Seanad Éireann debate -
Wednesday, 3 Oct 2001

Vol. 168 No. 2

Gas (Interim) (Regulation) Bill, 2001: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Minister of State at the Department of Public Enterprise (Mr. Jacob)

I am pleased to introduce the Gas (Interim) (Regulation) Bill, 2001, to the Seanad. The purpose of the Bill is to transfer certain powers and functions of the Minister for Public Enterprise to the Commission for Electricity Regulation to provide for the independent regulation of the natural gas sector in Ireland.

In using the word "independent", I mean that regulation of the sector is undertaken by a body that is unconnected with any of the operators in the sector. It is inappropriate that the Minister, as shareholder of Bord Gáis Éireann, should, at the same time, regulate the competitive gas market on a day to day basis. The Bill is designed to regularise this situation and represents the minimum set of provisions to establish independent regulation within the shortest possible timescale. As stated in its Title, the Bill is an interim measure. It is my intention that once these initial arrangements have been put in place, work will begin in my Department on a comprehensive review of the way in which the gas sector in Ireland is regulated.

As with all the utility sectors, the gas sector in Europe is one that is now emerging from a situation in which national markets were dominated by State owned monopoly operators. The pace and manner of change in each sector in virtually all member states is dictated by rules set out in various EU directives. In the case of the gas sector, the relevant measure is Directive 98/30, which sets out the basic rules for initial market opening. It includes provisions dealing with access to networks and pipeline, unbundling of integrated gas undertakings and a liberalisation timetable. In regard to the last issue, from 2000 member states must open at least 20% of national gas markets to competition, with further incremental increases up to 33% taking effect by the year 2008.

In Ireland this process was begun in 1995 through the Energy (Miscellaneous Provisions) Act. That Act obliged Bord Gáis Éireann to offer access to its network to customers consuming 25 million standard cubic metres of gas per annum. The term normally used for this arrangement is third party access and it allows consumers to source their own gas from any supplier and arrange to have it delivered through the BGE network on non-discriminatory terms and at a fair price. The threshold of 25 million gives a level of market opening in Ireland which is the fifth highest in the European Union.

The main consumers benefiting from this are operators of gas-fired electricity generating stations and a number of large industrial users. An analysis of the Irish market shows that these eligible customers are taking advantage of the arrangement and, over the past nine months, over half of the gas in the BGE network was transported on their behalf.

When enacted, the Bill will open up the market further by reducing the annual rate of gas consumption whereby customers acquire third party access rights. Initially, the annual consumption threshold for eligible customers will drop from 25 million to two million standard cubic metres, resulting in the market opening rising from 75% to over 80%. It is my intention to achieve full market opening by 2005, in line with the timetable proposed for the electricity sector. Full market opening will include the domestic market and the proposals fully complement the latest liberalisation proposals from the European Commission. It is my intention to adopt an orderly phased approach to full market opening in 2005 by introducing at least one intermediate step before then. I will be discussing the timing of this with the Commission for Electricity Regulation immediately upon enactment of the Bill.

As with the electricity sector, the introduction of competition into the natural gas market has raised questions as to where responsibility for day to day regulation of the sector should lie. At present, the Minister is both market regulator and shareholder of BGE, and it has been argued that this dual role leads to an unavoidable conflict of interest.

The job being done by my Department in terms of the regulation of Ireland's gas sector is first class. The current arrangements in the Department provide a clear separation of responsibility between the regulatory and the shareholder functions. However, while every effort is taken to ensure that conflicts of interest do not arise in practice, increasingly decisions need to be taken on a range of issues where the potential for conflict arises. These issues include pipeline consents and charges for third party access to the BGE network. It is because of the number and importance of such issues now arising that I am proposing that the transfer of functions to the CER should happen in the shortest possible timescale. For competition to flourish, the market, especially new and prospective entrants and investors, needs to be assured that regulation of the sector is based on the principles of openness, transparency and non-discrimination.

I will now outline the main developments taking place in the Irish natural gas sector. Gas demand is growing rapidly in Ireland, mirroring trends across Europe. It is now the fuel of choice in electricity generation and its share of the domestic and industrial energy markets is also increasing. This reflects a number of factors, including competitive gas prices, the relatively high conversion efficiency of gas and the fact that gas is cleaner than other fossil fuels, such as oil and coal. Market growth is set to continue and, in a report produced last December, the ESRI estimates that over 70% of Ireland's power generation will be fuelled by natural gas by 2010 and that demand for gas may grow by approximately 7% per annum over this decade.

This scenario has a number of consequences. First, rising demand is driving increased investment in gas infrastructure. Second, gas has an important role to play in Ireland meeting its Kyoto targets for reducing greenhouse gas emissions. A modern gas fired power station produces less than half as much carbon dioxide as an older coal fire station per unit of electricity generated. Gas stations also produce much lower emissions than oil stations. Hence a switch in electricity generation away from coal and oil towards gas can give rise to very large reductions in greenhouse gas emissions.

One of the major outcomes of the ESRI report on energy demand was the realisation that there was a very high likelihood of a supply capacity shortfall in the winter of 2001-03 if no further supply capacity was added to the system before then. An independent assessment of possible new supply options concluded that BGE's proposal for a second interconnector with Scotland was the only project capable of being completed within the required timeframe. On this basis the Government gave approval for BGE to proceed with its proposal. BGE is now doing that and, subject to the various necessary permissions being granted, is on schedule to have the interconnector completed in time for the winter of 2002. As part of its approval, the Government has required BGE to seek private sector investment in the project and I am awaiting proposals from the company on how it intends to progress this issue.

Senators are no doubt aware that at the start of this year the Corrib partners indicated they were proposing to land gas from the Corrib field off the Mayo coast. I understand this is expected to come to market in the second half of 2003 and further pipeline construction work is to be undertaken by BGE to allow for the delivery of this gas to the national gas grid. In addition, BGE is proceeding with its proposals for the construction of a new pipeline between Dublin, Galway and Limerick that will bring gas to thousands of new customers. This pipeline will link with the existing Limerick-Cork-Dublin pipeline to create a national transmission ring and enhance the security of the national system.

The completion of all these projects is, of course, subject to the company complying with the various statutory requirements and obtaining the necessary consents from the Minister. I will now provide an update of the progress of each of these projects.

BGE has submitted an environmental impact statement for the second interconnector. I have engaged consultants to carry out a full appraisal of that and can confirm that it meets with all statutory environmental requirements. The proposed pipeline will not significantly or adversely affect the environment in the long term. The public consultation process for the second interconnector application has also concluded and I am currently considering submissions received in this regard.

I can also confirm that an environmental impact statement for the gas pipeline to the west has been submitted and appraised by my consultants. It meets all statutory requirements and the pipeline will not have significant long-term environmental effects. I convened an oral hearing to inquire into BGE's application to construct this pipeline, and its associated applications for acquisition orders, on 24 September 2001. This hearing has concluded and I await the inspector's report and recommendations. My consultants have also concluded their evaluation of the EIS for the Mayo-Galway pipeline and have indicated that it too meets all statutory requirements. It will have no significant effect on the environment in the long term. The public consultation process in relation to this application commenced on 28 September 2001 and will conclude towards the end of this month.

Senators will be aware that early this year the Government decided, in principle, to extend the natural gas network to the north-west. In June my Department received a copy of a report commissioned by BGE on the route options for this network extension. The report made it clear that none of the options would be commercial in its own right and that some form of assistance would be required. Following further consideration of the issue, the Government has decided the preferred option is to proceed by extending the gas transmission system to Sligo via Ballina from the proposed Mayo-Galway pipeline. Work is now beginning on a detailed economic evaluation of this preferred option. The Government's decision takes account of the benefits that will accrue from proposed developments in the natural gas infrastructure in Northern Ireland. The Government has also decided to support the development of cross-Border gas pipelines and I take this opportunity to explain the reasoning behind that to the House.

