Scheme making power

175.     Paragraph 1(1) and 1(3) of Schedule 2A sets out a limit on the situations in which the power for the Authority to make a property scheme under this Schedule is available. The Schedule applies in cases where there is a tender exercise to select an offshore transmission licence holder, and the transmission system (or part of it) is transferred, or needs to transfer, to the successful bidder. The new Schedule does not apply where the successful bidder or its affiliate constructs or installs the relevant transmission assets (or where it procures the construction or installation of transmission assets by another party, e.g. a sub-contractor).

176.     Paragraph 1(2) enables the Authority, upon application, to make a property scheme which transfers property, rights and liabilities to the successful bidder.

177.     Paragraph 2 sets out other provisions which may be included in a scheme, for example, provisions creating joint interests or rights in property between the asset owner and the successful bidder. A scheme may also provide for compensation to be paid to the parties and to third parties who are affected by the scheme (that is, a person whose consent would be required to the making of the provision if there was no scheme - see paragraph 38(2)).

     Applications for schemes

178.     Paragraphs 3 to 10 set out rules governing applications for a property scheme including: the timing of applications; the giving of notice of an application to relevant persons; and the making of representations on an application to the Authority.

179.     Paragraph 3 states the parties who may apply for a scheme, namely the preferred bidder, the successful bidder or an asset owner. The definitions of preferred bidder and successful bidder are set out in paragraphs 35 and 36. In essence, a preferred bidder is a particular person to whom the Authority has announced it will grant the offshore transmission licence if certain matters are resolved to the Authority's satisfaction.

     Timing of applications

180.     Section 92 of the Energy Act 2004 gives the Authority the power to run competitive tender processes for the purpose of awarding an offshore transmission licence. Under paragraph 5 of this new Schedule, applications for a property scheme must be made within 4 years of section 92 of the Energy Act 2004 coming into force. However, the Secretary of State may by order extend the period for applications by a maximum of a further 3 years in respect of specific projects or groups of projects.

     Notifying the non-applicant party

181.     Notice of an application must be given to the non-applicant party (i.e. whichever of the asset owner and preferred or successful bidder has not made the application for a scheme) (paragraph 6) and also to any third parties who may be affected by the scheme (paragraph 7). There is also a requirement for the Authority to publish notice of the application (paragraph 8).

182.     The non-applicant party may modify the application by adding further property, rights or liabilities to be considered by the Authority for inclusion in the scheme (paragraph 9). If the application is modified, there are further requirements for notice to be given to the other party and affected third parties. There are also publication requirements in relation to a modification notice (paragraph 10).

183.     The parties and third parties are given the opportunity to make representations to the Authority on an application and any modifications to it.

     Restricting or withdrawing the application

184.     Under paragraph 11, the applicant and the non-applicant party may jointly withdraw an application in whole or in part. This situation may typically arise if the parties have successfully negotiated the transfer of property, rights and liabilities before a property scheme has been made. If this is done, the Authority may require the applicant or the non-applicant party to pay costs incurred by either the Authority or any third party in connection with the application.

     The Authority's functions in relation to applications

185.     Paragraph 12 contains provisions governing the Authority's consideration of an application. The Authority must consider the application on the basis of whether a property scheme is necessary or expedient for the performance of the successful bidder's functions as offshore transmission licence holder. The paragraph also sets out a procedure for the Authority to propose alternative arrangements in cases where it decides that the proposed treatment of particular property, rights or liabilities is not necessary or expedient, but that some other kind of provision should be made. For example, the Authority might decide that transfer of ownership of a particular piece of equipment was not justified, as the granting of access rights would be sufficient. Before making alternative arrangements, the Authority must inform the parties and affected third parties, who have the opportunity to make representations to the Authority on the proposal.

186.     In order to ensure that property is not transferred prematurely, paragraph 13 provides that the Authority may not make a scheme until:

• the offshore transmission licence has been awarded to the successful bidder; and

• the System Operator (described as the co-ordination licence holder in the Schedule) issues a notice of completion to the Authority in respect of the relevant transmission system. (Some large projects are being built in phases, with a working transmission system being in place as each phase of the generating station is completed, so that electricity can be transmitted to shore as and when each phased part of the project is ready. For such projects, it is envisaged that separate completion notices might be issued in respect of the transmission systems in place for each phase (and ultimately form part of a larger transmission system for the entire project once all phases had been completed).

