Select Committee on Delegated Powers and Deregulation Seventeenth Report



ANNEX 2

UTILITIES BILL

Memorandum by the Department of Trade and Industry

Introduction

This memorandum explains the proposed use by the Secretary of State of new delegated powers in the Utilities Bill as brought from the House of Commons on 20 April. It also explains powers which: (i) seek to clarify or modify already existing delegated powers; and/or powers which (ii) are to be exercised by the Gas and Electricity Markets Authority ("the Authority") established under clause 1. As the Bill contains powers which affect both the gas and electricity industries in similar ways, we have explained these together where it is sensible to do so.

PART I: NEW REGULATORY ARRANGEMENTS

CLAUSE 8 - PAYMENTS BY LICENCE HOLDERS RELATING TO NEW ARRANGEMENTS

Subsection 8 permits the Secretary of State to give a direction to the Authority governing the payment conditions to be included in gas and electricity licences to recover the expenses: (a) of the newly established Gas and Electricity Consumer Council ("the Council"); and (b) of the Secretary of State in establishing either the Council or the Authority.

Purpose: subsection 8 permits the Secretary of State to give a direction to the Authority, with which the Authority must comply, as to the inclusion of payment conditions in gas and electricity licences for the purpose of securing the payment by licence holders of sums relating to any of the expenses mentioned in subsection (3) (i.e. not including the Authority's own expenses). Since the Council is independent of the Authority, there is no locus for the Authority to determine the valid expenses of that body (or indeed those of the Secretary of State in relation to the establishment of the Authority or the Council), and it is necessary to provide both for a power to recover those expenses through licence fees and a mechanism to ensure that the Authority makes necessary modifications to the licence conditions so as to ensure their recovery. There is no need for the Authority to have a similar power in relation to its own expenses, since these are determined directly between the Authority and the Treasury, and the Authority already has the power to propose modifications of licence conditions so as to recover those expenses.

Reasons for proposing delegated powers: a delegated power is sought because it is not appropriate to specify licence conditions in the primary legislation nor is it possible to say now whether the Secretary of State will need to take any action under this clause. A power of direction is thought appropriate in this case because it will be addressed to the Authority alone (see e.g. section 34(3) Gas Act 1986 and sections 47(2) and 50(4) Electricity Act 1989). It is also consistent with the Secretary of State's powers under other licence modification provisions of the Gas Act and Electricity Act (see sections 8(6), 23 (5) and 24(4A) Gas Act 1986 and sections 11(4) and 12(5) Electricity Act 1989).

Procedure: direction signed by the Secretary of State.

PART II: OBJECTIVES OF REGULATION OF GAS AND ELECTRICITY

CLAUSES 10 & 14 - GUIDANCE ON SOCIAL AND ENVIRONMENTAL MATTERS

Subsection 1 of new sections 4AB Gas Act 1986 and 3B of Electricity Act 1989 inserted by clauses 10 and 14 respectively, enables the Secretary of State to issue guidance to the Authority on the Government's social and environmental policies. Although this is not strictly a delegated power, the issuance of guidance imposes an obligation on the Authority, which must have regard to it when carrying out its statutory functions. The Secretary of State must consult the Authority, Council, licence holders and anybody else he thinks appropriate before issuing guidance. The guidance can only be issued 40 days after a draft has been laid before each House of Parliament (subsection 5) and no motion has been carried against it. Relevant precedents can be found in sections 4 and 31 of the Environment Act 1995.

Purpose: the guidance ensures that the Authority is fully apprised of the Government's social and environmental policies, so far as they are relevant to the regulation of the gas and electricity sectors, and enables the Authority to make an appropriate contribution to the Government's overall objectives. The Secretary of State also has the flexibility he needs to change the guidance as appropriate in response to changing circumstances.

PART III: FUNCTIONS OF THE COUNCIL

CLAUSE 24 - PROVISION OF INFORMATION TO THE COUNCIL

Subsection 6 enables the Secretary of State to make regulations defining:

categories of information which the Authority or any licensee may refuse to provide when the Council requests it; and/or

circumstances in which either may refuse to provide information so requested.

Purpose: to define the circumstances in which, or the categories of information which, the Council may not require licence holders and the Authority to supply to it.

