I thank you for this opportunity to debate this Bill. Second Stage in the Lower House took a long time, then we had Committee Stage and then Report Stage. We are here today to take Second Stage. I apologise for being late because I had to vote in the other House. If a Dáil Member is not in the House making a contribution they have to vote in the other House. That is why I was delayed.
This Bill is the first vital step in the process of liberalisation of the electricity sector which will take effect from February 2000. The previous Government will be aware of this because it was during its tenure that it successfully concluded the ministerial negotiations and the COREPER negotiations on the Electricity Directive. It is as part of that directive that we are now introducing the regulator. He has been appointed but he is putative because he cannot be in situ until legislation allows it. When this Bill is enacted he will be able to do his job from then onwards and through the next Electricity Directive which will be dealt with in the autumn as soon as we resume. Everything is on line for mid-February 2000.
This Bill is being put forward to establish an independent Regulatory Commission to oversee the competition in the electricity sector and to open up 28 per cent of the electricity market to competition; the arrangement worked out in 1996 was 28 per cent and after a few years it would grow to 32 or 33 per cent. After five years the EU would review it again to see how competition and the onset of it had worked in Ireland and it would decide what measures to take in that event.
As the electricity industry forms such a vital component of the competitiveness and strength of the Irish economy, this Bill, which will set out a significant part of the regulatory regime for the industry for the foreseeable future, will undoubtedly be the most important piece of legislation in this area since the original Electricity (Supply) Act, 1927. That Act established the ESB. The introduction of competition to 28 per cent of the market, with more to follow, allied with a stable regulatory regime, will have a major bearing on our future prosperity and development.
Before moving on to the lively debate in the other House, and I am sure a lively debate will take place in the Seanad, and the detail of the Bill itself, I would like to describe the background of the Electricity Directive and how the Bill came about.
The EU Directive 96/92/EC concerning the internal market in electricity came into force on 19 February 1997. Throughout 1996 detailed negotiations took place at top official and ministerial levels in Europe on the directive. On 19 February 1997 the directive came into force. We then had three years to get a regulator in place and establish an environment for the introduction of competition. Ireland has to fully implement the directive by 19 February 2000. The directive requires that 28 per cent of the Irish market be opened to competition, increasing to about 33 per cent by 2003. Fundamentally that is what this Bill is going to do.
It is interesting to look at other European countries to see what they have done. Many of them are ahead of us. We got an extra derogation of a year because we had a monopoly with regard to electricity supply. There had been internal robust competition from Bord Gáis. There was only fledgling competition from other methods of generating electricity, such as wind, wave and solar, etc. We got an extra year to allow a monopoly turn into a competitive area.
As I did on Second Stage in the Lower House, I would like to pay tribute to the Electricity Supply Board for its many long years of work, stamina and commitment to providing electricity here. Many people scoffed at the ESB in the 1920s but not many of them scoffed in the 1930s when the people began to get power and industry began to flourish. None of that progress would have happened without the ESB. It is a great credit to Dr. McLoughlin, chief engineer and innovator of the project. The Government of the day was called Cumann na nGael. It is interesting to read records of it. There was the usual scepticism from the Department of Finance who thought that it would not work. It did work and it flourished. From the mid-1940s onwards rural electrification was a big adventure. Power and light were brought to people who never thought they would have it. That unfolding saga is well documented in a book entitled The Hidden Revolution which described the emergence of the hidden Ireland into light and power.
The Attorney General has advised that while full implementation of the directive is required by February 2000, it is essential that a key part of the directive, establishing a regulator, be implemented as a matter of immediate urgency and that failure to do so risks a capacity shortage later on. The urgency arises from the fact that due to unprecedented demand for power, because of the extraordinary growth in the economy, new generation capacity to meet this demand is required by winter 2001. This means that authorisations to build new generating stations must be granted by the regulator to be established under this Bill by this autumn at the latest. Neither the ESB nor future competitors can get authorisations until the regulator is in place.
I hope I can count on the goodwill of Seanad Éireann to finalise the Bill in the coming days. As Members know, the Oireachtas Select Committee on Public Enterprise and Transport spent long hours deliberating this Bill over the past two weeks. I came to the Seanad as soon as physically possible. There has been a lot of toing and froing and preparatory work before the Bill got to this point.