BGE and Questar, an American pipeline company, have applied to the Northern Ireland regulator to build two pipelines. One, linking Belfast to Derry, would supply the planned new Coolkeeragh Power Station and the city of Derry. The other, comprising a South-North interconnector from Gormanston to Antrim, would tie into the proposed Belfast to Derry line. The Government's decision to make a £10 million grant available toward the development of the Northern Ireland gas network recognises the wider benefits associated with it. For example, the BGE-Questar Belfast to Derry pipeline and the provision of gas to Derry would facilitate the provision of gas to Letterkenny. The development of a 400 MW power station at Coolkeeragh offers the prospect of further facilitating improved energy supplies to County Donegal. As a first step in moving forward with gas to the north-west, BGE will be asked to proceed with detailed engineering and planning for extending gas to Sligo from the proposed Mayo-Galway pipeline and to Letterkenny from Derry.

With my colleague, the Minister for Public Enterprise, Deputy O'Rourke, and the Northern Ireland Minister for Enterprise, Trade and Investment, Sir Reg Empey, I have pledged my commitment and support to working towards the development of an all-island energy market. The Government decision recognises that the development of cross-Border gas supply infrastructure is an essential ingredient in achieving this goal. In particular, the planned network developments in Northern Ireland and in the north-west will improve the overall level and quality of energy infrastructure on the island and enhance the prospect for market integration.

Given the developments I have outlined today, I believe it is timely to provide for independent regulation of the gas sector to ensure investor confidence. This will also act as a catalyst in the development of a natural gas market. My proposal in the Bill is to adapt the role of the Commission for Electricity Regulation so that it encompasses responsibility for the regulation of the natural gas sector. This adaptation will include changing its name to the Commission for Energy Regulation.

I will now outline the main reasons for choosing the CER to carry out this task. There are similarities between the electricity and natural gas sectors that make the CER suited to the purpose. The electricity and natural gas industries, for example, are in direct competition with each other in the domestic market through the supply of alternative means for cooking and heating. The two markets are also becoming more closely associated in the UK where all the regional electricity companies have their own gas supply arms. A similar convergence is expected throughout Europe. There are also commonalities in regard to regulatory activities in these sectors such as price setting, the establishment of performance standards and monitoring quality of service.

Given the growing demand for electricity and increasing dependency on natural gas by electricity generators, it is important to ensure that there is sufficient gas capacity to meet the demand of the electricity market. The commission's regulation of both markets will help to meet this objective and to provide a sound basis upon which Ireland's future energy requirements can be anticipated and met. That the CER is already established, functioning effectively as regulator and liaising with regulators in Northern Ireland, Britain and the rest of Europe will assist in the speedy implementation of the proposed regulatory framework for the natural gas sector. The proposal to have one regulatory body also means that economies of scale can be availed of in regard to its administration. A further practical reason for choosing the CER as gas regulator is that the present legislative framework, established by the Electricity Regulation Act, 1999, lends itself to the purposes at hand. The Schedule to the Act allows for the appointment to the commission of up to a further two members in addition to the present member.

As is the case with the CER at present, the newly-named Commission for Energy Regulation is to be independent in the performance of its functions. The commission will, however, continue to be accountable to the Comptroller and Auditor General regarding its accounts and to a joint committee of the Oireachtas in regard to the performance of its functions. The Bill's provisions have been designed to mirror to the greatest extent possible those set out in the Electricity Regulation Act, 1999, which established the CER in the first place. This will facilitate its implementation and will mean that the market will already be familiar with the principles behind the legislation.

Some of the more important provisions in the Bill are as follows. Section 5 changes the name of the Commission for Electricity Regulation to the Commission for Energy Regulation to reflect its new functions. Sections 6 and 7 and the Schedule provide for the transfer of functions from the Minister to the CER as well as expanding the current duties of the CER in the light of its role regarding the natural gas sector. These duties include advising the Minister on the gas industry, promoting competition in gas supply and protecting the interest of final customers. The Schedule identifies a number of the Minister's functions that are to be transferred to the CER in relation to the construction of gas pipelines such as compulsory acquisition orders and the extinguishment of rights of way. Sections 8 and 9 amend the existing provisions in the Gas Act, 1976, dealing with pipeline consents. A new section is to be inserted into the 1976 Act so that BGE and all other prospective builders of pipelines will in future make their applications for consent to build pipelines under this one section.

There is also a separate provision dealing with consent to the construction of so-called ‘upstream' pipelines. These run from gas fields to on-shore terminals and require the consent of the Minister for the Marine and Natural Resources. Section 10 provides that the commission may direct pipeline operators to publish a code of operations for their pipelines. This facilitates the inter-operability of the gas transmission network and pipelines owned by different operators. Section 11 provides for the increased market opening by reducing the consumption threshold above which consumers can source their own gas supplies from any supplier. As mentioned earlier, it is my intention to introduce full market opening by 2005. The Bill will allow the Minister to reduce, by way of statutory instrument, the annual consumption threshold that defines the level of market opening.

Section 13 provides for a new licensing framework for the supply of natural gas, the operation of distribution or transmission pipelines and the storage of natural gas. No such framework has existed until now.

Section 14 requires gas undertakings to keep separate accounts for their different gas activities such as supply or transmission and, where appropriate, consolidated accounts for other non-gas activities. This is to avoid discrimination, cross-subsidisation and distortion of competition.

Section 17 provides that the Minister may introduce public service obligations or PSOs on natural gas undertakings, for instance, with regard to security of supply, technical safety, or environmental protection. This section specifically excludes using PSOs for non-commercial extensions of the natural gas network.

In conclusion, the Bill I am introducing to this House today will be a major step forward in the liberalisation of the natural gas market. I look forward very much to hearing the contributions of the Members of this House. I commend the Bill to the House.

Mr. Caffrey

I welcome the Minister of State to the House for this important legislation.

I have some background data. Before the discovery of the Corrib gas field off the Achill coast, this Bill would have had very little relevance for people in the west and the north-west specifically because, as the Minister of State is aware, we had no natural gas in the area and did not expect to have it. As An Bord Gáis said on many occasions, it would not have found it economically viable to extend the network to the west and north-west.

However, the discovery by Enterprise Energy Ireland of gas off the Achill coast has changed everything. It was a major breakthrough and an exciting development. Some time ago when this announcement was made, there was a public outcry in many parts of Mayo that the benefits would not extend fully to the county. In this House, in November I think, I tabled a motion which was answered by the present Minister. I referred to the need for the Minister for Public Enterprise to outline whether any consideration had been given to the question of providing spur lines from the main transmission lines of An Bord Gáis from Pollatomish in Mayo to Galway and the major towns in Mayo that were within a reasonable distance of the main line from the Corrib field.

At the time, the Minister answered that it was the responsibility of An Bord Gáis and that if it decided, in its wisdom, that such a spur line would be made, then it would be. In the meantime, the Government has decided to extend the pipeline to Ballina and to Sligo. I publicly thank the Minister and the Government for this courageous decision which was welcomed throughout County Mayo and the west in general. However, I advocate that the smaller towns be connected as well. In this game, we never stop making demands and we will continue to do so for these smaller towns. Nevertheless, the Government decision to extend the main transmission line into Ballina and on to Sligo was, as I said, a very welcome development. It will add immeasurably to economic progress in the region. Now that the Celtic tiger has developed some signs of dysentery, this will provide a much needed boost for the area. There was great anticipation of the prospects for the Corrib gas field and its implications for economic development in the region.

