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Nuclear Energy (Financing) Act 2022

Commentary on provisions of the Act

Part 1: Nuclear Energy Generation Projects: Regulated Asset Base Model

Section 1: Key definitions for Part 1

  1. This section seeks to define the key terms for this Part with reference to a company that is potentially to benefit from a RAB model.
  2. Subsection (1) clarifies that the definitions apply throughout this Part. Subsection (2) identifies a ‘nuclear company’ as one that has an electricity generation licence from the Authority with respect to a prospective nuclear energy generation project.
  3. Subsection (3) says that once a nuclear company has been designated by the Secretary of State, it may be referred to as a ‘designated nuclear company’ for as long as the designation has effect.
  4. Subsection (4) defines a "relevant licensee nuclear company" as one which has had its licence modified by the Secretary of State under section 6(1) whilst a designation is in effect, and that is also party to a revenue collection contract.
  5. Subsection (5) defines the term electricity generation licence for purposes of this Part.

Section 2: Designation of nuclear company

  1. This section provides the power for the Secretary of State to designate a nuclear company to potentially benefit from the nuclear RAB model.
  2. Subsection (1) provides the power for the Secretary of State to designate a nuclear company in relation to a nuclear energy generation project in respect of which it holds an electricity generation licence ("the nuclear project") by providing the company with a designation notice. The principal effect of this is to trigger the Secretary of State’s power to modify the electricity generation licence of a designated nuclear company under section 6 to apply a nuclear RAB model. The designation power can only be exercised if certain criteria are satisfied and the designation notice may have certain conditions attached.
  3. Subsection (2) determines that a nuclear company may only be designated by the Secretary of State if it meets certain criteria.
  4. Subsection (3) sets out the criteria that must be met in relation to a nuclear company in order for the Secretary of State to be able to designate them. These conditions are:
    1. that the Secretary of State is of the opinion that the development of the nuclear project is sufficiently advanced to justify the designation; and
    2. that the Secretary of State is of the opinion that designating the company is likely to result in value for money.
    The statement published by the Secretary of State pursuant to section 3(1) will provide generic guidance for prospective nuclear companies by establishing a level of expectation regarding project maturity and value for money for different projects, including some of the factors the Secretary of State is likely to take into account when assessing the criteria in section 2(3).
  5. Subsection (4) clarifies that for this Part of the legislation a designation notice refers to a notice issued pursuant to the Secretary of State’s power under subsection (1).

Section 3: Designation: procedure

  1. This section sets out the procedure that the Secretary of State must follow to designate a nuclear company for the purposes of the nuclear RAB model.
  2. Subsection (1) requires the Secretary of State to publish a statement, setting out the procedure they expect to follow when considering whether to designate a nuclear company and how they will judge whether the criteria set out in section 2 subsection (3) have been met. The purpose of this is to provide transparency and build confidence in the decision-making process that the Secretary of State will take when designating a nuclear company. Whilst the Government does not anticipate that the Secretary of State will produce a new statement for every prospective project, they will keep its relevance and effectiveness under review and amend the statement where this is considered appropriate. By virtue of subsection (4), a statement may be published before or after the passage of the legislation.
  3. Subsection (2) requires the Secretary of State, prior to issuing a designation notice, to prepare draft reasons for the designation and consult with the persons listed in subsection (3), including on the draft reasons. A designation notice must include the publication of final reasons which incorporate any changes to the draft reasons that appear to the Secretary of State to be appropriate in view of the responses to the consultation.
  4. This provides opportunity for those directly affected by the potential designation, or have special expertise relevant to the decision, to provide their views on the matter.
  5. Subsection (4) states that this obligation could be met through a consultation before or after the passage of the legislation.
  6. Subsection (5) obliges the Secretary of State, when giving notice of the designation, to include a description of the nuclear project in relation to which the nuclear company is being designated; their final reasons for issuing the designation; any conditions that they are attaching to the designation as well as what will happen in the event that the conditions are not met; and the date of the notice.
  7. Subsection (6) requires the Secretary of State to publish a designation notice and to share the designation notice with the nuclear company being designated, as well as all persons consulted by virtue of subsection (2)(b).