The previous Minister, Deputy Dukes, published proposals in May 1997. When I came into office a discussion forum was held in January 1998. A further consultation document was published in May 1998 on which almost 60 sets of comments were received which were taken into account in the preparation of this Bill. The comments received were broadly supportive of the early establishment of an independent regulator.
This Bill is the first of two phases in implementing the electricity directive. The second phase will consist of another Bill later this year to implement the balance of the directive and the establishment of the ESB as a public limited company under the Companies Acts. The Bill will enable the Minister to establish a Commission for Electricity Regulation. It is intended that this will consist of one member initially, but the Bill will enable the commission to be expanded to three members in due course and to include the gas industry. Proposals for such a development are being prepared.
A competition for the post of commissioner was held by the Civil Service and Local Appointments Commission late last year. The successful candidate was Mr. Tom Reeves, Assistant Secretary in my Department. As soon as this Bill is enacted, Mr. Reeves can be formally appointed as the regulator and start his important work in authorising the construction of new and urgently needed generating capacity.
The commission will have a number of primary and secondary duties which will include promoting competition, securing that all reasonable demands for electricity are satisfied, promoting safety, efficiency and economy by electricity undertakings and taking account of the protection of the environment.
The new commission will be funded by the industry on a similar basis as the Office of the Director of Telecommunications Regulation. The Minister will retain the policy remit for the electricity sector generally, including deciding the degree of market opening, an issue addressed in this Bill, as well as making public service obligation and transitional regime orders.
The most striking feature of the debate in the Dáil was the high level of interest in the Bill on all Stages. The interest in the Chamber was mirrored by a similar interest outside. Committee Stage debates were attended by a large number of interested parties and lobbyists, which was very welcome. Despite what some say it is important that people express their opinions. The important issue is how one judges the veracity and authenticity of advice given. We came across an interesting example of this on Committee Stage which, luckily, was apprehended in time.
The point was made on Committee Stage that while lobbying and lobbyists are an important and necessary part of the democratic process, there may be a need to regulate that activity in the interests of accuracy of information. Deputy Stagg indicated that the Labour Party has proposals for such a Bill which will merit careful consideration by the Government. I cannot say how that Bill will be interpreted but we must have some way of knowing what lobbyists are about and who they represent. However, if one has common sense one can judge what is correct.
On the Second Stage debate, more than 30 Deputies spoke on the Bill and I was very interested to hear what they had to say. One topic which arose frequently was the high level of support and appreciation in the House for the ESB for all the hard work through the years, and especially the very hard work of the repair crews during the Christmas storms in the past few years. I join those Deputies who rightly praised the ESB staff and repair crews.
Another issue which attracted a lot of debate in the Dáil was that of the accountability of the commission. I am pleased to repeat that the Bill provides that the Commission for Electricity Regulation will be accountable to the Minister, a Joint Committee of the Oireachtas, and the Comptroller and Auditor General, as appropriate, regarding its costs and the various functions it carries out. This is necessary in terms of properly embracing the system of regulation. It is difficult to be a shareholder and a regulator, particularly as we face into an era of competition.
Ms Etain Doyle is an admirable regulator of the telecommunications industry who took office the same day as I took office. She was appointed as the independent regulator in June and the following September or October the Oireachtas Committee on Public Enterprise and Transport invited her to appear before it so it could question her about her activities. She considered the Act in consultation with her legal advisers and wrote to the committee stating that she did not have to appear as there was no such provision in the Act. Ms Doyle was correct in strictly legal terms but she quickly and confidently revisited her decision and appeared before the committee, as she has done on several occasions since. However, the point is that she did not have to do so. This Bill stipulates that the electricity regulator will be accountable to the bodies I mentioned. In the autumn I will introduce a Bill dealing with the accountability of the telecommunications regulator, not that there is any suggestion that she is not accountable. Ms Doyle went beyond the Act in appearing before the committee but the new Bill will stipulate such a provision and deal with jurisdictional matters as between the regulator and the Competition Authority.