Reasons for proposing delegated powers: it is thought that the level of detail that may be necessary to identify precisely the categories of information that may be withheld and the circumstances in which information may be withheld under this clause would be inappropriate in primary legislation. The Government also expects that experience may reveal that there are categories of information which might need to be added to, or subtracted from, those which may properly be withheld from the Council. This delegated power will give the Secretary of State the ability to disapply the protection thus afforded in respect of circumstances or categories where protection proves to be unnecessary, or to extend the protection to circumstances or categories of information not yet identified. Relevant precedents are the provisions for altering the exceptions to the general restrictions on the disclosure of information in the Gas Act 1986 (see s42(3A)) and the Electricity Act 1989 (see. s 57(4)).

Procedure: Negative resolution.

CLAUSE 26 - PROVISION OF INFORMATION BY THE COUNCIL TO THE AUTHORITY

Subsection 2 enables the Secretary of State to make regulations defining:

categories of information which the Council may refuse to supply to the Authority; and/or

circumstances in which the Council may refuse to supply information to the Authority.

Purpose: To define the circumstances or categories of information which the Authority may not require the Council to supply to it.

Reasons for proposing delegated powers: as for clause 24(6), it is likely that experience will reveal circumstances or categories of information which should be added to, or subtracted from, those which may properly be withheld from the Authority.

Procedure: negative resolution.

NOTE: in respect of the exercise of the delegated powers in clauses 24 and 26, the Government issued a consultation document[2] in March 2000, a copy of which is in the library of the House. Interested parties have until 31 May to comment on the Government's proposals.

PARTS IV AND V

AMENDMENT OF THE ELECTRICITY ACT 1989 AND THE GAS ACT 1986

CLAUSE 28 (ELECTRICITY) & CLAUSE 85 (GAS) - EXEMPTIONS FROM LICENSING

Clause 28 replaces the current section 5 of the 1989 Act which enables the Secretary of State, after consulting the Director General of Electricity Supply (the "Director"), to grant exemptions from the requirement to hold a licence. The clause revises and extends the existing powers. New section 5(1) is the basic power to grant exemptions by order after consultation with the Authority. It makes it clear that conditions can be attached to exemptions. Section 5(6) and (7) insert powers for the Secretary of State to revoke by order (subject to consultation) an exemption granted to a person or class of persons, for example if conditions attached to an exemption have been breached. Section 5(8) enables the Secretary of State by direction (subject to consultation) to withdraw from a person in a class the benefit of an exemption granted to persons of that class. Clause 85 amends the powers relating to exemptions in section 6A of the Gas Act 1986 in parallel with the new provisions for electricity; in particular, new section 6A(5) and (6) introduce the same powers to revoke exemptions, and section 6A(7) inserts the same power to withdraw an exemption, as are contained in the equivalent clause for electricity.

Purpose: to continue the existing system of granting exemptions and provide more clearly for their revocation and withdrawal in specified circumstances (and in the case of electricity, the imposition of conditions).

Reasons for proposing delegated powers: continuation of existing delegated powers; it is an important aid to flexibility in the regulatory regime that the exemptions system should be controlled through secondary legislation.

Procedure: negative resolution.

CLAUSE 29 - LICENCES AUTHORISING SUPPLY ETC OF ELECTRICITY

Subsection (1) of the new section 6 inserted into the Electricity Act 1989 removes both the Secretary of State's power to grant electricity licences and his power to give the Director a general authority to do so. This clause then provides that the Authority may grant licences authorising persons to generate, transmit, distribute and supply electricity.

Purpose: This is pursuant to the Government's policy of arm's-length economic regulation of the gas and electricity markets by an independent regulatory body.

Reasons for proposing delegated powers: this is pursuant to the Government's policy of arm's-length economic regulation of the gas and electricity markets by an independent regulatory body. A similar change was made in respect of gas by sections 5 and 6 of the Gas Act 1995 which inserted new sections 7 and 7A into the Gas Act 1986 (see sections 7(2) and 7A(1) and (2) of the 1986 Act as amended). This measure brings the two sectors once more into line.

Subsection (6) of new section 6A inserted by clause 29 transfers from the Secretary of State to the Authority the power to make regulations as to the procedure for applying for electricity licences or for extensions or restrictions to existing licences.

Purpose: This is pursuant to the Government's policy of arm's-length economic regulation of the gas and electricity markets by an independent regulatory body.

