House of Commons - Explanatory Note

Energy Bill - continued	House of Commons

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Clause 74: Modification of pipelines

379. This clause inserts two new sections after subsection 10F of the Pipe-lines Act 1962 (c.58) (reducing necessity for constructing additional pipe-lines):

10G which provides for compulsory modifications of pipe-lines by way of notice; and

10H which concerns enforcement of such a notice.

These additions are modelled on the Secretary of State's powers under section 16 of the Petroleum Act 1998, under which he can issue a notice requiring the modification of controlled pipelines (which in the context of section 16 of the Petroleum Act 1998 means pipelines which are offshore). As with the third party access regime under that Act, this power is only exercisable on application by a person other than the owner of the pipeline. Failure to comply with a notice issued under section 16 is an offence and a similar offence will be included in the new additions to the Pipe-lines Act 1962.

380. The clause will therefore give the Secretary of State powers under the Pipe-lines Act 1962 in relation to upstream petroleum pipelines equivalent to those the Secretary of State already has under section 16 of the Petroleum Act 1998 for controlled pipelines offshore.

New Section 10G: Compulsory modifications of pipelines

381. This section gives the Secretary of State the power to issue a pipeline modification notice in respect of upstream petroleum pipelines, on the application of a person other than the owner. A notice can be issued to the applicant and owner of the pipeline only if the Secretary of State is satisfied that the capacity of the pipeline can be increased by modifying the apparatus and works associated with the pipeline, or that the pipeline can and should be modified by installing junctions to connect it to other pipelines. A modification notice also covers any changes, substitutions, or additions in relation to apparatus and works associated with the pipeline. (see subsection (5)).

382. Subsection (3) sets out that the notice must:

Specify the modifications that the Secretary of State thinks should be made.

Specify the sums or method of determining the sums which the Secretary of State thinks should be paid to the owner by the applicant to pay for the costs of carrying out the modifications.

Require the applicant to make arrangements to ensure those sums will be paid to the owner if the owner carries out the modifications or satisfies the Secretary of State that they will be carried out.

Specify the period in which those financial arrangements must be made.

Require the owner to carry out the modifications within a period specified in the notice.

Authorise the owner to recover the sums from the applicant if the works are carried out or the Secretary of State is satisfied that they will be carried out.

383. Furthermore, before issuing the notice subsection (4) requires the Secretary of State to give the owner of the pipe-line an opportunity to be heard.

384. Subsection (6) clarifies that if a pipeline is offshore (i.e. it falls into the section 14 Petroleum Act 1998 definition of "controlled pipeline"), the modification provisions under that Act will apply (see section 16 Petroleum Act 1998) instead of the provisions under this new section 10G of the Pipe-lines Act 1962.

New section 10H: Enforcement

385. This section makes it an offence for an owner to fail to comply with a "pipe-line modification notice" issued under new section 10G. A person found guilty of such an offence is, as set out in new subsection (2), liable to:

on summary conviction, a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland), or;

on conviction on indictment, to an unlimited fine.

386. Subsection (3) provides a person in proceedings for prosecution of the offence with a defence, if the person can prove he exercised due diligence in trying to comply with the pipe-line modification notice.

387. Subsection (4) states that proceedings can be instigated only by the Secretary of State (or a person authorised by the Secretary of State) or by or with the consent of the Director of Public Prosecutions

388. Subsections (5) to (7) provide that if it can be proved that an offence committed by a body corporate was attributable to any actions of or failure to act by, or was done with the consent or involvement of any director, manager, secretary, member, or other similar officer of the body corporate (or any person who was purporting to act as one) that person (as well as the body corporate) will be liable for the offence and can be prosecuted accordingly.

389. In addition to inserting the two new sections 10G and 10H into the Pipe-lines Act 1962, clause 74 also inserts a new subsection (5) into the current section 10F (supplemental provision relating to third party access). This requires the Secretary of State, before issuing a pipe-line modification notice:

to give the person who applied for the notice details of the modifications the Secretary of State is proposing, and

to give the person an opportunity to make an application for third party access to upstream petroleum pipelines (covered by section 10E of that Act) if they have not already agreed these terms.

Clause 75: Third party access to oil processing facilities

390. This clause sets out the process of dispute resolution for third party access to oil processing facilities. It specifies the steps that need to have been taken before the applicant can apply to the Secretary of State for directions, as well as what the Secretary of State may do if these initial steps do not enable the applicant and owner involved to reach a consensus themselves. Subsection (2) explains the extent of this provision; it applies only to oil processing facilities situated in Great Britain and the territorial sea adjacent to Great Britain (including areas of the sea designated under section 1(7) of the Continental Shelf Act 1964).

