Legal background
Extension of powers
- The Energy Act 2008 and Electricity and Gas Acts provide the Secretary of State with a package of powers related to smart metering to enable the delivery of the Programme (see paragraph 2). Sections 88(1) and 88(2) of the Energy Act 2008 allow the Secretary of State to modify the conditions of licences for electricity transmission, distribution and supply, and gas transporter, shipping and supply, and the DCC Licence, as well as documents made under licence conditions (e.g. industry codes). Section 91 of, and Schedule 4 to, the Energy Act 2008 inserted new provisions into the Electricity and Gas Acts to create new licensable activities relating to smart metering (Section 41HA-HC Gas Act 1986 and 56FA-FC Electricity Act 1989). The Electricity and Gas Acts give the Secretary of State the power to veto the transfer of the DCC Licence or any part of it (section 7A(10A) - (10D) of the Electricity Act 1989 and section 8AA(10A) - (10D) of the Gas Act 1986).
- The activity of providing the smart meter communication service is controlled by a system of prohibitions and licences. The Electricity and Gas (Smart Meters Licensable Activity) Order 2012 (SI 2012/2400) amends the scope of prohibited activities defined in the Electricity and Gas Acts to include providing a communication service to and from smart meters that are installed at domestic premises. This is the smart meter communication service. Provision of the service is permitted by the DCC Licence which was granted by the Secretary of State under sections 6(1A) and (1C) of the Electricity Act 1989 and sections 7AB(2) and (4) of the Gas Act 1986 and which took effect from 23 September 2013. The term of the licence is 12 years until 22 September 2025, unless it is extended or revoked. A number of conditions have also been added to energy supply licences, notably the requirement on energy suppliers to take all reasonable steps to complete the rollout of smart meters to all domestic and small non-domestic sites by the end of 2020.
Special administration regime
- Many of the sections in the Act in relation to the SAR mirror those that apply to other energy licensees as set out in the Energy Act 2004. These are explained in more detail in the commentary on provisions of the Act below. The SAR provides for a special administration order to be sought by the Secretary of State (or the Authority with agreement of the Secretary of State) from a court. The order will provide that for the period during which the order remains in force the affairs, business and property of the DCC shall be managed by a person appointed by the court to ensure that the DCC continues to perform its functions under the DCC Licence until the DCC is rescued as a going concern, or transferred to another company (or companies) as a going concern. Any transfer would require approval by the Secretary of State.
Half-hourly settlement
- The Electricity Act 1989 provides that particular activities relating to electricity must be licenced by Ofgem. As a condition of the licences, licence holders must be a party to and/or comply with detailed technical documents, usually known as "Codes". These Codes are multiparty agreements entered into by industry stakeholders and managed by a Code Panel (a representative group of relevant industry stakeholders who oversee the modification process for each industry code), supported by a dedicated Code Administrator (an organisation appointed for the purposes of managing the code).
- The process for modification of Codes rests with the industry signatories to the Codes, overseen by Ofgem. Ofgem currently takes a decision on whether to approve a material code modification at the end of the process but has limited involvement in developing or coordinating proposed modifications. Until August 2016, Ofgem had powers to launch a Significant Code Review (SCR) whereby they could direct licensee(s) to raise modifications to relevant industry codes to deliver outcomes specified in a Direction made by Ofgem. Following a review of code governance arrangements, Ofgem made changes to licences to provide it with additional powers to allow it to run an SCR as an end-to-end process. Under this process, Ofgem would lead the code modification process and be able to make a final decision on code modifications following consultation with stakeholders and the relevant code panel.
- Under section 11A of the Electricity Act 1989 Ofgem has the power to amend electricity supply licences. Under these powers Ofgem must allow a minimum of 56 days following a direction to modify a licence before the licence modification can take effect. In the context of the half-hourly settlement programme we anticipate that there may be some circumstances when it may be necessary for Ofgem to implement changes to licences in less than 56 days. For example, the procedure for code modification does not contain this time limit and therefore, removal of this time limit enables amendments to codes and licences for the purpose of half-hourly settlement to be delivered concurrently. There may also be relatively minor or consequential amendments for which a 56-day stand still period is unnecessary. In such cases allowing 56 days before a licence modification comes into effect could unduly delay progress of the reforms, particularly where the proposed licence changes are relatively minor.