     Terms of a property scheme

187.     Paragraphs 14 and 15 set out rules governing the terms of a property scheme. In particular, the Authority may not set terms which adversely affect a third party (that is, a party whose consent would normally be required to the proposed provision if made other than by a property scheme but who has not consented to it) unless it concludes that it is necessary or expedient for the performance of the successful bidder's functions. In such a case, it must also consider including provision for compensation to be paid to the adversely affected third party. In addition, a scheme can include a requirement for the successful bidder and/or asset owner to pay costs incurred in connection with the scheme by each other, the Authority and affected third parties.

188.     Any decisions by the Authority on terms which relate to financial matters (for example, compensation to be paid) must be on the basis of what is fair. Decisions on other matters must be on the basis of what the Authority considers is appropriate in all the circumstances of the case.

     Additional powers of the Authority

189.     Under paragraph 16(1), the Authority may require certain persons to provide it with information and assistance in connection with the Authority's functions in relation to the property scheme power. Sub-paragraph (2) allows the Authority to seek information in respect of any provision of a property scheme (or proposed scheme) from any other person, as may be necessary. For instance, if information or assistance provided by a person under sub-paragraph (1) alerts the Authority to relevant information held by someone else (e.g. a parent company), the Authority would be able to approach that person for a copy of that document. The Authority is also able to engage consultants to advise it for the purposes of making a property scheme under this Schedule (paragraph 17).

     Notification of property scheme

190.     Paragraph 18 sets out the provisions for notification and publication of a scheme once made, including notification of affected third parties.

     Refusal of application or part of an application

189.     Paragraph 19 sets out a requirement for the Authority to notify the parties and affected third parties of any decision to refuse an application for a scheme in whole or in part. If it refuses an application (in whole or in part), the Authority may direct the parties to pay costs incurred in connection with the application by each other, the Authority or affected third parties.

     Effect of property scheme

191.     Paragraphs 20 and 21 provide for the transfers and other matters provided for in a scheme to take place by operation of law, according to the terms specified by the Authority, subject to any statutory requirements for registration of a particular transaction. Paragraph 22 provides that where compensation is payable to a person, it may be recovered by that person if unpaid.

     Review of determinations

192.     Paragraphs 23 to 27 provide for appeals against the Authority's determinations in relation to an application. Affected parties can appeal to the Competition Appeal Tribunal within 14 days of the scheme being made and coming into force or, if the scheme has not yet been made, the determination being made (paragraph 22). The Competition Appeal Tribunal has discretion to allow an appeal which is lodged after the 14 day period has expired.

193.     Paragraphs 24 to 27 set out the types of order the Competition Appeal Tribunal may make having considered an appeal. The Tribunal has, among other things, the power to overturn or amend the Authority's determination of any property scheme, or require the Authority to reconsider any financial matter.

     Interim arrangements pending review of determination

194.     Paragraphs 28 to 32 provide for the Tribunal to have the power to make interim arrangements (such as the suspension of a scheme, or the granting of interim access to property included in a scheme) pending the outcome of an appeal. For example, if a successful bidder is appealing the Authority's decision not to transfer a particular asset, it could apply to the Tribunal for emergency interim access to that asset.

     Appeal on a point of law

195.     Paragraph 33 provides a further appeal to the Court of Appeal or Court of Session on a point of law.

     Change of asset owner

196.     If transmission assets are transferred to a new asset owner after an application is made, paragraph 34 ensures that any reference in the Schedule to the asset owner applies to the new asset owner.

     PART 3: DECOMMISSIONING OF ENERGY INSTALLATIONS

     CHAPTER 1: NUCLEAR SITES: DECOMMISSIONING AND CLEAN-UP

     SUMMARY AND BACKGROUND

197.     In Meeting the Energy Challenge: A White Paper on Nuclear Power, published in January 2008, the Government confirmed its view that it would be in the public interest to give energy companies the option of investing in new nuclear power stations. As well as ensuring operators are responsible for the costs of decommissioning of any new nuclear power station, and waste management and disposal during the lifetime of the station, this Chapter of the Bill sets out the framework for accumulating monies to pay for the costs of decommissioning and waste management.

198.     In the White Paper, the Government re-confirmed its commitment to put in place a legislative framework to ensure that energy companies which operate new nuclear power stations accumulate funds to cover their full decommissioning costs and their full share of waste management costs. It will be a prerequisite for energy companies seeking to construct any new nuclear power stations in the future to fulfil this requirement.

