1. New CER Commissioner

The CER is led by a Commission consisting of up to 3 full-time Commissioners at any one time. We are delighted to announce that Dr. Paul McGowan was made a Commissioner on 1st March 2013, joining Chairperson Dermot Nolan and Commissioner Garrett Blaney. We wish Paul every success in his important new role.

Commissioner Paul McGowan

As a background, by profession Paul is a Chartered Quantity Surveyor and has worked in various positions in the CER for well over a decade. After joining the CER in 2000 as a Senior Analyst, Paul was promoted to Head of Gas in 2002 and set-up the CER’s new gas regulatory functions. Paul then became a Director of All-island Energy Markets, playing a key role in establishing the all-island wholesale Single Electricity Market (SEM),

which went live in November 2007. Subsequently Paul was made Director of Safety and Customer Affairs, with responsibility for the implementation of the CER’s new statutory functions in safety and the CER’s statutory complaints service for energy customers via www.energycustomers.ie.

As a Commissioner, Paul will focus on leading the CER’s safety and retail responsibilities and the national smart metering roll-out programme. Further details on the lead responsibilities of each of the Commissioners will be published shortly on the CER’s website, www.cer.ie.

2. Petroleum Safety

In June 2012 the CER published its decision on the high-level design of the Petroleum Safety Framework. This Framework sets out

The Commission for Energy Regulation (CER) is the independent body responsible for regulating the energy sector in Ireland, with responsibilities in economic, customer and safety regulation.

We are pleased to publish this newsletter, which provides an overview of some of the key work carried out by the CER over the last six months.

There are also other aspects of the CER’s work which are not detailed in this newsletter - further information can be found on our website at www.cer.ie.

Newsletter

March 2013

a new regulatory safety system for oil and gas exploration and extraction activities in Ireland, both off-shore and on-shore, as provided for under the Petroleum (Exploration and Extraction) Safety Act.

Following the publication of the high-level design of the Framework, the CER began the development of a number of technical procedures and regulatory guidance documents that are necessary for its full implementation in late 2013. Three of these documents were published for public consultation in November 2012, namely:

Consultation Paper on the ALARP • Demonstration Guidance, which provides CER proposed guidance to petroleum undertakings on the demonstration of ALARP within its Safety Case.

Consultation Paper on the Designated • Petroleum Activities Regulations, which outlines the CER proposals for the petroleum activities (and associated infrastructure) that will require an approved Safety Case from the CER prior to being carried out by the petroleum undertakings

Consultation Paper on the Safety Case • Guidelines, which sets out the CER proposed guidance to petroleum undertakings on the appropriate contents of its Safety Case.

Decision Papers on each of the above were published on 28th February 2013.

The CER has also published its decision on the Petroleum Safety Levy Methodology on 14th February 2013, setting out the methodology that the CER will use to apportion the costs of running the Framework across the industry.

The fi nal set of documents that will comprise the Petroleum Safety Framework will continue to be

developed and publicly consulted upon over the next nine months.

To provide further information on the development and implementation of the Framework, the CER has published a detailed implementation plan on www.cer.ie. This sets out the Project progress to date as well as the expected publication dates of remaining deliverables.

3. On-shore Energy Safety

Prosecutions for illegal gas works

It is illegal for a person who is not registered with the Register of Gas Installers of Ireland (RGII) to carry out work on gas fi ttings that are used or designed to be used in a domestic (residential) setting. The most common works which come under this defi nition include the servicing of a domestic natural gas or LPG boiler. Non-portable domestic LPG appliances located in a caravan, motor caravan or mobile home are also included.In 2010, the CER secured its fi rst prosecution in this area and this was followed in 2012 by 2 further prosecutions for illegal gas works. These prosecutions show the CER’s continued determination to use the law to enforce Safety Standards where necessary.

For details on how to fi nd a Registered Gas Installer please see http://www.rgii.ie.

