JOINT COMMITTEE ON COMMUNICATIONS, NATURAL RESOURCES AND AGRICULTURE debate -
Thursday, 15 Mar 2012

Discussion with Commission for Energy Regulation

Chairman

I welcome Mr. Dermot Nolan, chairman of the Commission for Energy Regulation, Mr. Garrett Blaney, commissioner, and Dr. Paul McGowan, director of safety and customer affairs, and thank them for coming before the committee today. As this is their first appearance before the committee, we would like to hear about the current work priorities and strategic initiatives of the organisation. We would also like to discuss the findings of the draft decision paper on the high level design of the petroleum safety framework for Ireland which the commission forwarded to the committee.

Before we begin, I wish to bring to the attention of witnesses that they are protected by absolute privilege in respect of the evidence they are to give. However, if they are directed by the committee to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I now invite Mr. Nolan to make his opening statement.

Mr. Dermot Nolan

We are pleased to be here and thank the committee for the invitation. We have prepared a presentation and hope that every member has a copy of it. We will go through it and will begin with some slides explaining what we are and what we do. The main part of our presentation is focused on the safety issue to which the Chairman referred in his letter inviting us to come before the committee and I will hand over to my colleague, Mr. Blaney, to deal with that. To conclude, we will have a few more slides dealing with general strategy and priorities and I will deal with those. We will then try our best to answer any questions the committee may have.

The first slide is an introduction to the CER and contains more or less what I have already said. I am the chairman of the CER, Mr. Garrett Blaney is a fellow commissioner and Dr. Paul McGowan is our director of safety. The CER is Ireland's independent energy regulator. It is set up under statutory framework. Its main functions are economic regulation and safety regulation in the area of energy issues, and it also has customer protection functions. It is independent from government but accountable to the Oireachtas. There is a particular wrinkle to that in wholesale electricity regulation. By that we broadly mean electricity generation. The generation market is sometimes called the wholesale market. In that respect, we are not the only regulator on the pitch. Wholesale electricity regulation is done on an all island basis by the single electricity market committee. It is a North-South body comprising the CER, the Northern regulator and independent representatives from Spain who are experienced and distinguished in the energy field. Therefore, there is a tripartite decision-making structure for generation issues, and we will come to that later. For the rest of the work, it is just us.

Our initial safety role, which we were given a few years ago, dealt with gas pipelines, LPG installers and electrical contractors. Some of our newer roles are related to offshore petroleum safety, and I will hand over to Mr. Blaney to speak about that.

Mr. Garrett Blaney

By way of background, I will start off by talking about some of the international precedents that have led to a rethink in this area. We are coming up to the second anniversary of the event at the Deepwater Horizon rig in the Gulf of Mexico. Eleven people were killed in that event, but a major environmental disaster occurred as well. This has caused a significant rethink, not just in the industry but also in bringing regulatory practices up to the right standard. There was a general recognition that there were regulatory failures in that event. There was a similar event in Montara in Australia around the same time. There were no deaths following that event, but there were major environmental concerns.

At a European level, there has been a fundamental review of safety structures and processes in place to ensure that they are appropriate. The biggest event at European level was probably the Piper Alpha event in the 1980s. In that case, 167 people were killed and it changed the thinking about the regulation of the oil and gas industry. A major report was carried out at the time in Great Britain and a review on how they implement their processes. There was also a major event in Norway, with 123 people killed, so it was not just a UK issue. There was a major rethink at the time in Europe. The European Commission recognises that these events occurred 25 years ago and is concerned about whether they could recur and is looking at new regulations to cover those concerns.

The Act dealing with the petroleum safety framework in Ireland was published on 3 April 2010, a few weeks before the Macondo incident in the US. Many of the issues addressed in the Act are in line with best practice internationally. It was driven very much by concerns in the Corrib field and safety issues there, and a report done by Advantica which proposed that a risk-based framework be adopted in Ireland. That was a key component of the Act which transferred responsibility to the CER.

Prior to this Act, responsibility rested with the Department of Communications, Energy and Natural Resources. The Department had a dual function of issuing petroleum licences from an economic perspective and from a safety perspective. The Act transfers that responsibility to us and expands our responsibilities from the current responsibilities for downstream safety. It is also clear that we have to adopt a risk based approach, and this is again in line with best international practice and is the normal standard in Europe. It is an issue in the US and the US is recognising that it will have to adopt this risk based approach to ensure that its regulatory standards for oil and gas safety have improved.

There is a definition of petroleum in the Act and it clearly covers oil and gas extraction, and the Act does not distinguish between onshore and offshore. It makes a distinction between upstream and downstream. We have looked at that, and it seems clear that the point at which it goes from upstream to downstream is the point at which we have a stable product that can be transported. For example, if we take the gas system, the point that it connects to the Bord Gáis system is the point that it becomes downstream. All the production and processing would be upstream and would be covered under this Act. It also covers what is generally known as fracking, which is hydraulic fracturing, a new technique used with shale gas. That can be offshore but is generally onshore. Our interpretation of the definition in the Act covers fracking. We sought legal advice which confirms that.

It is also our clear that our role is limited to safety and does not cover environmental components, but we have a responsibility under the Act to interact closely with other agencies, be they the HSA or the EPA. We have begun that process already.

The next slide provides a geographic picture of the area covered under the Act. The onshore area is the Republic of Ireland, but the sea areas are also covered. There are several numbers in the slide which relate to the various licences that have been issued by the Department of Communications, Energy and Natural Resources. It is important to understand the process and the sequences here. We will not consider a safety case until it has already received an exploration licence from the Department of Communications, Energy and Natural Resources. The sequence is the following. First, the Minister and his Department will issue an exploration licence. Once that licence has been issued, we will then consider it from a safety perspective. The operator can then apply to us to get safety clearance.

The next slide sets out the project status and the various activities in which we have engaged and in which we intend to engage before we can fully take over this function as set out in the Act. The first piece deals with the initial scoping and planning. We wanted to ensure that the processes in Ireland are up to the best international standards. We have joined a group called the NSOAF, which is the North Sea Offshore Authorities Forum and which constitutes the various safety regulators in this area in northern Europe. It is basically made of up Norway, the UK, the Netherlands, Denmark and Germany - all those countries in northern Europe which have gas and oil exploration. We have also engaged consultants to help us build up our expertise in this area, and we have provided some initial training for staff, although there is much more to do.

The planning phase has reached a stage whereby we have been able to issue a consultation on the petroleum safety framework. There has been a very significant response to that consultation, not just by the industry players, which might be expected, but also by many interested parties, such as local groups. A large volume of those responses related to fracking and the concern which arises as a result of fracking. We have reviewed those and brought them into the draft decision paper we have sent to the committee. The Commission for Energy Regulation has always had an open and transparent process to seek to consult on all critical areas and to have an open door policy in terms of talking to any interested parties in an area in which we make decisions.

