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Energy Act 2023

Contents

Schedule 1: Interim power of Secretary of State to grant licences

  1. This Schedule provides that section 7 to 12 of the Act will have effect subject to the modifications made by the Schedule until the end of the interim period. The effect of these modifications is that during the interim period it is the Secretary of State that will exercise those powers and not the economic regulator. Under the Schedule, the Secretary of State can make regulations setting out the date when the interim period ends i.e., date on which the power to grant licences authorising CO2 transport and storage activities transfers from the Secretary of State to the economic regulator.

Schedule 2: Procedure for appeals under section 20

  1. Schedule 2 establishes the detailed procedure for appeals to the CMA in relation to decisions made by the economic regulator. The Schedule sets out the process by which appeals must be made, matters to be considered by the CMA and timeframes within which the CMA must determine the outcomes.

Schedule 3: Enforcement of obligations of licence holders

  1. Schedule 3 provides for the enforcement of conditions or requirements of CO2 transport and storage licence holders under Part 1, including procedural and other requirements which the economic regulator must comply with. The Schedule sets out the process the economic regulator must follow when it is satisfied that a licence holder is contravening, or is likely to contravene, any relevant condition or requirement and in relation to the imposition of financial penalties for such contraventions.

Schedule 4: Transfer schemes

  1. Schedule 4 sets out the scope and obligations for any statutory transfer that is to be made by the Secretary of State.

Schedule 5: Amendments related to Part 1

  1. Schedule 5 provides for consequential amendments to the Utilities Act 2000, Enterprise Act 2002, and Enterprise and Regulatory Reform Act 2013, to reflect the functions and powers conferred on the Gas and Electricity Markets Authority as the economic regulator of CO2 transport and storage under this Act.

Schedule 6: Carbon dioxide storage licences: licence provisions

  1. This Schedule amends the standard conditions for CO2 storage licences under Schedule 1 to the Storage of Carbon Dioxide (Licensing etc.) Regulations 2010. The effect of these amendments is to replace the Oil and Gas Authority’s (OGA’s) current "after the event" powers in relation to change of control of carbon storage Licensees and permit operators with powers intended to apply before a change of control has taken place.
  2. Licensees and permit operators must apply in writing to the OGA for consent at least three months before the planned date of the change of control. Following receipt of an application the OGA may give unconditional or conditional consent or refuse consent to the proposed change of control. If the OGA proposes to grant consent subject to any condition, or to refuse consent, it must give the relevant company the opportunity to make representations and then consider any such representations. This Schedule also gives an indication of the kind of conditions that may be imposed and sets out that notification of the OGA’s decision and any conditions must be made in writing to the existing and proposed new Licensees. The OGA must generally decide an application within three months of receiving it, although may delay its decision by notifying the interested parties in writing.
  3. This Schedule also makes amendments to the standard conditions in respect of the OGA’s powers of revocation and partial revocation, again intended to replace the existing after the event powers with before the event powers.

Schedule 7: Permitted disclosure of material obtained by OGA

  1. Schedule 7 establishes the circumstances in which, and to whom, the OGA is permitted to disclose carbon storage information and samples which have been reported to it.
  2. Paragraph 1 of the Schedule sets out those public bodies to whom the disclosure of information is permitted. The Secretary of State is able to update this list of public bodies, by way of regulations, should that be appropriate in future.
  3. The Schedule also sets out other permitted disclosures, including disclosure where consent has been sought; disclosure for reporting purposes; and disclosure required by other legislation or for the purpose of legal proceedings.
  4. Paragraph 4 provides for public disclosure once a pre-defined confidentiality period has passed, which is to be determined in regulations by the Secretary of State. This confidentiality period is to ensure protections are in place for commercially valuable information.

Schedule 8: Carbon storage information and samples: appeals

  1. Schedule 8 establishes detailed provisions for appeals against certain decisions of the OGA in relation to carbon storage information and samples. This sets out the grounds on which appeals may be made to the first-tier Tribunal, and the remedies available if an appeal is upheld.
  2. Part 1 of Schedule 8 provides for appeals against decisions relating to the preparation of an information and samples plan and appeals against a notice to require information and samples.
  3. Part 2 of Schedule 8 provides for appeals to be made by those on whom sanctions notices have been served. These appeals can be brought against a finding that a sanctionable requirement has not been complied with or against the nature of the sanction imposed, for example: the level of a financial penalty.