Reasons for proposing delegated powers: Since the Authority has the sole power to grant licences, it should also have the power to determine the detailed procedures for granting, extending and restricting licences, including detailed requirements as to the information which applicants must provide. It is the Government's intention to introduce amendments during Lords stages of the Bill that will have a similar effect in relation to gas licensing.

Procedure: none.

CLAUSES 32 (ELECTRICITY) AND 80 (GAS) - STANDARD CONDITIONS OF LICENCES

Subsection (1) of clause 32 provides that such conditions as may be determined by the Secretary of State, and published by him before the commencement of subsection (2) of that clause shall be standard conditions of licences for all electricity licences of the kind in question. Subsection (2) of clause 80 makes an equivalent provision in respect of the determination of standard conditions of gas licences. In this case, the Secretary of State must determine and publish such conditions before the commencement of subsection (3) of that section.

Purpose: The powers build on the model of the Gas Act 1986 (as amended by section 8 of the Gas Act 1995). They will enable the provision of a framework of standard conditions for all licences issued under the Electricity Act 1989 and the Gas Act 1986 as amended by the Bill. The establishment of standard conditions of electricity licences is new. In gas, where standard conditions are already a feature, the purpose of the power in clause 80 is to enable the Secretary of State to replace some existing conditions with new ones pursuant to provisions elsewhere in the Bill. A further purpose of standard conditions of licences is to designate those licence conditions which are susceptible to collective amendment by the procedures set out in clause 34 (for electricity) and 81 (for gas).

Reason for seeking delegated powers: licence conditions are complex and technical, and it would not be appropriate to set them out in primary legislation. Drafts of the proposed standard conditions have been published for consultation, and all comments will be taken into account before the conditions are finalised. This follows the precedent laid down in the Gas Act. The power of the Secretary of State to determine standard conditions lapses once the subsections in question commence.

Procedure: None.

Subsection (5) of section 8A of the Electricity Act 1989 (inserted by this clause) provides that the Secretary of State may direct the Authority not to proceed with a proposed modification to the standard conditions of licences. This power mirrors an existing power in section 8(6) of the Gas Act 1986 (inserted by section 8 of the Gas Act 1995).

Purpose: the standard conditions of each type of electricity licence (generation, transmission, distribution and supply) are to be established by the Secretary of State under subsection (1) of this clause. Subsequently, at the grant of an individual licence, the Authority may seek to modify standard conditions to meet the circumstances of the individual case. The Secretary of State's power to direct that such a modification be not made is intended to allow him to protect the standard conditions which he has made under section 8A from being changed in a way which negates the original purpose of the conditions. The system of standard conditions requires that they be, by and large, applied uniformly to all holders of a given licence type.

Reasons for proposing delegated powers: having given the Secretary of State a power to determine the initial standard licence conditions, the Government believes that it is consistent to give him also a power to determine whether a proposed change to the conditions is consistent with the underlying policy.

Procedure: none.

CLAUSES 34 (ELECTRICITY) AND 81 (GAS) - MODIFICATION OF STANDARD CONDITIONS OF ELECTRICITY AND GAS LICENCES

Subsection (10) of section 11A of the Electricity Act 1989 (inserted by clause 34) and subsection (12) of section 8 of the Gas Act 1986 (inserted by subsection (4) of clause 81) defines "prescribed" as meaning "prescribed in an order made by the Secretary of State". Thus the Secretary of State may, by order, determine the values of the two blocking minority thresholds required to secure that a proposed modification of the standard conditions of electricity and gas licences may not proceed without reference to the Competition Commission.

In addition, it is proposed that he may specify in an order, for any licence type, the means by which the market share of licence holders is to be measured for the purpose of determining whether or not the second of these thresholds has been exceeded.

Purpose: Clause 34 provides that the Authority may modify the standard conditions of all electricity licences of a given type (for example, supply licences). However, licence holders may object to the modifications proposed, in which case the Authority must test the level of opposition against two thresholds, one relating to the number of licensees and one relating to their market share. If the level of opposition is higher than either of the thresholds, then the Authority may not proceed with the modification proposed without referring the matter to the Competition Commission. Clause 81 amends section 23 of the Gas Act to the same effect.

