I am pleased to introduce the Gas (Amendment) Bill, 2000 to the House. While the Bill deals with four different matters, there is a particular urgency relating to one matter – the scheme to allocate scarce gas capacity to new power stations. I will explain this in detail shortly but I stress that there is a real need to have this legislation adopted before the recess in order that power station developers may proceed with their projects.
The three other issues dealt with in the Bill are provision for the enlargement of the functions of Bord Gáis Éireann to allow it to engage in non-gas related activities; provision for an amendment to the existing Gas Acts to increase the borrowing powers of BGE from £350 million to £550 million; and provision for amendments to the Gas Acts (as amended) to introduce the same consent requirements for all people wishing to build natural gas pipelines. In this respect it will give private pipeline developers the same powers to access and compulsorily purchase rights over land as those currently enjoyed by BGE for the purpose of building pipelines.
Before I explain the detailed provisions of the Bill, I will give the House a brief account of developments in the natural gas industry in Ireland. Since its establishment in 1976, BGE has achieved significant progress in developing the natural gas industry. It built an interconnector with Scotland in 1993 to augment supplies from Kinsale. BGE now supplies natural gas to over 300,000 homes and has over 10,000 industrial and commercial customers. Natural gas now meets around a quarter of our total primary energy requirements.
Natural gas has also come to play an increasingly important role in electricity generation in recent years. Last year over 30% of electricity generating capacity in the State was fuelled by natural gas. This reflects trends at European and global levels. Natural gas is now the fuel of choice for power generation and has significant efficiency and environmental advantages.
The natural gas industry is undergoing a significant period of change, not only at national level but at European level. The EU gas directive, adopted in 1998, requires gas market opening to be introduced on a phased basis over a period of ten years up to 2008.
Ireland already exceeds the market opening requirements of the EU Directive. Under the Energy (Miscellaneous Provisions) Act, 1995, large gas consumers may buy their gas from suppliers other than BGE and have it transported through BGE's network on their behalf. This means that in volume terms more than 75% of Ireland's market is opened. A number of large companies are currently sourcing some of their gas from outside the State and importing it through the interconnector. I am currently reviewing the pricing arrangements for third party access to the gas network and I expect to have this finalised in the near future.
One of the issues being dealt with in this Bill, a scheme to allocate scarce capacity in the natural gas network, is a very pressing matter and I will outline to the House the background to this issue. Existing indigenous reserves of natural gas in Kinsale are declining and the interconnector with Scotland is nearing full capacity some ten years sooner than had been anticipated owing to faster than expected growth in demand. This growth in demand is a function of our economic success and the opening of the electricity market.
Against this background, my Department and BGE undertook a major study – Gas 2025 – to examine future natural gas infrastructural requirements. This study made a number of recommendations regarding future gas supply options and considered that the optimal solution would be to construct a second natural gas interconnector, parallel to the existing interconnector with Scotland. This option was endorsed by independent economic consultants. They recommended, however, that we wait and see the outcome of the exploration of the Corrib gas field off the west coast before deciding on future gas supply infrastructure. The Corrib partners will make a decision later this year on the commercial development of the field.
There are also other parties interested in building gas supply pipes, one from Belfast and one from Wales.
It is expected that the capacity in the natural gas network will be sufficient to meet final demand until 2003. If one or other of the private developers is not committed to building the necessary infrastructure by the end of this year at the very latest, to cater for demand beyond 2003, I will approve the building of a second interconnector by BGE. This will allow sufficient time for new supply infrastructure to be in place to meet anticipated demand.
I want to turn briefly to developments in the newly opened electricity market, which are impacting on the gas market. In anticipation of the opening of the electricity market to competition in February this year, a number of companies wishing to enter the market approached BGE last year to book capacity in the network to carry gas to fuel their proposed power plants. The applications for capacity, which were received by BGE, exceed to a significant extent the capacity that will be available in the network in the medium term.
Forecasts for future electricity demand show that an increase in power production capacity of 600 megawatts will be necessary by winter 2004. In order to ensure that the electricity needs of the State can be met over the next few years, I decided that available capacity in the natural gas network would be reserved specifically for the purpose of fuelling up to 800 megawatts of new gas-fired power stations. While this will meet the electricity needs of the country, it is insufficient to satisfy the demands of all the prospective power producers who applied to BGE for network capacity. Consequently, I decided that a scheme for the advance selection of power producers, to whom network capacity would be allocated, was necessary, and that the allocation scheme should have particular regard to the need to ensure that new power plants were commissioned as soon as possible. Having regard to the provisions of the EU gas and electricity directives, the Attorney General advised that any allocation scheme devised should be put on a statutory footing.