The next phase will involve our consideration of all the responses to our draft decision paper and, in due course, issuing a decision paper. I want to be clear that the decision paper only sets out the high-level principles. A lot more work needs to be done once they are established to turn them into a detailed design which is sufficient for the various operators to know exactly what we will seek from them when they submit a safety case to us.

We will have a process of internal readiness to ensure we have the appropriate skills and staff within the organisation to be able to accept and review safety cases. We expect that by the fourth quarter of 2013 we will be ready to accept safety cases. The time-line is fairly standard for the development of new frameworks. We have examined places like Australia, which set up new regulations.

I refer to key areas of the petroleum safety framework, PSF 1. We set out what we expect as a vision, namely that we see a safe petroleum exploration and extraction industry for Ireland. It is a clear, simple vision. The devil is the detail in terms of implementation. In our mission statement we set out our independence and the fact that we will act independently not just of government but of the various companies involved. We will ensure we will protect life within exploration and extraction activities.

We have set a number of goals. Our first goal recognises the risk principle, as set out in the Act. We will use risk to try to assess whether something has met the standards we will require to allow it to proceed. The principle of as low as reasonably practicable is fairly internationally understood and will be applied rigorously in assessing safety cases.

We want to ensure safety standards adhere to best international practice. That is the benchmark we have set ourselves for safety regulation in Ireland. It is important we were able to demonstrate that in the various activities in which we engaged.

I referred to transparency. We want to engender confidence and hope to do this through transparent processes and a rigorous adherence to consultation through the process.

The next slide refers to the high-level design of the PSF 2. I will refer to some of the key areas and components of the petroleum safety framework which will try to deliver the mission and goals set out previously.

The first is the permission system. The cornerstone of how we intend to regulate this is the idea of a safety case. Anyone who wants to engage in any activity under the petroleum safety framework must submit a safety case to us before he or she starts operating. An operator will only be allowed to start operation once the safety case has met our rigorous standards and we have accepted it.

The concept of a safety case is best practice internationally and is recognised as one of the areas where there have been some failings in the US. I understand some further soul-searching is taking place there. The safety case regime has been implemented in Norway, the UK and most best practice member states in Europe. It will be used in Ireland as the cornerstone of best practice and its principles are set out in the Act.

Notwithstanding the fact that a safety case has been submitted and we have accepted it, compliance assurance will make sure we test what is being implemented by the various operators in the system to the rigours of the safety case submitted to us. We will define and set out clearly how that will be implemented as we move forward on the development of the petroleum safety framework.

The next component is the incident investigation system. While no one would like to see incidents, it is possible that we could and we need to make sure we are ready to respond and investigate them. At this point we are setting out the high-level principles in which we will engage. Once they have been implemented we will then publish the detailed design for the area.

The Act gives us significant enforcement powers. We intend to use them as necessary if we consider that any operator is not meeting the conditions set out in the safety case and complying with the various requirements.

The next slide shows graphically how the various systems fit together. The permission system is the first process that must be engaged in. We must ensure rigour in the safety case process. We have spent a lot of time looking at best practice internationally and in some cases there has been an over reliance on safety cases. They are ultimately only as good as their implementation.

We will need to ensure safety cases that have been submitted to and accepted by us are demonstrated during investigations and audits of installations. While necessary they are not sufficient for us to be confident about the regime. We will need to ensure compliance assurance will also be rigorously adopted to ensure that people do not just say they will do things safely but that we can see things in action. If we consider that insufficient action has been taken in any areas or we are not confident about something we have rigorous powers under the Act and intend to enforce them.

The next slide refers to enforcement. The idea is that we will be proportionate in the application of our enforcement powers. We can apply any element of them. We could start off with improvement plans, such as writing to an operator to ask it to make changes to improve the situation. Further to that, we can send prohibition notices to operators and tell them they must stop engaging in activities we think are not conducive to safety.

If we think we are not getting an adequate response or an area is insufficient we can enforce court orders and, ultimately, revoke a safety permit. If we do that an operator cannot operate. It is an essential part of the scheme. If the safety case is not to our satisfaction an operator cannot start work and if we see it engaging in activity which, in our view, is unsafe we can ask it to stop.

The Act is very clear in this regard and gives us very strong powers to ensure safety is implemented. Within a criminal framework we can set fines and sentences. The courts will be involved. There can be fines of up to €3 million depending on the offence and up to three years' imprisonment for operators.

I have tried to set out the broad principles of the petroleum safety framework. Consultation is still taking place and closes on 29 March. If committee members want to make any points to us we can include them in our consideration and final decision. We hope to make the final decision this summer but a lot more work needs to be done.

We have set out the principles but we now have to decide what sort of detail will be needed for operators before they can send us a safety case. It is also contingent on our having adequate resources. We have initial resources within the organisation but we will have to enhance them before we finally take over the function.

Mr. Dermot Nolan

I will go through the presentation fairly quickly. The bulk of the presentation has been about safety but we will deal with any questions on any issues of interest to members. I refer to our strategy statement for the period 2010 to 2014. We have defined our goals in these bullet point headings: the lights stay on; the gas continues to flow. The gas continuing to flow is pretty crucial to the lights staying on because 60% of our electricity comes from gas. The next goal is that prices charged are fair and reasonable. Ireland, unfortunately, is very vulnerable to movements in fossil fuel prices, given our dependence on fossil fuels. It is absolutely key that those prices be fair, reasonable and transparent. The subsequent goals are that the environment is protected, that energy, broadly constituted, is supplied safely, and that a top-quality regulatory system is provided to our customers and stakeholders. We hope to respond reasonably and as rapidly as possible to our customers and, hopefully, make good decisions.

I refer to the last two slides in the presentation which contain specific items of work being undertaken this year and possibly next year. It is not meant to be an exhaustive list but I have picked out some of the more important issues. The first item is electricity and gas retail market monitoring and customer protection. All the electricity markets are currently deregulated and in our view there is sufficient competition in the retail markets at the moment. Most of the gas markets are deregulated but not the gas retail market which is still subject to regulation. One of the points about deregulation is that competition can be good for consumers and it certainly is one of our objectives as part of our statutory remit. There have been problems in the UK with deregulation and we will need to monitor the market very carefully to ensure that consumers are getting a good deal and that vulnerable customers are protected and to ensure that customers are able to choose which of the various offers is best for them. This is one ongoing item which will continue to be part of our work indefinitely.

The single electricity market, SEM, is a major project as part of the SEM committee to integrate what we call the all-island electricity market with the rest of Europe. Various EU rules which are quite binding are calling for what is called a target EU model by 2014 - that the entire EU electricity market should be functioning as one market by 2014. This is a major deal and we will probably need to change the single electricity market a little. Under EU rules we have attained a derogation for an extra two years, to reflect the fact that we are an island, fairly isolated, but none the less, we will be required to meet the goal in 2016. This will be a major project and the intensive work has begun.