Reasons for proposing delegated powers: the basic mechanism for modification of standard licence conditions is already included in the Gas Act 1986, and the thresholds and the definition of market share are on the face of the Act (section 23, subsections (7) to (9)). They are the same for each of the three types of gas licence and may not be changed other than by primary legislation. This model has however proved to be too inflexible. Gas and electricity markets are changing quickly. It is no longer appropriate that the parameters for determining whether licences may be modified can be amended only by primary legislation. It is important that it should be possible to set and change these parameters in order to allow regulation to be able to respond over time to developments in the market.

Procedure: Affirmative procedure.

CLAUSES 38 (ELECTRICITY) AND 82 (GAS) - COMPETITION COMMISSION'S POWER TO VETO MODIFICATIONS FOLLOWING REPORT

Subsection (1) of section 14A of the Electricity Act 1989 (inserted by Clause 38) and subsection (1) of section 26A (inserted by subsection (3) of Clause 82) permit the Competition Commission to give a direction to the Authority. The direction relates to the licence modifications to be made following a report on a modification reference to the Competition Commission.

Purpose: Clause 38 permits the Competition Commission to give a direction to the Authority, with which the Authority must comply, vetoing some or all of the licence modifications the Authority proposes to make following a report on a modification reference by the Competition Commission. The Competition Commission may do so where it considers that the proposed licence modifications are not requisite for the purpose of remedying or preventing the adverse effects specified in its report. It is then required to substitute its own licence modifications which it considers are requisite for that purpose. The intention is to improve regulatory certainty about the outcome of cases involving a licence modification reference to the Competition Commission. Clause 82 amends the Gas Act to the same effect.

Reasons for proposing delegated powers: A delegated power is sought because it is not possible to say now whether the Competition Commission will need to take any action under this clause, as such action will be dependent on a licence modification reference being made to the Competition Commission and action taken by the Authority following the report. A power of direction is thought appropriate in this case because it will be addressed to the Authority alone.

Procedure: direction by the Competition Commission.

CLAUSES 40 (ELECTRICITY) AND 84 (GAS) - TRANSFER OF LICENCES

Clause 40 introduces a new power into the Electricity Act (already existing in gas legislation) for the Authority to give consent to the transfer of licences. The transfer of a licence to another party has the same practical effect as the revocation of one licence and the grant of a new one; however, there may be pragmatic and administrative benefits in licence transfers for licensees wishing to sell all or part of their businesses. Any licence may be transferable in whole or in part. In deciding whether to give its consent, the Authority has to apply the same criteria as it would apply if it were considering granting an equivalent licence. The Authority is required to give notice and consult before giving consent to a proposed transfer. Consent may be subject to compliance with whatever conditions in the licence the Authority thinks necessary or expedient to apply in the interests of consumers. There is also a power in new section 7A(8) for the Secretary of State to direct the Authority not to impose a modification condition in a licence (that is, a condition which provides for making modifications to the conditions of a licence) which the Authority may have proposed to make. Clause 84 is the equivalent provision for gas, and replaces section 8AA of the 1986 Gas Act.

Purpose: to extend the licence transfer mechanism to electricity as well as gas, thus improving harmonisation of the two regimes and increasing flexibility within the licensing framework.

Reason for proposing delegated power: consistency with existing gas provision for the regulator to consent to licence transfers.

Procedure: None.

CLAUSES 42 (ELECTRICITY) & 87 (GAS) - ALTERING ACTIVITIES WHICH REQUIRE A LICENCE

Clause 42 introduces a new, reserve power for the Secretary of State to provide by order that specified activities should become licensable (that is, requiring a licence or exemption in order to be carried on legally) or should cease to be licensable. New section 56A (1) to (7) describes the power to make an order, its scope and the circumstances in which it may be made. For example, an activity may only be made licensable if it is connected with activities for which a licence or exemption is already required. The clause (in sections 56B to F) sets out the due process that must be followed before the power can be exercised. This includes consultation with those affected or likely to be affected and a power (in section 56D(8)) for the Secretary of State to direct that matters be excluded from any report published under section 56D(7).

In the case of a proposal to create a licensable activity, the Secretary of State may only exercise the power at the instigation of the Authority. Any objection to the proposal by a person carrying on or intending to carry on the activity in question would trigger a reference to the Competition Commission. The Commission's report on its investigation would be required to make clear whether the absence of a prohibition operated, or might be expected to operate, against the public interest, and only in the event of an adverse public interest finding would it be possible for the proposal to proceed. If, in the light of such a report, the Secretary of State were to make an order creating the new licensable activity, the clause also gives him one-off powers to determine standard licence conditions for the activity, and to modify necessary standard conditions in existing licences (new section 56A(3)(b)).