I want to clarify why it is necessary for gas capacity to be allocated now, rather than when new capacity becomes available for purchasing. Certainty about gas capacity is necessary in order for large-scale power projects to commit investment. There is a 24 month lead-in time from the commitment of investment to the production of electricity. This means that a delay in the allocation of gas capacity until the end of the year, when there will be certainty about new supply infrastructure, could lead to electricity problems in about two years' time.
My Department consulted widely with interested parties on the process to be employed in allocating capacity to prospective power producers. In light of the outcome of that consultation, I decided that the best interests of electricity consumers would be served by allocating capacity on a "first-to-market" basis. A further issue which I also considered was the question of who would be responsible for conducting the allocation scheme. BGE normally allocates capacity as part of its transportation business. However, as BGE has declared its intention of entering the electricity market, it obviously would not be desirable to have a situation where they would be responsible for allocating capacity to potential competitors. In order to prevent any possible suggestion of discrimination, I decided that responsibility for allocating capacity to prospective power producers should be given to an independent agency. Accordingly, I decided that the allocation scheme should be conducted by the Commission for Electricity Regulation.
I now turn to the provisions of the Bill. Section 1 is a standard provision in legislation where the relevant terms used in the Bill are defined. Sections 2 to 16 of the Bill are the relevant sections relating to the capacity allocation scheme and the conduct of that scheme by the Commission for Electricity Regulation. Section 2 empowers the Minister, after consultation with the Commission for Electricity Regulation, to make regulations authorising the commission to allocate a specific amount of natural gas capacity in any one year to the power producers who will be selected by the commission under the scheme provided for in the Bill, and any regulations made under the Bill when enacted.
Sections 3 to 5 set out the details of the procedure to be provided for in regulations which will be employed by the commission to select power producers to whom capacity will be made available. Essentially, this procedure entails the power producers making an application for capacity in the network. The commission will then rank these applications in order of precedence, on the basis of the estimated commissioning dates for the proposed power plants. The commission may make alterations in the ranking of applications to preclude the selection of an applicant where, in the opinion of the commission, the selection of that applicant would adversely affect the promotion of competition in the electricity market, provided this alteration in ranking would not jeopardise continuity of electricity supply.
Section 6 provides that the commission shall determine and publish the criteria to which it proposes to have regard, in deciding the date on which it estimates a proposed power station will be commissioned. These criteria must be published by the commission at least one month before the selection is made.
Section 7 gives the commission the power to require BGE or the ESB to provide certain information to it for the purpose of selecting power producers to whom capacity will be made available, or for the performance of any of its functions. It also obliges BGE and the ESB to comply with any request for information.
Section 8 enables the commission to give directions to BGE regarding the use and management of the natural gas network, where it considers that it is necessary to do so in order to ensure that the capacity rights of the power producers who are selected under this scheme are protected. The commission must consult with BGE before giving such directions.
Section 9 allows BGE, subject to the prior written consent of the commission, to enter into contracts with power stations, commissioned after the passing of this Bill into law, which have not acquired capacity rights under the Bill. In addition, the Minister may by order remove the requirement on BGE to obtain the prior consent of the commission in relation to contracts for capacity, if the Minister is satisfied that such contracts would not jeopardise power stations selected for capacity rights under the Bill.
Section 10 imposes an obligation on BGE to make capacity in the natural gas network available to the power producers selected by the commission under the scheme provided for in this Bill when enacted, or under regulations. The section sets out in detail the procedures to be followed in the contractual negotiations between BGE and the selected power producers, and the time limits to apply to each part of the process. It also contains a dispute settlement mechanism and allows the commission to alter the time limits if it deems it proper and specifies the new time limit in writing.
Section 11 provides that regulations to be made under the Bill when enacted may include provisions for bonds and levies. A requirement may be imposed on the power producers selected by the commission to effect a bond providing for the payment to the Minister of a specific amount which is calculated on the basis of the generating capacity of their proposed power plant, if the plant is not capable of sending out electricity to the transmission or distribution system on its estimated commissioning date.
Regulations may also provide for the imposition of a levy on selected power producers to defray the costs incurred by the commission in carrying out the selection procedure, and to recoup funds expended by the Minister to facilitate the commission in preparing to carry out its functions under this Bill or under the regulations. Regulations may include incidental, supplementary and consequential provisions as appear to the Minister to be necessary or expedient.
Sections 12 and 13 contain amendments to sections 11 and 12 of the Electricity Regulation Act, 1999. This will provide for the appointment by the commission of authorised officers to assist it in carrying out the selection process provided for in this Bill, and for the obtaining of search warrants where it considers it necessary.
Section 14 amends section 13 of the Electricity Regulation Act, 1999, and provides for a prohibition on unauthorised disclosure of information obtained by the commission in the performance of its functions under this Bill.