Schedule 9: Independent System Operator and Planner: transfers

Part 1 – Transfer schemes

Power to make a transfer scheme
  1. This schedule empowers the Secretary of State to make transfer schemes to create the ISOP and give it the capacity to carry out its functions.
  2. Sub paragraph (2) allows the Secretary of State to make a transfer scheme for energy code bodies. This power is expected to be used to transfer the code administrator Elexon, out of the ownership of the Electricity System Operator, in which it currently resides. This power expires after seven years following when the Act is passed.
Consultation
  1. The Secretary of State must consult with the transferor and other bodies as they consider appropriate. Consultation can take place before or after this Act reaches Royal Assent.
Transfer of property, rights and liabilities
  1. The transfer of property, rights or liabilities will take place on the date specified in the transfer scheme. A range of things could be included in a transfer scheme, and these are listed.
  2. Where a person works for the body being transferred, for example on secondment, but does not have an employment contract with that body, a discretionary power is included to be able to treat that person as having a formal employment contract as part of a transfer scheme. Employees affected by a transfer scheme should have the opportunity to object to a transfer of their employment before the agreed transfer date.
  3. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE regulations) protect the rights of employees when they transfer to a new employer. The contracts of the individuals to be transferred to the ISOP will be subject to TUPE regulations wherever they would otherwise be applicable. There are some circumstances under which employees would not usually be caught under (and granted the protection of) the TUPE regulations and paragraph 4 makes a power to extend TUPE protections where this would not naturally occur.
  4. The aim is to make it possible for the transfer to the ISOP not to break employees’ continuity of employment and their contracts transferred to the ISOP will be treated as if the ISOP was their original employer for this purpose.
  5. The transfer scheme may provide that the ISOP honours a collective agreement previously implemented by the existing employer. A collective agreement is when an employer may have an agreement with employees’ representatives (for instance a trade union or staff associations) that allows negotiations of terms and conditions like pay or working hours.
  6. The precise requirements of the scheme cannot be determined in advance but given the complexity of the initial transfer it is desirable to allow the Secretary of State to make any provisions in the transfer scheme which may be necessary to deal with matters arising. These include unforeseen liabilities which should remain with the transferor, and other examples as described in sub-paragraph 6(1).
Compensation
  1. Under paragraph 8, a transfer scheme may provide for the Secretary of State to pay compensation to the transferor as part of any transfer scheme related to the initial establishment of the ISOP or to enable it to carry out its functions and activities. The amount to be paid must be agreed by the Secretary of State and the relevant transferor. If an agreement is not reached, the Secretary of State and the transferor are required to jointly appoint an independent valuer to determine the compensation or, failing this, the Secretary of State can make the appointment on behalf of both parties. The Secretary of State can also nominate a person to act on their behalf.
  2. The Secretary of State may by regulations set out the procedures to be followed by the valuer, matters to which the valuer must have regard, or assumptions which the valuer must apply. Provision can also be made to require the Secretary of State and transferor to provide the valuer with information, or regard for a valuation to be binding in specified circumstances.
Taxation
  1. Paragraph 9 confers a power on HM Treasury to make regulations to alter how tax is treated in the course of a transfer scheme.
Power to amend transfer scheme
  1. The Secretary of State can amend a transfer scheme if they consider that the amendment is appropriate in preparation of the designation of the ISOP, or to enable the ISOP to carry out its functions. The Secretary of State has one year to use this power from the day the relevant transfer scheme takes effect. Compensation may be payable in relation to an amendment to a transfer scheme, and provision is made for determination by an independent valuer if compensation cannot be agreed.

Part 2 – Other provision about transfers and designation

Provision of information or assistance
  1. The Secretary of State has the power in connection with the making of a transfer scheme, or the designation of an ISOP, to direct a person to provide information or assistance to the Secretary of State. Requests must be responded to, so far as reasonably practicable, in the time, form and manner specified.
  2. The Secretary of State is required to reimburse costs reasonably and efficiently incurred in complying with a direction to provide information or assistance. The Secretary of State is given civil enforcement powers in relation to the requirements. This power expires three years after the ISOP is designated for the first time or, if a transfer scheme is made under paragraph 1(1), three years after the transfer takes effect.
  3. The Secretary of State is also given a discretion to reimburse costs reasonably and efficiently incurred in complying with other reasonable requests to provide information to the Secretary of State in connection with designation or the making of a transfer scheme, including those made before the Act receives Royal Assent.
Co-operation
  1. There is a duty on certain entities, specified in sub-paragraph (2), to cooperate with the Secretary of State in relation to the establishment of the ISOP.
Third parties: reimbursement and compensation
  1. The Secretary of State can reimburse costs reasonably incurred in connection with the initial establishment of the ISOP or the making of a transfer scheme.
  2. The Secretary of State may make regulations about payment of compensation to parties other than the transferor where loss or damage has occurred in consequence of a transfer scheme. For example, third parties who have contracts in place with the business being transferred.

Schedule 10: Independent System Operator and Planner: pensions

Introductory
  1. As part of the transfer of functions from the incumbent to the ISOP a number of employees will be transferred to the ISOP. Provisions are required to allow the ISOP to support these employees' pension schemes, and to ensure that no value is lost in the transfer of these pension schemes.
Participation in qualifying pension schemes and transfer of assets and rights
  1. As the pensions and employment arrangements regarding the creation of the ISOP cannot be determined in advance, this schedule empowers the Secretary of State to make regulations so that pension provisions can be updated, schemes changed, or new schemes created to reflect new corporate structures and the movement of employees. The Secretary of State is required to consult with the trustee of the qualifying pension scheme and the principal employer.
Amendment of qualifying pension schemes
  1. The Secretary of State may make regulations to amend a pension scheme, including retrospectively, related to the initial establishment of the ISOP or the making of a transfer scheme under paragraph 1 of Schedule 1. This can include provisions to determine the amount of benefits payable by reference to pensionable service and provisions to allow members to become members of another scheme when a pension scheme is divided into different sections. Any such changes are subject to consultation with the relevant scheme employers and pension scheme trustees.
Protection against adverse treatment
  1. The Secretary of State must ensure that the pension provision of employees will be at least as good immediately after the Secretary of State exercises the power to make regulations under this Schedule as it was before. The Secretary of State cannot change a pension scheme that might adversely affect the rights and benefits of its members unless member consent is obtained, or if the amendment is made in a prescribed way.
Information and assistance
  1. The Secretary of State has the power to request information or documents to be provided to them by the trustee of a qualifying pension scheme, the relevant person carrying those functions or any current or past employer of a qualifying pension scheme. The Secretary of State must reimburse costs reasonably and efficiently incurred by a person in responding to such a request. This power expires three years after the ISOP is designated for the first time or, if a transfer scheme is made under paragraph 1(1), three years after the transfer takes effect.
  2. The request must be responded to, as far as possible, in the time, form and manner specified in the notice. Where reasonable requests for information are not complied with, enforcement action is made available.
Consultation
  1. Any consultation required under this Schedule can be carried out before or after the Act receives Royal Assent.