Over 200 amendments were tabled on Committee Stage and I was pleased to see such a high level of interest. The debate was detailed and informative and many Opposition amendments were accepted which improved the Bill. On Report Stage I said that this Bill belongs to the entire House as all parties joined in the learning experience of reformulating many of the sections and the educative journey on which we all travelled.
One of the more notable amendments agreed on Committee Stage was the insertion of a prohibition on nuclear fission being used as an energy source. This is the first time that a Government's clear position on nuclear energy has been enshrined in legislation.
I will now refer to the main provisions of the Bill. Sections 1 to 3 contain standard provisions in legislation such as the Short Title, interpretations and the laying of orders before the Houses of the Oireachtas. Section 4 provides for the mechanism by which notices to be served or given under this Bill shall be addressed to the person concerned. Sections 5 and 6 provide for the prosecution of offences.
Sections 8 to 10 provide for the establishment of the Commission for Electricity Regulation and the assignment to the commission of its functions, powers and duties. Detailed provisions relating to the commission are contained in the First Schedule to the Bill. Section 10 gives the Minister the power to give directions to the commission until the scheduled implementation date of the EU directive on 19 February 2000.
Sections 11 and 12 provide for the appointment by the commission of authorised officers to assist it in the exercise of its functions, and for the obtaining of search warrants. Section 13 provides for a prohibition on unauthorised disclosure of information obtained by any person while performing his or her duties for the commission. While this section provides protection for sensitive information, an amendment which I tabled and which was agreed on Committee Stage ensures that this section cannot be used to frustrate the operation of the Freedom of Information Act, which applies to the commission.
Section 14 provides for the commission to grant licences to electricity undertakings, which can include the ESB, to generate or supply electricity to eligible customers. In addition, any generator using renewable, sustainable or alternative sources of energy can supply any customer, no matter how big or small. This section effectively introduces competition to 28 per cent of the electricity market. Any applications for such permits which are still with the ESB shall be deemed to be an application to the commission. Section 16 provides for the granting of plant authorisations by the commission. An undertaking would not be permitted to build a generating station without such authorisation. Section 17 makes provision for applications for authorisations.
Section 18 gives the Minister the power to specify the criteria for the granting of authorisations. These criteria may relate to the safety and security of the electricity system, protection of the environment, public service obligations, energy efficiency and other matters. Sections 19 and 20 allow the commission to modify any licences or plant authorisations it has granted. Where such modifications are not agreed but are still considered necessary by the commission, the modifications may be imposed, subject to minimum notice and certain conditions. The commission may decide to hold a public hearing before reaching its decision. There is also recourse to an appeals procedure for the parties concerned which is set out in sections 29 to 32. It is proper there be an appeals mechanism because no matter with what official mechanism a person engages, such as paying water rates, he or she is entitled to an appeal. It is a citizen's right, and I am glad we have included an appeals procedure.
Sections 21 and 22 set out the way in which the commission may hold public hearings where it considers that representations or objections to proposed modifications to licences or authorisations raise matters of sufficient public interest. These sections also define the terms under which reports of such hearings will be prepared and how the concerned companies or individuals will be informed of the outcome of the hearing. Sections 23 to 26 give the commission powers to enforce by direction the conditions of licences or authorisations it has granted and to take immediate action, if necessary, to protect public health, safety or the environment. The commission may apply to the High Court for an order to ensure compliance with any direction it has issued, if necessary.
Sections 27 and 28 define those customers who will be eligible to choose their supplier of electricity from 19 February 2000. Those customers are defined by the level of their electricity usage. This level is set to introduce competition to 28 per cent of the market initially, and this will increase to 33 per cent by 2003. In line with the Government decision of April 1996, all electricity customers will be entitled to purchase electricity which is produced using a renewable or alternative form of energy as its primary source. The policy decision to change the level of market opening above and beyond that required by the EU directive will remain with the Minister. However, as a result of an amendment I tabled on Report Stage in the other House, originally an Opposition amendment which I had worded in the legal jargon of the Bill, if the market were to be opened further, it would require a resolution of both Houses of the Oireachtas to do so.
