HL Deb 11 February 2003 vol 644 cc15-21GC

11.1 a.m.

The Lord Privy Seal (Lord Williams of Mostyn)

I beg to move that the Grand Committee do report to the House that it has considered the draft Energy (Northern Ireland) Order 2003.

This takes forward the Energy (Northern Ireland) Bill. It had begun its Committee stage in the Assembly in Belfast when suspension occurred. Members of the Committee will have seen a number of important changes in the energy sector in Northern Ireland. These follow a number of extensive consultation exercises. The existing regulatory and consumer representation arrangements will be reformed in order to put in place structures to address better the needs of Northern Ireland energy consumers.

Articles 3 to 7 establish a new Northern Ireland authority for energy regulation and articles 41 to 51 give that authority powers modelled on equivalent provisions in the Utilities Act 2000. The new authority is also given power in article 8 to co-operate on energy issues with other European member states. That will ensure continued co-operation between Northern Ireland and the Republic of Ireland on energy issues.

The new consumer arrangements in articles 9, 10 and 16 to 27 will bring responsibility for all energy consumer issues within the remit of the General Consumer Council for Northern Ireland. The council will be given increased powers in respect of its electricity and gas functions. Those correspond generally to those given to Energywatch in Great Britain by the Utilities Act 2000. Both the council, under article 16, and the authority, under articles 12 and 14, are required to have particular regard to the needs of vulnerable consumers, such as the disabled, the elderly and those on low incomes. I am sure that Members of the Committee will particularly welcome those provisions.

The order will help to stimulate the generation and consumption of renewable electricity by enabling the creation of a renewables obligation that is similar to that in Great Britain. The relevant provisions are articles 52 to 58.

Articles 28 to 40 alter the current licensing system for electricity and gas to enable restructuring of energy business activities to enable full market opening in electricity or, if necessary, for the efficient operation of the electricity and gas markets. Under articles 59 and 60, the order ensures that a major extension of the gas industry can proceed by means of a system of "postalised" gas conveyance charges. Those provisions have been amended during the Bill's conversion to an Order in Council to reflect consultations with the gas companies. Other changes include: an alteration to the definition of electricity transmission, which will enable interconnectors to be licensed—I refer to paragraph 1 of Schedule 3; under article 56, a provision is introduced that will enable the operation of a "guarantee of origin" arrangement to promote renewable energy across Europe through mutual recognition of certificates by member states; and, under article 64, the inclusion of a provision to enable existing and future electricity and gas wayleaves to be made assignable, which remedies a defect in the existing legislation.

This legislation will benefit the Northern Ireland energy consumer and it will position Northern Ireland to adapt to the changing energy environment in a way that is relevant to the energy industry there. It also aligns more closely energy policy throughout the United Kingdom. I commend the order to the Committee.

Moved, that the Grand Committee do report to the House that it has considered the draft Energy (Northern Ireland) Order 2003.—(Lord Williams of Mostyn.)

Lord Glentoran

I thank the noble and learned Lord for briefing us clearly and positively on the order. It is a wide-ranging and very technical order and applies as much to the industry and the trade as to those of us living in Northern Ireland. I also thank the officials for the thorough briefing that they gave me last night and for their attempts to explain some of the technicalities.

On the positive side, I believe that the Northern Ireland Assembly fully supports the legislation, which has now become an Order in Council. When discussing anything to do with energy in Northern Ireland, we should never forget that we have the most expensive energy in Europe. Nothing in the order as it stands will improve that.

I am a little concerned about one or two other matters in the order. Postalisation could lead us into a situation in which we are subsidising energy in the Republic of Ireland from parts of the north-east and east of the country. In other words, if it was not for postalisation, the cost of energy from the east coast—Ballylumford and so on—would be considerably less. However, investments to take gas to Londonderry to allow another power station to be built and operate there, which would sell its electricity to the Republic, distort the situation somewhat for the local consumer in Belfast. In these days of an integrated Europe, perhaps I should not complain about such matters, although I believe that they are relevant. I am sure that the noble and learned Lord will reply that this is all in the best interests of those of us living in Northern Ireland.