199.     This legislation forms part of a package of measures announced in the Nuclear White Paper to facilitate the building of new nuclear power stations. The measures announced in the Nuclear White Paper include:

• running a Justification process, an EU requirement, to demonstrate that the benefits of new nuclear processes outweigh any health detriment;

• running a Strategic Siting Assessment to develop criteria for developing the suitability of sites for new power stations;

• conducting a formal Strategic Environmental Assessment in accordance with the SEA Directive ⁴ ; and

⁴ Directive 2001/42/EC, of June 2001 on the assessment of the effects of certain plans and programmes on the environment (O.J. L197, 21.7.2001, p30)

• conducting a Generic Design Assessment of nuclear power station designs.

200.     This Chapter of the Bill contains the legislative framework for requiring that funded decommissioning programmes be submitted for approval. It also sets out how the programmes will be approved and monitored, and establishes offences for non-compliance with the legislation. It provides for regulations and guidance in relation to the preparation, content, implementation and modification of programmes. Any potential operator will have to submit a funded decommissioning programme which will have to consist of two elements.

201.     Firstly, the operator must set out the technical steps it will take to manage and dispose of radioactive waste and spent fuel, and to decommission the power station and clean-up the site. Second, the operator must also provide (i) prudent estimates of the costs of decommissioning and clean-up and - to the extent prescribed by order - of the cost of management of waste during the operation of the installation; and (ii) for how it will accrue monies to cover the costs of decommissioning and clean-up that it has identified and, again where prescribed by order, the costs of management of waste.

202.     In line with other regulatory activities in the nuclear energy sector, such as those relating to safety (under the Nuclear Installations Act 1965), the Government will publish guidance. This will set out the factors to be taken into account in deciding whether to approve a programme. In contrast to guidance issued by the Health and Safety Executive under the 1965 Act, this guidance must be laid before Parliament. The guidance published by the Secretary of State can cover both elements of the funded decommissioning programme.

203.     If the nuclear site operator does not follow the guidance in designing a funded decommissioning programme, this will not necessarily mean that the Secretary of State will reject the programme. Where a submitted programme does not conform to the principles set out in the guidance, the operator will have to demonstrate that the proposals meet the overall objectives of ensuring that the operator makes prudent provision to cover its costs of decommissioning and long term waste management and disposal, whenever these liabilities arise. As long as an operator can demonstrate this, a funded decommissioning programme could still be approved. The guidance will not prescribe the arrangements that operators must put in place, but rather it will set out principles to assist operators in understanding how these objectives could be met to the satisfaction of the Secretary of State.

204.     Certain provisions of this Chapter may also involve what is likely to amount to a determination of a person's civil rights and obligations, and consequently engage Article 6(1) of the ECHR; but the Secretary of State considers that the remedies available to an applicant and the procedural safeguards built into the provisions will provide an adequate safeguard of any rights that may arise under Article 6(1).

205.     Certain of the clauses in this Chapter might engage Article 8 of the ECHR (privacy) - for example the power to require information to be provided to the Secretary of State, or the power to pass information between the Secretary of State, the Health and Safety Executive, the Environment Agency and the Department of the Environment for Northern Ireland. To the extent that such rights are affected, the Secretary of State considers that the interference is proportionate and justified in the interests of ensuring safe and responsible decommissioning and clean-up and to enable the various nuclear regulators to carry out their functions efficiently. The Secretary of State considers that the provisions are therefore compatible with Convention rights.

206.     Certain clauses in this Chapter might engage Article 1 of the First Protocol (protection of property) insofar as a former site operator (who has passed on the site licence) could (for example) be required to make further payments in furtherance of the funded decommissioning programme. The Secretary of State considers that if such payments were required they would be justified because it is in the public interest to ensure safe and responsible decommissioning and clean-up which is not payable from public funds, and any such payments would be proportionate.

     COMMENTARY ON CLAUSES

     Funded decommissioning programmes

     Clause 41: Duty to submit a funded decommissioning programme

207.     This clause requires a person applying for a nuclear site licence, for a site where they intend to construct or operate a new nuclear power station (that is a nuclear power station constructed after commencement of this clause), to notify the Secretary of State and submit a funded decommissioning programme for approval. It also requires a person to submit a funded decommissioning programme for approval if they intend to operate a new nuclear power station to which this clause previously applied. The effect of this provision is to ensure that when a site operator changes after the site has been constructed and the power station is operating, the new site operator will be required to submit a funded decommissioning programme. Subsection (4) explains that a "funded decommissioning programme" is a programme which makes provision for certain technical matters (for example, the activities involved in decommissioning a relevant nuclear power station) and provision for how certain of those technical matters ("the designated technical matters") are to be financed.