Schedule 11: Minor and consequential amendments relating to Part 5

  1. Consequential amendments are needed to the Gas Act 1986 and Electricity Act 1989 to enable the ISOP, and its licensable activities, to be integrated into the existing framework of the energy system regulated by Ofgem. Paragraph 8 makes consequential amendments to the ‘information gateway’ provisions of Utilities Act 2000, to ensure that information obtained using powers under Part 4 is appropriately protected.

Schedule 12: Governance of gas and electricity industry codes: transitional provision

Meaning of "qualifying document", "qualifying contract" and "qualifying central system"
  1. This paragraph empowers the Secretary of State to create lists of documents, contracts and central systems that the transitionary powers in this Schedule can be applied to. It also defines relevant terms.
Purpose for which powers under this Schedule may be exercised
  1. This paragraph limits the scope of the transitional powers granted in this Schedule so that they cannot be used for anything other than their intended purpose.
Expiry of powers under this Schedule
  1. The transitional powers in this Schedule are intended to be temporary in nature. They can expire in one of two ways: on a code-by-code basis, once all the transitionary changes have been made in relation to that specific code; or after a period of seven years, if earlier, for any codes that have yet to complete their transition process. This means that the transitional powers may remain active for some codes longer than they do for others, depending on how the reforms are sequenced by the GEMA.
Modification of qualifying documents and relevant licences
  1. To implement code reform, it will be necessary for the GEMA to modify documents and licence conditions. This section gives the GEMA such powers and details the processes it must follow when using them, including who must be consulted and informed.
Amendment or termination of qualifying contracts
  1. To implement code reform, it may be necessary for the GEMA to amend or terminate existing contracts of parties that are currently engaged in activities related to energy code governance. For example, it may be necessary to amend the contracts of parties that operate central systems so that they are able to recover any costs efficiently incurred when complying with a direction from the GEMA. This section gives the GEMA such powers and sets out the processes it must follow when using them, including who must be consulted and informed.
Arrangements in connection with code consolidation
  1. The transition to the new code governance framework may involve a period of code consolidation, in which one or more of the existing codes may be merged together, or into one or more new codes. Two of the existing codes, the Uniform Network Code and the Balancing and Settlement Code, are central to the operation of the gas and electricity markets. If either of these codes were to be merged into the other, there is a risk that the underpinning of the associated market would cease to exist as a result. To avoid this problem, this section grants the GEMA the power to create a scheme that would allow contracts established under one or more existing codes to be merged into contracts established under one or more newly consolidated codes, without any risk of disruption.
Transfer schemes
  1. The transition to the new code governance framework may require staff, physical IT assets and service contracts to be moved from one organisation to another. In some cases, the transfer of the relevant item might be agreed between the various parties, such as the outgoing code administrator and the incoming code manager, but a negotiated outcome cannot be guaranteed. This section therefore grants the GEMA the power to create transfer schemes for the purposes of implementing code reform, which will allow it to ensure that the newly created code managers will have all the things that they need to do their jobs. It also describes the processes that the GEMA will need to follow when using this power, including a requirement to obtain approval for each scheme from the Secretary of State.
Information
  1. This part of the Schedule grants the GEMA the power to obtain information from any person if it is required for the purpose of implementing code reform.
Compensation
  1. The code governance reforms may have an adverse financial impact on certain parties, for example those who have lost contracts or employees. This provision establishes a duty for the relevant code manager to compensate persons as required. It also describes how claims for compensation related to the use of these powers will be handled, as well as who is eligible to claim compensation. The Secretary of State may in each case give a direction on who is to pay compensation if it is not appropriate for the code manager to pay.
Other
  1. This provision is self-explanatory.

Schedule 13: Governance of gas and electricity industry codes: pensions

Introductory
  1. This paragraph sets out the power for the GEMA to create transfer schemes that will allow it to move employees from an existing organization, such as a code administrator, to an incoming code manager. To ensure that the pension provisions in respect of these employees are not adversely affected by this transfer, there may be a need to make consequential changes to their pension schemes. This paragraph defines the key terms that are used throughout this schedule, for example what is meant by a qualifying member (i.e., a past or present member of a qualifying pension scheme) or a qualifying pension scheme (i.e., a pension scheme which provides pensions or other benefits to employees of the transferring organization).
Participation in qualifying and other pension schemes
  1. This paragraph allows the GEMA to make regulations so that it can make different kinds of provisions in relation to qualifying pension schemes in preparation for the granting of a code manager licence. Examples include provision for the division and reallocation of assets within a pension scheme and enabling participation in the scheme by specific persons. Under this paragraph, the GEMA is obliged to consult with appropriate parties. The making of these regulations is subject to the approval of the Secretary of State.
Amendment of qualifying pension schemes
  1. This paragraph enables the GEMA to make regulations to amend qualifying pension schemes in cases where staff will need to be transferred between organisations in preparation for the granting of a code manager licence. Examples of potential amendments include provision for the transfer of assets, rights, liabilities or obligations between relevant pension schemes. Under this paragraph, the GEMA is obliged to consult with appropriate parties. The making of these regulations is subject to the approval of the Secretary of State.
Protection against adverse treatment
  1. This paragraph outlines the GEMA’s duty to ensure that qualifying members of affected pensions schemes are not adversely impacted in material terms in respect of their pension provisions as a result of these reforms. This paragraph also sets out that the GEMA’s power to amend qualifying pension schemes under this provision is subject to the prescribed consent requirements in those pension schemes.
Information
  1. This paragraph grants the GEMA the power to obtain relevant information in relation to a qualifying pension scheme from any person if it relates to the benefits or administration of such a pension scheme, with such powers enforceable in civil proceedings.