The interconnector from east to west, from Wales to Ireland, will be going live later this year. This has been the product of much work. In our view it will be a good investment and there has been a strong cost-benefit analysis. It should help Ireland to integrate with the rest of Europe.

The next bullet point refers to smart metering. A lengthy project was undertaken to put what are called smart meters for electricity and potentially for gas into every home and nearly every business in Ireland. The aim of smart metering is to respond to price signals. There could be two to three different prices a day and people would see a price on their in-home display and be able to respond to it. We foresee many benefits from this system and an exhaustive cost-benefit analysis has been undertaken. It should lead to lower prices overall, cut energy consumption and empower consumers. We have carried out a lot of work in this regard. We are in discussions with the Government and we hope to have a final decision to go ahead in the very near future.

The last three bullet points refer to what we call a five-year revenue review for Bord Gáis Networks. What this means is the network operators - Bord Gáis Networks or ESB Networks - are classic monopolies which we regulate directly and we set the price on a five-year basis which is the international standard. We are undertaking a major project to find out how much investment is allowable for Bord Gáis over the next few years and how much efficiency gains it needs to make to benefit consumers. There is the potential for new sources of gas to come on stream and we are dealing with its management.

We need to facilitate more renewable energy generation as per the renewable targets. There has been a considerable increase in renewable energy penetration over the past five years and we need to ensure this continues. Perhaps most crucially, in order for that renewable generation to connect and be effective, we need to build out the networks, which means EirGrid, and we will have a watching brief as the regulator. The wires have to be built in order for renewable generation to connect and most crucial of all, this must be done at the lowest possible cost for consumers.

The last slide refers to the fact that we are very likely to become the regulatory body for water. I do not wish to anticipate too much what decisions may be made about water charges and water regulation but it seems very likely we will be the water regulator. If water charges are introduced, we will be responsible for dealing with whatever company may be selected as the new Irish water company. The work is still in the early stages but we are reviewing how water regulation is carried out in other jurisdictions, notably, in the neighbouring countries, in the North, in Scotland and the UK.

I will be happy to deal in more detail with any questions from members.

Chairman

I thank Mr. Nolan and Mr. Blaney for their comprehensive presentation which explained the process of the setting up of the petroleum safety framework.

I have to leave the meeting in order to speak in the Dáil. Deputy O'Mahony will take the Chair in my absence. I have one question for Mr. Nolan. My question may not be directly related to the presentation but it comes within the remit of the regulator. I understand there has been some reconsideration in the current discussions with regard to the single energy market and the curtailment proposals.

Mr. Dermot Nolan

I can provide a very brief response at this time.

Chairman

I thank Mr. Nolan as I do not wish to delay the meeting.

Mr. Dermot Nolan

It was one of a myriad of decisions made with regard to potential curtailment of renewable generation in the single electricity market. It is a very complex issue and without going into the details, a large fraction of the renewables sector believed this was not a good decision and that it would disadvantage their future development. A significant minority of the renewables sector wrote that it was a very good and right decision. I will not comment on whether it is the right decision as that is not possible for me to do. However, given the wealth of views and the importance of the issue, I cannot fully confirm legally - I apologise but I am not trying to play games - but it is very likely that there will be a new consultation to be issued next week on that specific point. This will give interested parties the opportunity to respond.

Deputy John O'Mahony took the Chair.

Deputy Martin Ferris

I thank Mr. Nolan and Mr. Blaney for their presentations and I welcome Dr. Paul McGowan.

I wish to raise a parochial issue regarding Shannon LNG. I assume the delegates are aware of the importance of Shannon LNG for the very depressed part of my county, with no jobs and over 25% unemployment. This project could be of great value to the community and beyond Kerry into west Limerick. I cannot understand how the commission, the company and the Minister cannot sit down together to resolve this issue. I ask Mr. Nolan to provide an update as to the position of the Commission for Energy Regulation.

I refer to the matter of compliance assurances as detailed in the submission. If a company tenders for any aspect of energy provision and if those involved have a past record of convictions, albeit not in this jurisdiction, will this be investigated? Will a report be sent to the Minister?

I take this opportunity to refer to an issue I have raised on three occasions in the Dáil, namely, the awarding of contracts to a company called Balfour Beatty. Its past record includes worker and passenger fatalities as well as convictions for fraud in regard to false accounting, corrupt practices and other issues. Some of the fines that have been imposed on the company raise serious questions in regard to its record on health and safety. For example, it was fined £500,000 in respect of a train derailment incident. A fine of £7.5 million arose in respect of a train crash that cost four lives and resulted in injuries to some 100 passengers on a section of the line maintained by the company. A £1.2 million fine was imposed in respect of the collapse of a tunnel at Heathrow and a fine of £180,000 followed the fatal electrocution of a lines maintenance worker.

That is merely the health and safety side. The company has also been convicted for fraud in respect of incidences of false accounting. In addition, the British Office for Fair Trading found it guilty of corrupt practice in securing construction contracts. Yet this company has been awarded lucrative contracts in this country. In fact, it is one of a number of companies with dubious health and safety records which have tendered successfully for contracts. Is Mr. Nolan aware of the issues I have outlined? Was the commission made aware of Balfour Beatty's health and safety record and did it conduct its own investigation in this regard? Did it submit a report to the Government prior to contracts being awarded to the company?

Mr. Dermot Nolan

I will address the Deputy's question regarding the possible location of a liquefied natural gas plant, before passing the second question my colleague, Mr. Blaney. I am aware that the LNG issue is a matter of significant interest in north Kerry. I have no problem in saying that we would consider the location of an LNG plant there as a positive development. Given that some 95% of our gas currently comes from the North Sea, such a facility would offer a diversity of supply which would be very positive for the country. I do not apologise for being from Dublin but I appreciate that the economic conditions in north Kerry have been quite difficult and that there would be appreciable local benefits in locating an LNG facility there. We have met representatives from Kerry County Council and other interested parties to discuss the issue.

However, given our statutory responsibilities, we cannot take potential local employment issues into account to any significant extent. Our primary goal is to protect the consumer. All of the technical and economic advice and analysis we have received thus far suggests that a failure to change the current pricing structure will result in a significant increase in gas prices. The exact amount is difficult to estimate but may be in the region of €30 million to €40 million every year for 20 to 25 years. An increase of that magnitude would hurt consumers and potentially hurt other competitors. I accept that it has taken time to reach a decision on this matter, but there are legal processes that must be gone through. We are confident that our proposal to amend the pricing system will still offer an incentive for an efficient new entrant, which could well be Shannon LNG, to come in and make some money. The system rewards new entrants, whether a company building an LNG plant, finding gas offshore or something else. Subject to all of the regulations they must satisfy, such companies will make money from their endeavours.