We have reactionary forces within Mayo who would like to preserve the fauna and flora in the county as they were 1,000 years ago and would like to leave our natural resources under the sea where they have been for millions of years. However, wiser counsel has prevailed and I hope that it will continue to prevail, even though the final arbiter on the issue is An Bord Pleanála. We are awaiting its response to the appeal at the moment. Everything that is stated both in public Government policy and county council policy is dependent on the decision of An Bord Pleanála. I want An Bord Pleanála to expedite the decision and not sit on it for months and years. In some cases, it has been doing this. Bearing in mind that background information, I thank the Minister for responding to our call in the area to extend the pipeline to the regions that I have mentioned.

Returning to the legislation, as the Minister of State said, it is a result of EU directive and part of the liberalisation process that has been taking place for the past few years. There are certain reservations about this liberalisation process, especially in rural Ireland where economic viability and the criteria that have to be put in place to further it do not always apply. When we have commercial operations involved in these types of enterprises, commercial viability is often the sole factor that determines what they do in many circumstances.

However, we must proceed with liberalisation. I welcome the Bill, but it has some grey areas as it is currently framed. Maybe the Minister of State will clarify some of the issues.

Section 6 states that it shall be the duty of the commission to promote the efficient use of both electrical and gas transmission systems. I do not think the commission is asked in any section to promote efficiency in its operations. That should be embodied in the legislation. Energy efficiency will be a very important issue in the coming years, and there is not enough emphasis on its promotion in section 6.

The use of language in section 6(e) is ambiguous. The commission for energy regulation, on the one hand, is promoting the continuity, security and quality of supplies of electricity and, on the other, it is responsible for securing the continuity and quality of supplies of electricity. It should concentrate on both at once and not differentiate between promoting and securing the supplies.

Also, section 8(1)(a) requires clarification. It states:

The Board shall, in relation to customers other than persons of the type mentioned in paragraphs (a), (b) or (c) of subsection (1) of section 10A of this Act, develop and maintain a system for the supply of natural gas to such customers being a system which is both economical and efficient and which appears to the Board to be requisite for the time being.

We need some clarification of what is meant by "requisite for the time being" and what will occur at a later stage. The Minister referred to that in his speech but it does not clarify this section sufficiently in terms of what will happen in 2005 or later. Clarification is needed in many areas and I am sure the Minister will examine seriously any amendments to this effect tabled on Committee Stage.

There is ambiguity in section 8 about the owner of a pipeline. It should be made clearer in the Bill whether only an owner can operate and maintain his or her own pipeline or whether he or she can decide who he or she wishes to operate and maintain his or her pipeline. There is need for clarification in that section. The Commission for Energy Regulation should have a statutory input in determining some of these issues.

Some parts of section 8 should be rewritten to clarify what input the CER can take on board, especially where those whose facilities are gas turbines and other such power stations are concerned, how they will be subject to gas quality criteria, how the quality will be determined and what role the CER will have in determining gas quality.

Section 9 deals with pipelines and, in the context of the promotion of competition in the sector, how construction and tender guidelines will be determined. There have been instances of Bord Gáis and its contractors creating a great deal of undue mess throughout the country when laying pipelines. Bord Gáis should be subject to stricter controls in this regard and these should be included in the legislation. There are instances of streets in towns being dug up without the best guidelines being adhered to. Given the traffic congestion in major towns, this is an issue which must be examined because further inconvenience for the public cannot be caused by pipe-laying companies making undue demands in this area. More clarification is needed in section 9 in terms of pipelines if competition is to be promoted in this area.

There is some ambiguity in section 10 as to how the code of operations will work. Clarification is needed on whether the section applies to the Bord Gáis Éireann code of operations. That is not clear. Clarification is also needed in section 11 so that we know whether Bord Gáis will be regarded as a pipeline operator for the purposes of the Bill. It is not clear what the CER's powers will be to ensure equitable treatment of all pipeline constructors and operators. There is a need for some clarification in this area. There is also need for clarification on whether there is a mechanism to regulate monopoly use of independent pipelines.

There is ambiguity in the legislation regarding natural gas licences where licences for storage are concerned. It is understood that a storage project will need the consent of the Minister for the Marine and Natural Resources and the CER. There would need to be some mechanism to resolve any conflict which could arise between those groups. Perhaps there could be a licensing operation or activity for which the CER could be given responsibility.

Clarification is needed on those issues and amendments will be tabled on them on Committee Stage. I am sure there will be others I have overlooked in my preliminary reading of the Bill. We will go into greater detail later. I am sure the Minister will be able to clarify some of the issues I have raised.

The explanatory memorandum states:

The Minister may make orders providing for the method of calculation and collection of the levy and the establishment of a fund to be used for the collection and disbursement of payments. The section specifically excludes the imposition of a public service obligation for the purpose of extending the natural gas network to new areas of supply on a non-commercial basis.

The Minister referred to this issue in his speech and said that the public service obligation will not apply to non-commercial operations. That exclusion could seriously disadvantage rural Ireland, especially areas of sparse population because it does not allow for any public service obligation for these areas. If we in the region I referred to previously were to seek extensions to the transmission line when the commission is in place, we would not qualify on simple commercial criteria. That is an area that needs attention in the liberalisation process and is a cause of widespread concern in many rural areas, especially in areas that are becoming depopulated due to the decline in mainstream farming and the movement of people to major cities.

I thank the Minister for bringing the Bill before the House and for his commitment to extend the pipeline to Ballina and Sligo.

Mr. L. Fitzgerald

I welcome this Bill and the fact that the Minister has initiated it in the Seanad. This is one of three Bills relating to the gas market that the Minister has brought forward over the past two years. Despite misconceptions, the Minister has been busy over that short period. It is a great honour for this House to initiate a Bill of such importance and I concur with Senator Caffrey that the Bill has serious implications for the global and national scene as well as for isolated communities.

There is an inevitable conflict between what one has to do to anticipate and work consistently with the general thrust of the marketplace, where markets are moving and the global village is fast becoming a reality, and the needs of isolated communities. There are many tensions, as Senator Caffrey has forcefully articulated. While I would not be as au fait with these issues as the Senator, I know that they are a reality and that the Minister will take such serious concerns on board as the process moves forward.

This is one of three Bills relating to the liberalisation of the gas market and liberalisation of the energy market generally. The first Bill which the Minister kindly initiated in the House, the Gas (Amendment) Bill, 1998 [Seanad] was the first Bill the Minister published in this area. That Bill, which subsequently became an Act, repealed section 37 of the Gas Act, 1976. As we know, the Gas Act, 1976, was anti-competitive and incompatible with the competition requirements of the Energy Charter Treaty. It was also deemed to be in conflict with the competition rules of the EU.

The Bill before us will, when implemented, accelerate the liberalisation of the gas market, resulting in more than 80% of the market being subjected to the rules of competition. It is important that this proceeds because today's energy markets are opening up and gas is forming an increasingly vital component of our overall energy needs. It is extremely important that we manage this sector in the most professional manner and that we cope with the current dramatic growth as this will have a major bearing on our future prosperity and development. Proper management, accountability and regulation are of vital importance at this early stage.

Taken with the two previous Bills brought in by the Minister in recent years, this third Bill marks a further step in the Government's commitment to fully open up the gas market by 2005 at the latest. The Minister has made important strategic choices. This deserves emphasis because there are disillusioned people who might not agree. I agree and I have heard nothing from my colleague, Senator Caffrey, to suggest that he does not concur also.

Strategic choices have been made concerning the future of our most important energy source. Gas is Ireland's most important fuel and our major indigenous energy source. That is recognised in this Bill. The appropriate planning and implementation are being carried forward and this additional legislation is part of that process. The Corrib find off the west coast, referred to by Senator Caffrey, will augment the diminishing Kinsale Head field. The necessary infrastructure for nationwide transmission is being rapidly planned and put in place.