I could raise several further points in this context but I shall not. I am delighted that the obligation for renewables is in the order. I am slightly confused because the Explanatory Notes state that in relation to the supply of electricity generated from renewable resources, an obligation will be based on the requirement that a proportion of the total supply of electricity to consumers in Northern Ireland "must be renewable energy". Excellent. The provision also introduces the concept of green certificates. That, too, is excellent; we did not have that a year or two ago. However, there appears to be a slight contradiction. The last line states: This part also abolishes the department's current powers in relation to non-fossil fuel obligations". I am not sure that I understand the relationship between those two issues. However, the order's references to renewables and non-fossil fuel obligations are excellent.

I had a briefing from British Gas yesterday and was requested—I believe that I am allowed to do this—to ask the Minister a question; that is, can the Minister confirm that it is his department's intention that the gas pipeline companies that are affected by the legislation will be notified of the period for which they will be included in the postalised system and that there will be no discrimination between different pipeline companies involved in gas transportation for Northern Ireland?

I return to the question of engineering lower-cost energy for Northern Ireland—reducing the cost of energy to the consumer. At the end of a briefing note that I was given, I was told that in discussion in the Assembly, some amendments were asked for but one in particular was not included. The intention was that the mechanism would be used to refinance various energy assets and contracts, many of which are currently financed by high-interest bonds with consequent savings for consumers. The department spent considerable time working on developing a legislative provision but unfortunately it was not possible to complete the work without threatening the timetable for the order. I do not suggest that we should threaten the timetable for the order in any way but I should like an undertaking from the noble and learned Lord that the work will continue and I hope that we will arrive at a satisfactory solution in due course. In principle I support the order.

Lord Smith of Clifton

We, too, support the order. It is particularly welcome and most satisfactory that gas will be extended beyond the greater Belfast area to Londonderry. There remains the problem which the noble Lord, Lord Glentoran, mentioned—the extraordinarily high cost of fuel in Northern Ireland, which seriously jeopardises its national and international competitiveness.

Although I note that the measure is cost neutral, I also notice that, in the Assembly, Mr Sean Neeson raised the question of whether there would be a buy-off of long-term energy contracts through either a bond mechanism or low-cost loans. That was agreed in the special Enterprise, Trade and Industry Committee meeting at the time of the Assembly's suspension. The then Minister, Sir Reg Empey, agreed with the committee that some buy-out mechanism should be included. In a meeting earlier this month, Mr Pearson, the Minister, gave Mr Neeson an assurance that that would happen. Last Wednesday, however, I understand that Mr Pearson issued a press statement that he would not do that. I wonder why there has been this volte face in the past few weeks. Perhaps the noble and learned Lord can offer an explanation.

Lord Rogan

I welcome the order. Indeed, my party colleague, Sir Reg Empey, in his capacity as Minister for the Department of Enterprise, Trade and Investment prior to the suspension of devolution, introduced the Energy Bill in the Assembly. As I said yesterday, my only regret is that the Assembly has been denied the ability to bring the legislation into law.

The order is the result of extensive consultation on a DoE paper on renewable energy entitled "Realising the Potential", in October 2001, and a further paper on the direction of a new energy market strategy, published in March 2002. There was widespread support for the introduction of an obligation on electricity suppliers to encourage further growth of renewable energy in Northern Ireland. The department was also able to identify priorities, such as consumer representation, the regulatory framework and the postalisation of gas conveyance prices.

I welcome the creation of a new Northern Ireland authority for energy regulation. This will bring energy, electricity and gas regulation together for the first time. It will also allow the authority to take account of the interests of consumers of gas when considering electricity issues and vice versa. While the authority will be modelled on the structures already in existence in England and Wales, our consumer arrangements are totally different from those in Great Britain. I trust, therefore, that the Northern Ireland authority will be tailored specifically to the needs of Northern Ireland. I also welcome the provision to bring responsibility for energy consumer representation issues together under the remit of the General Consumer Council for Northern Ireland. I am particularly pleased to see that in support of this, the council is to be given strengthened powers to deal with electricity and gas matters and that the council and the authority are required to have a close working relationship.

The provisions regarding postalisation of gas conveyance charges are vital elements of the order. Postalisation is absolutely necessary to enhance Northern Ireland's infrastructure and enable the gas project to go ahead in the north-west of the Province. Postalisation will mean that the charges for conveying a therm of gas through designated pipelines will be the same regardless of the distance that it is conveyed or the number of pipelines through which it is conveyed. However, I hope that the Minister will be able to tell us what impact that is likely to have on electricity prices.