208.     Subsection (5) specifies what the technical matters are, namely:

• how hazardous material (which includes radioactive waste) will be treated, stored, transported and disposed of during the operation of the power station,

• how the power station will be decommissioned at the end of its life, and

• how the site is to be cleaned up.

209.     Subsection (6) gives the Secretary of State the power to prescribe by order (subject to the affirmative resolution procedure - see clause 89) which of the matters referred to in the first bullet above are designated technical matters, which by operation of subsection (4) means the matters which are required to be financed by the programme. By contrast, the decommissioning and clean-up of power stations and sites must always be financed by the programme.

210.     Subsection (7) says that a funded decommissioning programme must contain:

• details of the steps to be taken in relation to the technical matters described in subsection (5)

• estimates of the likely costs incurred carrying out the designated technical matters described in subsection (6)

• details of how financial security will be provided in relation to those costs.

211.     Subsections (8) and (9) allow the Secretary of State to charge a person who submits a programme a fee for any costs incurred by the Secretary of State in relation to the consideration of the programme, and in particular the costs of obtaining advice in relation to the programme or information required in relation to the programme under clause 48(4). Regulations made under clause 50 will allow the Secretary of State to set out how that fee is to be calculated and when it is to be paid.

     Clause 42: Approval of a programme

212.     This clause creates powers for approving a funded decommissioning programme and places certain duties on the Secretary of State before a programme can be approved or rejected. Subsection (1) provides that only the Secretary of State can approve or reject a programme. Subsection (2) gives the Secretary of State the power to require modifications to the programme or approve it subject to conditions. Subsection (3) allows obligations to be placed on bodies corporate associated with the operator, such as a parent company, by way of a modification of the programme under subsection (2) as part of the approval. Subsection (4) requires that the Secretary of State's powers to approve or reject a programme must be exercised with the aim of securing that prudent provision is made for the technical matters (including prudent financial provision for the designated technical matters).

213.     Subsections (5) and (6) require that before deciding whether to approve or reject a funded decommissioning programme the Secretary of State must consult the following bodies on those aspects of the programme, and of any modifications which it is proposed to make or conditions it is proposed to impose, which relate to their functions:

• The Health and Safety Executive,

• The Environment Agency, and

• The Department of the Environment for Northern Ireland.

214.     Subsection (7) requires that the operator and other persons who have obligations under the programme, or will have obligations following the proposed modification, be given the opportunity to make representations on any proposals to modify the programme or impose conditions made by the Secretary of State. Subsection (8) provides that, if the Secretary of State rejects a programme, the operator must be given reasons for the rejection. Subsection (9) requires the Secretary

of State to act without unreasonable delay in reaching a decision as to whether to approve or reject a funded decommissioning programme.

215.     Subsection (10) provides that references to a site operator in this section also refer to a person who has applied for a nuclear site licence but where the application has not yet been determined.

     Clause 43: Prohibition on use of site in absence of approved programme

216.     This clause creates an offence where a person with a nuclear site licence for a site uses the site, or permits another person to use the site, by virtue of the licence without an approved funded decommissioning programme in place (subsections (1) and (2)).

217.     Subsection (3) sets out the penalties for the offences above:

• on summary conviction to a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland); or

• on conviction on indictment, to imprisonment for a term not exceeding two years or a fine or both.

     Revision of approved programme

     Clause 44: Modification of approved programme

218.     This clause allows for a funded decommissioning programme to be modified once it has been approved, and allows for the modification of any condition attached to the programme. This clause gives the Secretary of State flexibility to amend a decommissioning programme, for example to reflect advances in decommissioning technologies or where cost estimates change.

219.     Subsections (1) and (2) provide that the Secretary of State, the site operator and any other person who has obligations under the programme can propose a modification to the programme. Where a modification is proposed by a person who falls into the last category it requires the consent of the site operator.

220.     Subsection (3) allows obligations or additional obligations to be placed on (or removed from) bodies corporate associated with the operator, such as a parent company. Subsection (4) enables a modification to be made which places conditions on the approval even if the funded decommissioning programme was originally approved unconditionally.