There is also a power of direction (new section 56D(8)) for the Secretary of State to exclude from publication any matter contained in the Competition Commission's report on a reference which he thinks would be against the public interest or the commercial interests of any person to disclose.

In the case of removing an activity from regulatory control, either the Secretary of State or the Authority may initiate a proposal. The same consultation process will apply, save for the involvement of the Competition Commission. Clause 87 inserts identical new reserve powers - in a new section 41C (with the due process laid down in sections 41D-H) - in respect of gas.

Purpose: to provide for the possibility that certain activities (the undertaking of which without a licence or exemption is not presently prohibited in isolation) may require to be brought under direct regulatory control in the interests of protecting consumers; or in other cases that activities may be de-regulated and controlled only through the general law (in particular that relating to competition and the protection of the consumer).

Reasons for proposing delegated powers: to allow the regulatory regime to respond more flexibly to future developments in the gas and electricity markets than is possible when licensable activities can only be changed by primary legislation.

Procedure: affirmative resolution.

CLAUSE 45 - POWER TO RECOVER EXPENDITURE

Subsection (3) inserts a replacement for the existing subsection (2) of section 19 of the Electricity Act 1989. The new subsection provides that the Secretary of State may make regulations with regard to the charges which may be made by a licensed electricity distributor to a person who requires an electrical connection to be made by virtue of section 16(1) (as amended by clause 43).

Purpose: to replace the existing power in section 19(2) of the 1989 Act with drafting which reflects (i) the replacement of the Director by the Authority and (ii) the creation of the new licensable activity of electricity distribution and the abolition of the concept of a public electricity supply licence.

Reasons for proposing delegated powers: equivalent power already exists. The changes to it are consequential.

Procedure: negative resolution procedure. Regulations may not be made unless the Secretary of State has consulted the Authority.

CLAUSE 53 (ELECTRICITY) & CLAUSE 89 (GAS) - STANDARDS OF PERFORMANCE IN INDIVIDUAL CASES;

CLAUSE 54 (ELECTRICITY) & CLAUSE 90 (GAS) - OVERALL STANDARDS OF PERFORMANCE

SCHEDULE 6 - MINOR AND CONSEQUENTIAL AMENDMENTS

Clause 53 replaces and slightly extends the current section 39 of the Electricity Act 1989 which gives the regulator a power to make regulations prescribing standards of performance which "public electricity suppliers" (PESs) must meet when dealing with individual customers. To reflect the separation of electricity supply from distribution, new section 39A, inserted by this clause, gives the Authority powers to set standards of performance for distributors also. Clause 54 inserts a new section 40A which similarly replaces and slightly extends the current section 40 of the Electricity Act 1989, which gives the regulator a power to "determine" standards of overall performance for distributors. Clause 89 inserts a new section, 33AA, into the Gas Act 1986 which gives the Authority a power to make regulations prescribing standards of performance which gas transporters must meet when dealing with individual customers. Compensation is payable to the customer if standards are not met. Clause 90 inserts new section 33BA which gives the regulator a power to "determine" overall standards for gas transporters. The regulator currently has a similar power to set these standards, given via licence conditions rather than by statute.

Paragraphs 12 & 28 of Schedule 6 do not confer new powers. They do however, extend the existing powers to set standards of performance in individual cases from "tariff "customers in electricity and "domestic" customers in gas to all customers and potential customers.

Purpose: to give the Authority a power to make regulations prescribing standards of performance which distributors and gas transporters (respectively) should meet when dealing with individual customers, and to give the Authority a power to determine overall standards of performance.

Reasons for proposing delegated powers: the corresponding powers in the existing legislation are delegated; the new provision is consequential on the separation of electricity supply and distribution; and to align the gas and electricity regulatory regimes as much as possible.

Procedure: none. But regulations may be made only with the consent of the Secretary of State.

