Schedule 2, Part 2
207.Part 2 principally provides the Secretary of State with regulation-making powers in connection with investment contracts. These powers are very similar to those in Chapter 2 relating to contracts for difference. A general regulation-making power is provided by paragraph 6, with that power being further particularised in other paragraphs in Part 2 and in paragraph 14(3) and (4) and 16(2) (as well as paragraph 5(8) and in the definition of “electricity supplier” in paragraph 4). The requirements about who must be consulted before regulations are made are set out in paragraph 13. Regulations are to be made either under the affirmative resolution procedure if they are the first regulations which make provision falling within paragraph 10 or 11, or any other regulations which make provision falling within other paragraphs of Parts 1 to 3 of Schedule 2; see sub-paragraph (5)), or the negative resolution procedure for all other regulations (see sub-paragraph (6)). Paragraph 6(7) provides that regulations relating to investment contracts should not be treated as a hybrid instrument.
Paragraph 7 – Supplier obligation
208.Paragraph 7 expressly provides regulation-making powers to impose financial obligations on licensed electricity suppliers – supplier obligation(s). Under sub-paragraph (1), regulations may impose obligations on licensed electricity suppliers in GB and Northern Ireland (see the definition of “electricity supplier” in paragraph 4(1)) to make payments to the Secretary of State to meet obligations under investment contracts. Sub-paragraph (2) requires that regulations impose obligations on licensed suppliers to make payments to an investment contract counterparty, or a CFD counterparty (see paragraph 4(1) for definitions of these counterparties – hereafter referred to as “counterparties”) to meet obligations under investment contracts. Licensed suppliers may also be obliged to make payments for certain other purposes under regulations – for example, to cover costs associated with administering investment contracts, and to enable the Secretary of State or a counterparty to hold sums in reserve (see sub-paragraph (3)), or to mutualise costs across (other) licensed suppliers where another becomes insolvent or defaults. Sub-paragraph (6) requires that any regulations under sub-paragraphs (1) or (2) must include a duty in relation to the collection of payments.
209.Other regulation-making powers expressly include imposing requirements on suppliers to provide collateral to the Secretary of State or to a counterparty (sub-paragraph (5)). They also cover powers for regulations to set out how the Secretary of State or a counterparty is to calculate or determine the amounts owed under regulations or the financial collateral to be provided by electricity suppliers (see sub-paragraphs (7)(b) and (8)). For example, regulations might provide powers to the counterparty to require collateral from suppliers according to such amounts as the counterparty calculates, but to require the counterparty to make its calculation of the amount of collateral required by reference to the size of a supplier or the amount of electricity it provides to certain consumers.
210.Sub-paragraphs (7)(c) and (d) expressly provide regulation-making powers to make provision about the issuing and enforcement of notices (issued by the Secretary of State or a counterparty) which require the payment of amounts owed under regulations here or the provision of collateral. Sub-paragraph (9) covers regulations making connected provision, for example, on dispute resolution about notices and the payment of interest for late payment. Note that the powers in paragraph 12 of this Schedule would allow regulations to make provision for the requirements of notices here to be enforced by the Authority or the Northern Ireland Authority for Utility Regulations as if the requirements were relevant requirements on a regulated person. See the text below for explanation of paragraph 12.
211.Sub-paragraph (10) clarifies that any sum which the supplier is required to pay the Secretary of State, the investment contract counterparty or the CFD counterparty by virtue of the supplier obligation regulations, and which is not paid when it is due under the regulations, is recoverable as a civil debt.
Paragraph 8: Payments to electricity suppliers
212.This paragraph expressly enables regulations to require the Secretary of State, an investment contract counterparty, or a CFD counterparty to make payments to licensed electricity suppliers. The underlying purpose of the power is to ensure that regulations can require that payments are made to licensed suppliers (where for example the reference price is higher than the strike price) and in circumstances where regulations are made imposing the supplier obligation under paragraphs 7(1) or 7(2).
Paragraph 9: Application of sums
213.Paragraph 9 is concerned with providing regulation-making powers to cover two broad areas. First, to ensure that regulations may make provision about the apportioning of money between generators by the Secretary of State or a counterparty where the amount collected from licensed suppliers is insufficient to collectively meet the liabilities under investment contracts or CFDs in full. In making these regulations, the Secretary of State must have regard to the principle that sums should be apportioned in proportion to the amounts which are owed, i.e. that they are pro-rated.
214.Secondly, sub-paragraphs (4) and (5) are concerned about conferring regulation-making powers to control how monies received by a counterparty or by the Secretary of State are used – specifically, whether or not they need to be paid into the Consolidated Fund.
Paragraph 10: Information and advice
215.This paragraph allows for regulations to be made imposing requirements about providing information or publishing it, as well as about how information is to be protected (see sub-paragraphs (1) and (2)(f)). The paragraph is intended, in part, to ensure that provision can be made in regulations so that there is a sufficient flow of information and advice for the purposes of administering and managing investment contracts. Therefore, for example, the regulations can require information to be provided to the Secretary of State or a counterparty from suppliers or generators (see paragraph 10(2)(c) and (e)). In addition the powers will allow provision to be made in regulations to permit the Secretary of State and the regulators in Great Britain and Northern Ireland to gather information together about investment contracts, in order to monitor their use and inform their wider decision-making.
Paragraph 11: Functions of the Authority
216.This paragraph provides an express power for regulations to confer functions, for two purposes, on the Authority (see the definition of “Authority” in section 151). The Authority is the regulator for the electricity markets in Great Britain. However, as a statutory body, it only has power to do those things which legislation confers a power on it to do.
217.The two purposes are to provide advice to, and to make determinations for, the parties to investment contracts. Therefore, for example, regulations could empower the Authority to monitor the performance of obligations under an investment contract relating to biomass sustainability (such as the type or mix of fuels used in an electricity generating station) and to determine for the parties whether such obligations have been met.
Paragraph 12: Enforcement
218.This paragraph provides an express regulation-making power in relation to the enforcement of obligations in regulations made under Schedule 2. Specifically, regulations may permit requirements imposed on suppliers to be enforced by the Authority in GB, or the Northern Ireland Authority for Utility Regulations in Northern Ireland, as if they are relevant requirements imposed on a regulated person.
219.What this means, in effect, is that regulations may treat a breach of a requirement imposed under them as akin to a breach of a licence condition in relation to certain enforcement powers. For example, sections 25 to 27A of the Electricity Act 1989 permit the Authority to make orders to secure compliance with licence conditions, and/or to impose financial penalties for their breach. Regulations could apply these enforcement powers in relation to breaches of requirements imposed under them as if they were breaches of licence conditions.
Paragraph 13: Consultation
220.Paragraph 13 imposes requirements on the Secretary of State about who he or she must consult before making regulations under Schedule 2 – with sub-paragraph (8) expressly providing that any required consultation may take place before or after enactment of the Act.
221.As a broad rule, the Secretary of State is required to consult those persons who will be affected by specific regulations, as well as the devolved administrations in Northern Ireland, Scotland and Wales. For example, electricity suppliers are required to be consulted on regulations under paragraphs 7, 8, 9 or 14(3).