(3) In subsection (1) “providing capacity” means providing electricity or reducing
demand for electricity; and electricity capacity regulations may make further
provision about the meaning of “providing electricity” or “reducing demand
for electricity”.

(4) 5The provision that may be made in electricity capacity regulations includes,
but is not limited to, the provision described in this Chapter.

(5) In this Chapter “national system operator” means the person operating the
national transmission system for Great Britain (and for this purpose
“transmission system” has the same meaning as in EA 1989 - see section 4(4) of
10that Act).

18 Capacity agreements

(1) Electricity capacity regulations may make provision about capacity
agreements.

(2) Subject to any further provision made under this Chapter, a capacity
15agreement is an instrument by virtue of which—

(a) the holder of the capacity agreement (“the capacity provider”) may be
required to provide capacity;

(b) all electricity suppliers may be required to make payments (“capacity
payments”) to or for the benefit of capacity providers;

(c) 20capacity providers may be required to make payments (“capacity
incentives”) to or for the benefit of all electricity suppliers.

(3) Provision included in electricity capacity regulations for the purposes of
subsection (2) may make provision about the meaning of “electricity supplier”.

(4) Provision included in electricity capacity regulations by virtue of subsection (1)
25may include provision about—

(a) the terms of a capacity agreement;

(b) the circumstances in which, and the process by which, a capacity
agreement may or must be issued;

(c) the persons who may be capacity providers;

(d) 30the circumstances in which capacity must be available;

(e) the duration of a capacity agreement;

(f) the means by which capacity payments or capacity incentives are to be
calculated;

(g) a person or body who is to administer the settlement of capacity
35payments or capacity incentives (“a settlement body”);

(h) the enforcement of the terms of a capacity agreement;

(i) the resolution of disputes relating to a capacity agreement;

(j) the circumstances in which a capacity agreement may be terminated or
varied;

(k) 40the circumstances in which a capacity agreement may be assigned or
traded.

(5) Provision falling within subsection (4) includes provision—

(a) conferring on the national system operator the function of issuing
capacity agreements;

(b) 45relating to the outcome of a capacity auction (see section 19);

(c) about any conditions that must be satisfied by or in relation to a person
before that person may enter a capacity auction or become a capacity
provider;

(d) about any matters in relation to which a person must satisfy the
5national system operator before the person may enter a capacity
auction or become a capacity provider.

(6) Provision made by virtue of this section may include provision requiring a
person to consent to the inspection of plant or premises, either before or after
that person becomes a capacity provider.

19 10Capacity auctions

(1) Electricity capacity regulations may make provision for the determination on
a competitive basis of who may be a capacity provider (referred to in this
Chapter as a “capacity auction”).

(2) Provision included in electricity capacity regulations by virtue of subsection (1)
15may include provision—

(a) for the national system operator to run a capacity auction;

(b) about the circumstances in which a capacity auction may or must be
held;

(c) about the amount of capacity in relation to which a determination may
20be made;

(d) about the intervals at which a capacity auction may or must be held;

(e) about the process by which a capacity auction may or must be run;

(f) about the manner in which the Secretary of State may decide whether
and how to exercise any function in relation to capacity auctions;

(g) 25about appeals relating to eligibility for, or the outcome of, capacity
auctions.

(3) Provision falling within subsection (2)(a) may include provision—

(a) requiring the national system operator to prepare and publish rules or
guidance about capacity auctions;

(b) 30about any process to be followed in preparing and publishing any such
rules or guidance.

(4) Provision falling within subsection (2)(c) may confer on the Secretary of State
or the Authority (but not on any other person) the function of deciding the
amount of capacity in relation to which a determination may be made.

(5) 35Provision falling within subsection (2)(f) may include provision about—

(a) the frequency with which a decision will be made and reviewed;

(b) the persons who will be consulted before a decision is made;

(c) the matters to be taken into account in reaching a decision.