Section 4: Expiry of designation

  1. This section sets out the circumstances in which a nuclear company’s designation for the purposes of the nuclear RAB model would expire.
  2. Subsection (1) provides that a designation would end either on its expiry date or at the point where the nuclear company has entered into a revenue collection contract with a revenue collection counterparty (as defined in Part 2), where this occurs before the expiry date. A designation could also end sooner, as set out in section 5.
  3. Subsection (2) defines the expiry date as being 5 years from the date of the designation notice, or, if the expiry date has been extended under subsection (3), the expiry date specified in the most recent extension notice.
  4. Subsection (3) gives the Secretary of State the ability to extend the expiry date for the designation of a nuclear company beyond its current expiry date by giving a notice to the company. This can be done as long as the existing expiry period has not yet expired and the new expiry period is not more than 5 years from the date of the extension notice.
  5. Subsection (4) requires the Secretary of State to consult on an extension to the expiry period with listed entities, and any other persons they consider appropriate. This provides opportunity for those directly affected by the extension, or who have special expertise relevant to the decision, to provide their views on the matter.
  6. Subsection (5) states that when the designation ceases to have effect by virtue of subsection (1), the Secretary of State must publicise this fact.

Section 5: Revocation or lapse of designation

  1. This section sets out the circumstances in which a nuclear company’s designation could lapse, or the Secretary of State could revoke its designation.
  2. Subsection (1) allows for the Secretary of State to revoke a nuclear company’s designation either where it no longer has a generation licence with respect to the nuclear project in relation to which it was designated, or either of the criteria set out in section 2(3) is no longer met.
  3. Subsection (2) provides that the Secretary of State must follow, with modifications where required, the same process as was followed during the designation of the nuclear company. This requires the Secretary of State to prepare draft reasons for revocation, consult named persons (including on the draft reasons) and to publish the revocation notice.
  4. Subsection (3) provides that the nuclear company’s designation may cease to have effect if the company does not comply with a particular condition attached to the designation. This is the case only if, when the Secretary of State issued the designation notice subject to a particular condition, it was made clear that non-compliance with that condition would result in the end of designation, and that the Secretary of State has given notice to the nuclear company that they have failed to comply with the condition. For example, a condition which may be included by the Secretary of State at the point of designation could be that the nuclear company must conduct a successful capital raise or that the project receives its Development Consent Order (DCO) by a certain date.
  5. Subsection (4) means that if a nuclear company loses its designation through failure to meet a condition of designation as under subsection (3), ceasing to hold an electricity generation licence under subsection (1)(a), or by no longer satisfying the designation criteria as under subsection (1)(b), then its designation will cease to have effect at the end of the day on which the Secretary of State sends it the relevant notice.
  6. Subsection (5) obliges the Secretary of State to publish any notice given under subsection (3).

Section 6: Licence modifications: designated nuclear companies

  1. This section provides the Secretary of State with the power to make licence modifications for the purposes of applying the nuclear RAB model to a designated nuclear company.
  2. Subsection (1) gives powers to the Secretary of State to modify any condition or term of a designated company’s electricity generation licence.
  3. Subsection (2) makes clear that this power can only be used for the purposes of facilitating investment in the design, construction, commissioning and operation of nuclear energy generation projects.
  4. Subsection (3) confirms that this power of modification may only be exercised in relation to a nuclear company while a designation under section 2(1) has effect in relation to that company.
  5. Subsection (4) places an obligation on the Secretary of State to have regard to certain matters when making modifications under subsection (1). These considerations include:
    1. The duties the Secretary of State has regarding the reduction of carbon emissions, specifically targets and budgets, under the Climate Change Act 2008;
    2. the interests of existing and future electricity consumers, including in relation to the cost of electricity and the security of electricity supply;
    3. the costs, expenditure and liabilities that the nuclear company could reasonably be expected to incur in carrying out its activities in relation to the nuclear project;
    4. the need for the nuclear company to be able to finance its activities;
    5. the need to ensure that the nuclear company has appropriate incentives when carrying out its activities; and
    6. any other matters the Secretary of State considers appropriate.
  6. Subsection (5) provides examples of the types of modifications to the conditions of a designated nuclear company’s licence that could be made by the Secretary of State. This includes provision relating to (among other things): the calculation of the allowed revenue; payments under a revenue collection contract (as defined in Part 2); the company’s activities; the Authority’s functions in relation to the regulation of the designated nuclear company under a RAB model; decisions of the Authority that the nuclear company could refer to the Competition and Markets Authority under section 10; and relevant licensee nuclear company administration orders (as defined in section 31). These examples are illustrative and so this provision does not restrict the scope of the power set out in subsection (1)(a).
  7. Subsection (6) clarifies that in exercising their power to modify the terms of a designated nuclear company’s licence, the Secretary of State could, for example, make provision in relation to the circumstances in which the company could have its generation licence revoked.
  8. Subsection (7) gives the power to the Secretary of State to modify the standard conditions of generation, transmission, distribution and supply licences (and associated documents and agreements, such as industry codes). Subsection (8) is clear that the Secretary of State can only make these modifications if they consider it appropriate for consequential, supplementary or incidental purposes. This allows the Secretary of State to ensure the effective implementation of the RAB model for a designated nuclear company.
  9. Subsection (9) states that modifications made under subsections (1) or (7) only come into effect where the nuclear company enters into a revenue collection contract.
  10. Subsection (10) makes it clear that reference within this section to the activities of the nuclear company are to the company’s activities in relation to the design, construction, commissioning and operation of the relevant nuclear project, and include its activities in complying with obligations under an approved FDP under the Energy Act 2008.