Sections 29 to 32 provide for the appeals mechanism in cases where applications for licences or authorisations are refused by the commission or where modifications to them are not agreed in the discourse between the commission and an applicant. Appeal panels may be established to hear and determine appeals regarding applications and modifications to licences or authorisations and they will have the powers, rights and privileges vested in the High Court or a High Court judge. The Minister will, by order, determine the membership of appeal panels.
Section 33 provides that the ESB shall prepare a grid code and a distribution code for the operation of the electricity transmission and distribution systems for the approval of the commission. These codes will set out the technical aspects relating to connection to and operation of the transmission and distribution systems for use by licence or authorisation holders. This sounds very complicated and complex. When I began my study of the Bill in preparation for the debate, I thought it was horrendous in its complexity and that I would never master it. I thought that until Committee Stage when Deputy Stagg mentioned that he was dealing with the Bill in chunks by studying the night before the amendments for the next day and examining them again the next morning. That is how Committee Stage developed into a fraternity of interests. We all believed we were learning. The Bill would be difficult to absorb, understand and work through as a whole. I was glad also of the assistance of my officials in working through it.
Section 34 provides that the ESB shall offer to enter into agreement with any licence or authorisation holder or eligible customer regarding connection to and use of the transmission or distribution systems. The commission may give directions to ESB as to the matters to be covered by the contents of such agreements. Section 35 provides that the ESB shall prepare a statement setting out the basis for the level of system charges for connection to and use of the transmission or distribution systems. That statement will be available so that prospective market entrants may estimate and plan for the charges to which they would be liable. Section 36 provides for the approval by the Commission for Electricity Regulation of the statement of charges prepared under section 35.
Section 37 provides that the Commission for Electricity Regulation may grant permission for the construction of direct lines for the transmission or distribution of electricity from licence or authorisation holders to eligible customers, where access is refused on the basis of a lack of capacity in the existing transmission or distribution system. Section 38 provides that the ESB will prepare a statement for the approval of the commission, setting out estimates of future generation and transmission requirements. This statement will be revised annually and will be available to licence and authorisation holders. It will also include a statement on the demand for electricity generated from renewable, sustainable and alternative sources generally.
Public service obligations and transitional arrangements will be very important. PSOs will ensure the cost of ensuring the supply of electricity to remote and peripheral areas will be shared equally. That is fair, equitable and democratic. Section 39 provides that the Minister, following consultation with the Minister for the Environment and Local Government, shall make an order directing the commission to impose public service obligations on the board or other licence or authorisation holders in the general economic interest. These obligations may relate to security of supply, regularity, quality and price of supplies, environmental protection, and use of indigenous energy sources. The cost of these obligations would be recovered from all electricity users.
Section 40 provides that the Minister shall by order, subject to the approval of the European Commission, provide for the recovery from consumers of electricity of specified costs or revenue relating to generating stations constructed or under construction before 19 February 1997 which the ESB may be unable to recover as a result of the implementation of the EU directive. That is very important. We all welcome competition and there is a general acceptance that it is good. There is no way out of it because it has been laid down in law by EU directive. Since the introduction of that directive, there has been a general welcome for competition in the belief it is good for consumers and firms. If firms are keen and competing in the marketplace with confidence in their wares, they will do good business. In a country where strong economic growth is forecast for the next few years, albeit at a lower level than heretofore, competition is necessary and important.
However, a monopoly did exist before this and that cannot be ignored. It possessed a number of stations throughout the country, some of them still full of life and vigour and fit to operate for years to come. There was a review of generating stations in 1995 which laid out the life of each of the stations throughout the country. There is a need for a transitional regime where there would be pricing differentials between the older stations, which served us well in their day, as did the people who worked in them, and the entrants into the new regime.
I will not make orders under either of these sections until the EU directive is fully implemented. The enabling powers set out in these sections will ensure, for now, that anyone who is issued a licence by the commission will be aware that a public service obligation regime and a transitional levy will be a part of the implementation of the electricity directive as a whole. There is a mechanism under which the Government had a right to avail of a transitional regime and last October we did so by writing a preliminary notification to the EU. It stated that we would make a more detailed submission – I am due to do so in the coming months – which would set out the reason we need a transitional regime in Ireland, namely, that there are a large number of stations throughout the country which supply many people's energy needs. This matter will be dealt with in an orderly fashion under the transitional regime.