20 Settlement body

(1) 40Electricity capacity regulations may make provision for payments to be made by
electricity suppliers or capacity providers to a settlement body (see section 18(4)(g)) for
the purpose of enabling the body—

(a) to meet such descriptions of its costs as the Secretary of State considers
appropriate;

(b) 45to hold sums in reserve;

(c) to cover losses in the case of insolvency or default of an electricity supplier or
capacity provider.

(2) Electricity capacity regulations may make provision to require electricity suppliers or
capacity providers to provide financial collateral to a settlement body (whether in cash,
5securities or any other form).

(3) Provision made by virtue of this section may include provision for—

(a) a settlement body to determine the form and terms of any financial
collateral;

(b) a settlement body to calculate or determine, in accordance with such
10criteria as may be provided for by or under the regulations, amounts
which are owed by an electricity supplier or capacity provider or are to
be provided as financial collateral by an electricity supplier or capacity
provider;

(c) the issuing of notices by a settlement body to require the payment or
15provision of such amounts.

(4) Provision made by virtue of subsection (3)(b) may provide for anything which
is to be calculated or determined under the regulations to be calculated or
determined by such persons, in accordance with such procedure and by
reference to such matters and to the opinion of such persons, as may be
20specified in the regulations.

21 Functions of the Authority or the national system operator

Electricity capacity regulations may make provision to confer functions on the
Authority or the national system operator.

22 Other requirements

(1) 25Electricity capacity regulations may impose requirements otherwise than
under a capacity agreement.

(2) The persons on whom requirements may be imposed by virtue of subsection
(1) include—

(a) any person who is a holder of a licence under section 6(1) of EA 1989;

(b) 30any other person carrying out functions in relation to capacity
agreements;

(c) any other person who is, or has ceased to be, a capacity provider.

(3) Requirements which may be imposed by virtue of subsection (1) include
requirements—

(a) 35relating to the manner in which functions are to be exercised;

(b) relating to restrictions on the use of generating plant;

(c) relating to participation in a capacity auction;

(d) relating to the inspection of plant or property.

23 Electricity capacity regulations: information and advice

(1) 40Electricity capacity regulations may make provision about the provision and
publication of information.

(2) Provision included in electricity capacity regulations by virtue of subsection (1)
may include provision—

(a) for the Secretary of State to require the Authority, the national system
operator or any other person specified in the regulations to provide
information or advice to the Secretary of State or any other person so
specified;

(b) 5for the Authority or the national system operator to require information
to be provided to it by any person specified in the regulations for any
purpose so specified;

(c) for the Secretary of State to require capacity providers and electricity
suppliers to share information about the operation of capacity
10agreements with each other or with any other person so specified;

(d) for the publication by any person so specified of any information or
advice so specified;

(e) for the classification and protection of confidential or sensitive
information.

(3) 15The prohibition on disclosure of information by section 105(1) of the Utilities
Act 2000 does not apply to a disclosure required by virtue of this section.

24 Enforcement and dispute resolution

(1) Electricity capacity regulations may make provision about the enforcement of
any obligation or requirement imposed by the regulations.

(2) 20Provision in electricity capacity regulations about enforcement or the
resolution of disputes may include provision conferring functions on any
public body or any other person.

(3) Provision made by virtue of this section may include provision—

(a) about powers to impose financial penalties;

(b) 25for requirements under the electricity capacity regulations to be
enforceable by the Authority as if they were relevant requirements on
a regulated person for the purposes of section 25 of EA 1989;

(c) about reference to arbitration;

(d) about appeals.

25 30Licence modifications for the purpose of the capacity market

(1) The Secretary of State may, for any purpose related to provision that is made
by this Chapter, or any purpose for which provision may be made under this
Chapter, modify—

(a) a condition of a particular licence under section 6(1)(a) to (e) of EA 1989
35(generation, transmission, distribution, supply and interconnector
licences);

(b) the standard conditions incorporated in licences under those
provisions by virtue of section 8A of that Act;

(c) a document maintained in accordance with the conditions of licences
40under those provisions, or an agreement that gives effect to a document
so maintained.

(2) A modification under this section may in particular include a modification—

(a) to provide for a new document to be prepared and maintained in
accordance with the conditions of a licence;

(b) 45to provide for an agreement to give effect to a document so maintained;

(c) to confer functions on the national system operator.

