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Energy Act 2008

Part 5: Miscellaneous

Duties of Gas and Electricity Markets Authority

Summary and Background

431.The Electricity Act 1989 and Gas Act 1986 set out the general duties of the Secretary of State and the Authority. These general duties are formed in a hierarchy of a primary duty and a number of secondary duties and other issues which they must keep under consideration in exercising their primary duty. The primary duty is to protect consumers through competition where appropriate.

432.Prior to this Act, the formulation of secondary duties placed the need to ensure security of supply, and that licence holders are able to finance their activities at the top of the list of secondary duties. The duty to promote sustainable development was added near the end of that list. However, since that time, sustainability has been growing in importance in energy policy. The Act makes amendments to the duties to reflect this, to put sustainability and security of supply on an equal footing in the hierarchy of secondary duties.

Commentary on Sections

Section 83: Duties of the Gas and Electricity Markets Authority

433.This section amends the duties of the Secretary of State and the Authority in sections 4AA of the Gas Act 1986 and 3A of the Electricity Act 1989 in two ways.

434.Subsection (1) amends subsection 4AA(1) of the Gas Act to add the words “existing and future” before “consumers” in the principal objective set out in this section. The principal objective requires the Secretary of State and the Authority, in carrying out their functions under Part 1 of the Gas Act, to protect the interests of consumers wherever appropriate by promoting effective competition. This section emphasises the need for the Secretary of State and the Authority to take the needs of tomorrow’s consumers into account as part of the principal objective.

435.Section 4AA(2)(b) of the Gas Act specifies the issues which the Secretary of State and the Authority must have regard for in carrying out their functions in the manner best calculated to further the principal objective. Subsection (1) inserts a new provision into this section of the Gas Act, requiring the Secretary of State and the Authority to have regard to the need to contribute to the achievement of sustainable development. This has the effect of moving the sustainable development duty up the “hierarchy” of secondary duties and means that the Secretary of State and the Authority will need to consider sustainable development, as well as security of energy supply and licensees’ ability to finance activities, under section 4AA(2).

436.Subsection (2) makes the same changes to the principal objective in section 3A(1) of the Electricity Act and inserts the same provision concerning sustainability at section 3A(2)(b) of the Electricity Act.

437.Schedule 5 repeals the existing sustainability duty in section 4AA(5)(ba) of the Gas Act and section 3A(5)(ba) of the Electricity Act.

Transmission Systems

Summary and Background

438.Electricity generators (including new renewable energy generators) are facing significant delays in obtaining access to the transmission system and the system is not being used as efficiently as possible. The backlog of generators waiting for a connection date is affecting Great Britain’s ability to meet security of supply concerns and sustainability targets including the 2020 renewable energy targets set by Europe. There is currently in excess of 45GW of new generating capacity in the transmission grid access queue (compared to around 80GW already connected) with some generators being informed that they must wait until 2022 for connection to the transmission system.

439.The Government has been undertaking work to address these problems. The 2007 Energy White Paper committed the Government and the Authority to consider these issues in a review of transmission access. The final report of the Transmission Access Review was published in June 2008. It concluded that there was a need for significant reform of the licence conditions and industry codes which set the framework for the running of the transmission system by National Grid in Great Britain.(5) The main industry code which regulates access to the transmission network is the Connection and Use of System Code (CUSC) and at present it does not facilitate timely access to the network. The Security and Quality of Supply Standard (SQSS) and CUSC together regulate the planning and operation of the transmission system and at present do not ensure efficient use of the system.(6)

440.As a result of the Transmission Access Review report, industry has been tasked with developing proposals to reform industry codes to improve the allocation of access rights and the efficient use of the network. The current aim is for the changes to be implemented from April 2009, with some of the more complex reforms being made from April 2010.

441.Due to the importance of these negotiations being completed in a timely manner, the Government made clear in the Transmission Access Review report that if Industry and the Authority did not make sufficient progress by the end of the year then Government would “consider options for wider reform (including legislation) to bring about the necessary changes in the context of its Renewable Energy Strategy and wider energy policy goals”. The following sections provide the Secretary of State with powers to amend the appropriate licences and industry codes should the industry process fail.