It is possible that we are wrong in our analysis of the situation. We have gone through it carefully and are certainly still open to it. Shannon LNG and others have indicated their intention to make further arguments. We will try to make a decision as quickly as possible. Our current thinking is that a significant increase in prices is likely and that our duty to consumers is such that we cannot allow that to happen. I accept that we may be incorrect in this approach. We will consider it further with a view to reaching a decision as quickly as possible. However, we cannot, rightly or wrongly, take into account issues of local employment in Kerry. My statutory duties mean I cannot do so.

Deputy Martin Ferris

All elected representatives want the best deal for customers throughout this island. I was clear on that point. In the lead-in to my question I mentioned economic conditions in my area and the potential benefits, including a substantial spin-off effect, of the siting of an LNG plant there. The point I wish to get across is that there are clearly difficulties between Shannon LNG and the regulator. It also seems clear to me as an elected representative and to those people who are very supportive of the project and wish to make it happen that there is an overall lack of cohesion in dealing with the proposal. It is mind boggling that we cannot get all of the stakeholders around the table to sort it out, which is the only way any progress will be made. If that is achieved, we will have progress. Who is responsible for determining policy in this regard?

Mr. Dermot Nolan

The Commission for Energy Regulation is an independent regulator. Without going into too much legal detail - I might get some of it wrong, but I can get back to the Deputy on this - the CER sets pricing policy for interconnectors and therefore potentially sets the price Shannon LNG would get if it sold into the market. It is an independent regulator and that is wholly in its remit, for good or ill. However, its decisions are subject to legal appeal. The main check is that there is scope under legislation for the Minister for Communications, Energy and Natural Resources to give the commission what is referred to as policy direction. However, it is set out clearly in the relevant Act that such direction cannot relate to one particular entity. The Deputy will appreciate that I cannot comment on whether the Minister should or should not exercise his right in this regard; that is entirely a matter for him.

Deputy Martin Ferris

However, there is scope for the Minister to issue direction.

Mr. Dermot Nolan

Yes. I ask my colleague, Mr. Blaney, to address the other issue raised by the Deputy.

Mr. Garrett Blaney

The Deputy expressed concerns in regard to the record of Balfour Beatty. In regard to health and safety issues, we have a new function in terms of responsibility for the upstream aspect, as set out in recent legislation, and we already have a function in respect of downstream safety, which relates to the gas transmission system that is owned and operated by Bord Gáis. We have a safety case regime in place which sets out the normal standards that apply in respect of how Bord Gáis runs the system. When we became aware that Bord Gáis intended to employ Balfour Beatty, we required the former to submit a significant material change to its safety case. In other words, we were of the view that the employment of Balfour Beatty was of significant magnitude to constitute a change in the safety case. There have been several iterations of the safety case because we were not satisfied that the early iterations met the full safety criteria. As such, we required Bord Gáis to submit a number of iterations over a period of six months until we were satisfied that the processes and safety management systems were sufficient to ensure safety for the gas network. Only at that point did the contract with Balfour Beatty commence.

On the Deputy's general case regarding compliance assurance, we generally require operators to provide us with as much information as possible in order to ensure there is safe operation of the systems. Where possible, we share information with other regulators at European level. The fora at which this type of information exchange takes place allow us to access information from other jurisdictions rather than relying merely on information available to us in Ireland. I hope this background helps the Deputy to understand our role and how we have discharged it.

Deputy Martin Ferris

At the end of that process, did the commission submit a report?

Mr. Garrett Blaney

It is a matter for Bord Gáis to submit any material changes to the safety case to us, rather than vice versa. There were several iterations of this report before we reached the point where we were satisfied that all was in order. Our role then, once we are satisfied in this regard, is to allow Bord Gáis to proceed under the safety case. Bord Gáis reported to us and we could either accept or reject its report. The various iterations are part of our normal process.

Deputy Éamon Ó Cuív

I apologise for not being present earlier. However, as is always the case, there are two or three events taking place at the same time today.

A safety regulation is being drawn up in respect of gas and oil exploration. One of the very positive decisions we made when we were in government was to transfer responsibility in this regard to an independent agency and ensure that it would not remain with the Department involved in promoting exploration for oil and gas. If I understand matters correctly, the commission is reaching the end of a very long process in the context of drawing up an approach to safety in the oil and gas exploration market. Do I understand that the safety to which our guests refer is that which relates to the actual safety of an operation in the event of nothing untoward happening? Does it involve an analysis of the risks with regard to what might go wrong, what might happen if something did go wrong and what would be the scale of the catastrophe that would follow such an eventuality? Am I correct in stating that the commission's role in respect of this matter is quite limited and relates merely to issues of pure physical safety? The Environmental Protection Agency, EPA, has responsibility for environmental issues. Do wider issues of safety such as those relating to, for example, fracking, the use of chemicals, etc., and the long-term effects these might have, come under the commission's remit? Perhaps our guests might clarify the position regarding the wider safety issues as opposed to commenting further on those which relate to the narrow aspects of this matter. Most people understand the position if a pipe bursts or a processing system goes up in flames. Will our guests indicate when they believe the new safety regime will be fully operational?

When I arrived, our guests were referring to the decision made in respect of the grandfather clause. Let us ignore the interests of the producers for a moment. There is a national and European target of producing 40% of electricity needs from renewables by 2020. How much can those responsible for making the decisions in this regard - in this jurisdiction it is the commission, while in the North it is the Utility Regulator - take account, in their calculations, of the effect or otherwise of the policy to which I refer? Is said policy a high-weight or a low-weight factor in the context of the decisions that will be made? It is fair to say that producers who wish to become involved in this area are not in favour of the arrangement that was proposed, whereas those who have it will do marginally better. I am of the view that we should try to make the country as independent as possible in respect of energy. I am also of the view that we should produce as much renewable energy as possible. I am informed that what is proposed will have an effect on the attractiveness of on-land renewables, particularly in the context of wind energy. How much weight did this factor attract in the context of the decision?

I had a smart meter at home for some time. It was great to have it and I wish I could get it back. This leads me to the issue which continually arises in this regard, namely, the position with regard to the feed-in tariffs for micro-renewables. There will be many people in rural areas - where space is not at such a premium compared to urban areas - who would become involved in microgeneration if they were guaranteed a reasonable feed-in tariff. Perhaps our guests might indicate where matters stand in the context of people involved in microgeneration being in a position to feed in to the system at an economic rate.

In view of the fact that so much wind energy can be produced here, I presume the long-term objective is that Ireland will become a major exporter of this type of energy and that it will import cheap electricity from Britain or Europe when wind speeds are low. What is the commission's role in this regard? In order to facilitate such a system, it will be necessary to put in place a very large interconnection infrastructure. What will be the Commission for Energy Regulation's role in ensuring that this happens and in making what is envisaged attractive in order that we might export and, if necessary, import energy?