Schedule 14: Minor and consequential amendments: Part 6

Gas Act 1986
  1. Paragraphs 1 to 4 amend the Gas Act 1986 to ensure that the bodies responsible for operating a designated central system (i.e., an IT system connected with the maintenance, operation, or data storage of a designated document) are treated as regulated persons when subject to a direction from the GEMA under section 194 of this Act. This amendment will allow the GEMA to use its enforcement powers if the responsible body in question fails to comply with a direction.
Electricity Act 1989
  1. Paragraphs 5 to 8 amend the Electricity Act 1986 to ensure that the bodies responsible for operating a designated central system (i.e., an IT system connected with the maintenance, operation, or data storage of a designated document) are treated as regulated persons when subject to a direction from the GEMA under section 194 of this Act. This amendment will allow the GEMA to use its enforcement powers if the responsible body in question fails to comply with a direction.
Energy Act 2004
  1. The GEMA is responsible for deciding whether to approve major changes to the energy codes. Paragraphs 9 to 11 make two amendments to the Energy Act 2004 related to how appeals of these decisions are handled. First, it extends the timeline of relevant appeals from one month to four months to bring it in line with appeals of other Ofgem decisions, such as licence modifications. Second, it adds decisions made by the GEMA in connection with the direct modification of designated documents power granted by sections 192 of the Energy Act 2023 to the list of decisions that can be appealed to the CMA.
Energy Act 2023
  1. Paragraph 12 amends section 89 of the Energy Act 2023 to provide the Secretary of State with the power to modify a code manager licence under section 7AC of the Gas Act 1986, as well as documents maintained in accordance with conditions of such a licence (such as industry codes) or agreements that give effect to such documents, for the purpose of facilitating or supporting the administration and/or enforcement of a hydrogen levy.

Schedule 15: Competitive tenders for electricity projects

Part 1 – Amendments of Electricity Act 1989

  1. Paragraph 1 of the Schedule provides that the amendments described by the subsequent paragraphs are made to the Electricity Act 1989 ("the Act").
  2. Paragraph 2 adds two new sections to the Act. The first enables the Secretary of State to make regulations setting criteria to be applied to electricity projects to determine their eligibility for competitive tenders, which in turn allows for competition to be enabled in respect of certain electricity projects. ‘Relevant electricity project’ is defined for that purpose. The second enables the Secretary of State to appoint a ‘delivery body’ to run tenders for electricity projects, both onshore and offshore. The Secretary of State may appoint different bodies to run different types of competition (for example, for onshore and offshore networks, where appropriate). It will also allow for the Secretary of State to indemnify a delivery body, where that body is not the Authority (Ofgem), for cost incurred in association with any judicial review proceedings brought against them in relation to a competitive tender under this Part of the Act.
  3. Paragraph 3 substitutes existing sections 6C and 6D of the Act with five new sections. New section 6C enables the Authority to make regulations to facilitate tenders ("tender regulations"). The other four new sections set out the scope of what tender regulations may cover. This includes functions and powers of the Authority (Ofgem) and the delivery body, the methodology for tenders, and the recovery by the Authority and/or delivery body of costs expended in association with tenders. In order to allow for effective tenders, tender regulations may also include provision for the Authority, delivery body and a contract counterparty to seek information which is relevant to tenders. New section 6CC of the Act details the treatment of connection applicants.
  4. Paragraph 4 amends section 6E of the Electricity Act 1989 to allow property schemes created in furtherance of a competition run under this part of the Act to cover onshore network solutions as well as offshore tenders. Property schemes allow for the creation or transference of property, rights or liabilities necessary for the preferred and/or successful bidder to deliver the outcome of the competition.
  5. Paragraphs 5 and 6 amend sections 6F and 6G of the Act respectively to allow for transmission to take place during a commissioning period without the person undertaking the activity needing a transmission licence.
  6. Paragraph 7 amends section 6H of the Act to give the Authority (Ofgem) the ability to amend licences and codes to give effect to the outcome of competitions onshore as well as offshore.
  7. Paragraph 8 amends section 11A of the Act. Section 11A sets out the process to modify conditions under licences granted by the Authority (Ofgem). This amendment clarifies that this general process to modify conditions does not apply to modification of conditions of licences following a competition. For this scenario, new section 6CC(5)(a) (set out in paragraph 2 of Schedule 5) applies and sets the process for such modifications.
  8. Paragraph 9 amends section 64 of the Act, which sets out definitions used in this Part of the Electricity Act 1989, to include definitions introduced by this legislative measure.
  9. Paragraphs 10 to 26 amend Schedule 2A of the Act to cover onshore as well as offshore electricity networks in terms of property schemes.
  10. Paragraph 11 enables the Authority (Ofgem) to make a property scheme which allows for the creation or transfer, as is relevant, of rights, liabilities and property necessary or expedient for operational purposes to enable delivery of the outcome of a competitive tender in onshore electricity networks.
  11. Paragraph 12 clarifies that a property scheme should not be created if the Authority (Ofgem) considers it appropriate that the successful bidder obtains the relevant rights, liability and property by another route.
  12. Paragraph 13 revokes paragraph 5 of Schedule 2A of the Act. This was a sunset provision, which limited property schemes to the transitional period after offshore competition sections of the Energy Act 2004 were introduced.
  13. Paragraph 14 makes amendments to paragraph 12 of Schedule 2A to allow property schemes (as described above) made under Schedule 2A to cover scenarios of construction and commissioning of an asset, as well as operation. This gives effect to onshore competition where early or late model competitions are used; that is, competition before or after planning permission for the build, ownership and operation of a network solution. This extends from the current regime for offshore networks, which only allows for very late model competition, where only the ownership and operation of an asset which is already built is tendered for.
  14. Paragraph 15 clarifies that no property scheme can be made until the relevant licence or contract (as appropriate to the winning solution) is in place.
  15. Paragraphs 16 to 20 make amendments to other paragraphs in Schedule 2A in the same way as set out in Paragraph 14 for paragraph 12 of Schedule 2A, so that Schedule 2A can be used in onshore as well as offshore competition.
  16. Paragraph 21 amends Paragraph 35 of Schedule 2A: paragraph 35 now sets out notification procedures for the Authority (Ofgem) or a contract counterparty to notify of its intent to grant a licence and/ or grant a contract to the winning bidder. The amendment extends the current paragraph 35 from just the Authority’s notification to a contract counterparty’s notification. This gives effect to competition to allow for licensable and non-licensable solutions as an outcome of onshore competition.
  17. Paragraph 22 amends paragraph 36, which sets out processes and definition of a successful bidder, to cover onshore and offshore competition, and licensable and non-licensable solutions.
  18. Paragraph 23 inserts a new paragraph providing the Authority (Ofgem) with powers to appoint a transmission owner or distribution owner of last resort in the event that the winning bidder’s solution or the owner is unable to continue functioning under the terms of its contract and/or licence.
  19. Paragraph 24 amends definitions used in Schedule 2A of the Act to refer to onshore and offshore competitions.
  20. Paragraph 25 amends paragraph 6 in Schedule 4 of the Act to allow for winners of onshore competition exercises to be included in provisions regarding powers of licence holders.