Commentary on Sections

Section 84: Power to amend licence conditions etc: transmission systems

442.This section gives the Secretary of State the power to modify, for the purposes described below:

  • a particular electricity generation, transmission, distribution or supply licence (subsection (1)(a));

  • standard licence conditions of those types of electricity licence (subsection (1)(b)); and

  • documents maintained under the licence conditions of relevant electricity licences – for example, industry codes (subsection (1)(c)).

443.Subsection (2) sets out the scope of the modification power. The power may only be exercised for the purpose of facilitating access to and/or efficient use of a transmission system in Great Britain or offshore waters.

444.Subsections (3)(a) and (c) allow the modification power to be exercised differently in different cases or circumstances. This could, for example, allow the Secretary of State to make different modifications in relation to generation under development and generation that is already connected to the network.

445.Subsection (3)(d) makes provision for the Secretary of State to make any incidental, supplementary, consequential or transitional modifications to licence conditions or documents of the kind mentioned in subsection (1)(c).

446.By virtue of subsection (4) the modification power may not be exercised after the end of the period of 2 years beginning with the day on which subsection (1) comes into force. Subsection (1) comes into force on such day as is appointed by order of the Secretary of State (see section 110(2)).

447.Subsection (5) ensures that, where the power under subsection (1) to make modifications is exercised, certain general provisions of the Electricity Act 1989 which are relevant to this power are applicable. For example, the modifications can require the licence holder to comply with directions by the Secretary of State or the Authority as to specified matters.

Section 85 Power to amend licence conditions etc: transmission systems: Procedure

448.This section sets out the procedure that the Secretary of State must comply with in order to exercise the modification powers conferred by section 84 (Power to amend licence conditions etc: transmission systems). Subsection (1) obliges the Secretary of State, before making modifications, to consult the holders of licences being modified, the Authority and others as appropriate. Subsection (3) requires the Secretary of State to publish any modifications which are made.

Section 86 Power to amend licence conditions etc: transmission systems: supplemental

449.This section makes three supplemental provisions in relation to the modification power conferred by section 84 (Power to amend licence conditions etc: transmission systems). Subsection (1) ensures that any modifications made to a standard licence condition under the new power would not affect the remainder of that standard licence condition.

450.Subsection (2) ensures that where licence modifications are made to standard licence conditions, the Authority must make the same modifications for the purpose of future licences, and also must publish those modifications. Schedule 4 amends sections 33(1) of the Utilities Act 2000 so that any standard conditions which are modified under section 84 (Power to amend licence conditions etc: transmission systems) are incorporated as standard conditions for licences of that type.

451.Subsection (3) is an order making power for the Secretary of State to make consequential amendments to provisions made by or under an Act (including Acts of the Scottish Parliament) as he considers appropriate. Section 105(2) provides that such orders will be subject to the affirmative procedure.

Energy Reports

Summary and Backrgound

452.This element of the Act deals with statutory obligations to report on a variety of energy related subjects. As the energy market has developed and diversified in recent years, various initiatives and legislative changes have resulted in a growing number of requirements on the Secretary of State to produce annual reports.

453.Many of these requirements remain valid; however, some have been superseded or are not aligned with ongoing developments in the context of energy and climate change policy. One example in the climate change context is the new requirement for a carbon budget reporting system which is being introduced through the Climate Change Act 2008. The Act amends the existing statutory provisions imposing energy-related reporting obligations placed on the Secretary of State.

Commentary on Sections

Section 87: Energy reports and Schedule 5: Repeals

454.Section 1 of the Sustainable Energy Act 2003 (c.30) (“2003 Act”) requires the Secretary of State to report annually on progress towards sustainable energy aims. The four energy goals set out in the 2003 Energy White Paper Our Energy Future – creating a low carbon economy are:

  • to put the UK on a path to cut carbon dioxide emissions by some 60% by about 2050, with real progress by 2020;

  • to maintain the reliability of energy supplies;

  • to promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and to improve productivity; and

  • to ensure that every home is adequately and affordably heated.

455.The requirements concerning publication of the report on progress towards these energy goals, including when and what it must include, are set out in section 1 of the 2003 Act. This section has since been amended, in particular by section 81 of the Energy Act 2004. The amendment made by that section requires more detailed reporting, as the Secretary of State considers appropriate, on the development or bringing into use of certain energy sources and technologies listed in that Act.