Mr. Dermot Nolan

I think we might make a team effort in the context of answering the Deputy's questions. I will ask my colleague, Dr. Paul McGowan, to reply to the question on safety.

Dr. Paul McGowan

Our primary role in respect of petroleum safety relates, as the Deputy stated, to the direct consequences of major accident hazards. Our focus is on ensuring that accidents be prevented through the systems and processes which operators have in place. We must also ensure that operators have mitigation measures in place to deal with the outcome of accidents, should they occur. In the context of our vision, we focus on protecting human life. This includes protecting the health of humans, with a focus on the direct impact of accident hazards. There is a clear crossover between what we do and what other agencies do. After all, something which has an environmental impact could ultimately have an impact on humans. We very much see our role as co-operating with the Environmental Protection Agency and the Health and Safety Authority.

Many of the issues around petroleum extraction can relate to the environment. We would very much leave the function in this regard to the Environmental Protection Agency but we would co-operate and communicate with the agency on a regular basis. This allows us to focus on what would be the direct impact if a major accident hazard occurred and the effect such an event could have on humans, either those who comprise the workforce at or those who live in the vicinity of the particular facility involved.

The Deputy inquired as to when we expect to have the petroleum safety framework in place. Under our current programme, we are expecting to accept our first safety cases at the end of 2013. That would then be subject to a comprehensive process of assessment. We anticipate that this will take approximately six months before we will finally be in a position to award - if we are going to award - safety permits on foot of such applications.

Deputy Éamon Ó Cuív

What will be the position with regard to someone who wants to engage in exploration, drilling or extraction between now and the end of 2013? Will their efforts in this regard be delayed?

Dr. Paul McGowan

No. There are ongoing operations in gas extraction at Kinsale and drilling is also being undertaken in other Irish territories. These operations currently fall under the remit of the Department's petroleum affairs division. That will be the position until responsibility transfers to the commission.

Deputy Éamon Ó Cuív

I thank Dr. McGowan.

Mr. Dermot Nolan

I will attempt to deal with the curtailment issue. I stated earlier that a decision was taken in this regard and that it was a controversial one. A large fraction of those involved in the renewables industry indicated in writing that the decision was extremely bad. However, a significant fraction also wrote to indicate that it was a very good decision. It was ever thus. In light of the wealth of views on this specific point - it was one of many - the SEM committee is likely to consult again and will probably issue something next week which will facilitate people in putting forward any further data or views they may possess.

It is slightly tricky to indicate whose function it is to deliver on the targets because the SEM committee is a cross-jurisdictional body. The North has a roughly similar target in respect of renewable generation as that which obtains in the South. However, this may not be binding. Technically, that is also the position in the South but it is binding as part of a more general energy reduction target which includes transport and agriculture. This is a complex matter. The SEM committee has generally taken a view that it needs to facilitate these targets and to put forward policies that will ensure these targets are likely to be met but, given our statutory framework, it probably does not regard it as an absolute responsibility to meet these targets at any price.

In terms of the original decision made, which may well be discussed and is likely to be put up for grabs again next week, the key issue is that we thought it would be cheaper for consumers. Some windfarms win and other lose but, by and large, we thought that decision, the grand-fathering decision, as it were, was likely to be better for consumers later in the decade. One intuitive reason for this is that otherwise we could have the spectre, which would be difficult to defend, that during very high wind times and perhaps low demand, many wind generators would be switched off and yet still be paid. That is beginning to happen in certain other jurisdictions and it would cost the consumers and might be difficult to justify. Without going through all the mechanics of its specifics, I would point out that this informed the decision. Some of the lobbying we have had, which has not been necessarily negative, has been to the effect that they think we are wrong and that consumers will benefit if we reserve our decision. A good deal of evidence on both sides of that has come into us. Ultimately, we will have to take a decision based on what is in the interests of consumers. The SEM committee has very clear statutory objectives. Its primary one by far is the protection of consumer interests.

I could come back to the committee at a later stage if a decision is made to retain or change the previous position. In terms of what that would mean for the 40% targets, we thought at the time that the original decision was consistent with the 40% targets and that it would give enough surety to wind generators at an early stage in the process to enable them build and that enough new generators would build to make those targets. Some of those engaged in the wind industry have questioned that but we thought there was sufficient to meet those targets. In terms of meeting the targets, I would say, and I am not trying to pass the buck, that the single most important thing is to build the grid and build the wires. Unless we build the wires to bring on this renewable energy, we will not meet the targets.

Deputy Éamon Ó Cuív

What Mr. Nolan said was useful and it provided good clarification. I understand there is a complication in that while there are national targets for the Twenty-six Counties of the Republic, there is not a national target for the North, as it is part of the total British target and, of that, the North would have a target of 1% or 2%.

Mr. Dermot Nolan

There is a separate Northern target but it is more aspirational.

Deputy Éamon Ó Cuív

It is not legally an EU target.

Mr. Dermot Nolan

No, it is not.

Deputy Éamon Ó Cuív

It is a subset that is decided, as if we decided the west would have a target, but that target does not have any obligation at EU level because it is part of the total British target, and I understand the North has a very small percentage of that. Therefore, reaching the target in terms of the northern element of the Single Market is not in the same context as reaching it down here where we have a target nationally and an obligation at EU level.

Mr. Nolan said it would be cheaper for the consumer if we were to do it this way, but that is based on certain presumptions regarding the cost of oil and gas in the future. If there were a spike in the price of oil or gas, we would need the contribution of every generator of wind energy as that renewable would be cheaper. Therefore, there is a certain dampening effect the more wind that is brought into the grid.

Mr. Nolan explained that the 40% target is not ultimately his primary objective but, standing back from industry interests, I believe the more energy we can produce on the island of Ireland, the more energy security we will have in the future. That is something I should probably take up with the Minister rather than with the Commission but it should have an influence on the decision.

I am told the generators with non-firm connections will not be bankable on the basis of the decision that was made and that those projects will not go ahead, whether that is a good thing or a bad thing. That will come down to the individual generator concerned, and whether that will mean a significant level of wind energy generation will not proceed, I do not know; I am told it will not.

I agree with Mr. Nolan regarding the building of the wires. That has been the subject of another debate here but we have to come up with a system whereby we build the infrastructure.

Mr. Dermot Nolan

I will make a further comment on this element and then respond to one of the Deputy's other questions. There may be asymmetry in policy objectives between the North and the South, but I want to clearly state that this decision was not made at the behest of the North; rather, it was a group decision. When we made it our thinking was that we would try to make decisions collectively. I would not want it to be perceived in any sense that the North is getting ahead of itself; that is not the case.

Deputy Éamon Ó Cuív

No.

Mr. Dermot Nolan

I know the Deputy was not suggesting that. As I said, we will reconsider it.

