Wednesday, 26 October 2011
Access to Central Treasury Funds (Commission for Energy Regulation) Bill 2011: Second Stage
I am glad to have the opportunity to introduce this short Bill to the Seanad. While it is short, it is nonetheless important in the interests of ensuring the cost of regulation to industry is kept to a minimum.
The Bill proposes to allow the Commission for Energy Regulation, CER, to apply to the National Treasury Management Agency, NTMA, for a loan to meet its start-up costs in connection with the new petroleum safety functions conferred on it pursuant to the Petroleum (Exploration and Extraction) Safety Act 2010. For clarity, the 2010 Act confers responsibility on the CER for the regulatory function for safety in the case of upstream petroleum activities and associated infrastructure.
The Bill also gives effect to a key recommendation made in the report produced by the independent consultancy Advantica in 2006 following its safety review of the Corrib gas pipeline. Advantica recommended that a new risk assessment-based safety framework with respect to gas pipelines be developed in line with best international practice and implemented in Ireland. The 2010 Act expanded on this concept to provide that petroleum activities generally would be governed by the new safety framework. The safety framework which is being designed will, in effect, be a manual setting out of the nature and scope of the petroleum activities and associated infrastructure that will be designated and subsequently regulated by the CER. It will include the systems and procedures to be operated by the commission in designating and regulating such activities and associated infrastructure, including an ongoing system for audit and inspection. It is envisaged that the framework will cover a wide range of activities, including the construction, operation, maintenance, modification and decommissioning of petroleum infrastructure.
The 2010 Act provides for the cost of establishing and implementing the new safety regime, to be funded by way of an annual levy on the petroleum industry and the imposition of administration charges with respect to the consideration by the CER of safety case applications and the issuance of safety permits. However, before the levy can be implemented, the safety framework must be designed and the associated regulatory structure and implementation regime devised. This is a technically challenging programme. It is estimated that full implementation of the framework will take approximately three years and cost in the order of €5 million.
I understand the budgetary and schedule estimates have been determined on the basis of discussions held by the CER with a number of specialists in the area of upstream petroleum safety. The CER has also drawn from its own previous experience of the implementation of the downstream natural gas safety framework pursuant to the Energy (Miscellaneous Provisions) Act 2006.
In order to provide the appropriate context for the Bill, I will set out briefly the background to the role of the CER and then describe the broad thrust of the petroleum safety framework implementation project being undertaken by the CER. I will also explain why the Bill is necessary in terms of funding the important safety function being undertaken by the CER.
As Senators know, the CER is an independent body which is responsible for the economic regulation of Ireland's electricity and gas sectors and the safety regulation of petroleum undertakings, natural gas undertakings, natural gas installers and electrical contractors. Its role as an economic regulator began with its initial establishment under the Electricity Regulation Act 1999 when it was conferred with regulatory powers with respect to the electricity sector. The enactment of the Gas (Interim) (Regulation) Bill 2002 expanded the CER's jurisdiction to include the economic regulation of the natural gas sector. More recently, the Electricity Regulation (Amendment) (Single Electricity Market) Act 2007 provided for the CER's role in relation to the single electricity market for the island of Ireland. This wholesale electricity market is regulated jointly by the CER and the Northern Ireland Authority for Utility Regulation. Through its economic regulatory powers and functions, the CER is working to ensure consumers benefit from regulation and the introduction of competition in the energy sector.
The CER's regulatory role was expanded to include safety regulation following the enactment of the Energy (Miscellaneous Provisions) Bill 2006 which assigned functions and powers to it with respect to the safety regulation of natural gas undertakings such as Bord Gáis Éireann, natural gas installers and electrical contractors. By virtue of the 2006 Act, the CER was required to establish and implement a natural gas safety regulatory framework which outlines how it discharges its downstream safety regulatory responsibilities. The natural gas safety framework was published in October 2007 and the CER has been regulating natural gas undertakings and natural gas installers through that framework since. In 2010 the commission's safety role was increased further with the enactment of the Petroleum (Exploration and Extraction) Safety Bill 2010. Under the legislation, the commission has been conferred with responsibility for the regulation of upstream petroleum activities with respect to safety, thereby consolidating its position as safety regulator for the whole of the petroleum and natural gas industry.
The 2010 Act amends the 1999 Act to require the commission to establish and implement a risk-based petroleum safety framework which, in line with best international practice, is based on a safety case regime. Under the Act, designated petroleum activities can only be carried out once a safety permit is granted, the issuance of which will be dependent on the approval of a safety case by the commission. For the avoidance of doubt, activities governed by the 2010 Act include any upstream petroleum activities subject to a petroleum authorisation such as the extraction and processing of hydrocarbons from a reservoir. With the enactment of the 2010 Bill and in assuming its new responsibilities, the commission formally established a project team within its safety division to manage the design and implementation of the petroleum safety framework. The team comprises three full-time staff supplemented by specialist consultants.