(3) Provision included in a licence, or in a document or agreement relating to
licences, by virtue of the modification power may in particular include
provision of any kind that may be included in electricity capacity regulations.

(4) Before making a modification under this section, the Secretary of State must
5consult—

(a) the holder of any licence being modified,

(b) the Authority, and

(c) such other persons as the Secretary of State considers it appropriate to
consult.

(5) 10Subsection (4) may be satisfied by consultation before, as well as by
consultation after, the passing of this Act.

26 Amendment of enactments

The Secretary of State may by regulations, for the purpose of or in connection
with any provision made by or by virtue of this Chapter—

(a) 15amend or repeal section 47ZA of EA 1989 (annual report by Authority
on security of electricity supply);

(b) amend section 172 of the Energy Act 2004 (annual report on security of
energy supplies);

(c) amend section 25 of and Schedule 6A to EA 1989 (enforcement of
20obligations of regulated persons);

(d) make such provision amending, repealing or revoking any other
enactment as the Secretary of State considers appropriate in
consequence of provision made by or by virtue of this Chapter.

27 Principal objective and general duties

25Sections 3A to 3D of EA 1989 (principal objective and general duties) apply in
relation to functions of the Authority conferred by or by virtue of this Chapter
as they apply in relation to functions under Part 1 of that Act.

28 Regulations under Chapter 3

(1) Regulations under this Chapter may—

(a) 30include incidental, supplementary and consequential provision;

(b) make transitory or transitional provision or savings;

(c) make different provision for different cases or circumstances or for
different purposes;

(d) make provision subject to exceptions.

(2) 35Before making any regulations under this Chapter, the Secretary of State must
consult—

(a) the Authority,

(b) any person who is a holder of a licence to supply electricity under
section 6(1)(d) of EA 1989,

(c) 40such other persons as the Secretary of State considers it appropriate to
consult.

(3) Subsection (2) may be satisfied by consultation before, as well as consultation
after, the passing of this Act.

(4) Regulations under this Chapter must be made by statutory instrument.

(5) An instrument containing (whether alone or with other provision)—

(a) the first set of electricity capacity regulations;

(b) regulations which make provision amending or repealing a provision
5of an enactment contained in primary legislation,

may not be made unless a draft of the instrument has been laid before and
approved by a resolution of each House of Parliament.

(6) A statutory instrument to which subsection (5) does not apply and containing
regulations under this Chapter is subject to annulment in pursuance of a
10resolution of either House of Parliament.

CHAPTER 4 Conflicts of interest and contingency arrangements

29 Modifications of transmission and other licences: business separation

(1) The Secretary of State may modify—

(a) a condition of a particular licence under section 6(1)(a) to (e) of EA 1989
15(generation, transmission, distribution, supply and interconnector
licences);

(b) the standard conditions incorporated in licences under those
provisions by virtue of section 8A of that Act;

(c) a document maintained in accordance with the conditions of licences
20under section 6(1)(a) to (e) of that Act, or an agreement that gives effect
to a document so maintained.

(2) The Secretary of State may make a modification under subsection (1) only for
the purpose of imposing measures for or in connection with securing an
appropriate degree of business separation between the carrying on of—

(a) 25system operation functions (or any particular such function), and

(b) any other functions (including, in a case where a measure relates to a
particular system operation function, other system operation
functions).

(3) “System operation functions” are—

(a) 30functions authorised under a transmission licence of co-ordinating and
directing the flow of electricity onto and over a transmission system by
means of which the transmission of electricity takes place, and

(b) EMR functions.

(4) A degree of business separation is “appropriate” for the purposes of subsection
35(2) if the Secretary of State determines it to be necessary or desirable as a
consequence of the conferral of EMR functions.

(5) In making that determination, the Secretary of State must have regard to the
extent to which a measure of the kind mentioned in subsection (2) may affect
the efficient and effective carrying on of system operation functions and other
40functions authorised under a transmission licence.