It was not long ago that some of our media-based economic gurus berated the Minister and his Department for alleged prevarication. One guru went so far as to state – he should have known better – that the Minister and his Department did not have a clue what the future would hold and they were therefore unable to agree what to do in the present. This was a dangerous statement for a so-called expert to make. This Bill and the many decisions and plans that have preceded it and which will succeed it give the unambiguous and unequivocal lie to these frenzied and unfounded allegations. Of course, those allegations are not the only recent example when elements within the media have gone over the top in their unseemly search for a Minister's head. Indeed, in the case I am referring to, it was the head of the Minister, Deputy Jacob, they were looking for. I am certain the Minister will demonstrate the folly of their frenzy in his own inimitable way and in his own good time. Today marks a significant step towards putting that to bed.

Over the past two decades, gas has rapidly become the fuel of choice for electricity generation and as a fuel for home consumption. One of the undoubted consequences of the discovery of natural gas in Ireland is the way in which it has transformed the way we live and work. Low-carbon natural gas has clear environmental benefits due to its low emissions. Bord Gáis's state-of-the-art transmission network transports gas at high pressures, reaching customers instantly and safely. Both of these characteristics – instant and safe delivery – are vital. That cannot be over-stressed.

From my experience and that of constituents and businesses, I know that the back-up service in terms of expertise, assessment, analysis and reappraisal is of the highest professional standard. Nearly all new housing developments in Ireland as in Europe opt for gas. It is the norm. As far back as 1994 – we have progressed a long way since then – 42% of gas went to the ESB for power generation. Ireland has five gas-fired generating stations using advanced thermal technology. In the same year, natural gas contributed 26% of the fuel required for electricity generation. Some 23% was sold to NET and 24% to other industrial and commercial customers. Some 90% of industry with access to the natural gas transmission grid switched to natural gas. Many other sectors have also tapped into the grid such as the hotel and catering industry, hospitals and leisure centres.

The title of the Bill before the House refers to "interim" and "regulation." Where we have a market with demand increasing significantly each year – we have been told by the experts that demand is increasing by about 7.5% annually – and liberalisation is opening up that market to competition, strong, independent, accountable regulation is very important. We need a stable regulatory regime for the future development of this increasingly economically-vital sector.

The introduction of competition to the natural gas market raises questions as to where responsibility for the day-to-day regulation of the sector should lie. The Minister's roles are that of shareholder in Bord Gáis Éireann and regulator of the sector. It is also the Minister's responsibility to devise policy for the gas sector. With the opening up of the market, the Minister will be increasingly required to take decisions, such as granting consent for the construction of pipelines, where the potential for conflict exists between the Minister's roles as shareholder and regulator. Members are aware of the current arrangements that exist within the Department of Public Enterprise to separate responsibilities between regulatory and shareholder functions. However, the frequency and importance of such issues now arising warrants the establishment of an independent regulatory body as soon as possible.

The Commission for Electricity Regulation established under the Electricity Regulation Act, 1999 has shown what can be done for the electricity sector. It has provided for a regulatory framework to oversee and manage competition in that sector. The commission focuses on the interests of final customers and ensures non-discrimination between electricity undertakings. It promotes competition, ensures that all reasonable demands for electricity are met, promotes safety, efficiency and economy by electricity undertakings and takes serious account of protection of the environment. It promotes also the increased use of renewable, sustainable and alternative energy sources. It is given the power to license the generation and supply of electricity and to authorise the construction of electricity generating stations.

The main purpose of the Bill the Minister has brought before us today is to transfer certain powers and functions from the Minister to the Commission for Electricity Regulation and rename the commission as the Commission for Energy Regulation. This commission will provide for the independent regulation of the natural gas sector. While provisions in the Bill are only of an interim nature, and the Minister has stated that quite clearly, and represent the minimum base requirements for regulation in the gas market at the earliest possible date, nevertheless, they are very important because the commission will have responsibility – despite the limitations of the interim measures which are being brought in – for regulating access to the natural gas transmission network. The commission will give consent to the construction of pipelines and will licence natural gas undertakings.

I am aware that prior to the publication of the Bill, fears were expressed about the proposal that the electricity regulator would also be the gas regulator. One expert put forward some strong views. The point was made that since most of the growth in the gas business would come from electricity generation, as new power stations are built the plan might increase the danger of what he referred to as regulatory capture where the regulator becomes more a defender of the industry than of the customers. Having looked at this view in the context of the Bill, it appears to be theoretical postulation and certainly does not stand up to close scrutiny.

I believe the Minister is correct in extending the role of the present commission to include the energy sector generally, that is, gas, electricity and the renewables. Under the Bill the expertise of the existing commission is utilised to ensure that both the electricity and gas sectors are independently regulated, not only effectively but in a consistent manner. It is very wise, and I believe the Minister is extremely wise in taking advantage of the experience, the expertise and the strengths that the commission has already acquired since its establishment. It has had the opportunity to develop and deliver effective regulation, which is to the benefit of both market players and consumers alike. One regulator, in my view, and in the view of many others that I have heard, is a good way of ensuring competition and fair pricing between supplier and customer.

The opening up of competition was to deliberately bring about a reduction in prices, inevitably a development that will be welcomed by domestic, industrial and commercial consumers. After all, competition is a very healthy thing. Even in our youth we heard that competition is the life of trade. It is especially healthy for the consumer. We know and have experienced it from the many other fields of semi-State and private sector activities that this is so. I am satisfied that Bord Gáis Éireann is very well placed to take on the opening up of competition and the associated market forces. As one of Europe's youngest natural gas companies, its short history of over 20 years has been marked by ever growing success. Perhaps it could be said that its youthfulness is proving to be one of its greatest assets. The birth of the company came about as a result of two contemporaneous developments – there was the energy crisis of the early 1970s, particularly 1973, and the discovery of deposits of natural gas which were declared to be commercially exploitable around the same time. Those of us who went through it and had cars – or bangers of some description – will recall that it was a time of tremendous volatility in the energy market. The advent of natural gas was a welcome relief in reducing our exposure during a time of great uncertainties in that market, particularly in relation to oil supplies. Mile long queues outside petrol service stations were a common feature, not alone in cities and towns but in rural areas.

The absence of a natural gas industry which would absorb sufficient quantities to justify the huge capital investment in it was a major obstacle. There was no natural gas industry. The decision by the then Minister – I believe it was a Fine Gael Minister in 1974 – to allocate a significant amount of gas to the new plant, Nitrigin Éireann Teoranta, and for additional ESB generating capacity must be applauded. It justified the launch of an industry which has been a growing success ever since. Bord Gáis Éireann was established two years later in 1976 and it took over responsibility for gas purchasing arrangements with Marathon. These two decisions taken by that Government have stood the test of time. They have proved to be wise and forward thinking, even though they did arise, in a sense, out of a crisis. Sometimes necessity is the mother of invention.

The natural gas grid has developed rapidly over the past 18 years or so. At first gas was piped from the Kinsale Head gas field, which was located about 50 kilometres offshore to Cork city. The 240 kilometre line to Dublin was built in 1982 and represented a mammoth advance. It took in a number of towns en route, including Limerick, my own native place, and the mid-west. The expansion of the grid has continued to other parts in the north-east, north central areas and the midlands. Many other areas must be reached as the momentum must be maintained until all towns have equal access to this environmentally friendly, clean and efficient energy source.

I concur fully with Senator Caffrey that no isolated rural communities must be excluded. Given the movement of populations and the denudation of certain rural communities, there is a risk factor there. I know the Minister will take that fully on board when he responds and, if he wishes, I will share with him my experience of growing up in an isolated country area. It can very often be the case that rural communities are forgotten and if that were to happen it would be a most unfortunate fall-out from what is a spectacular development of a national gas grid.