456.Subsection (1) of this section changes the reporting period from 24 February until 23 February each year, to each year beginning with 1 January and ending with 31 December. In consequence of that change, the section also changes the publication date so as to requires the annual report to be published between the period 1 January and 31 October following the reporting period to which it relates.

457.Subsection (1) also removes the requirement to include detail on specific energy sources and technologies. The effect is that the report will focus on progress toward meeting the four main energy policy goals, rather than the detail of developments in smaller more specialised, technology-specific areas of the energy sector. The Sustainable Energy Act 2003 (sections 2 and 3) and Housing Act 2004 (s217(1)) both contain provisions regarding energy efficiency in residential accommodation. Subsection (1) also removes the requirement to report on progress toward (but not the duty to designate or publish) the energy efficiency aims in the 2003 Act.

458.The repeals in Schedule 5 include repeals which are necessary because of the effect of section 87. Section 18 of the Climate Change and Sustainable Energy Act 2006 (c.19) is also repealed as the obligation is now spent.

Smart Meters

Summary and Background

459.In Meeting the Energy Challenge: A White Paper on Energy (May 2007) the Government indicated the importance it placed on improving the information energy customers receive about their energy use. Improved information will enable them to better manage, and take action to reduce, their energy consumption, and as a result reduce their carbon emissions. In this context the Government set out the potential for smart meters to provide, amongst other things, accurate, real time information to consumers about their energy consumption.

460.An announcement was made in the 2008 Budget setting out the Government’s intention to mandate a roll out of “smart meters” to medium-sized businesses over the next five years. A further announcement was made in October 2008,, which confirmed the Government’s intention to proceed with a roll out of “smart meters” to domestic customers. Sections 88 to 91 will allow for these roll-outs to be mandated. The sections would also allow for a roll-out of smart meters to smaller business in the future, if the Government decides to proceed with a roll-out for that segment..

461.The power in section 88 will allow the Secretary of State to modify electricity distribution and supply licences and gas transporter, shipper and supply licences, or documents made under licence conditions, to require the licence holder to install, or facilitate the installation of, smart meters. As is common practice in regulating these parts of the electricity and gas sectors the intention is to specify the detail of the requirements being placed on licensees and other relevant arrangements, through modified licence conditions and/or amendments to the agreements and codes entered into under the licences.

462.Provision is made for Parliamentary scrutiny. In addition to requirements for the Secretary of State to consult relevant licensees, the Gas and Electricity Markets Authority and any other appropriate persons, there is a requirement on the Secretary of State to lay the draft modifications in Parliament and allow a period of 40 days in which either House of Parliament can reject the draft conditions.

463.In addition to the licence modification power in Section 88, section 91 and Schedule 4 enable the Secretary of State to create new licensable activities in relation to providing, installing or operating smart meters or related infrastructure under the Gas and Electricity Acts by affirmative order. These licences may be used to centralise some, or all, aspects of smart metering provision if that is deemed necessary to ensure their efficient installation across Great Britain. The power may, for example, be used to ensure that a centralised communications infrastructure is put in place to support smart metering.

464.Section 91 and Schedule 4 allow for the geographic scope of a licence to be restricted – for instance to provide for regional delivery of smart meters – if required. The order may provide for either the Secretary of State or the Authority to award the licences and Schedule 4 includes power for the Secretary of State to make regulations for a competitive tendering process for purposes of identifying to whom these licences will be awarded.

465.It is expected that the existing licensing framework and metering provisions in the Electricity and Gas Acts would be applied to the new licensable activities, for example: the prohibition on unlicensed activities in section 4 of the Electricity Act and section 5 of the Gas Act; the procedures for modification of licences in sections 11 to 15 of the Electricity Act and sections 23 to 27 of the Gas Act; and the enforcement powers in sections 25 to 28 of the Electricity Act and sections 28 to 32 of the Gas Act.