Section 7: Licence modifications: relevant licensee nuclear companies

  1. This section makes provision to allow the Secretary of State to modify a relevant licensee nuclear company’s generation licence in the period up to the completion of construction. This power can only be exercised in limited circumstances where the expected expenditure to complete construction is likely to exceed a cap under the licence.
  2. Subsection (1) allows for the Secretary of State to make modifications to the conditions of a relevant licensee nuclear company’s generation licence.
  3. Subsection (2) specifies that the power under subsection (1) can only be exercised if the Secretary of State considers that it is likely that the company’s project will not be able to complete construction without the total expected expenditure exceeding a spending limit set out in its current licence; and that an adjustment to the calculation of the nuclear company’s allowed revenue is therefore necessary.
  4. Subsection (3) requires the Secretary of State to have regard to the same matters when exercising this power, as when making initial licence modifications under section 6(1).
  5. Subsection (4) limits this power to being used before the completion of construction. Subsection (5) defines this point as being when the nuclear plant has completed the relevant procedures and tests to demonstrate that it is ready to enter commercial operations.
  6. Subsection (6) obligates the Secretary of State to publish a statement that outlines the process they foresee following in relation to the exercise of the power included in subsection (1).

Section 8: Procedure etc relating to modifications under section 6 or 7

  1. This section sets out the procedure the Secretary of State must follow when making licence modifications under sections 6(1) or (7) or 7(1) (defined as a ‘relevant power’). It also provides further details on the types of modification that may be made.
  2. Subsection (1) obliges the Secretary of State to consult a list of named persons before making any modifications under a relevant power, as well any other person they consider appropriate.
  3. Subsection (2) clarifies that, in the case of the power under subsection 6(1) and (7), this consultation can be undertaken before or after the passage of this legislation.
  4. Subsection (3) and subsection (4) provide further information regarding how a relevant power may be exercised and the types of modifications that the Secretary of State may make. Subsection (3) allows the Secretary of State to use the licence modification powers to make modifications which are general or specific or subject to exceptions. It also allows the Secretary of State to exercise the powers differently for different purposes and to make incidental, supplemental, consequential or transitional modifications.
  5. Subsection (4) enables provisions included in a licence or associated document or agreement (such as an industry code) by a modification under these powers to make different provision for different purposes. It also makes clear that any provision included in a licence by such a modification need not relate to the activities that the licence authorises. Subsection (4)(c) provides that a provision included in a licence by virtue of a relevant power may do anything which is authorised for licences of that type by section 7(4), (5)(a) or (6A) of the Electricity Act 1989.
  6. Subsection (5) obligates the Secretary of State to publish the details of any modification as soon as reasonably possible after it takes place.
  7. Subsection (6) requires the Authority, where the Secretary of States makes a modification to standard licence conditions, to reflect this change when granting licences of that type in the future. They must also publish the modification.
  8. Subsection (7) makes clear that any modification of part of a standard condition does not change the status of other parts of that condition for the purposes of the Electricity Act 1989.
  9. Subsection (8) clarifies that in ‘modifying’ a licence condition, licence term, document or agreement under a relevant power, the Secretary of State may be amending, removing or adding to it.

Section 9: Expiry of modifications made under section 6.