Deputy Éamon Ó Cuív

My only point about this is that it is more complicated when one brings in the South. A Minister cannot give a direction on the North-South arrangement, while he or she could give a direction on an overriding policy issue on a purely South arrangement. That is the point I am making.

Mr. Dermot Nolan

That is correct. I do not know what to say in response to that but that is correct.

One of the reasons I would be very pro-renewables is that they provide, in some sense, a hedge against foreign oil prices and that is a great advantage. When we said we thought it would be cheaper to do it the way we originally proposed, we thought it would be cheaper regardless of the price of fuels. That was our view. If the industry comes back and proves otherwise, fair enough, but that was our initial view.

In terms of the non-firm connections being bankable, the concept of firm versus non-firm, without going into too much detail, can seem tricky to some people. Earlier in this process we suggested to the industry that we could abandon the distinction between firm and non-firm but that was met with absolute horror by the industry. Those in the industry said we had to give them firm connections and protect them, otherwise nothing would be bankable. We are trying to protect those with firm connections and give them the comfort they need to make reasonable investments. Given the queue, if we were to make firm the connection from every wind generator who might want to connect and ensure payment regardless of what happens, irrespective of whether the grid is ready or there is the demand for it, the consumer would end up paying a huge amount. That is not prejudicing any decision we will make. Given the objectives, and I note the policy dilemma to which the Deputy referred, we will almost certainly come up with a new consultation and we will try to make a decision based on our objectives.

I will deal with one further question and then I will ask Mr. Garrett Blaney to respond to another one. The question of the export of wind energy has been discussed. There is an interconnector between the North and Britain. The new interconnector is coming onstream and it will permit much more flow and by and large that will be a good thing. A slightly worrying thought, although it is more of an issue for 2015, is that British prices are rising quite substantially basically because Britain did not invest in the last decade. That is a slight concern but nonetheless more interconnection is good and will permit more export of wind energy. Talks are taking place at a policy level between Britain and Ireland about the export of wind, and this relates to the Deputy's comment regarding the level of involvement of the CER. Without going into too much detail, which is easy because I am not necessarily privy to the talks, the essence of them appears to be that a number of wind renewable farm generators are considering building major projects, some offshore and some onshore, and then building a direct link, or perhaps even two links, to Britain. They would generate electricity and it would go across to Britain and Britain would pay for them. The reason Britain might do this is because its renewable sector is potentially very expensive. It has gone for offshore development, which is very expensive and there is a good deal of a kickback response in Britain about this. I had an off-the-record conversation - which is not off the record now - with one of my compatriots in the British regulator a few days ago about this and talks are developing. It probably would be a very good idea. There would be investment opportunities to build new wind farms in Ireland and wind energy could be sold to Britain. British subsidies are very high and therefore this would make sense for Irish generators. Given that British subsidies are high but are still lower than offshore British subsidies, it would make sense for the British consumer. Whether ultimately the British political class could accept the idea of subsidising Irish generators to generate for them, I do not know, but that is a matter for Britain. That would be the state of the play and, within that, regulation would not have much to do with it. We would not regulate them. The British regulator will regulate it when it comes on to Britain but by and large it would not be part of the market at all.

Deputy Éamon Ó Cuív

Would there be a question of connecting a wind farm in the midlands, for example, to the grid so that at a time of low wind when we would need to import electricity, it would also feed into the market and one could buy electricity the other way?

Mr. Dermot Nolan

That would be a problem. I do not have a good answer for that because the current structure of the electricity market is that one either sells it into the market or one does not. Either one would sell everything one has into the market or one would not. It would not be possible to say, "I sell to Britain nearly all the time, except when I decide not to."

Deputy Éamon Ó Cuív

No, I am sorry, Mr. Nolan is missing my point. If one had a large wind farm in the midlands and on a day such as today with little wind and with nothing going from west to east, if that was interconnected to the rest of the grid one could potentially buy electricity from east to west, from Britain, if one needed it, for example on a still frosty night.

Mr. Dermot Nolan

Deputy Ó Cuív is talking about importing a supply from Britain. I do not know. I cannot give him an answer. I will think about it. It is possible but I would say non-trivial regulatory issues arise, which does not mean they cannot be solved.

Vice Chairman

Two other Deputies are waiting to ask questions so we will conclude on this point.

Mr. Dermot Nolan

I will pass those questions to my colleague.

Mr. Garrett Blaney

The question was on smart meters. We spent a lot of time on them looking at the technical specification. The principle is well established. At a European level there has been much work to try to ensure that smart meters provide maximum benefit from a consumer point of view. The question related to microgeneration. In the Irish context we have looked at microgeneration as a key part of that specification. Technically, meters will be able to facilitate microgeneration. They will be an enabler in that sense.

A broader question goes back to the debate about the delivery of renewable targets. The support for all renewables is set by the Department as a policy matter rather than being set by the regulator. The actual amount that is paid to renewable generators is a matter for the Minister and his Department. It is not for us to decide. That is clearly set out in legislation. From our perspective the smart meter is enabled and will facilitate the roll-out of microgeneration to the extent that there is an appetite for it.

Deputy Noel Harrington

Much of what I wished to inquire about was addressed by Deputy Ó Cuív. Could the witnesses give an idea of the size and scale of the Commission for Energy Regulation, its staff and their level of expertise?

One of the discussions we had in the committee some time ago related to downstream regulation versus upstream regulation. That has been addressed to some extent but could Mr. Nolan provide a brief background to the CER's position on that because it came up in the committee and we would like to bring closure to the discussion?

Another contentious issue we have discussed, which we will be dealing with, is shale gas extraction - fracking. Does the commission have any views on it? I presume it engaged in discussions on the safety elements involved, not just on the technology but on the broader issue of fracking. I do not wish anyone to go into great detail but I am interested in hearing what the commission will do in that regard. On smart metering, microgeneration and the feed-in tariff, reference was made to the fact that it is an issue for the Government but does the CER have a role in recommendations on the feed-in tariff, particularly for microgeneration?

One of the concerns we have had on the wholesale issue relates to the incentives for operators through subsidies. Is it envisaged, for example, that as part of the future interconnector system, market changes and the control on renewables will change? Currently, the CER has the power to shut down the wind sector if the Irish demand is down. Would the CER lose a certain amount of control if the system transfers to a joint UK-Ireland one? Would the CER foresee a situation where, for example, we could subsidise electricity generated by wind energy going to the UK at an off-peak low price and there would be a difference between what the consumer is getting and what the taxpayer is paying? It might be unusual but my question is whether it has been considered.

Does the CER have a view on who is its master? Policy is an issue for the CER and reference has been made to working in the best interests of consumers. The taxpayer has not been mentioned. Subtle differences arise. The question is how one manages that in terms of subsidies, which are provided by taxpayers, to the benefit of consumers. There is a difference and I wish to hear how that is factored into decisions made by the CER.