The most spectacular development of all in the expansion of the grid was undoubtedly the construction of the natural gas interconnector from north County Dublin to Scotland. It was heralded as a landmark project for late 20th century Ireland, the benefits of which will be felt for many decades to come. Apart from that, it is a magnificent inheritance to pass on to the generations that succeed us. There were a number of compelling reasons the company and the Government of the day sought the construction of a sub-sea pipeline as a necessity. With our energy needs doubling over the past 20 years and a consistently increasing demand in all market sectors, additional pressure was being put on existing resources. There was certainly a realisation that the Kinsale Head/Ballycotton reserves would be exhausted for commercial purposes by the year 2003 and this, no doubt, helped to concentrate minds at the time. The task force of Government officials and board members established to examine the feasibility of an interconnector realised how vulnerable our gas market was as it depended on a single source of supply. If further indigenous supplies were found off the coast, surplus quantities could be exported via the interconnector. The interconnector will eventually be linked to the European grid and to the world grid.

The construction of the pipeline ensures Ireland is assured of natural gas supplies for the next 50 to 60 years and the project is no doubt an economically and environmentally sound investment in the future. One of the most impressive features of the construction of the interconnector and, to a great extent, the national grid is the absence of a negative environmental impact on the preservation of heritage, flora and fauna and, indeed, their reinstatement where necessary.

The Minister and Senator Caffrey have referred in detail to recent developments. I am very heartened by the manner in which a decision has been taken by the Minister and approved by the Government to build a second interconnector. There were one or two gurus who berated the Minister. He consulted widely, and for such a major project it was vital that he did so. He got independent assessment of feasibility studies and, arising from that, he sought the approval of Government for his decision to commence the second interconnector. It was a very wise decision and work is currently proceeding on it. Another decision was to proceed with a ring main that would link Dublin, Galway and Limerick, which would be created by linking up with the Dublin-Cork-Limerick line. That is a very significant development and is very commendable. I commend the Minister for proceeding with that.

The third one is the huge demand for the availability of such a national vital resource in the north-west and decisions have been taken there also. That has been done in the case of Sligo, as mentioned by Senator Caffrey and the Minister of State. The link up there will be with the Galway-Mayo line. In the case of Donegal, following extensive consultations by the Government and having obtained an independent assessment, the Government rightly came down on the side of providing a grant of £2 million to the northern authorities for the development of the pipeline there which would have a cross-Border interconnector. The Minister has expounded on the benefit of that. There is no doubt that apart from providing a pipeline from Derry to Letterkenny, there are much wider implications. Once the Derry-Letterkenny line is linked up there is an all-Ireland grid and, therefore, one is creating an all-Ireland market. The creation of an all-Ireland market promotes the potential for competition which in turn promotes a reduction in prices.

Many important strategic decisions have been taken by the Minister of State and his Department. Instead of not knowing where they are going, I am convinced the Minister of State clearly knows where he is going and has planned accordingly. I regard the Bill as a milestone on the road to eventually arriving at full liberalisation of the market by 2005 at the latest and ensuring that Ireland's gas supplies will be available to future generations. He will pass on an inheritance for which he will be lauded. I commend the Bill to the House.

Mr. Quinn

I welcome the Minister of State and the Bill and thank him for introducing it in the Seanad. I congratulate the Minister of State on his grasp of the intricacies of the Bill and on his well thought out concepts. As Senator Fitzgerald said, the Minister of State clearly knows where he is going.

When I repeated myself too often my children used to say I sounded like a broken gramophone record. I am in danger of repeating myself because I have a fundamental problem with the Bill, as with similar Bills in the past. I made the point before and I will make it again because it remains as valid as ever that the only reason to hive off the regulation of utility sectors from Departments is that the State itself is an operator in the particular market concerned. We have heard this from Senators Caffrey and Fitzgerald. A much better strategy would be for the State to divest itself of the ownership while holding on to the regulatory powers. In the fullness of time I expect that eventually the State will completely divest itself of ownership of all those State enterprises. That seems to be the Government's thinking and, broadly speaking, I am in favour of that. It is a trend on which the Government should be congratulated.

What will happen then is that we will be left with a situation in which the Government has neither ownership nor regulatory control. If that happens it may not be in the national interest because there is much more to the regulation of utilities than simply striking a fair deal between competitive forces in the marketplace. I am a great champion of competition and of allowing market forces to have their full play, but not even I would argue that market forces will always act in the broader national interest. It would be foolish to expect them to do so. That is not their job but the job of the Government. Let me give an example from the telecommunications sector. I am sure the Minister would be the first to agree it is very much in the national interest to extend broadband capability, and inexpensive access to it, to the whole country as soon as possible. It has become clear that it is not in the immediate interest of any one telecommunications company to do that however much it might be in their collective long-term interest. Commercial companies, especially public companies, tend to be driven by short-term considerations.

The Government has lost all the leverage it once had. It does not own the telecommunications company any more. The days when the Minister could simply order Eircom to do her bidding have long gone. Neither has the Minister the powers, through regulation, to impose investment in broadband as a condition on telecommunications companies operating in the marketplace because the regulatory powers have been hived off to an independent regulator. However, the powers of the regulator are much less limited than those the Minister once exercised. It is not part of the remit of the regulator to run the industry in the national interest. That is not part of the regulator's duties nor would it be right to devolve such a power.

The responsibility for deciding what is in the national interest is and should remain strictly a responsibility for Government. That is a responsibility from which the Government seems to have abdicated over the past four years. I sometimes wonder if it realises what it is actually doing. Let us assume that it is desirable to hive off gas regulation in this way. It is extraordinary that at this late stage we should be legislating for what is, on its own declaration, an interim arrangement. It is not part of the Bill but the Minister of State referred to it as an interim arrangement. The telecommunications regulator has been in place for about five years and the legislation setting up regulation in the electricity sector was passed in 1999. The European directive relevant to the Bill dates back to June 1998. Yet in the dying days of 2001, the best we can offer is a stop-gap arrangement.

I suggest the Government has had more than enough time to make up its mind and to do all the necessary consultation about a definitive permanent mechanism for regulating the gas industry. There is definitely a case to answer about this delay. The declared objective of the Bill is to facilitate the development of competition in the supply of gas to customers. Are the Bill's provisions adequate to achieve this purpose? I honestly do not know. In looking over the provisions I see no sign that lessons have been learned from what has happened in the telecommunications sector. Whether it is telecommunications, electricity or gas, the background scenario remains the same. We are going through a process of dismantling what was once a State monopoly and at the same time we are divesting ourselves of State ownership in the sector either partly or completely. What was previously the State monopoly has to live with competitors in its own marketplace. One of the main tasks of the regulator is to hold the ring between the various parties.

I am not sure that our legislative framework for regulation fully recognises the marketplace reality. That reality is that you can end the monopoly with the stroke of a pen but the former monopoly will, by definition, enter the competitive arena as the dominant player, as we saw in Eircom. The monopoly has been yielded. There was no choice but that. We have seen many signs that the former monopolies are not slow to hang on to the privileges of the dominant position they once had. Many would argue that in Eircom they consistently abuse their dominant position. I am sorry for taking the example of Eircom, but it is a perfect example.

In Eircom what happened to the unbundling of the local loop, a critical issue in properly opening up the sector to marketplace competition? The answer is that Eircom is still hanging on to what it holds, like a mad dog with a rag in its mouth. The powers of the regulator are not sufficient to stop Eircom abusing its dominant position in that way. As a result the process of making that sector genuinely competitive has been delayed again and again. That is definitely not in the national interest.