The petroleum safety framework implementation project is the process by which the commission will implement the requirements of the 2010 Act in full. This necessitates putting in place the people, processes and procedures to enable the effective operation and enforcement of the petroleum safety framework once designed. The process contains five phases which include: the initial scoping and planning phase, followed by the high level design of the petroleum safety framework; the detailed design of the petroleum safety framework; the internal readiness of the petroleum safety framework implementation project; and implementation of the safety framework programme.
The extent of the petroleum safety framework implementation project was determined by the commission in the scoping and planning phase. It involved an analysis of how petroleum activities were regulated internationally, as well as the regulation of such activities in Ireland. This phase was completed in March.
Following a public consultation process, as required under the Act, the next phase of the project includes the regulator establishing the high level design of the petroleum safety framework. As a first step in this process, in August the regulator published a consultation paper on the high level design of the framework. The purpose of the paper was to give the general public, industry and other interested parties an early opportunity to make a meaningful input into the framework's proposed design at an early stage. The high level design of the framework will frame the key policy aspects and will subsequently be developed into more detailed guidance and regulations, as appropriate. The commission expects to make its formal decision on the high level design of the framework in the second quarter of next year.
Following this, the detailed design phase will commence. This phase which is also expected to commence in the second quarter of next year will involve the development of the detailed elements of the framework, including, but not limited to, designated petroleum activities regulations, safety case guidelines, safety case assessment procedures, compliance assurance procedures and petroleum incident regulations. These elements will be subject to public consultation to allow for stakeholder and public participation in the detailed design of the framework.
The internal readiness phase will involve the commission putting in place the relevant people, processes and procedures to enable the effective and efficient implementation, operation and enforcement of the petroleum safety framework on an enduring basis. Following the issuance of the required detailed guidance outlined, the project will move to the implementation phase. This will involve the submission of safety cases by petroleum undertakings with respect to any designated activity they wish to commence and the approval and subsequent issuance of safety permits by the commission for each submitted petroleum safety case, as appropriate. The regulator expects to be ready to receive its first safety cases for assessment by the second quarter of 2013.
The anticipated implementation costs of the petroleum safety framework are approximately €5 million. Although the 2010 Act amends Schedule 1 to the 1999 Act to enable the cost of the commission's petroleum safety regulatory activities to be recovered through an annual levy on petroleum undertakings, such a levy cannot be imposed at this time. The commission must wait until the petroleum safety framework has been fully implemented and certain petroleum activities have been designated before specifying which petroleum undertakings are subject to the levy and enacting a levy order affecting these petroleum undertakings. Therefore, until such time as the framework is in place, the regulator cannot levy petroleum undertakings with respect to its properly incurred implementation costs.
To meet operational expenditure to date, the commission obtained, with my approval and that of my predecessor, as well as the Minister for Finance, commercial loans from financial institutions to cover the implementation costs of the project in 2010 and 2011. However, in the current economic climate, it would be more financially efficient for the commission to obtain such funding from the National Treasury Management Agency, given that a lower rate of interest would apply, thereby reducing the regulatory burden of the levy on the industry. To enable the NTMA to consider providing a loan for the commission, an amendment is required to the Schedule to the National Treasury Management Agency (Amendment) Act 2000 to establish the commission as a body to which such a facility can be extended. It is expected that, with the enactment of this Bill, the commission will apply to the NTMA to fund its safety framework implementation project. It will then repay this funding following the phased implementation of the petroleum safety framework, commencing in 2013, through the imposition of the prescribed annual levy on petroleum undertakings. Other bodies which can access funding through the NTMA include the Railway Procurement Agency and the Housing Finance Agency, as well as certain universities and institutes of technology.
The Bill only contains two sections. Section 1 amends section 18 of the National Treasury Management Agency (Amendment) Act 2000 to provide for the insertion of the Commission for Energy Regulation as a designated body under the provisions of the Act. Section 2 provides for the Title, that is, that it may be cited as the Access to Central Treasury Funds (Commission for Energy Regulation) Act 2011.
The Bill, while very short, is an important measure in facilitating the further strengthening of the overarching regulatory framework governing exploration for and production of oil and gas. By providing the commission with the opportunity to access borrowings at a lower interest rate, it will assist in the establishment of greater clarity and robustness of process at a reasonable cost to the industry. I look forward to listening to the views of the Members and their assistance in progressing the Bill into law. All we have to do now is find the oil and gas. I commend the Bill to the House.