  1. This section sets out the consequences for licence modifications made under section 6 in the event the designation of the nuclear company in question expires, or if its designation lapses or is revoked.
  2. Subsection (1) states that this section is only applicable if the designation of a nuclear company ceases to have effect because the designation has expired, lapsed or been revoked. In other words, it does not apply where a nuclear company’s designation ceases to have effect in accordance with section 4(1)(b) because it has entered into a revenue collection contract with a revenue collection counterparty.
  3. Subsection (2) provides that if a nuclear company’s designation has ceased to have effect in accordance with the provisions set out in subsection (1), any modification which was made by the Secretary of State to the terms and conditions of the nuclear company’s electricity generation licence, under the power in section 6(1), will be treated, from the ‘relevant time’ as never having been made. Under subsection (3), the same applies to any modifications made under section 6(7) in consequence of, or for purposes incidental or supplementary to, the relevant modifications under section 6(1).
  4. Subsection (4) defines "relevant time" for the purpose of subsections (2) to (3). It means the time when the designation of the relevant nuclear company ceases to have effect.
  5. Subsection (5) obliges the Secretary of State to publish details of the fact that modifications are to be treated as not having been made under subsection (2) or (3).

Section 10: Decisions relating to allowed revenue of relevant licensee nuclear company: appeals to CMA

  1. This section sets out the circumstances under which a relevant licensee nuclear company can make a reference to the Competition and Markets Authority to appeal certain decisions made by the Authority relating to its allowed revenue.
  2. Subsection (1) makes clear that this section only applies where a relevant licensee nuclear company’s electricity generation licence contains explicit provision, by virtue of section 6(5)(g), enabling the company to refer decisions of the Authority falling within section 10(3) to the CMA. For the purposes of such appeals, subsection (2) applies the existing framework in the Electricity Act 1989 applicable to appeals to the CMA brought against decisions of the Authority to proceed with the modification of a condition of a licence under section 11A of that Act.
  3. Subsection (3) sets out the types of decisions that fall within this section. More specifically, these are decisions made by the Authority during the course of its regulation of the relevant licensee nuclear company, which in the CMA’s opinion relate to the allowed revenue that the company may receive, and which the company would not be able to refer to the CMA under the existing appeal process provided by section 11C of the Electricity Act 1989. This enables a relevant licensee nuclear company to, for example, appeal a decision of the Authority which relates to the company’s allowed revenue where this has not immediately resulted in a modification to the company’s licence.
  4. Solely for the purposes of their application to the decisions in subsection (3), subsection (4) "amends" the relevant provisions of the Electricity Act 1989 where this is required to tailor the existing appeals processes for the purposes for the new appeal route established by section 10.

Section 11: Provision of information to the Secretary of State

  1. Subsection (1) of this section provides the Secretary of State with the power, by notice, to require a nuclear company to provide them with such information as they reasonably require in connection with carrying out their functions under this Part.
  2. Subsection (2) builds on this by stating that this information must be provided at any time and place, and in whatever manner or form, the Secretary of State specifies in the notice.
  3. Subsection (3) clarifies that no information which would be protected on grounds of legal professional privilege (or, in Scotland, confidentiality of communications) is obliged to be submitted to the Secretary of State.
  4. Subsections (4) states that sharing information under this section does not contravene any obligation of confidence, or other limitation on how information can be shared. However, this is subject to subsection (5) which provides that this section does not authorise or require a disclosure if it would contravene data protection legislation.

Section 12: Provision of Information to or by the Authority

  1. This section deals with the powers of the Authority in relation to the sharing and receiving of information necessary to effectively regulate a relevant licensee nuclear company under a RAB model.
  2. Subsection (1) states that the Authority may provide any information to the list of persons included in subsection (2) which it thinks is necessary in connection with the exercise of its functions relating to regulating the relevant licensee nuclear company.
  3. Subsection (2) provides the list of persons that the Authority can share information with. Subsection (3) states that the Authority can also request information from the same named persons, if it considers this necessary in connection with its role as regulator of a relevant licensee nuclear company.
  4. Subsection (4) obliges that any requests for information must as far as reasonably possible be complied with within a timescale (and in a form and manner) set by the Authority in the request notice.
  5. Subsection (5) requires the Authority to reimburse the reasonably incurred costs of any person that the Authority requires to provide it with information under subsection (3).
  6. Subsection (6) states that sharing information under this section does not contravene any obligation of confidence, or other limitation on how information can be shared. However, this is subject to subsection (7) which provides that this section does not authorise or require a disclosure if it would contravene data protection legislation.
  7. Subsection (8) defines certain terms used in this section.

Section 13: Sensitive material

  1. Subsections (1) to (2) allow the Secretary of State to exclude certain material from draft reasons to be consulted on under section 3(2)(b) (including insofar as that provision is applied for the purposes of revocation under section 5(2)) or anything required to be published under this Part, where the Secretary of State considers that publication or disclosure would be likely to prejudice the commercial interests of any person or would be contrary to the interests of national security.

Section 14: Interpretation of Part 1

  1. This section brings together a number of definitions for terms included in this Part.

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