Restricted Electrical Works update

The CER is working with the Department of Communications, Energy and Natural Resources to fi nalise a statutory instrument which, when enacted, will prohibit anyone but a Registered Electrical Contractor from carrying out electrical work in a domestic premises. This does not include minor works, for example like-for-like change of a light switch. The date for this change will not be fi nalised until the statutory instrument has been approved by both houses of the Oireachtas. This is expected to happen during the fi rst half of 2013.

For details on how to fi nd a Registered Electrical Contractor please see www.safeelectric.ie.

Natural Gas Safety Framework Report

In November 2012 the CER published the 2011 Natural Gas Safety Framework Report, which is issued annually to summarise the safety performance of natural gas undertakings regulated by the CER under the Natural Gas Safety Framework. This report included a new section outlining the dangers of Carbon Monoxide, which can be a hazard associated with the burning of any fossil fuel. The CER also coordinated the running of a Carbon Monoxide Awareness week which ran during the course of September 2012.

The report also outlined the proposed development of the Framework to incorporate new safety powers that have been granted to the

CER under new legislation. These safety functions include; the licensing of LPG undertakings, enforcement powers in relation to Natural Gas and LPG and extended requirements regarding safety promotion/public awareness. The CER commenced the consultation process to update the Framework in July 2012.

The full report is available to view on the CER website. Further information on Carbon Monoxide is also available on www.carbonmonoxide.ie.

4. Water Regulator

The Government has embarked on a programme to reform the public water and waste water sector. The ultimate goal is to ensure that water users in Ireland receive a world-class service from the public water and waste water sector in a manner which is ecologically and economically sustainable. The Government proposes to achieve this objective by:

Creating a single water utility, now known as • “Irish Water”, to provide the water services currently provided by 34 water services authorities;

A universal water metering programme;•

Levying charges on users to put the sector on • a sound fi nancial footing and to give signals to consumers to conserve a valuable resource; and,

Creating an independent economic regulator • to ensure that a high level of customer service is provided by the water utility and to establish a transparent framework to drive effi ciency, determine charges and attract private capital to fund investment.

The Government department responsible for delivery of this programme of reform is the Department for Environment, Community and Local Government, which has issued a number of papers on this topic at www.environ.ie.

The Government has announced that the CER will be Ireland’s economic water regulator. As a fi rst step, through the recently published Water Services Bill 2013, the remit of the CER is to be expanded to include a function that it must prepare to become the independent economic regulator for the public water sector. This Bill also requires the CER to advise the Minister for the Environment on matters related to the economic regulation of the public water sector in Ireland.

The CER will create an economic regulatory framework for the public water and waste water system which will require Irish Water to provide a high level of service to water customers at a regulated price. During 2013 the CER expects to undertake a number of tasks to implement the Government’s reform of the public water sector, including:

Establish a revenue framework;•

Establish a criteria for the design of water • tariffs;

Draft and issue a licence under which Irish • Water will operate;

Specify the level of customer service expected • from Irish Water;

Develop the CER’s internal organisation to • undertake the water regulation role;

Develop a customer information and dispute • resolution service within CER;

Approve an interim revenue for Irish Water; • and,

Approve the tariffs to apply to customers.•

The CER will consult with stakeholders and water users on its proposals with the aim of putting in place a framework that works for both customers and stakeholders.

5. Economic Gas Regulation

Regulated Residential Prices

In September 2012 the CER published a decision paper regarding Bord Gáis Energy (BG Energy) residential gas tariffs to apply from 1st October.

BG Energy requested a gas tariff increase due to higher network tariffs and gas commodity costs. Gas commodity costs had risen because the value of the Euro had decreased against Sterling over the last year, raising costs given that Ireland purchases virtually all of its gas in Sterling from Great Britain.

The CER sets BG Energy residential tariffs such that only effi cient costs are paid for by customers.

BG Energy ultimately requested more than a 9% rise in gas prices, but the CER allowed an 8.5% rise - as part of its decision the CER cut allowed Bord Gáis supply costs by circa € 2 million. Even with this rise, gas remains competitive with home heating oil, while Ireland’s residential gas prices are generally lower than the EU average.