(6) The measures referred to in subsection (2) include, in particular, measures for
or in connection with securing any of the following—

(a) the body corporate that carries on EMR functions does not carry on
other functions;

(b) limitations are in place in respect of the control or influence that may be
exercised over that body by another group undertaking (within the
5meaning of the Companies Acts - see section 1161 of the Companies Act
2006);

(c) separations are in place between—

(i) the locations where system operation functions, and other
functions, are carried on;

(ii) 10the information technology systems used for the purposes of
the carrying on of system operation functions and other
functions;

(d) the accounting arrangements in relation to system operation functions
are separate from those in relation to other functions;

(e) 15persons who participate in the carrying on of system operation
functions do not participate in the carrying on of other functions;

(f) persons with access to information obtained in the carrying on of
system operation functions do not have access to information obtained
in the carrying on of other functions.

(7) 20The power conferred by subsection (1) may be exercised so as to impose a
requirement on a person holding a transmission licence—

(a) to prepare annual reports about how measures within subsection (2)
have been put in place for the year in question, and

(b) to submit such reports to either or both of the Secretary of State and the
25Authority.

(8) Before making a modification under subsection (1), the Secretary of State must
consult—

(a) the holder of any licence being modified,

(b) the Authority, and

(c) 30such other persons as the Secretary of State considers it appropriate to
consult.

(9) Subsection (8) may be satisfied by consultation before, as well as by
consultation after, the passing of this Act.

(10) In this section—

• 35“EMR functions” means functions conferred by or by virtue of Chapter 2
  (contracts for difference) or Chapter 3 (capacity market);

• “transmission”, “transmission licence” and “transmission system” have
  the same meaning as in Part 1 of EA 1989.

30 Power to transfer EMR functions

(1) 40The Secretary of State may by order provide that EMR functions carried out by
the national system operator are instead to be carried out by an alternative
delivery body.

(2) An order under subsection (1) may be made only if—

(a) the national system operator has requested the making of the order,

(b) 45an energy administration order is in force in relation to the national
system operator,

(c) the unsatisfactory performance condition is met (see subsection (3)),

(d) it appears to the Secretary of State necessary or desirable to make the
order as a result of a change, occurring after the coming into force of
this section, in the persons having control of the national system
operator (see subsection (4)), or

(e) 5it otherwise appears to the Secretary of State necessary or desirable to
make the order in connection with furthering the purposes of—

(i) encouraging low carbon electricity generation (within the
meaning of Chapter 2), or

(ii) providing capacity to meet the demands of consumers for the
10supply of electricity in Great Britain.

(3) The unsatisfactory performance condition is met if—

(a) it appears to the Secretary of State that the national system operator has
been failing to carry out its EMR functions in an efficient and effective
manner,

(b) 15the Secretary of State has given notice in writing to the national system
operator providing particulars of the failure,

(c) a period of at least 6 months has passed since the giving of the notice,
and

(d) it appears to the Secretary of State that the failure so specified is
20continuing.

(4) “Control”, in relation to the national system operator, means the power of a
person to secure—

(a) by means of the holding of shares or the possession of voting power in
relation to the national system operator or any other body corporate, or

(b) 25as a result of any powers conferred by the articles of association or other
document regulating the national system operator or any other body
corporate,

that the affairs of the national system operator are conducted in accordance
with the person’s wishes.

(5) 30The Secretary of State must, subject to subsection (6), consult the national
system operator before making an order under subsection (1) on the grounds
mentioned in subsection (2)(e).

(6) Subsection (5) does not apply where the Secretary of State considers the
urgency of the case makes it inexpedient to consult the national system
35operator before making the order.

(7) Where an EMR function has previously been transferred from the national
system operator to an alternative delivery body by an order under subsection
(1), the Secretary of State may by a further order provide that the function is
instead to be carried out by—

(a) 40a different alternative delivery body, or

(b) the national system operator.

(8) “Alternative delivery body”, in relation to an order under subsection (1) or (7),
means such person as may be specified in the order.