Part 2 – Other amendments

  1. Paragraph 26 amends section 105 of the Utilities Act 2000 to allow disclosure of information protected under that section by a contract counterparty, the Authority or delivery body if required to deliver functions set out in the Act (as amended by these provisions) and regulations made under new section 6C of the Electricity Act 1989.

Schedule 16: Mergers of energy network enterprises

Part 1: Further duties of Competition and Markets Authority to make references

Paragraph 1: Amending Part 3 of the Enterprise Act 2002
  1. This paragraph is self-explanatory.
Paragraph 2: Insertions following section 68 of the Enterprise Act 2002
  1. Paragraph 2 inserts sections 68A to 68F into Part 3 of the Enterprise Act 2002.
  2. Section 68A defines what amounts to an energy network merger for the purposes of the regime for mergers of energy network enterprises (referred to in these Explanatory Notes as the energy networks special merger regime). Relevant energy network mergers will be considered by the CMA under the energy networks special merger regime.
  3. An energy network merger is a merger between energy network enterprises that hold the same type of licence. Energy network enterprises within scope of the energy networks special merger regime are defined by virtue of the licence they hold under the licensing regime in Great Britain. For example, a merger between two Distribution Network Operators (DNOs), who both hold a licence under section 6(1)(c) of the Electricity Act 1989 would qualify as a relevant merger situation.
  4. This section includes a power for the Secretary of State to amend the type of enterprise that is considered as an energy network enterprise by reference to the type of licence it holds. If the Secretary of State relies on this power, they must consult with the CMA and GEMA. The Government expects Ofgem to carry out the duties bestowed on GEMA.
  5. The Enterprise Act 2002, which will be amended to include the energy networks special merger regime, has UK wide extent and thus the energy networks special merger regime will form part of the law of the UK. The energy networks special merger regime will only apply in England, Wales and Scotland because under section 68A, the only enterprises that will be in scope of the regime are energy network enterprises holding certain licences under s.7 of the Gas Act 1986 or s.6 of the Electricity Act 1989. The relevant provisions of both the Gas Act 1986 and the Electricity Act 1989 extend to and apply in Great Britain.
  6. Section 68B confers a duty on the CMA to refer a completed energy network merger to a full investigation by a CMA group if they think that a certain type of substantial prejudice has occurred or may occur.
  7. The CMA will consider, whether the merger has substantially prejudiced, or may substantially prejudice, the independent energy regulator, GEMA, in its ability to carry out its functions to make comparisons between energy network enterprises of the type involved in the merger. If the CMA concludes that it has, or may, result in substantial prejudice, then the CMA comes under the duty to refer unless the CMA believes that there is a customer benefit that outweighs the prejudice.
  8. This section provides that the CMA must not make a reference in certain circumstances (set out in section 22(3) Enterprise Act 2002). The CMA must not make a reference for full investigation where:
    • it has failed to make a decision on referral within 40 working days (subject to an extension of 20 working days in certain circumstances) from the date it notified the merging enterprises of its initial investigation,
    • an undertaking in lieu of referral for full investigation has been accepted,
    • the CMA is considering whether to accept an undertaking in lieu, and
    • the Secretary of State has served an intervention notice under section 42(2) of the Enterprise Act 2002, because the energy network merger raises a public interest consideration that needs to be taken into account, and this intervention notice is in force or has been determined. This is provided the Secretary of State has not asked the CMA to deal with the merger under section 68B.
  1. Section 68B also provides that the referral to full investigation must specify the enactment under which it is made, and the date on which it is made.
  2. Section 68C confers a duty on the CMA to refer an anticipated energy network merger (a merger which is in progress or contemplation but not completed) to a full investigation by a CMA group if they think that a substantial prejudice may occur.
  3. Everything listed in the explanatory note for section 68B (on when the CMA must refer, may refer and must not refer a merger to full investigation) also applies to anticipated mergers under section 68C, save that, if an intervention notice is served then the CMA must not refer the merger for a full investigation unless the Secretary of State has asked the CMA to deal with the merger under section 68C.
  4. Section 68C also provides, in respect of an anticipated merger, that the CMA is not obliged to refer the merger for full investigation where it is not sufficiently advanced or sufficiently likely to go ahead as to justify being investigated at this stage.
  5. Section 68D requires the CMA to consider the opinion of GEMA when forming a view on whether to refer the energy network merger for full investigation by a CMA group. The Government expects Ofgem to carry out the duties bestowed on GEMA.
  6. Subsection (2) provides that GEMA must give its opinion on whether and to what extent the merger has or may be expected to prejudice its ability to make comparisons between energy network enterprises of the type involved in the merger and whether any prejudice is outweighed by any relevant consumer benefits the merger may result in.
  7. GEMA must prepare and publish a ‘statement of methods’ which explains how it will form its opinion.
  8. GEMA must consult on the ‘statement of methods’ before preparing or altering it. Subsection (5) includes a list of statutory consultees. There is no obligation on the consultees to respond to the consultation.
  9. The statement of methods must include the criteria that GEMA will use to assess prejudice and the relative weight of the criteria.
  10. GEMA must from time to time review the statement of methods and where appropriate, update it.
  11. Section 68E makes provision for where a merger falls within scope of both the energy networks special merger regime, and the substantial lessening of competition regime. In this situation, the CMA may make a reference under both regimes, described as a "combined reference".
  12. This section sets out that combined references (i.e., investigations) may be dealt with and considered by the same group in the CMA.
  13. The group(s) investigating the merger is/are empowered to prepare and provide a joint report which sets out its/their findings on both the referrals. They do not have to issue a joint report if they deem it more appropriate to issue single reports.
  14. Section 68F sets out that in relation to references made under the provisions in sections 68B and 68C (with related provisions in sections 68A to E), Chapter 1 of Part 3 of the Enterprise Act 2002 applies in conjunction with the modifications set out in Schedule 5A to the Enterprise Act 2002.
Paragraph 3: Insertion of Schedule 5A to the Enterprise Act 2002, Modification of Chapter 1 of Part 3
  1. This paragraph provides modifications which should be read into certain sections in Chapter 1 of Part 3 of the Enterprise Act. Modifications, as opposed to amendments, mean that, while certain sections are not directly amended on their face, they should be read as if they have been when a merger is being considered under the energy networks special merger Regime. For example, under paragraph 4 of Schedule 5A, in section 30 on relevant customer benefit (which sets out when a benefit is to be deemed a relevant consumer benefit under the substantial lessening of competition regime) references to "lessening of competition concerned" should be read as "prejudice to the Gas and Electricity Markets Authority" when a merger is being considered under the energy networks special merger regime.
  2. The modifications set out in this paragraph relate to the following points: (1) General modifications; (2) Turnover test; (3) Relevant customer benefits; (4) Time limits for decisions about references; (5) Questions to be decided in relation to completed mergers; (6) Questions to be decided in relation to anticipated mergers; and (7) Duty to remedy effects of completed or anticipated mergers. These modifications are all to address the details of the energy networks special merger regime.
  3. Paragraphs 2 and 3 of Schedule 5A modify sections 23 and 28 of the Enterprise Act 2002 to ensure that the turnover threshold which determines which energy network enterprises are within scope of the energy networks special merger regime, only takes account of an enterprise’s turnover in Great Britain, rather than the United Kingdom. This reflects the policy position that the energy networks special merger regime will apply only to energy network enterprises that operate under the licensing regime in Great Britain.