CLAUSE 57 (ELECTRICITY) & CLAUSE 93 (GAS) - INFORMATION TO BE GIVEN TO CUSTOMERS

Clause 57 replaces the current section 42A of the Electricity Act 1989 which requires public electricity suppliers (PESs) to give information to customers about the standards of performance which they have been set and their performance against those standards, in a manner and at a frequency directed by the regulator. The new section 42A as inserted by the clause gives the Authority the power to make regulations that require suppliers and distributors to give information to customers. Clause 93 replaces the current section 33D of the Gas Act 1986 which requires gas suppliers to give information to customers about the standards of performance which they have been set and their performance against those standards, in a manner and at a frequency as directed by the regulator. The new section 33D as inserted by clause 93 is modelled on the parallel clause for electricity (clause 57).

Purpose: to give the Authority a power to make regulations specifying the information about standards of performance which electricity suppliers and distributors and gas suppliers and transporters must give to their customers. These regulations may require suppliers to pass information from distributors or transporters to customers.

Reasons for proposing delegated powers: the corresponding powers in the existing legislation are delegated; the new provision is consequential on the separation of electricity supply and distribution and is intended to align the gas and electricity regulatory regimes as much as possible.

Procedure: none, as is the case with the current power to give directions.

CLAUSES 61 TO 64: ELECTRICITY FROM RENEWABLE SOURCES

Clause 61 - Obligation in connection with electricity from renewable sources

Clause 62 - Order under section 32: supplementary

Clause 63 - Green certificates

Clause 64 - Alternative way of discharging renewables obligation: payments

Clause 61 enables the Secretary of State by order to impose on licensed electricity suppliers an obligation to produce evidence to show that a specified amount of electricity from renewable sources has been supplied to customers in Great Britain ("the renewables obligation"). ("Renewable sources" means sources other than fossil fuel and nuclear power.) Clause 62 provides certain flexibilities in the order-making power, for example, specifying the renewable technologies and energy sources that may count towards fulfilment of the obligation and how the amount of electricity supplied is to be calculated. The order may also specify information which is to be given to the Authority. Clause 63 provides for a certification system to demonstrate compliance with the renewables obligation so that the certificates representing supplies of renewable electricity can be traded between generators and suppliers. Clause 64 provides for an alternative way of meeting a renewables obligation by paying a 'buy-out' price, at a level determined in the order, instead of producing evidence of the supply of renewable electricity. There is also provision for receipts from the buy-out price being re-imbursed to electricity suppliers in accordance with a system to be set out in the order.

Purpose: the Government intends to use the power to impose a long term obligation on electricity suppliers, which will increase in steps up to 2010. This is consistent with the Government's target of 5% of electricity in the UK to be generated from renewable sources by 2003 and 10% by 2010, provided the cost to consumers is acceptable, and will play a part in fulfilling the UK's climate change obligations.

Reason for proposing delegated powers: in order to work as intended, an obligation will involve the complex interaction of a number of elements over an extended period of at least 10 years. Most notably these include the profile over time of the obligation, the exact specification of eligible technologies and power sources, the level of the 'buy out' price and the nature of the information that will be accepted as evidence of fulfilment of the obligation. All this will require extensive further consultation and may also require adjustment in the light of experience. The Secretary of State, for example, will have to consult the Authority, Council, electricity suppliers to whom the proposed order would apply and anybody else he thinks appropriate. It is therefore necessary to have the flexibility to establish the detail of the obligation and to adjust it without having to seek new primary legislation. The detail and length of the necessary drafting appears more appropriate to a statutory instrument than to primary legislation.

Procedure: affirmative resolution.

CLAUSE 65 - MODIFICATION AND ABOLITION OF FOSSIL FUEL LEVY

Clause 65 enables the Secretary of State to make regulations which will define a reference price which is to be used in the calculation of payments to be made to electricity suppliers out of the proceeds of the fossil fuel levy in order to compensate them for the above market costs of purchasing renewables electricity in compliance with orders made under section 32 of the 1989 Act.

Purpose: the payments made out of the levy fund are currently calculated by reference to the electricity pool price. However, the new electricity trading arrangements (for which clause 67 makes provision) will abolish the pool and it is therefore necessary to set an alternative means of establishing a reference price for as long as the relevant orders subsist.

Reason for proposing delegated power: this provision essentially amends the existing regulation making power in section 33(5) of the 1989 Act.

Procedure: negative resolution.