The CER would like to stress that there are a number of competing gas suppliers in the market and encourages consumers to “shop-around” for the best value.

Network Tariffs

In November, following public consultation, the CER published the fi nal decision papers on the third price control for the Bord Gáis Networks (BGN) transmission and distribution businesses. These decision papers set out the revenue that BGN are allowed to recover from its customers over the period October 2012 to September 2017 to cover its costs associated with the gas transmission and distribution network in Ireland. The CER’s main goal in arriving at its fi nal decision was to protect the current and future interests of consumers, while ensuring a stable environment for investors.

In total the decision paper set out an allowance of € 996 million for distribution and € 998.5 million for transmission over the period. The allowance for distribution and transmission operational expenditure comes to a total of € 693 million, which represents a signifi cant reduction on the

€ 738 million in revenues sought by BGN. The capital expenditure for both transmission and distribution comes to a total of € 434 million.

Network tariffs for the 2012/13 year were set in set in August 2012. These resulted in a 10% rise in distribution tariffs. With regards to transmission, there was an increase of 20% for UK gas and for Inch gas the increase was 17%. The increases in both cases were largely due to higher fi nancing costs associated with the economic situation – these fi nancing costs will be reviewed annually and adjusted if appropriate. These increases were based on the forecast network capacity bookings submitted by BGN as part of the price control consultation process in April 2012.

Since April 2012 BGN made a number of downward revisions to the level of expected capacity bookings in the transmission system. The later forecasts took into account trends then emerging, which indicated a fall of c.18% from the original forecast over October. In response to this unprecedented and signifi cant decline in capacity bookings, in February 2013, the CER consulted on a proposed transmission tariff increase from 1st April 2013. Following consultation, in order to minimise the number of and scale of tariff changes, while also having regard for the cash fl ow effect on BGN, the CER has decided to direct a 10.2% increase in the cost of transporting UK gas (IC plus Exit tariff) with effect from 1st April 2013.

6. Energy Retail Matters

The CER monitors competitive activity in the retail electricity and gas markets in its quarterly reports. In particular the CER is monitoring the development of competition in the retail gas domestic market which is still price regulated.

In October 2012, the CER published a consultation paper to review the Non-Daily Metered (NDM) gas domestic market and to set out the competitive conditions under which the market would be deregulated, i.e. the removal of the regulated price control for Bord Gais Energy. The CER is due to publish its decision on the Review the NDM Gas market in March 2013.

6. EWIC

The new East-West Interconnector (EWIC) connects the electricity system in Ireland with the UK via a 260 km subsea and underground cable. It has a capacity of 500 MW and will provide improved security of electricity supply and increased cross-border competition, to the benefi t of customers.

The commercial operation of the EWIC was temporarily deferred in October 2012 following reported telephone noise interference in the vicinity of part of the land route of the Interconnector.

EirGrid and the company that laid the interconnector cable, ABB, have since been working with the telecommunications network providers to address this issue. From 1st December 2012 EWIC moved to an alternate operational mode which demonstrated a reduction in reported telephone noise interference, and commercial trading over EWIC commenced on Friday 21st December at circa 250 MW import and export.

The development of a permanent solution to allow the interconnector to operate in its intended mode at full capacity is currently underway, with no traded capacity anticipated for March. Further updates regarding the return to commercial operation will be issued by EirGrid over the next month or so.

7. SEM

The CER in Dublin and the Utility Regulator in Belfast, known as the Regulatory Authorities, jointly regulate the all-island wholesale Single Electricity Market (SEM). The SEM is governed by the SEM Committee, consisting of the CER, Utility Regulator and an independent member who also has a deputy.

From the go-live of SEM in November 2007 to October 2012, the SEM Committee’s independent and deputy independent members respectively were Professor Ignacio Perez-Arriaga and Jose Sierra Lopez, during which they oversaw the successful operation and development of the SEM. The SEM Committee’s new independent and deputy independent members are Odd Håkon Hoelsæter and Professor David Newbery

respectively, both of whom have extensive experience in the energy sector. We wish them all the best in their new roles.