Section 15 contains an amendment of section 32 of the Electricity Regulation Act, 1999. The effect of section 15 is that any decision made by the commission under this Bill when enacted, or regulations made under this Bill, can only be challenged by way of judicial review proceedings. It precludes any person from questioning the validity of such decisions, save by way of judicial review initiated within two months of the date on which the decision to be reviewed is given. Provision is made for the courts, in specified circumstances, to vary this time limit.
Section 16 provides for the indemnification of the commission by the Minister out of moneys to be provided by the Oireachtas in relation to the performance of its functions under this Bill, or regulations made under the Bill.
I now wish to deal with the other elements of the Bill. Sections 17 and 18 relate specifically to BGE. Section 17 allows BGE, with the approval of the Minister, given with the consent of the Minister for Finance, to engage in any business activity that it considers advantageous, whether energy-related or otherwise. This amplifies the existing functions of BGE which are limited to the energy sector. Section 18 provides for the amendment of section 23 of the Gas Act, 1976, to increase the borrowing powers of the board from £350 million to £550 million.
Sections 19 and 20 amend sections of the Gas Act, 1976, to create a level playing field between BGE and private operators. The amendments introduce a consent requirement for all operators wishing to construct natural gas pipelines. Under existing legislation, only BGE is subject to a formal consent requirement. The amendments also give private operators the same rights of access to, and acquisition of, land currently enjoyed by BGE for the purpose of constructing pipelines. Naturally, the extension of these rights is subject to the payment of compensation and operation of a comprehensive set of procedures in relation to the exercise of compulsory purchase powers. The sections also contain a number of technical amendments consequential on the introduction of a level playing field. The combined effect of sections 19 and 20 is to place private operators and BGE on the same footing.
Section 21 contains two technical amendments to the 1976 Act consequential on the provisions in sections 19 and 20. Section 22 contains an amendment to the Registration of Titles Act, 1964, to place private operators on the same footing as BGE in relation to the 1964 Act. Section 23 provides for an amendment to section 8 of the 1976 Act which will enable me to attach similar conditions in relation to pricing to a consent for a pipeline constructed by persons other than BGE to those attached to pipelines constructed by BGE.
The remaining sections of the Bill contain provisions that are standard in legislation. Section 24 provides for the laying of regulations or orders under this Bill, when enacted, before each House of the Oireachtas. Section 25 provides that the expenses incurred by the Minister in the administration of the Bill shall be paid out of moneys provided by the Oireachtas to such an extent as may be sanctioned by the Minister for Finance. Section 26 contains standard provisions relating to the Short Title of the Bill and provision for collective citation, etc., of the Acts amended by it.
This concludes my introduction of the provisions of the Bill and I look forward to hearing the contributions of Members. I commend this Bill to the House.
I also wish to express my sincere thanks for comments made earlier in the House. Senators O'Dowd, Coghlan, Liam Fitzgerald and others made complimentary remarks about the outcome of the recent discussions on the OSPAR Convention on the marine environment and the substantial achievement that emanated from those discussions. I appreciate the support that has been forthcoming from and the consensus that has emerged over the past year among colleagues in this House, such as Senator O'Dowd, and the other House. I have no difficulty acknowledging that and it has been the main plank in the hugely elevated campaign that is now ongoing against Sellafield.
Senator Quinn had some concerns and I wish to explain the position to him. He asked why I was not present and he suggested that there may have been a good reason for my absence. There was a good reason and I favoured a ministerial segment in this important session of the OSPAR commission. I spoke with the Danish Minister when he visited me in Dublin to that effect. I also travelled to meet and speak to all the Ministers in the Nordic countries in an effort to gain support for our motion. However, it was decided to stick to the rules and protocol attached to the OSPAR commission and to leave the matter at official level. We maintained a hot line to our officials throughout the four days of negotiations. Massive preparatory work was done. I travelled to meet all the Minister in the OSPAR signatory states to try personally to bring them along.
Senator Quinn said it was a pity that our draft decision did not reach the floor. However, it reached the floor and it was there up to the final moments. Ireland took a strong line in the negotiations and the potent and tough Irish motion and the Danish motion were catalytic in creating a revised motion that was signed by eight countries, including Germany, which was significant. Another four countries were eventually brought along. A total of 12 countries, a qualified majority, demanded, in effect, the cessation of reprocessing of nuclear material in Sellafield and elsewhere.
It is a huge move forward and an escalation of the campaign against Sellafield. Today's newspapers positively reflect that situation. I again offer my sincere thanks to Senator O'Dowd and others with whom I am happy to work hand in hand over the coming period. I thank the Chair for its co-operation and indulgence in allowing me to make these points.