We received good news from the Barryroe field on the possibility of commercial finds. Is there a role for the CER in making a decision on refining in this country as a result of that? I refer specifically to Whitegate, which is a huge site that provides a lot of energy for this country in its various component parts and adjoining sites.

Controversial decisions have been reached on the North-South interconnector. Reference was made to the CER being obliged to take the interests of the consumer into account. We have had a long discussion on the technologies involved. The short game might not be of monetary value to the taxpayer but ultimately it might be of value. Does the CER have a role in that regard? In making its decisions, does the CER consider whether one could avoid much of the public outcry, associated delays and costs? That gives an idea of what I am talking about.

Deputy Michael Colreavy

I thank the witnesses for their presentation. I am my party's spokesperson on agriculture, food and fisheries. I represent Sligo-North Leitrim and I live in a wee place called Manorhamilton. Those facts are probably of no interest to the witnesses but they are relevant to what I will say.

I am worried by the presentation. It is clear that a decision was made that the Commission for Energy Regulation was required because the previous organisational structure was not working or was not deemed to be working. The CER describes itself as this country's independent regulator, but if I understood the presentation correctly it is saying that internal readiness is required by the second quarter of 2014 and implementation by the fourth quarter of 2014. Without overusing analogies, it is a little like saying we are up in the sky and we have a pilot but we do not trust the pilot and we are going to land. I find that worrying because there is a lot going on in the energy market currently.

The CER has also indicated that it will perhaps take on the role of water regulator and that all of that is dependent on additional resources being made available to it. That is a worrying scenario. I am concerned that no reference has been made of hydraulic fracturing incidents in the USA and elsewhere. It is difficult to extract from the presentation whether the CER has responsibility for or any input into the handling of public concerns. Where in the structure would public concerns come in and how are those concerns addressed? The scenario we have is that a single Minister will make decisions to grant or not grant licences and sometimes those decisions have the potential to cause damage in terms of water, food supplies, agriculture, tourism and exports. They also have the potential to change forever the environment in which people live.

That brings me to the Manorhamilton-north Leitrim aspect. A decision could be made which would change forever the countryside of north Leitrim and impact on the lives and the way of living of people who live in that area. Nothing in the presentation tells me that public concerns such as that will be taken on board before a decision is made.

Has the CER looked at the position in other jurisdictions? Has it any knowledge of or recommendations on greater democratic input into the part of a decision to grant or refuse a petroleum production licence? What is the significance of the red and green dots on the map on the last page of the presentation?

I would argue the fines of up to €3 million are set far too low and would not act as a real deterrent in the context of a company in gas or petroleum production. Mr. Nolan stated that one of CER's objectives is to engender public confidence that the regulatory framework works to protect people. There is a perception among people living in areas where hydraulic fracturing took place in the United States that the United States Environmental Protection Agency and the government statutory agencies appeared to be more concerned with protecting the companies than the public, particularly the members of the public living in those areas. How does Mr. Nolan propose to engender that public confidence?

Senator Paschal Mooney

I am sorry for my absence but a number of votes were called in the Seanad. The issue of hydraulic fracturing was raised both by Deputy Ó Cuív and also extensively by Deputy Colreavy, who is from the same county as myself. I will not go over old ground, therefore, but Mr. Nolan might answer in the broader sense about the remit of the CER. I note his fact sheet refers to protecting the public from the safety risks that arise from the downstream activities of various undertakings involving LNG. I presume its remit would extend far beyond natural gas and that as each new technology comes on board the CER will be involved. Mr. Nolan might indicate the extent of that involvement. In terms of its mandate, what consultation does the CER have with other agencies, specifically with the Environmental Protection Agency?

To reinforce what Deputy Colreavy said, it would be our view, although I am not sure Mr. Nolan would share it, that because hydraulic fracturing is a relatively new concept to western Europe and to Ireland it is important that the regulator's office would inform itself of the experiences in other jurisdictions in terms of its safety remit. Would Mr. Nolan not agree that would be important? Those who are opposed to it would suggest that there are serious questions about shale gas extraction which have not been addressed.

I share Deputy Colreavy's view, which is widespread in our area, that there is a deep cynicism about this issue, although I do not know whether that is born of a general cynicism towards the political establishment or State and regulatory agencies; that would require some other analysis. It is important that Mr. Nolan is aware of that cynicism and that everything the CER does from now on will be monitored very closely because as Deputy Colreavy rightly said, the perception of those on the anti-fracking side is that irrespective of what safety measures are put in place or the reports that are produced, even if they were to indicate that hydraulic fracturing was the safest possible technological advance known to man, there is a deep-seated refusal to accept it based on a widespread cynicism that the State agencies are somehow questionable. I suggest to Mr. Nolan, therefore, that he has a more enhanced role to ensure that his organisation is seen for what it is, namely, independent, impartial and objective, and that it has the interests of the public at heart and not those of anybody else. I do not want that to sound like a lecture; I am trying to reflect a view.

Senator Michael Comiskey

I am from north Leitrim also and I share the views of Deputy Colreavy and Senator Mooney. We would like to get an explanation on this issue. There is a great deal of concern in the entire north Leitrim area. We have raised the issue with the Minister, Deputy Pat Rabbitte, and the Minister of State, Deputy Fergus O'Dowd, but we would like to hear what Mr. Nolan has to say on it.

Mr. Dermot Nolan

I will deal with Deputy Harrington's questions first and then pass over to my colleague. The initial question was about the size and scale of the CER. If I say anything that is factually incorrect I will revert to the members but our current number of full-time equivalents, as they are called, is 66. That figure has fallen slightly in the past period of time as people left and did not return due to the freeze on hiring.

In terms of dealing with that, we have made applications to replace some people. I do not know if they will be granted; it is a matter for the Government. We made specific applications about further resources for petroleum safety.

Deputy Noel Harrington

Mr. Nolan might give an outline of the size of the organisation. He need not go into the details.

Mr. Dermot Nolan

If the areas of petroleum safety and water come to us I would imagine that in five years time we will be in the 90s. That is just a guess. I do not know.

On some of the market changes and the wind issues going to and fro, typically, Britain has been slightly cheaper than Ireland in terms of generating electricity. Most of the time we are taking electricity from Britain, which is good for us. Its electricity is becoming more expensive, partially because some of its nuclear plants have closed. It is also very vulnerable to fossil fuel prices and it is trying to bring on renewables. Currently, the flow generally is from Britain to Ireland. It is possible in the next few years that as its prices rise we will begin to sell more to it. There are pros and cons to that. It is good for the person selling it but it is theoretically possible that we would be sending our slightly cheaper electricity to it. In some sense that is the nature of trade. It is difficult to guess but I would say, on average, that for the next five or ten years it remains likely that we will be taking more electricity from Britain than it from us.