391. Subsections (3) and (4) require the applicant to apply to the owner of the oil processing facilities by a notice specifying the nature of the access they are seeking. This should include the period of time over which the applicant wants petroleum processed by the facility in question, the kind of petroleum to be processed at the facility, and the quantities of petroleum the applicant wants processed by the facility.

392. If the applicant and the owner cannot reach an agreement on the application, subsection (5) allows the applicant to apply to the Secretary of State for directions securing the access required (as set out in the applicant's original notice to the owner of the oil processing facilities). Subsection (6) provides that the Secretary of State may not consider such an application unless satisfied that the parties have had a reasonable time to reach an agreement.

393. When considering an application, the Secretary of State must, according to subsection (7), decide whether the application needs to be adjourned to give the parties further time to negotiate, considered further or rejected. The applicant must then be notified of the Secretary State's decision. If the Secretary of State decides to consider the application further, then notice must be given to the persons set out below (as set out in subsection (8)) and give them the opportunity to be heard in relation to the application:

the owner of the oil processing facility;

any person who has a right to have petroleum processed at the facility; and

the Health and Safety Executive.

394. Subsection (9) provides that the Secretary of State may give directions (the terms of which are set out under clause 76) on an application for third party access, if satisfied that they will not prejudice:

the efficient operation of the oil processing facility;

the processing of petroleum by the facility of quantities of petroleum which the owner or an associate of the owner requires (or may be reasonably expected to require) to be processed for the purposes of their own business; or

the processing of petroleum by the facility by other people with a right to have their petroleum processed by the facility.

Clause 76: Directions under section 75: supplemental

395. This clause describes the terms of the directions for third party access that may be made by the Secretary of State in relation to an application from a third party seeking access to an oil processing facility under clause 75.

396. The Secretary of State may, under subsection (1), issue directions that:

specify the terms on which the Secretary of State considers the owner of the oil processing facilities should enter into an agreement with the applicant for access to the facilities for all or any of the purposes listed in subsection (2) (see paragraph below for a description of this list);

specify the sums (or method for working out the sums) that should be paid by the applicant to the owner by way of consideration for the right to use the oil processing facilities; and

require the owner to enter into an agreement with the applicant if the applicant pays (or agrees to pay) the sums within a specified period. The specified period will be stated in the directions.

397. Subsection (2) sets out the purposes for which the Secretary of State can specify terms in directions made under subsection (1):

securing to the applicant the right of having petroleum processed at the oil processing facility;

securing that the applicant is not stopped from exercising that right;

regulating the charges which can be made for the right to access the oil processing facility;

securing any ancillary or incidental rights for the third party that the Secretary of State believes are necessary or expedient. For example, the right to have their pipe-line connected to the oil terminal by the owner.

398. Subsection (3) sets out that in order to consider an application made to him for directions about third party access to an oil processing facility (under clause 75(5)), the Secretary of State can issue a notice requiring the owner of the infrastructure or the applicant to supply information relevant to the application.

399. Subsection (4) states that this information may include financial information relevant to the owner's or applicant's activities in terms of oil processing operations.

400. Subsection (5) provides that any information obtained by the Secretary of State with respect to subsection (3) may not be disclosed unless either the person who provided the information has consented, or the Secretary of State is required to disclose it by, or under, an enactment.

401. Subsections (6) and (7) set out that the Secretary of State can enforce compliance with any directions made relating to third party access of oil processing facilities through civil proceedings^.i.e. the Secretary of State can apply to the High Court or Court of Session in Scotland for an injunction (or interdict) requiring compliance with the Secretary of State's direction. The court that imposes the injunction will be responsible for the enforcement of that injunction. The reason that this clause only focuses on oil processing facilities is that these are the only areas that are new on the face of the Bill - all other infrastructure is (at least partially) covered in other Acts.

402. Subsection (8) provides definitions of terms used in the new third party access regime for oil processing facilities:

"Oil processing operations" are defined as including:

the blending or other treatment of petroleum required to produce stabilised crude oil and other hydrocarbon liquids to the point at which a seller could reasonably make delivery to a purchaser;

receiving or storing this stabilised crude oil and these hydrocarbon liquids piped from a facility carrying out oil processing operations (as described above) before taking them elsewhere; and

loading stabilised crude oil and these hydrocarbon liquids piped from a facility carrying out either of the oil processing operations described above in order to transport it elsewhere.

"Oil processing facility" is any facility that carries out these oil processing operations and which is situated in Great Britain, in the territorial sea adjacent to Great Britain, or in areas of the sea designated under section 1(7) of the Continental Shelf Act 1964;

"Owner" is defined as any person occupying or controlling an oil processing facility including a lessee.