CLAUSE 66 - SUPPLEMENTARY

Clause 66 enables the Secretary of State to make orders for the purpose of ensuring the continuation of outstanding contracts entered into by the public electricity suppliers with renewables generators in compliance with non-fossil fuel orders (in Scotland, Scottish renewables orders) made under section 32 of the 1989 Act. In particular, it will enable provision to be made for the continuation of the fossil fuel levy with respect to the outstanding contracts and for the transfer of the contracts themselves from the public electricity suppliers to nominated successors. There is power to save and modify sections 32 and 33 of the 1989 Act for these purposes. The order may provide that certain of its provisions are to be relevant requirements that are to be enforceable by the Authority using its enforcement powers in Part I of the Act.

Purpose: the continuation of these outstanding contracts is an important element of the Government's strategy for renewable electricity. Without such further statutory provision, the contracts are likely to fail. Existing statutory provisions will not serve the purpose because they are based on the existence of public electricity suppliers and the electricity pool, both of which will cease to exist as a result of the Bill.

Reasons for proposing delegated powers: these are essentially transitional provisions, although due to the length of the contracts at issue (up to twenty years) they go beyond what would normally be termed "transitional". The exact nature of the provisions in the order depends to a considerable extent on the outcome of continuing discussions with the current parties to the contracts and their potential successors. It is therefore necessary to have flexibility to make these provisions after the primary legislation has been enacted. The Bill therefore provides for the saving (with necessary amendment) of the secondary legislation made under the existing legislation together with the arrangements to comply with them.

Procedure: negative resolution.

CLAUSE 67 - MODIFICATION OF LICENCES: ELECTRICITY TRADING ARRANGEMENTS

Clause 67 enables the Secretary of State to modify the conditions of electricity licences for the purpose of implementing new electricity trading arrangements.

Purpose: The Secretary of State will use the powers to implement the new electricity trading arrangements in England and Wales, which will replace the current system known as the Pool.

Reasons for proposing delegated powers: the necessary licence conditions are complex and technical and it would not be appropriate to set them out in primary legislation. Drafts of the proposed conditions, as well as the details of the new arrangements, have been published for consultation.

Procedure: None. The power expires two years after the commencement of the section.

CLAUSE 68 (ELECTRCITY) & CLAUSE 97 (GAS) - ADJUSTMENT OF CHARGES TO HELP DISADVANTAGED GROUPS OF CUSTOMERS

Clause 68 inserts a new, reserve power for the Secretary of State to make an order, if he considers that a disadvantaged group of customers is being treated less favourably than other, better-off customers in respect of the charges they pay for electricity. The order would provide for a scheme that would require companies so to adjust their charges as to remove or reduce the less favourable treatment. Section 43A(1) contains the power to make an order containing a scheme. Section 43B(4) enables the Secretary of State by order to require supply, distribution or transmission companies to provide information for the purposes of allowing an order under section 43A to be made. Clause 97 inserts the equivalent reserve power to make a cross-subsidy scheme for gas customers.

Purpose: this power will provide a mechanism to help disadvantaged customers in the event that the measures currently being put in train by Government, the regulator and industry to alleviate fuel poverty fail to deliver the results expected.

Reasons for proposing delegated powers: these are reserve powers and wide consultation would be needed before their use. It is therefore inappropriate to lay down the details in primary legislation.

Procedure: affirmative resolution.

CLAUSE 69 (ELECTRICITY DISTRIBUTORS AND SUPPLIERS) & CLAUSE 98 (GAS TRANSPORTERS AND SUPPLIERS) - ENERGY EFFICIENCY REQUIREMENTS

Clauses 69 & 98 enable the Secretary of State by order to impose obligations on licensed suppliers (gas and electricity), licensed electricity distributors or gas transporters to meet targets for the promotion of improvements in the use by consumers of energy. The clauses contain flexibilities including those relating to the amount of an obligation, the way its fulfilment is to be determined and the role of the Authority in verifying and enforcing compliance.

Purpose: the Government intends to impose obligations on gas and electricity companies to carry out activities to promote improvements in the efficient use of energy. It will be for the licensee concerned to choose the activities (for example, installations of home insulation or promoting the use of energy efficient appliances) it will undertake to meet the required energy efficiency improvements. The Authority is to be responsible for specifying and determining the amount of energy that is deemed to have been saved by a given activity for the purposes of fulfilling an obligation. It will also be responsible for enforcing the obligations using its normal enforcement powers as provided by the Acts.