I will use the public service obligation to ensure the continued use of peat-fired power stations, subject to certain conditions, and the promotion of renewable and alternative energy. It is also my intention that there will be a transitional regime, probably for a period of five years, which will ensure that certain ESB stations, which are effectively State investments, do not become "stranded", that would be the wrong course of action to take, or unable to operate because of the introduction of competition.
The detailed work to provide the basis and foundation for these measures will be done in the coming months. I have already informed Members about the provisional notification we issued to the EU and we are obliged to make a final application in October.
Sections 41 to 46 contain repeals and amendments of the Electricity (Supply) Act, 1927, and an amendment to the Freedom of Information Act, 1997, to include the commission in its terms. The principal repeals are those of sections 37 and 38 of the Electricity (Supply) Act, 1927, which gave the ESB power to authorise and permit the generation, distribution and supply of electricity by other electricity undertakings. This power will now be vested in the commission.
Section 47 provides that the power to make a special order to compulsorily acquire land for the purposes of constructing or reconstructing a power station shall be transferred from the ESB to the commission and that the commission may then confer the functions of such an order on any plant authorisation holder or applicant.
Sections 48 to 51 provide that certain powers relating to the laying and use of electric lines, currently resting with the ESB, may, with the consent of the commission, also be exercised by holders of plant authorisations.
Sections 52 to 54 provide that certain regulations already made by the ESB shall also apply to other electricity undertakings and eligible customers. Certain further regulations made by the ESB shall be subject to the consent of the Commission for Electricity Regulation.
The First Schedule sets out in detail the functions, powers and duties of the commission and sets out the basic terms and conditions of employment for members. It provides that the costs of running the commission shall be recovered by a levy on the electricity industry. It also states that the commission will be accountable to the Minister, a Joint Committee of the Oireachtas and the Comptroller and Auditor General.
Current market and global developments mean that the introduction of competition and independent regulation are inevitable. I understand the fears expressed by many who work for the ESB. If one has spent one's entire working life being employed by a company which enjoyed a monopoly, it is understandable that one would fear the onset of competition. Politicians have no difficulties in this regard because we face competition each time we put ourselves forward in local, national or European elections. There is always jostling, pushing, jousting and competition among politicians. However, it is understandable that a person who has spent their life working for a company that never faced competition would feel concerned and timorous about the onset of competition.
Like Telecom Éireann, the ESB is in a good position because its years of service to the State will stand to it. For the first time, it will face a competitor which may offer cheaper electricity and which may aim to provide access in a competitive fashion. I have no doubt, however, that the ESB will enter into the jostling and jousting of the competitive arena but perhaps not as keenly as politicians who must make their pitch and sell their wares in the three week run-up to an election. The ESB will have a longer period in which to face up to the onset of competition.
From the ESB's point of view, its history has shown that it is more than capable of meeting this challenge head on in an energetic and innovative manner, and succeeding. The advent of competition is not only a challenge for the ESB, it is also a major opportunity. The ESB will be able to compete in the entire EU market for the generation and supply of electricity. People often forget that the company will now be in a position to bid and compete not only here and in Northern Ireland but also in markets outside this island.
Following the establishment of the ESB as a public limited company under the Companies Acts – further legislation will be introduced in this regard later in the year – the board will be in a much better position to face up to the rigours of competition. This change of structure will facilitate developments in respect of alliances or changes in ownership which may become necessary or desirable over time. It is well known by now that I have a pragmatic rather than ideological approach to those issues.
The electricity sector in Ireland, and the ESB in particular, is strong, vibrant, robust and well positioned for the challenges of the new era. While I welcome the prospect of new entrants into the electricity market, I know the ESB will face up to this new era with the same spirit and determination which it has always shown.
I am pleased that I could come before the Seanad to present the Bill. I look forward with interest to the Members' contributions. For many years our electrical power has been supplied by the ESB. A similar situation obtained in respect of Aer Lingus in the provision of flights but that has now changed with the advent of competition from Cityjet, Ryanair and other airlines. That is not to say that Aer Lingus is not a good airline because it has a great record and a great future. Likewise, the ESB is a great company with a terrific record and a viable future.