Commentary on Sections

Section 88: Power to amend licence conditions etc: smart meters

466.This section gives the Secretary of State the power to modify, for the purposes described below:

  • a particular electricity distribution or supply licence (subsection (1)(a))

  • a gas transporter, shipper or supply licence (subsection (1)(c))

  • standard licence conditions of those types of gas and electricity licence (subsections (1)(b) and (1)(d).

  • documents maintained under the licence conditions of relevant gas and electricity licences – for example, industry codes (subsection (1)(e)).

467.Subsection (2) sets out the scope of the modification power. It may only be exercised for the purpose of:

  • requiring licence holders to provide or install, or facilitate the provision, installation or operation of, a meter of a particular kind; or

  • requiring licence holders to make arrangements relating to such matters.

468.Subsection (3) sets out an inclusive list of various types of modifications that may be made under the new power. These include the technical specifications of the meter and provisions to allow two way communications between energy suppliers/distributors and meters installed in business or domestic premises (see paragraphs (a) and (j)).

469.Paragraph (l) makes provision for the Secretary of State to set a date from which the modification(s) come into force. This would, for example, allow the Secretary of State to set a time limit for the roll-out of smart meters.

470.Subsection (4)(a) allows the modification power to be exercised to make different provision in relation to different classes of customer (for example domestic, small business or medium/larger businesses). Subsection (4)(d) makes provision for the Secretary of State to make any incidental, supplementary, consequential or transitional modifications to licence conditions or documents of the kind mentioned in subsection (1)(e).

471.By virtue of subsection (5) the modification power may not be exercised after the end of the period of 5 years beginning with the day on which subsection (1) comes into force. Subsection (1) comes into force on the passing of the Act (see section 99(1)).

472.Subsection (6) ensures that, where the power under subsection (1) to make modifications is exercised, certain general provisions of the Gas and Electricity Acts which are relevant to this power are applicable – so that, for example, the modifications can include a requirement for the licence holder to comply with directions by the Secretary of State or the Gas and Electricity Markets Authority as to specified matters.

473.Subsection (7) states that references to a meter in any part of section 81 also include visual display units or other devices associated with or ancillary to the meter.

Section 89: Power to amend licence conditions etc: Procedure

474.This section sets out the procedure that the Secretary of State must comply with in order to exercise the modification powers conferred by section 88. Subsection (1) obliges the Secretary of State, before making modifications, to consult the holders of licences being modified, the Gas and Electricity Markets Authority and others as appropriate. This consultation may take place before or after the passing of the Act. Subsections (3) and (4) state that before making modifications the Secretary of State must lay the draft modifications before Parliament and allow a period of 40 days for either House of Parliament to reject the draft.

Section 90: Smart meters: supplemental and Schedule 5: minor and consequential amendments

475.This section makes three supplemental provisions in relation to the modification power conferred by section 88. Subsection (1) ensures that any modifications made to a standard licence condition under this power do not prevent any other part of the condition from being a standard condition. This means that the remainder of the standard condition will be subject to the rules relating to standard conditions under the Gas and Electricity Acts. Subsection (2) ensures that where licence modifications are made to standard licence conditions, the Gas and Electricity Markets Authority must make the same modifications for the purpose of future licences, and also must publish those modifications. Schedule 5 amends sections 33(1) and 81(2) of the Utilities Act 2000 so that any standard conditions which are modified under section 88(1) are incorporated as standard conditions for licences of that type.

476.Subsection (3) is an order making power for the Secretary of State to make consequential amendments to provisions made by or under an Act (including Acts of the Scottish Parliament) as he considers appropriate.

Section 91 and Schedule 4: Licensing of activities relating to smart meters

477.Part 1 of Schedule 4 inserts the following new sections into the Gas Act 1986:

  • 41HA New licensable activities: smart meters

  • 41HB Section 41HA: supplemental

  • 41HC Competitive tendering for licences for new licensable activities

478.Part 2 of Schedule 4 inserts the following new sections into the Electricity Act 1989:

  • 56FA New licensable activities: smart meters

  • 56FB Section 41HA: supplemental

  • 56FC Competitive tendering for licences for new licensable activities

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Note that there are no significant problems in terms of physical connection to the network i.e. connecting a line between a wind farm and the grid, the problems instead relate to getting the subsequent commercial right to access and use the transmission network from National Grid.

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