separate independent company, now known as Eirgrid; the joint decision to upgrade the main North-South electricity interconnector, currently in progress; the commissioning last year of the IVO peat plant in Edenderry – the first major independent generating plant in the country, and the announcement last year that the electricity market will open fully to competition in 2005.
The foregoing represents the most sustained series of decisions and activity since the days of rural electrification. The ESB has signed up over 200,000 additional customers in the past five years, while the number of units purchased has increased by over 30% in the same period. These are the highest rates of growth in the western OECD countries. To cope with these record levels of growth and the need for upgrading and extension of the networks, the ESB and Eirgrid are undertaking a five year investment programme, totalling over £2 billion, to provide the country with an ongoing electricity infrastructure up to international standards.
In the tripartite agreement of last year, the State committed itself to continuing shareholder support for the ESB. In return, the management and trade unions committed themselves to a further major round of change and transformation, the ongoing provision of a modern electricity infrastructure and, for the latter purpose, agreement on the use of outside contractors. The rejection earlier this year by ESB network technicians of new work practices and outsourcing was a severe setback. Management and trade unions in the ESB are, however, working intensively to achieve a turnaround and their efforts deserve support.
In the establishment of EirGrid last year the ESB asked and were allowed to retain ownership of the transmission assets. The company is also the owner of the country's distribution network. Under the tripartite agreement responsibility for the physical upgrading, maintenance and extension of these networks falls squarely on the ESB and the onus for delivery of the new investment programme also rests with the company. The outsourcing arrangement poses no threat whatsoever to ESB workers. The investment programme is of a scale sufficient to keep all of the ESB network staff, as well as outside contractors, fully employed for many years to come and such investment will be ongoing.
The ESB has been returning record levels of turnover and surplus in recent years. The out-turn for the year 2000, in terms of surplus, is likely to be significantly lower in cash terms than in 1999 in view of increasing fuel costs, etc. The company's headline financial performance of recent years should be seen against a situation of under-investment in the electricity network for nearly 15 years. The company is now facing into a period of sustained investment which is necessary to underpin the national development plan and it will be a matter for the electricity regulator to decide how this investment should be financed and remunerated.
I hope I have given a reasonable summary outline of the electricity sector and the current position of the ESB. I commend the Bill to the House and will be happy to participate in the debate on it. I thank the House for facilitating me by taking the Bill on the last day of business before the Easter recess, following its completion in Dáil Éireann last week. I appreciate the co-operation of Senators in that regard.