"Petroleum" has the meaning given by section 1 of the Petroleum Act 1998 i.e. mineral oils, relative hydrocarbon or natural gas in its natural condition. This definition also includes petroleum which has been processed.

Clause 77: Meaning of "associate"

403. This clause defines "associate" for the purposes of clause 75, which relates to applications from a third party for a right of access to have petroleum processed by an oil processing facility.

404. For a person to be an associate of the owner either or both need to be bodies corporate. The meaning of "body corporate" is broader than a limited company and includes limited liability partnerships (LLPs). The clause sets out the test for determining whether one body corporate is associated with another. In essence, one body corporate is associated with another if one of them controls the other or if a third body corporate controls both of them.

PART 5: MISCELLANEOUS

ENERGY REPORTS

SUMMARY AND BACKRGOUND

405. This element of the Bill deals with statutory obligations to report on a variety of energy related subjects. As the energy market has developed and diversified in recent years, various initiatives and legislative changes have resulted in a growing number of requirements on the Secretary of State to produce annual reports.

406. Many of these requirements remain valid; however, some have been superseded or are not aligned with ongoing developments in the context of energy and climate change policy. One example in the climate change context is the new requirement for a carbon budget reporting system which is being introduced through the Climate Change Bill. The Bill amends the existing statutory provisions imposing energy-related reporting obligations placed on the Secretary of State.

COMMENTARY ON CLAUSES

Clause 78: Energy reports and Schedule 5: Repeals

407. Section 1 of the Sustainable Energy Act 2003 (c.30) ("2003 Act") requires the Secretary of State to report annually on progress towards sustainable energy aims. The four energy goals set out in the 2003 Energy White Paper Our Energy Future - creating a low carbon economy are:

to put the UK on a path to cut carbon dioxide emissions by some 60% by about 2050, with real progress by 2020;

to maintain the reliability of energy supplies;

to promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and to improve productivity; and

to ensure that every home is adequately and affordably heated.

408. The requirements concerning publication of the report on progress towards these energy goals, including when and what it must include, are set out in section 1 of the 2003 Act. This section has been amended, in particular by section 81 of the Energy Act 2004. The amendment made by that section requires more detailed reporting, as the Secretary of State considers appropriate, on the development or bringing into use of certain energy sources and technologies listed in that Act.

409. Subsection (1) of this clause removes requirements to publish reports at a particular time, and provides flexibility for the Secretary of State to ensure that reporting in relation to progress towards energy policy goals can complement the new system of carbon budget reporting as set out in the Climate Change Bill. Reports must still be published annually, but the report itself will specify the period to which it relates.

410. Subsection (1) also removes the requirement to include detail on specific energy sources and technologies. The effect is that the report will focus on progress toward meeting the four main energy policy goals, rather than the detail of developments in smaller more specialised, technology-specific areas of the energy sector. The Sustainable Energy Act 2003 (sections 2 and 3) and Housing Act 2004 (s217(1)) both contain provisions regarding energy efficiency in residential accommodation. Subsection (1) also removes the requirement to report on progress toward (but not the duty to designate or publish) the energy efficiency aims in the 2003 Act, but will continue to report on the targets outlined in the Housing Act 2004.

411. Section 5 of the Climate Change and Sustainable Energy Act 2006 imposes a requirement on the Secretary of State to report on progress towards meeting targets set under section 4 of that Act in relation to microgeneration.

412. To ensure consistency between different energy reporting requirements, subsection (2) of this clause makes similar changes to section 5 of the 2006 Act as those in subsection (1) do for the Sustainable Energy Act 2003. The practical effect of these changes is to ensure greater flexibility for the Secretary of State as to when reports relating to microgeneration targets must be published and the period they cover.

413. Subsection (3) repeals section 172 of the Energy Act 2004 (c.20), which requires annual reports to be published on the security of energy supplies. This overlaps with reporting requirements imposed by EU Directives 2003/54/EC and 2003/55/EC concerning common rules for the internal market in electricity and natural gas. Articles 4 and 5 respectively of those Directives require the monitoring of security of supply, and for the Secretary of State to report on these issues. The requirements for the Secretary of State to report on security of supply under Articles 4 and 5 will remain, as required by EC law.

414. The repeals in Schedule 5 include repeals which are necessary because of the effect of clause 78. Section 18 of the Climate Change and Sustainable Energy Act 2006 (c.19) is also repealed as the obligation is now spent.

GAS AND ELECTRICITY METERS

SUMMARY AND BACKGROUND

415. This element of the Bill transfers certain statutory functions relating to gas and electricity meters from the Gas and Electricity Markets Authority (the Authority) to the Secretary of State. These are legal metrology functions: they relate to the legal mechanisms for ensuring the accuracy of meters. The intention is that these functions will in future be performed by the National Weights and Measures Laboratory, an executive agency of the Department for Innovation, Universities and Skills.