Part 2: Consequential amendments of Part 3 of Enterprise Act 2002

  1. Paragraphs 4 through 34 set out the Consequential Amendments to Part 3 of the Enterprise Act 2002.

Part 3: Consequential amendments of other enactments

  1. Paragraphs 35 and 36 set out the Consequential Amendments to the Enterprise and Regulatory Reform Act 2013 and Utilities Act 2000.

Schedule 17: Multi-purpose interconnectors: consequential amendments

  1. This schedule sets out the consequential amendments to the Electricity Act 1989 and other primary legislation which the introduction of multi-purpose interconnector licensing will necessitate.

Schedule 18: Heat networks regulation

Part 1 – Interpretation

  1. This part provides a definition of various terms used elsewhere in the Schedule.

Part 2 – General provision as to the Regulator

  1. This part sets out what regulations may provide for in relation to the objectives of the heat networks regulator, its general duties and the publication of reports and maintenance of records. Regulations may include the regulator's principal objective of protecting existing and future heat network consumers. The part also sets out what regulations may provide for in relation to the duties and functions of the regulator.

Part 3 – Heat network authorisations

  1. This part sets out what regulations may provide for in relation to authorising activities relating to heat networks, including that certain activities (examples might be operating a heat network or supplying heat through a heat network) are prohibited without an authorisation. This part also sets out the subject matter of conditions that may be included in authorisations, for example: regarding compliance with technical standards, consumer protections on pricing, standards of service, and payment of fees to the regulator. Regulations may also provide for such authorisations to be modified, reviewed and/or revoked.

Part 4 – Code governance

  1. This part sets out what regulations may provide for regarding the designation of a code or other document setting out, for example, the technical standards of how to design, build or operate a heat network. It also provides that a ‘code manager’ may be appointed with responsibility for the management and governance of such documents, in accordance with a code manager licence. Regulations may also specify the content of a code manager licence and set out the circumstances and process by which designated documents and conditions of a code manager licence may be modified.

Part 5 – Installation and maintenance licences

  1. This part sets out what regulations may provide for regarding the issuance of licences which grant rights relating to the installation and maintenance of heat networks. These rights may include access rights and easements in relation to land, streets, railways, waterways, and tramways. Regulations may also set out provisions in relation to licence fees and the validity period of licences, as well as their transfer, modification, review, and revocation.