Below we focus on two key areas of SEM development – for further information please see www.allislandproject.org.

Tie-breaks/Curtailment

The SEM Committee has been considering matters associated with curtailment in tie-break situations for the past year. This refers to a situation where the Transmission System Operator (TSO) has to curtail down (turn down) wind generators due to security concerns on the electricity system, for example if there was more wind generation available than the system could handle. A consultation on options and a proposed decision were issued in 2012.

At the SEM Committee meeting on 7th February 2013, the Committee arrived at a decision on this matter. The Committee decided that all wind farms should carry the burden of curtailment equally. That is, where a curtailment situation arises in a tie-break (i.e. where there is no other mechanism to distinguish between the wind farms), the TSOs should turn the wind farms down on a pro-rata basis in order to meet the volume of curtailment required.

In addition, the SEM Committee decided that customers should not be exposed to the risk or cost of curtailment as curtailed energy is energy from which the customer does not benefi t directly. Currently fi rm wind farms receive compensation through the SEM mechanisms for any volume of curtailed wind, i.e. they are paid the value of the electricity even though it is not consumed. From 1st January 2018 onwards, this compensation will no longer be available, meaning that customers will no longer be exposed to this risk. The SEM Committee is of the view that allowing compensation to continue up to this date is fair in allowing wind farms to plan and fi nance their projects in the knowledge that compensation for curtailed wind will not be available thereafter. The market and system changes required to implement this decision will be carried out by the TSOs and the Single Electricity Market Operator (SEMO), most likely as part of (but not contingent upon) the market integration project – see below.

Market Integration

National electricity markets in Europe are being reviewed to align with a common EU “Target Model” for cross-border capacity allocation and congestion management, upon which an Internal Electricity Market is to be founded by 2014.

The SEM is likely to require signifi cant modifi cations to implement the Target Model, owing to its centralised structure and gross mandatory pool design. For this reason, in July 2011 the Agency for the Cooperation of Energy

www.cer.ie

Regulators (ACER) granted the SEM an extension from 2014 to 2016 to join this single electricity market. The Regulatory Authorities have been working to ensure that the benefi ts of a single European market are maximised and that increased interconnection can deliver benefi ts to customers and producers.

On foot of this, the SEM Committee launched its Market Integration project, led by Regulatory Authorities and involving SEMO and the TSOs, to explore options to enable the SEM to meet the provisions of the Target Model. A consultation paper was published in January 2012 to seek views on a number of options for implementing the Target Model on the island in a manner that is consistent with national and EU policy objectives. Since then the Regulatory Authorities have discussed issues arising with relevant Government Departments and hosted a number of industry workshops on the matter.

The SEM Committee published a proposed decision paper on the next steps in the process in November 2012. Following this consultation, the SEM Committee published its fi nal decision paper on next steps to implement the Target Model in February 2013. The main conclusions of this paper are as follows:

The establishment of a set of high-level • principles which will govern the design and implementation of the new market;

The establishment of project governance • arrangements with strengthened stakeholder engagement to ensure that consumer groups and market participants are adequately involved in the project. Government Departments published the governance

arrangements for the project in tandem with the SEM Committee’s decision;

Commitment to maintaining the current • structure of the SEM until 2016 and to carrying out an impact assessment on the new market design in line with best practice; and,

A working assumption that the new market • will continue to be based on transparent, centralised trading arrangements with least-cost dispatch.

Government departments have endorsed the SEM Committee’s approach and have asked the Regulatory Authorities to begin a project to give effect to this decision to integrate with the EU internal market by 2016. Work over the next year will concentrate on an inclusive process to arrive at decisions on a revised high-level design for SEM.

For any queries on this newsletter, please contact Andrew Ebrill at the CER at +353 (0)1 4000 800.

Commission for Energy Regulation

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