416. Administrative responsibility for the technical metering functions and staff was transferred by a Memorandum of Understanding between the Authority and the NWML in 2006. The effect of the clauses in this part of the Bill is to complete the process of transferring these functions, by putting the existing administrative arrangements on a statutory footing.

417. The Authority regulates the gas and electricity markets in Great Britain. It is currently responsible for, amongst other things, gas and electricity meter approvals, certification (electricity) and stamping (gas) of new meters, the appointment of meter examiners and disputed meter accuracy testing.

418. The National Weights and Measures Laboratory (NWML) has a remit to ensure UK measurement is accurate, fair and legal. Acting on behalf of the Secretary of State, NWML currently has similar responsibilities to those which the Authority has in respect of gas and electricity meters for other measuring instruments, such as weighing machines, fuel pumps and water meters.

419. The Authority recovers the costs of performing its metrological functions through a licensing fee charged to network operators. The costs of performing these functions accounts for only a small part (under 2%) of the costs recovered in this way. It is proposed that when the Bill transfers these functions to the Secretary of State, the costs incurred by the NWML in performing these functions should continue to be recovered as part of the licensing fee paid by network operators. An amendment to the relevant network operators' licence conditions is therefore required in order to allow the Authority to pass the recovered funds to the NWML.

420. On completion of the transfer, the NWML will have responsibility for the standards and accuracy of gas and electricity meters. However, the Authority will retain its current responsibilities for smart and pre-payment metering policy will remain with the Authority, since they relate to the regulation and strategy for where, when and how these types of meter are used. The NWML will cover whether these types of meter measure accurately.

421. The amendment of the provisions of the existing licences of gas and electricity operators by virtue of these clauses may constitute a determination of the licensees' civil rights for the purposes of Article 6(1) of the ECHR and may engage Article 1 of the First Protocol to the ECHR (protection of property). However, the Secretary of State considers that if this is the case, the remedies available will provide an adequate safeguard of any rights that may arise under Article 6(1), and that the provisions strike the right balance between the demands of the general interest and the requirements of the protection of the rights encompassed by Article 1 of the First Protocol.

COMMENTARY ON CLAUSES

Clause 79: Gas meters

422. Section 17 of the Gas Act 1986 (c. 44) sets out existing requirements on the use of gas meters and specifies that no meter shall be used for ascertaining the quantity of gas supplied unless it has been stamped by an appointed meter examiner. It further sets out the requirements and responsibilities of those meter examiners when examining and stamping meters, and provides for their remuneration. Section 17 also allows for regulations to be made by the Authority which relate to, amongst other things:

the prescribed standards meters must satisfy to be stamped, which include the performance requirements and routes to demonstrating conformity;

how and why meter approvals are revoked and the process that has to be followed if, for example, a design defect is found when meters are used in service; and

what happens when meter accuracy is disputed, including the circumstances when meters can be re-examined, the standards the meter should meet and the actions of the meter examiner following the re-examination.

423. Subsection (1) transfers to the Secretary of State the Authority's functions under section 17 of the Gas Act 1986 (c. 44) and certain regulations relating to gas meters made under that section or under section 2(2) of the European Communities Act 1972 ("gas meter regulations", as defined in subsection (5)). Subsection (2) ensures that references to the Authority, in section 17 of the 1986 Act or in gas meter regulations, will be read as references to the Secretary of State.

424. Subsections (3) and (4) will ensure that existing regulations made under section 17 of the 1986 Act, and other regulatory actions of the Authority in relation to meters, have effect as if made or done by the Secretary of State.

425. The combination of the changes set out in subsections (1) to (4) transfers the responsibility for the functions (including the power to make regulations) under section 17 to the Secretary of State. This formally transfers these responsibilities from the Authority to the NWML.

Clause 80: Section 79: consequential amendments

426. This clause makes amendments to section 17 of the Gas Act 1986 (c.44) which are consequential on the transfer of functions from the Authority to the Secretary of State and relate to meter examiners.

427. Meter examiners are currently appointed by the Authority (in future, by the Secretary of State) under section 17. Examiners carry out much of the technical work done under that section and gas meter regulations. At present, most meter examiners are not civil servants.

428. By inserting a new subsection (7A) into section 17, subsection (4) makes provision for the Secretary of State to contribute towards the remuneration and pensions of non-civil service meter examiners and the maintenance of the equipment they use to perform their statutory functions. The new subsection provides clarity about payments to non-civil servant meter examiners (and, in some cases, their employers) in respect of the carrying out of statutory functions.

Prepared: 14 January 2008