Part 6 – Enforcement of conditions and requirements

  1. This part sets out what regulations may provide for regarding the regulator’s enforcement powers in respect of non-compliance by authorised or licensed parties (as discussed in Parts 3 and 5 respectively). In particular, the regulations may provide for the process and circumstances by which the regulator issues provisional and final enforcement orders, financial penalties, and consumer redress orders. The regulations may also provide for how parties may challenge enforcement actions imposed. This part also allows for the provision of concurrent competition law powers to the regulator.

Part 7 – Investigation

  1. This part sets out what regulations may provide for regarding the regulator’s powers to investigate cases where prices charged to heat networks consumers appear to be disproportionate. Regulations may provide for the information that may be requested by the regulator and the steps that it may take to support its regulatory functions in relation to pricing and more generally (e.g., in relation to consumer protection, decarbonisation, and technical standards). It also allows for the regulator to delegate its investigatory powers to another party.

Part 8 – Step-in arrangements

  1. This part sets out the provisions that regulations may include regarding the transfer of responsibility for heat network activity from one authorised entity (‘the old entity’) to another (‘the new entity’). In particular, regulations may provide for the regulator to establish one or more schemes which allow the new entity to carry out the transferred activity in an effective manner. Regulations may also provide for the old entity to provide the regulator with such information and assistance as is required, for the regulator to direct the old entity to take or not take certain steps, for the regulator to make payments to the new entity and to indemnify the new entity from certain liabilities.

Part 9 – Special administration regime

  1. This part sets out that regulations may provide for the introduction of a special administration scheme for heat network operators, similar to that which operates for gas transporters and electricity transmission and distribution network operators (as introduced in sections 157 to 171 of the Energy Act 2004).

Part 10 – Supply to premises

  1. This part sets out what regulations may provide for in relation to heat metering, including duties on authorised entities to install heat meters and powers for authorised entities to enter premises to carry out activities related to metering. The part also sets out that regulations may provide duties on authorised entities in relation to offering heat networks connections (whether for the supply of heat, cooling or hot water to premises or the supply of heat to a heat network).

Part 11 – Consumer protection

  1. This part sets out that regulations may provide for the heat networks regulator to make regulations prescribing standards of performance affecting heat network consumers. For example, the regulations may provide for compensation to be paid to consumers affected by a failure by an authorised entity to meet a standard of performance. This part also sets out that regulations may provide for various Parts of the Consumers, Estate Agents and Redress Act 2007 to apply in relation to heat network consumers. This will allow for the operating of a consumer advocacy body and provision about complaints handling and redress schemes (in a similar way to the gas and electricity markets) for heat network consumers.

Part 12 – Financial arrangements

  1. This part sets out that the regulations may make provision in authorisation conditions (as discussed in Part 3 of this Schedule) regarding payments to support financial assistance under the special administration regime envisaged by Part 9 and payments to bodies who provide consumer advocacy and advice to heat network customers.

Part 13 – Miscellaneous and general

  1. This part sets out that regulations may provide for the creation of offences and related matters, including around requirements to provide information. It sets out that regulations may provide for the objectives of the Secretary of State and the Department of the Economy in Northern Ireland when carrying out their functions. It also allows regulations to provide for application to the Crown.

Schedule 19: Licensing of activities relating to load control

  1. Schedule 17 inserts the following new sections into the Electricity Act 1989:
  • 56FBA New licensable activities: load control of energy smart appliances
  • 56FBB Regulations made under section 56FBA.
Section 56FBA: New licensable activities: load control of energy smart appliances
  1. Section 56FBA gives the Secretary of State the power to make regulations which add to the activities that are licensable under the Electricity Act 1989 any one or more new activities which are connected with the carrying on or facilitating of load control or the provision of services of facilities for that purpose. This will ensure that licence conditions can be placed on organisations undertaking those activities, so that they can be effectively regulated. An example of load control activity which could be made licensable is where an entity manages energy smart appliances to shift electricity consumption and help balance the electricity grid. Licence conditions may include, for example, ensuring that load controllers operate in a way which protects the security and stability of the electricity system, and act in a fair manner towards consumers.
  2. Once activities become licensable, it will be an offence under section 4(1) of the Electricity Act to undertake them without a licence, unless they are made exempt by virtue of an order under section 5(1) of that Act.
  3. The regulations can also include any necessary consequential, transitional, incidental or supplementary changes to primary legislation. This will enable the Secretary of State to make any amendments necessary to ensure that the new licences fit within the existing statutory framework. The Secretary of State may also make transitional provisions relating to anyone who is already carrying out a relevant activity before it becomes licensable (for instance, to allow them time to adjust to the new arrangements and comply with licence conditions that will be placed on them).
Section 56FBB: Regulations made under section 56FBA
  1. This section sets out the procedure with which the Secretary of State must comply when making regulations under section 56FBA. For example, it obliges the Secretary of State to consult the Authority and others as appropriate before making the regulations. The section states that the power to make regulations cannot be exercised after the end of a period of seven years, beginning when the first regulations come into force. Regulations to introduce a new licensable activity are subject to the affirmative resolution procedure.
  2. This section also amends section 56FC(2) of the Electricity Act 1989 to give the Secretary of State power to make regulations providing for the award of a licence through competitive tender to a person who will provide these centralised services by extending the existing relevant power within the Electricity Act to include load control activities. The Secretary of State may wish to ensure the establishment of a centralised body that will provide data and/or communication services to all of those who hold licences in relation to the provision of load control, and through which communications with relevant smart devices must or may be made.
  3. It also amends section 106(2) of the Electricity Act to exempt new licensable activities regulations from being subject to the negative parliamentary process (since they are instead subject to the affirmative process by virtue of 56FBB(3)).