Have difficulties of this kind been taken into account in drawing up this much delayed legislation? I would like to believe they have, but one reason which leads me to doubt that is the case is that at the Oireachtas inquiry into the mini-CTC signalling project, a top management witness from the Department of Public Enterprise claimed that there was nothing wrong with the early warning system despite the fact that it had blatantly failed to give any early warning. I fervently hope and trust that such thinking has not been extended to this legislation.

If I have learnt anything from my years in business, it is the importance of learning from your own mistakes. Is our system of regulation as faulty as that early warning system which failed to deliver any early warning? Have the difficulties which have arisen in the regulation of other utility sectors been taken into account in formulating the regulatory scheme for the gas industry set out in this Bill? I look forward to hearing the Minister's reassurances on this point.

Mr. Walsh

Cuirim fáilte roimh an Aire agus gabhaim buíochas leis as ucht teacht anseo chun an Bille tábhachtach seo a phlé. It is fair to say that during his few years in the Department the Minister of State, Deputy Jacob, has brought quite a few innovative Bills to the House.

I welcome this Bill. I hope it will open up the market and generate competition within the industry. The thrust of much of our legislation, which I presume mirrors what is happening in the EU, is that fair and keen competition is the best regulator in any sector.

The Bill transfers the powers of the Minister for Public Enterprise to a commission for energy regulation. I thought Senator Quinn made an interesting point which had crossed my mind, that is, whether divesting the State of the shareholding and retaining the power to regulate the industry would be a preferred route to take. Having thought about it, given the current state of play in the industry where Bord Gáis has a very significant monopoly, if there is anything worse than a public monopoly it must be a private sector monopoly. It is one of the concerns regarding the telecommunications sector which I would share. While it is not relevant to the debate on this Bill, perhaps it might be useful for the Minister to look at the legislation underpinning the telecommunications regulator to ensure that in the new scenario in which we find ourselves, where such a large player is in private ownership, there are sufficient powers to guarantee absolutely, protect and safeguard the interests of the State and of business generally.

The Minister deserves to be complimented for ensuring in this Bill that the provisions required to regulate the gas industry should be introduced within the shortest possible timescale. That is a worthwhile provision and I commend the Minister on including it.

I note that an in-depth re-examination of the gas industry is due to be undertaken shortly. This will result in a much more comprehensive approach to the industry. In his speech the Minister identified the reasons for the transfer of regulation and I noted that part of the regulator's function will be to advise the Minister on the gas industry in general and, in particular, on the promotion of competition in the supply of natural gas.

It is evident that inefficiencies are generated in many industries or public utilities where there is a monopoly and therefore it is important that real and effective competition is introduced to this industry as soon as possible. The electricity sector has been liberalised already. There is a view that while the legislation and the regulatory mechanism may be put in place, the objective we are setting out to achieve is not likely to be attained unless the Government succeeds in getting players into the market – that does not appear to be happening in the case of the electricity sector as quickly as one would have liked. While the framework is being put in place in these sectors, ongoing monitoring will be required to ensure that the primary objective is achieved. Consumer protection forms part of the regulator's responsibilities and it is obviously in the interests of the consumer that there is real and effective competition as soon as possible. By their nature, commercially focused and driven companies try to protect their privileged position within the market and therefore it is incumbent on the State, and in this instance the regulator as the instrument of the State, to ensure that anything done in that area complies fully with the best practices under competition regulations.

I note that the construction of the gas pipelines will also be the function of the regulator, who will have power to compulsorily acquire lands. It is interesting to note that there is a debate in that regard in connection with the National Roads Authority, which is in some difficulty regarding the acquisition of land. When we set up bodies such as this, it is important that while they are given powers they do not lose sight of the need for sensitivity, which is necessary to achieve some of their stated objectives. That presupposes that they would be able to undertake the necessary consultations and negotiations to satisfy the public's concerns. Often the approach one takes is as important as the offer one is making. In this regard, it is important that people with the skills necessary to achieve that are included on the staff of the office of the regulator concerned.

I note that Bord Gáis will continue to supply medium and small enterprises and also commercial and domestic users, but that third parties will have access to the pipeline. Similarly we have heard a great deal about access to the telecommunications lines in the past. We should learn from experience in that area to ensure that the aims and objectives of the Bill are met so that people who want to compete in the sector are not thwarted in any way.

I compliment the Minister on his decision to invest in the Belfast to Derry gas pipeline. It was an enlightened move to provide £10 million for that project and to look to the future in that Letterkenny and Donegal may well be beneficiaries of it. Apart from that aspect of it, I welcome an all-Ireland approach in the new political climate which prevails, North and South, despite all the difficulties. In the interests not only of the peace process but of business generally, it behoves us to take an all-Ireland approach at every opportunity. That seemed like a very good innovative idea. As there is a very significant operator in the North, perhaps it also opens up the opportunity of introducing competition to the industry on an all-island basis.

Senator Quinn stated that the Minister, in transferring the powers to a regulator, has in some way lost the powers forever. When the State inevitably privatises or sells Bord Gáis, which is generally the thrust of public policy, I cannot see why if it is deemed desirable at that stage the powers of the regulator cannot again be assumed by an arm of the State through the Department. In the interim the regulator will be accountable to the Comptroller and Auditor General. In this regard one must applaud that office for its scrutiny and policing of many instruments of the State through its annual reports. In an independent and impartial way it is very frank in its assessment of faults and failings. This has assisted the Houses of the Oireachtas in deliberating and making recommendations in that regard.

The purpose of the legislation is to ensure the State will be able to provide natural gas. This is a primary fuel which is used throughout the country and I hope it will ultimately be used in the 32 counties. I am sure the Minister of State will forgive me for being a little parochial. He has given us some advice in Wexford as to what we might do. All our neighbouring counties have natural gas. Wexford should have this facility given that it exists in Waterford, Kilkenny and Wicklow. Given all the economic indicators, Wexford fares very badly. Unemployment figures there are the third highest in the country, it has an exceptionally low industrial base, the highest or second highest percentage of early school leavers and the second lowest per capita income. The need for gas to enhance the attractiveness of Wexford as a location for industry and give it an economic injection is absolutely vital.

There was an argument in the past that the use of natural gas to generate electricity is not the best use of what is a natural resource, that is, the use of one fuel to generate another. Perhaps the Minister of State will consider including this aspect in the regulator's brief. Obviously there is a finite supply of natural gas and it would be a pity if our generation or the next generation consumed what could exist for many generations in the future.

Mr. Ryan

Contrary to popular mythology, my party does not have and never had a problem with competition per se. Most of us were elected here in competitive elections and work in trade unions where every position is competed for. Many of our supporters and members work in industries which must be and have been competitive. One of the forces for profound modernisation in the economy has been the trade union movement. It has been a leader in identifying the need for innovation and change and has led its own members. No part of the labour movement has a problem with competition. What I have always had a problem with – this is the engineer in me – is any position which is adopted either because it is fashionable, appeals to the fashionable ideology of the time or perhaps because it can be used to transfer the heat from those who are physically accountable to bodies which are at best somewhat murky and at worst profoundly untransparent and which lack accountability.

Bringing a regulator before an Oireachtas committee once every two years does not create accountability. People in this House who are members of local authorities are well aware of how difficult it is to make county or city managers accountable, even if there is a meeting each week, because of the degree to which they can use various procedural methods to delay the supply of or withhold information and use a sleight of hand to achieve things without getting the clear views of members of local authorities. When great swathes of power are transferred to a regulator in the nominal interest of fairness and competition one must first look at each experience of that and then look at whether it is achieving the objectives we wish it to achieve.