Like the noble Lords, Lord Glentoran and Lord Smith, I am very disappointed that the order does not contain provisions for a low-cost borrowing mechanism. My colleagues in the Assembly assure me that there was much support for that—indeed, it was part of detailed discussions with the Treasury—and that an amendment would have been introduced to facilitate it. Devolution has, however, been suspended and no such amendment has been introduced to this order. Can the Minister give us an indication as to why that is being held up? Why is there such a delay? The longer the delay continues, the more it would appear that a vanguard of civil servants are determined to halt its introduction. Can the Minister assure us that that perception is false and give us an indication as to when a low cost borrowing mechanism will be introduced?

I welcome this order and trust that it will indeed allow consumers to get the best deal and ensure that our economy is as competitive as it can possibly be in relation to our neighbours.

11.15 a.m.

Lord Williams of Mostyn

I am grateful for the response, which is generally favourable. I am also grateful for the questions that have been put; some of them are plainly of great importance to our colleagues who live in Northern Ireland and are consumers, either corporate or individual.

The noble Lord, Lord Rogan, spoke about the effect of postalisation on electricity prices, although I think he welcomed the concept. The cost of transporting gas to power stations will increase by virtue of postalisation but we think it will be of the order of 0.6 per cent—a relatively small increase. But that increase does not take into account the greater efficiencies of the new combined cycle gas turbines at Ballylumford and Coolkeeragh power stations, so there would be a downward pressure there. One would hope that, in the end, the consumer would not notice any adverse effects. Of course, the Moyle interconnector was put into commission in January of last year, so prices to large industrial consumers should remain unaffected.

The noble Lords, Lord Rogan and Lord Glentoran, spoke of the general commercial consequences in Northern Ireland.

Low-cost borrowing was referred to by three Members of the Committee. We gave serious thought to the creation of a legislative mechanism to reduce the cost of borrowing in the energy sector in Northern Ireland. The noble Lord, Lord Glentoran, referred to representations from a number of companies and the noble Lord, Lord Rogan, referred to a number of Northern Ireland Assembly Members being confirmed.

It is a complex exercise; there are policy implications in using legislation with such purposes, but I cart tell Members of the Committee that the Minister, Mr Pearson, has given a firm commitment to continue work on this matter and to examine all options to reduce prices. I cannot give the noble Lord a precise date, but that is a firm commitment from the responsible Minister.

The noble Lord, Lord Glentoran, asked about urgency. The postalisation provisions are urgent to enable a major gas project to proceed, as in articles 59 and 60.

All Members of the Committee who have spoken have a valid point—consumers in Northern Ireland are paying more for their energy. I understand that commitments have been given that work will continue to find a way of securing reductions.

The noble Lord, Lord Glentoran, asked about the non-fossil fuel obligation. The former obligations will be replaced by the renewables obligation, but the non-fossil fuel contracts will be honoured and output from those contracts will be recognised for renewables obligations certificates.

The noble Lord also spoke about the possibility of subsidising those who live in the Republic of Ireland. As he knows, there is close co-operation between the responsible departments. It is sensible, when considering a single European energy market, to view co-operation as being extended to include the interconnectors. The order puts on a statutory basis the provisions of article 8, relating to co-operation between regulators. However, I am assured that the gas postalisation provisions do not amount to cross-subsidisation.

The noble Lord asked some other questions. One was whether the implementation would have a detrimental effect on the gas companies. The provisions of articles 59 and 60 have, I think, widespread support. They will come into operation on the day following that on which the order is made. Postalisation will not affect contractual obligations.

The noble Lord also asked whether the gas companies would be notified for the period for which their pipelines would be included. The provisions of article 59(6) were added to deal with that concern. The provisions ensure that a period, once specified, cannot be altered. All arrangements relating to postalisation will be the subject of detailed discussions involving the regulator, the department and the gas companies.

I think that I have dealt with all the questions from Members of the Committee. On behalf of our officials, I express my gratitude for the remarks made by the noble Lord, Lord Glentoran, about how helpful they have been. I repeat that if any of your Lordships would like a private briefing with officials on any occasion and in connection with any order, my office will be happy to facilitate that. As the noble Baroness, Lady Harris of Richmond, knows, that includes the opportunity for consultation using the excellent video facilities in the Northern Ireland Office in London.

On Question, Motion agreed to.