In terms of the subsidies that are granted and taxpayer issues, an aspect to clarify is that, technically, the CER does not affect taxpayers. I am not saying that is actually the case because we are funded through an industry levy but the subsidy levels that are set by the Minister are not paid through taxes. They are paid through the public service obligation levy, which goes onto everybody's bill.

I will comment on Senator Mooney's contribution and then pass over to my colleague. The Senator is correct. There is a genuine concern, perhaps because of the financial crisis, although I do not know, as to whether regulatory bodies or any State body can be trusted. It is incumbent on the body in question, therefore, to try to prove itself trustworthy. I would like to think that is what we are trying to do. We may not succeed but for what it is worth, the committee has my word that we will try to do that. The best way to do it is to try to be as transparent and open as possible and to try to make our decisions, whatever they may be, as clear as possible. That may not do the trick. People may still be unhappy with us, and perhaps they are right to be unhappy with us. I will pass over to Mr. Blaney who will give more detailed responses but all I can say is that we will do the best we can on fracking issues, whatever it may take. That may not satisfy everyone but I assure the members that we are trying to make safety decisions in the best interests of consumers, not the companies involved. After the financial regulation issue, the idea of what has typically been known as "regulatory capture" arises. The larger companies, with big, expensive legal teams, state what they believe must be done. I am not pretending that does not happen. Almost every day, some relatively big company comes in and argues for its own interest. That occurs and cannot be stopped. All I can say is that we are trying to protect consumers as best we can. I realise that is easier said than done.

I will hand over to Mr. Blaney.

Mr. Garrett Blaney

I will cover a couple of the questions. Deputy Harrington mentioned our role vis-à-vis refining. It is set out statutorily and we are a creature of the statute. Politicians make the rules and laws and we follow them. As it stands statutorily, we do not have a responsibility for refining. It is not covered under the safety legislation, either downstream or upstream. Similarly, we have no role in terms of our economic regulation. Refining is excluded. Electricity and gas are very clearly defined in the Act and refining is not mentioned. It is outside our statutory remit.

Deputy Colreavy referred to our role regarding fracking. We are very aware of the concerns raised in the United States. We have watched the film "Gasland" and noted the obvious concerns that would arise for anyone watching it. We have had some very preliminary discussions with other regulators across Europe. This is not a concern unique to Ireland. Many other member states have concerns over fracking. Great Britain has a number of concerns. These have been raised and the regulator is considering them very closely. Fracking has been an issue in the Netherlands and also in Germany. We have talked to their regulators informally. We are in the early stages of the development of the petroleum safety framework and determining its detail and how it will be implemented. We need to be careful we do not prejudge any safety outcomes. We need to consider them.

The Deputy referred to various factors concerning north Leitrim which affect a number of regulatory agencies rather than just our own, which involves a very clearly defined remit vis-à-vis safety, including public safety generally, and the impact generally on tourism and the environment in the broader sense.

We work closely with the other State agencies. We have constant engagement with the EPA. As a result we will have a suite of written agreements that set out which agency does what. The HSA has a role regarding chemicals and the Seveso rules. There is a body of directives at European level that are covered not only by ourselves but also by other State agencies. We have a close working relationship with them. I hope there is an element of joined-up government or regulation in terms of how these matters are dealt with.

The Deputy asked a simple question on red, green and blue gates. There has been a gate process-----

Senator Paschal Mooney

I apologise as I must attend a vote in the Seanad again. I will read the transcript.

Mr. Garrett Blaney

The colours relate to the three gates, gates 1, 2 and 3. Gates 1 and 2 have been implemented and offers have been made regarding gate 3 and are under consideration by the various generators. They are awaiting information from EirGrid on the constraints that relate to those connections. They will not be in a position to sign them until they get the constraint reports. Curtailment is an important matter for them in this regard. We probably should have explained that earlier.

I will explain the North-South interconnector and the issue of cost. As it stands, we have a price control, not just for the gas system but also for the electricity system. The most recent price control we signed off on for EirGrid – it does the planning and the actual construction is done by ESB Networks – was signed on the basis of an overhead arrangement. The independent commission that reviewed the options for the North-South arrangement advised that there was an option to use high-voltage DC, the cost of which would be a multiple of the cost of the AC option, which it ruled out and claimed would not work.

We signed off on the basis of there being overhead cabling. If the cost were to be a multiple of that for the other option, it would be of concern for us in terms of the protection of the consumer. It seems fairly clear from the information available that the performance, in terms of the HVDC option's benefit to the system, would probably be less than that obtainable under the AC option. While there would be a higher cost, there would be reduced performance and benefits for the consumer. We would find it difficult to sign off on an option involving a higher cost and providing less service to the consumer. Ultimately, we will have to make a judgment based on the decisions made by the planning authorities.

The cost of not building the North-South interconnector is very large for the consumer. The consumer is paying €30 million per annum at present. That figure will increase to as much as €130 million by 2017 and beyond as a result of a growing problem associated with constraints on the networks or growing congestion on the networks. The North-South area is the most congested part of the network and has the greatest effect on the congestion costs in the system. We are keen, from a regulatory perspective and with a view to keeping costs down for consumers, to have the issues resolved at the earliest possible juncture. We will keep this in mind as part of a final sign-off. It is worth noting that there is a real cost to consumers if there is a delay. There will also be a cost if undergrounding is considered. That will be a multiple of the cost of the overhead option.

Deputy Éamon Ó Cuív

What happens in circumstances where An Bord Pleanála says, under the critical infrastructure legislation, that the line should be put underground? There is already a precedent in that it said to put the gas pipe underground in north Mayo. Perhaps it was a good idea; I am not judging the decision. It was not expected, however, and it was a much more expensive answer. What will be the position on the consumer's interest if An Bord Pleanála changes the decision? How does this work between the two organisations?

Mr. Dermot Nolan

If An Bord Pleanála made such a decision, EirGrid would probably say to the regulator that the cost would be much greater, after which the regulator would have to make a decision on whether it was cost effective to proceed underground, as opposed to not building at all. That would not be a very pleasant position to be in but perhaps we will be in it and will have to make a decision then. I would have believed, without prejudging, that the cost of not building the interconnector is just too high. We probably would sign off on undergrounding but I am not making a commitment. If there were undergrounding at the point in question, there could be pressure, perhaps perfectly reasonable pressure, from society to underground at all points.

Vice Chairman

I thank Mr. Nolan, Dr. McGowan and Mr. Blaney for their very good presentation. Many issues were teased out on foot of questions. We are all much the wiser as to the role of the commission. There are many concerns related to both fracking and the bringing of gas and oil to shore successfully. It is important that there be clear and transparent regulation. It is good we are meeting on a day on which there is good news as a result of oil having been discovered off the Cork coast. I am sure the commission will have a role in ensuring it is brought ashore safely.

The joint committee adjourned at 1.30 p.m. until 2.30 p.m. on Tuesday, 20 March 2012.