Schedule 20: Enforcement undertakings

  1. For the purposes of Part 12, this Schedule provides as to how the procedure to be followed concerning enforcement undertakings (section 3) is to be published. It sets out how an enforcement undertaking can be varied and how to certify that it has been complied with, the steps to take if the undertaker provides inaccurate, incomplete or misleading information, and the appeals procedure.

Schedule 21: Petroleum licences: amendments to model clauses

  1. This Schedule amends all model clauses regarding the change of control of a Licensee in possession of any current and future Seaward Petroleum Production licences and all Landward Petroleum Production licences (but not Landward or Seaward Exploration Licences), to replace the Oil and Gas Authority (OGA) after the event powers with powers intended to apply before a change of control has taken place.
  2. It sets out that if a change of control of a petroleum Licensee is contemplated, the Licensee must apply in writing to the OGA for consent at least three months before the planned date of the change of control. Following receipt of an application the OGA may give unconditional or conditional consent or refuse consent to the proposed change of control. If the OGA proposes to grant consent subject to any condition, or to refuse consent, it must give the relevant company the opportunity to make representations and then consider any such representations. This Schedule also gives an indication of the kind of conditions that may be imposed and sets out that notification of the OGA’s decision and any conditions must be made in writing to the existing and proposed new Licensees. The OGA must generally decide an application within three months of receiving it, although may delay its decision by notifying the interested parties in writing.
  3. This Schedule also introduces amendments in respect of the OGA’s powers of revocation and partial revocation, again intended to replace the existing after the event powers with before the event powers.

Schedule 22: Accession to the Convention on Supplementary Compensation for Nuclear Damage

  1. This Schedule amends the Nuclear Installations Act 1965 (the Act) to make provision for the UK’s intended accession to the CSC.
Paragraph 1
  1. Paragraph 1 amends section 13 of the Act, to ensure that in the event that a person not subject to a duty under the Act pays compensation, they are able to claim under the Act against the holder of the duty. As previously noted, the UK is already party to the Paris and Brussels Conventions regarding nuclear third-party liabilities and this provision currently applies in respect of those Conventions.
Paragraphs 2 and 3
  1. Paragraph 2 amends section 16 of the Act. This section sets the liability limits of operators or licensees in respect of any breach of the duties set out in the Act, as well as the parameters for claims against the "appropriate authority" (in most cases, the Secretary of State).
  2. At present, the Act distinguishes between claims arising from states that are party to the Paris Convention, and those arising from states that are also party to the Brussels Convention. The addition of the CSC into the UK’s nuclear third-party liability landscape necessitates amendment to this classification system. The classification of the claim affects the maximum level of compensation available, and how the amount is comprised under the different regimes.
  3. Subparagraph (2) removes payments that are limited to CSC relevant claims from the limit of £700 million for a breach of Paris Convention duties imposed by the Act. Subparagraph (3) specifies that the liability limit imposed on operators under claims which relate only to the CSC is 300 million Special Drawing Rights (SDR – which are defined in paragraph 6).
  4. Subparagraphs (6) and (7) set out the various liability limits on the Scottish Ministers or Secretary of State, as applicable, for the different types and combinations of potential claims under the Paris, Brussels and CSC treaties. Subparagraph (7) also provides for restrictions on the distribution of the CSC international pooled fund. Only 50% of the fund can be used to satisfy domestic CSC claims, with the remaining 50% reserved for the compensation of claims originating in other CSC countries.
  5. Subparagraphs (4), (5), (8) and (9), and paragraphs 3 and 5 make the necessary consequential amendments to reflect the above changes to section 16 of the Act.
Paragraph 4
  1. Paragraph 4 inserts a new section into the Act (section 16AA). This section defines a number of terms related to CSC claims for the purposes of the amended section 16.
  2. Subsection (1) of the new section 16AA clarifies that this section applies for the purposes of section 16. Subsections (2) and (3) set out the required elements to establish a "CSC claim".
  3. Subsections (4) to (6) build upon subsection (3) by defining when a CSC claim is a "CSC-only claim". As subsection (5) sets out, a claim becomes CSC-only when the injury, damage or significant impairment of the environment occurs solely within the territory, or related territory/property, of a CSC-only territory. Subsection (6) defines a "CSC-only territory" as one which is not: the UK, a CSC country that is party to any other international nuclear third-party liability agreement, a non-nuclear country (or overseas territory of such country) or a relevant reciprocating territory.
  4. Subsections (7) and (8) define a "non-UK CSC claim", with reference to injury, damage or significant impairment of the environment that occurs in a CSC territory (or related territory/property) other than the UK.
  5. Subsection (9) contains further definitions relevant to this section.
Paragraph 6
  1. Paragraph 6 (subparagraph (2)) amends section 18 of the Act to increase the value of funds able to be agreed by Parliament to the aggregate value of the Paris and Brussels Conventions (including the Brussels international pooled fund (1,500 million euros)) and the CSC international pooled fund.
  2. Subparagraphs (3) and (4) make the necessary consequential amendments to section 18 to reflect these changes.
Paragraph 7
  1. Paragraph 7 inserts a new section (25C) to define the term "special drawing rights" and provides for the determination of the equivalent amount in sterling; the conversion is to be undertaken in line with the International Monetary Fund’s fixed rates, and a certificate from the Treasury stating that a particular conversion rate has been fixed in this way is to be considered conclusive on this question. The Treasury may charge a reasonable fee for providing such a certificate.
Paragraph 8
  1. Paragraph 8 inserts certain of the new definitions relating to the CSC into section 26, the interpretation section of the Act, as well as making consequential provision for certain existing definitions so that they apply in relation to the CSC.

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