Senator Quinn spoke about a fascinating, extremely important and potentially very damaging example, that is, whether setting up vigorous competition in some areas of national economic activity will in the longer term serve the national interest. He mentioned telecommunications, in particular, broadband and so on. For a country which has attracted such a huge proportion of mobile international investment in the area of information technology and related issues, we are far down the international league table in terms of the provision of the infrastructure which should go with that. There are regions of the country to which IDA Ireland cannot attempt to attract many kinds of industry because the electricity infrastructure is limited. I have not seen a scrap of evidence to suggest that increased competition in the electricity market will make that one bit more likely. Quite the opposite will be the case because there will be pressure on people to meet short-term objectives.

No one is talking about wasting money but the problem with the prioritisation of shareholder interests over everything else, which is the legal obligation of a plc., is that it is by definition short-term. There is no room in that sort of vigorous market position for any sense of medium or long-term interests. It is obvious watching the movement of the stock markets in the United States, in particular, that notwithstanding the huge patriotic sentiment which is now manifest there, people involved in the buying and selling of shares in the US stock market are putting the interests of shareholders firmly ahead of the interests of the United States economy and society. Whether this should be the case and how to deal with the issue is another day's work. The truth is that it is often the case in general that shareholder interests and national interests do not coincide.

If one reads modern or even less modern economic textbooks – I read them mostly for their entertainment value and because they are fascinating in their blind spots about humanity – one will see they are resistant to the idea that there should be ethical obligations, for instance, or any kind of national interest obligations. Perhaps if one is to run in the areas of a competitive market one cannot expect this. One cannot, therefore, expect the competitive market to meet national interests which is why we are slipping behind in the area of broadband provision.

It is too simplistic to put all the blame for that on Eircom, even though some of it must rest with that company. It rests with Eircom's need to maximise profitability in the short-term, if for nothing else then to entice people to buy it so the poor misfortunate directors could get it off their hands, which seems to have been the number one objective of the board of directors of Eircom virtually since the day it was privatised. In each case we must examine what has happened and see if at every level it is reconcilable with or optimising the national interest.

Another issue, leaving out the national interest, is whether competition is, in the words of Senator Walsh, the best way to provide for consumers. That theory or conviction comes not from a model of competition but from the model of perfect competition talked about in economic textbooks. I am grateful to John Kenneth Galbraith for pointing out in one of his earlier writings that perfect competition means the departure of any one player from the market should not affect the market and that it is only then one has perfect competition. If there is a duopoly, or even three companies, in the gas, electricity or telecoms market one does not have anything near perfect competition but a regime in which, de facto, people do not get too close to each other in terms of vigorous competition – I am not talking about people sitting huddled in a corner conspiring to prevent things being provided to the consumer. The problem for the regulator is that each will assert that the levels of charges or quality of consumer service is the minimum they can do in order to provide the service. We saw this being done very successfully in recent years when the banks persuaded the Director of Consumer Affairs that if she did not agree at a very minimum to the extraordinarily exorbitant rates they charged since the introduction of the euro for currency exchange between the IR£ and euro currencies they would not be able to provide currency exchange facilities. In other words she was persuaded by the effective duopoly, or oligopoly as they call it though there are really only four or five major players in banking, that if she did not agree to their levels of charges there would be no currency exchange available other than in large branches in a few big cities. It took the intervention of the European Commission, which raided the various banks, to draw a different conclusion, namely, that they were effectively ripping off Irish consumers, and in the past few months they have dramatically dropped and in some cases eliminated those charges. Because of their position in the Irish market, and the fact they are too big, the Director of Consumer Affairs, the effective regulator, was not in a position to enforce what was in the best interests of consumers.

This issue arises in terms of regulation in general. In a host of areas the reliance is on the belief that competition of itself is the best thing. Where there is sufficient competition which is real and vigorous, then the major beneficiary is the consumer, and the only caveat I would ever enter is that competition should not be based on exploitation of labour. In other words, there must be proper labour law to protect individual workers from exploitative practices by employers in the interests of competition. That said, competition can be a good thing. The trouble is that there are doubtful practices even where there is a genuine, functioning and close to perfect market with multiple service providers in competition with each other on a continuous basis. There is hardly a small town in Ireland in which one will find any variation in the basic price of alcoholic drink in the pubs. It is one of these wonderfully remarkable Irish coincidences that every pub in a given town charges effectively the same price. This is true throughout the country and nobody has ever managed to prove there was a conspiracy. Individual publicans will say they cannot reduce prices because the Licensed Vintners' Association or whatever the organisation is in country areas would be down their neck. It is not that all publicans pick up the telephone and agree to fix a price, but they know the agreed rate.

To a degree business is a conspiracy against the consumer, and unless there is real, vigorous and actual competition that is how it will remain. We now have a glorious example. The experiment of having a Director of Telecommunications Regulation has been an unmitigated disaster and I have often said she should resign and that if she does not then the legislation should be rewritten. The reason I say this is that the office believes that encouraging competition between the service providers, be it in telecommunications or cable television, is the best way to protect the consumer. That means they provide the minimum services and do not provoke her wrath. In return for that minimum service extraordinarily high charges are allowed. NTL will get a 33% increase, which is quite extraordinary. Imagine if these cable operators were directly accountable to a Minister, and the Minister announced that one of them was going to introduce an increase of 33% in their basic rate of service provision. We can imagine the uproar there would be in the Dáil. The Minister would be hauled before an Oireachtas committee and would have to go through it in fine and precise detail.

From endless and frustrating correspondence with the Office of the Director of Telecommunications Regulation I know the director has no interest in dealing with the misuse of consumers by these quasi monopolies, which is what they are in their areas of operation. They are monopolies and are allowed abuse and presume on their consumers. The city in which I live is a classic example. It has the highest charges in the country for cable television and the company is looking for a 35% increase for an abysmal service which is poor in quality and choice, unreliable and mostly unavailable when anything goes wrong. The horrendous idea that the company might become a major player in the telecommunications industry is the sort of nightmare that would keep anybody worried about our economic prospects awake at night. That is why I have a problem with this silly emphasis on detached regulation without political accountability where there is no real vigorous competition in the market. One ends up with the worst of both worlds, namely, quasi monopolies which can bluff the regulator, such as the Director of Consumer Affairs in the context of banks. The regulator either ends up giving in to them, or in the case of the air transport regulator, making decisions which superficially seem manifestly daft, as was the idea that the major airports in Ireland do not need massive investment.

Those who pass through Dublin Airport know it is overcrowded and poorly run and organised. It is manifestly clear that somewhere along the way somebody forgot the consumers, and this is the issue which arises time and again. As I recall, when the legis lation dealing with the air traffic regulator was being debated in the House I, Senator Fitzgerald and others argued with the Minister that the consumer of the air traffic service was not central to it. All sorts of people were mentioned, but the passenger was not mentioned. One of the problems is getting carried away in high powered corporate strategies and technological shifts and forgetting about the fact that none of it is any good if it does not make the consumer better off.

Let us remember what happened in the case of the ESB. A month ago, we had the extraordinary case of the ESB's potential competitors queueing up to go on radio to demand that the electricity regulator allow the ESB to increase its charges because they could not compete at the prices the ESB was charging. The ESB does not get public subsidies or use public money. It is a viable and vibrant company which has adjusted to change dramatically well. It competed with private and public companies in the international marketplace very successfully until the Government decided to sabotage it recently. However, it is now being told it is getting a subsidy that nobody can find and therefore its charges must increase so that competition can enter the market. What good is that for consumers of electricity? It is no good, but it is good for people who want to compete with the ESB. I worry about the same thing happening in the gas market.