Reasons for proposing delegated powers: although the intention is that the obligation should initially fall on electricity and gas suppliers, it is important to have the flexibility to change the amount of the obligation and to impose it on electricity distributors and gas transporters if this proves expedient in the future. Further consultation on an obligation is required. The Secretary of State must consult the Authority, the Council, electricity distributors & electricity suppliers and gas transporters and gas suppliers, and anybody else he thinks appropriate. An obligation will also involve a large amount of technical detail which is more appropriate to a statutory instrument than to primary legislation.

Procedure: affirmative resolution.

CLAUSE 71 - UNIFORM PRICES IN CERTAIN AREAS OF SCOTLAND

Clause 71 replicates the effect of section 2(2) of the 1989 Act, which obliged the Director to make sure that prices charged to tariff customers in any area of Scotland specified in an order by the Secretary of State (the relevant order defined an area comprising, broadly, the north and west of Scotland) did not discriminate between different parts of that area. The abolition of tariffs effected by the Bill means that this outcome can no longer be achieved in this way. Instead, new section 7B(1) provides a power for the Secretary of State to make orders requiring licence holders to charge prices, and, in the case of suppliers to offer contract terms, which do not discriminate between customers in different parts of the specified area.

Purpose: to maintain the ability to continue the system of uniform prices for customers in the specified area.

Reasons for proposing delegated powers: this power is consistent with the existing provisions of the 1989 Act.

Procedure: negative resolution.

CLAUSE 99 - EXERCISE OF POWER TO MAKE REGULATIONS

Clause 99 amends the Gas Act 1986 so that regulations made by the Authority are not subject to Parliamentary affirmation or negation. This aligns the Gas Act on the Electricity Act 1989. Regulations made by the Secretary of State are to be subject to affirmative resolution where specified, and otherwise are to be subject to the negative resolution procedure.

Purpose: to provide that regulations made by the Authority are not subject to Parliamentary procedures other than scrutiny by the Joint Committee on Statutory Instruments.

Reasons for proposing this amendment: to emphasise the arm's-length nature of economic regulation and to further the alignment of the gas and electricity regulatory regimes.

Procedure: none for this clause.

CLAUSE 100 - STANDARDS OF GAS QUALITY

Subsection (1) enables the Authority to make regulations prescribing standards of pressure and purity which must be complied with by gas transporters in conveying gas to premises or to pipe-line systems operated by other gas transporters. Subsections 5(a) and 6(b) of the new section 16 allow such regulations to provide for the Authority to make directions as to the equipment and premises to be maintained by gas transporters for carrying out tests of gas, and as to the manner in which gas is to be sampled and tested, and the results of such tests notified.

Purpose: to provide for the regulation of gas quality issues which do not have a significant safety aspect but which may nevertheless have a substantial impact on consumers.

Reason for seeking delegated powers: The way in which gas is to be tested for compliance with the standards likely to be prescribed is a very detailed and technical matter, which may be subject to fairly frequent change. It is therefore not appropriate for such matters to be dealt with in the regulations themselves. The new section follows the precedent laid down in a similar provision in earlier legislation (see s.16 of the Gas Act 1986, which was repealed in 1996).

Procedure: no Parliamentary procedure, but regulations would require (i) prior consultation with affected gas transporters and such other persons and organisations as appropriate, and (ii) the consent of the Secretary of State.

CLAUSE 106 - POWER TO MAKE TRANSITIONAL PROVISION ETC.

Clause 106 provides standard transitional provisions to make regulations to deal with consequential changes to primary or secondary legislation as a result of the Bill (precedents can be found in, e.g., section 42 Food Standards Act 1999). For example, a number of regulations or orders made under the Gas Act 1986 and the Electricity Act 1989 will need to be amended to replace references to the Director General of Gas Supply and to the Director General of Electricity Supply with references to the Authority. Delegated legislation is thought to be appropriate in this case since these are matters of detail arising under the Bill.

Procedure: It is considered that the negative resolution procedure is appropriate given the limited and detailed nature of the power.

May 2000


" 2  A Fair Deal for Consumers - Modernising the Framework for Utility Regulation. The Gas and Electricity Consumer Council: Provision of Information". DTI March 2000. URN 00/672. Back


 
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