(9) An order under subsection (1) or (7) that specifies as the alternative delivery
45body a person other than the Secretary of State requires the consent of that
person.

(10) An order under subsection (7) providing for EMR functions to be carried out
by the national system operator requires the consent of the national system
operator.

(11) In this section—

• 5“EMR functions” means functions conferred on the national system
  operator by or by virtue of Chapter 2 (contracts for difference) or
  Chapter 3 (capacity market);

• “energy administration order” has the same meaning as in Chapter 3 of
  Part 3 of the Energy Act 2004 (see section 154(1) of that Act);

• 10“national system operator” means the person operating the national
  transmission system for Great Britain (and for this purpose
  “transmission system” has the same meaning as in EA 1989 - see section
  4(4) of that Act).

31 Orders under section 30: fees and other supplementary provision

(1) 15A transfer of functions order may provide for an alternative delivery body to
require fees to be paid for, or in connection with, the performance of any EMR
functions conferred on the body by virtue of the order.

(2) The amount of any such fee is the amount specified in, or determined by or in
accordance with, the order.

(3) 20A transfer of functions order may relate—

(a) to all EMR functions that the national system operator or the alternative
delivery body is carrying out, or

(b) only to such of those functions as are specified in the order.

(4) A transfer of functions order may—

(a) 25include incidental, supplementary and consequential provision;

(b) make transitory or transitional provision and savings;

(c) make different provision for different cases or circumstances or for
different purposes.

(5) Consequential provision made under subsection (4)(a) may amend, repeal or
30revoke any provision made by or under an Act, whenever passed or made
(including this Act).

(6) A transfer of functions order is to be made by statutory instrument.

(7) A statutory instrument containing a transfer of functions order is subject to
annulment in pursuance of a resolution of either House of Parliament.

(8) 35Schedule 2 (which confers power on the Secretary of State to make transfer
schemes in connection with the making of transfer of functions orders) has
effect.

(9) If the Secretary of State makes a transfer of functions order under which any
EMR functions of the national system operator are transferred to an alternative
40delivery body, the Secretary of State must consider the extent to which (if at all)
a licence modification power should be exercised as a consequence of the
national system operator ceasing to carry out the functions that are transferred.

(10) In subsection (9) “licence modification power” means a power conferred by
section 16, 25 or 29 to modify—

(a) a condition of a transmission licence granted to the national system
operator under section 6(1)(b) of EA 1989,

(b) the standard conditions incorporated in such licences under section 8A
of that Act, or

(c) 5a document maintained in accordance with the conditions of such
licences, or an agreement that gives effect to a document so maintained.

(11) In this section—

• “alternative delivery body”, “EMR functions” and “national system
  operator” have the same meaning as in section 30;

• 10“transfer of functions order” means an order under section 30(1) or (7).

32 Energy administration orders

(1) The Energy Act 2004 is amended as follows.

(2) In section 154 (energy administration orders), in subsection (3) for “section 155”
substitute “—

(a) 15section 155(1), and

(b) section 155(9) (if and to the extent that section 155(9) applies in relation
to the company).”

(3) In section 155 (objective of an energy administration), after subsection (7)
insert—

“(8) 20Subsection (9) applies if the company in relation to which an energy
administration order is made has functions conferred by or by virtue
of—

(a) Chapter 2 or 3 of Part 1 of the Energy Act 2013, or

(b) an order made under section 30 of that Act (power of Secretary
25of State to transfer certain functions).

(9) The objective of an energy administration (in addition to the objective
mentioned in subsection (1)) is to secure—

(a) that those functions are and continue to be carried out in an
efficient and effective manner; and

(b) 30that it becomes unnecessary, by one or both of the means
mentioned in subsection (2), for the energy administration
order to remain in force for that purpose.

(10) The duty under section 154(3), so far as it relates to the objective
mentioned in subsection (9)—

(a) 35applies only to the extent that securing that objective is not
inconsistent with securing the objective mentioned in
subsection (1);

(b) ceases to apply in respect of any function of a company if an
order is made under section 30 of the Energy Act 2013 as a result
40of which the function is transferred from that company to
another person.”