Irish consumers are bemused by the things that do not happen. For instance, if they go abroad with their mobile phones, they can pick up whatever service is available and strongest in an individual area. However, at home people can use only one service and if there are areas where one service is weak and another is strong, it is not possible to switch to the other service. This is because the companies have persuaded the regulator this would be bad for them. It is not a problem to do it; it can be done all around the world. The billing and the referral back, etc., must be much more complicated. A phone user can do it manually; it does not happen automatically. However in Ireland an Eircell customer in an area where the Eircell signal is weak and the Esat one is strong is not allowed to use the other service. This may suit the companies and suit some grand strategy on the part of the regulator, but it most assuredly does not do what all this is supposed to do, which is to make it cheaper and to make the quality of the system better for consumers.

I have no problem with the principle here, but we need to put together a structure which makes each of these regulators accountable to consumers on a regular and vigorous basis. First, there should be a statutory and powerful consumer council in each case to which the regulator is accountable on a daily basis and confidentiality clauses, commercial sensitivity clauses, etc., can only be invoked under the most serious circumstances. Second, there should be a committee of the Oireachtas to deal exclusively with regulators so that they are accountable to the Oireachtas on a continuing basis.

I am continually reminded of something that a colleague of mine quoted about the behaviour of the National Roads Authority at a meeting in County Meath. Somebody said that if they wanted to, they could put a road through the Hill of Tara and nobody could stop them. That sort of institutional arrogance is not the way we want our institutions to work.

Competition works if it is better for consumers. That should not need to be emphasised, but it does. If it is better for business or the State, that comes second, but it has to be, first, better for consumers and, second, it has to operate in a way which deals with the long-term national strategic interest. I worry that many regulators lose vision of those two essential requirements.

Minister of State at the Department of Public Enterprise (Mr. Jacob)

I thank the Members for the valuable contributions made here today. I am heartened by the interest shown during the debate.

This is very technical legislation. The Bill represents a significant step in the process of liberalising our natural gas market and the development of an appropriate regulatory regime is a vital tool in achieving this objective. The first and most pressing issue is the removal of the anomaly whereby the Minister is both regulator of the sector and shareholder of BGE. The Bill deals with this through the transfer to an independent regulator of the relevant statutory functions.

The Bill also provides for an increase in competition in the gas supply market as well as a mechanism whereby the level of competition can be further increased in the future. A new licensing framework for existing and new natural gas undertakings is also provided for in the Bill. There were no previous legislative provisions dealing with the licensing of gas undertakings. The new licensing framework will give the regulator the opportunity to impose terms and conditions on operators to ensure the development of effective competition on a fair and non-discriminatory basis.

Since the publication of the Bill, my Department has received a number of comments on the Bill's provisions from interested parties and along with the helpful comments made here today, I shall be considering these with a view to bringing forward relevant amendments to the Bill as appropriate on Committee Stage.

Senator Caffrey mentioned the extension of gas to the north-west and I thank him for his kind comments. The Government's decision in relation to Ballina, Sligo and Letterkenny is a clear indication that, in this era of liberalisation, the needs of the regions are not being overlooked. The fact that the Bill envisages no public service obligations for extensions of the network to areas where it would not be commercial does not affect the Government's decision. It simply means that Exchequer funding will be needed for the non-commercial costs rather than have gas consumers pay the piper.

Senator Caffrey also mentioned the need for clarity in section 8 relating to a number of issues including gas quality. This section relates specifically to the functions of the Minister as shareholder of BGE and the CER has no role to play in this matter.

Senator Caffrey also mentioned the need for operators of storage facilities to acquire the approval of the Minister for the Marine and Natural Resources. This approval is required under the terms of the operators development plan for the gas field under the Petroleum Development Acts, which is clearly a matter for the Minister for the Marine and Natural Resources. Storage licences required under this Bill will cover the operations of such a facility in the context of the competitive gas supply market. This is a matter for the regulator of the gas market. There is no overlap between these issues.

Senator Caffrey also mentioned other issues requiring clarification. I shall be looking carefully at these on Committee Stage. Senators Caffrey and Fitzgerald alluded to the commission's existing role in promoting efficiency in the electricity sector. I take the points made and I shall ask my officials to examine this issue to ensure there is consistency between the commission's duties with regard to both the electricity and the gas sectors.

Senator Fitzgerald also referred to the extension of the network to smaller towns, a point that was also addressed by Senator Caffrey. When the pipeline projects being developed by Bord Gáis Éireann, the ring main and the Mayo-Galway line, are completed and the network is extended to the north-west, we will have extensive coverage throughout the country. These transmission pipelines create many opportunities to connect towns along the routes. BGE keeps under ongoing review the options for connecting towns.

Senator Fitzgerald also mentioned the Government's decision to contribute to the development of the gas network in Northern Ireland. This is a significant decision that will bring benefits North and South. It is an integral part of an all-Ireland energy market to which we all aspire. I thank Senator Fitzgerald for his other incisive comments and I look forward to his contribution on the remaining Stages of this legislation.

Senator Quinn referred to the interim nature of the Bill. I assure Senator Quinn that this does not diminish the value of the Bill. This is an extremely technical and complex area and I am anxious not to delay the introduction of independent regulation. We will be taking a comprehensive look at regulation of the gas sector and consulting widely with interested parties. This will allow us to have regard to the further developments on gas liberalisation being discussed in Brussels and to include developments relating to all-Ireland energy.

I agree with Senator Quinn that there is a great deal more to regulation than just balancing competitive forces. That is the reason I have specifi cally included in the Bill a provision giving the power to the Minister to introduce public service obligations that in broad terms will address the general economic interest and which take account of general, social, economic and environmental factors. This mechanism should introduce the additional balance required and suggested by the Senator.

Senator Quinn also raised the question of whether the Government should retain responsibility for regulation. Potential investment, which is so important for our economic development, is best served by independent regulation. That is something that has been made very clear by investors.

Senator Walsh pointed out that the regulator is not a free agent. He is bound by the legislation the Oireachtas will enact and he is answerable to the Comptroller and Auditor General and the Oireachtas joint committee.

Senator Walsh queried the wisdom of using gas to generate electricity. Gas is the fuel of choice of electricity generators but I am very much aware of the need to ensure that an increase in the use of gas for power generation does not jeopardise our security of supply. Securing the continuity and security of natural gas supply will be a duty of the Commission for Electricity Regulation.

Senator Ryan mentioned the accountability of the regulator. The Schedule to the Electricity Regulation Act, 1999, which established the Commission for Electricity Regulation, provides that the commission shall submit on an annual basis its accounts to the Comptroller and Auditor General for audit. The audited accounts, along with the Comptroller and Auditor General's report, must be submitted to the Minister within six months of the end of the relevant financial year and the Minister is required to lay copies of these documents before each House of the Oireachtas. Furthermore, the commission is also required, under the provisions of the Schedule, to account for the performance of its functions before a joint committee of the Oireachtas, not just every two years but whenever the joint committee requests it. These obligations will continue to apply to the commission in regard to both its electricity and natural gas functions following enactment of this Bill.

I have every confidence in the ability of the joint committees to ensure that regulators carry out their functions properly. I do not share Senator Ryan's views on this particular issue. Senator Ryan spoke about competition and whether it is best for consumers. I listened carefully to Senator Ryan and I remain convinced that competition is the best way forward. As the gas network is extended and the number of consumers grow, more and more suppliers will enter the market. This will lead to improved and cheaper services for consumers. Under the provisions of the Bill, both the Minister and the Commission for Electricity Regulation have responsibility to act in a way that protects the interests of consumers.

I thank all Senators who made valuable contributions to the debate this afternoon. I look forward to being here again to deal with Committee Stage. I thank Members for their assistance and their courtesy. I would also like to warmly thank my officials who put a great deal of work into putting together this important legislation.

Question put and agreed to.

Committee Stage ordered for Wednesday, 10 October 2001.

Sitting suspended at 5.20 p.m. and resumed at 6 p.m.