Select Committee on Delegated Powers and Regulatory Reform Ninth Report

APPENDIX 1: ENERGY BILL

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Memorandum by the Department for Business, Enterprise and Regulatory Reform

Introduction

1.  This memorandum has been prepared by the Department for Business, Enterprise and Regulatory Reform and relates to the Energy Bill. It identifies the provisions in the Energy Bill which confer power to make delegated legislation. In each case it explains the purpose of the delegated power proposed; why the matter is to be dealt with in delegated legislation; and the nature and justification for any parliamentary procedures which apply. In the interests of transparency, the Memorandum also includes similar descriptions for certain other powers conferred by the Bill which are not strictly legislative but which the Department felt the Committee should be aware of.

Background

2.  The legislative framework for the energy sector is set out in a number of pieces of primary legislation, principally the:

• Petroleum Acts 1987 and 1998
• Gas Act 1986
• Electricity Act 1989
• Utilities Act 2000
• Energy Act 2004

3.  The Government's long-term energy policy objectives are set out in the 2003 Energy White Paper "Our Energy Future: Creating a Low Carbon Economy":

• to put ourselves on a path to cutting the UK's carbon dioxide emissions - the main contributor to global warming - 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 our productivity; and
• to ensure that every home is adequately and affordably heated.

4.  The Government's energy policy is market-based. It is the Government's role to create the right framework of policies and regulation so that the objectives of investors in the energy market align with the objectives of our energy and climate change strategy. In turn it is the role of companies to make the investments in new energy infrastructure the UK needs within this framework. We believe that independently regulated competitive markets are the most cost-effective and efficient way to deliver our goals.

5.  In November 2005, the Government launched a review of the UK's energy market framework and examined the UK's progress towards its long term energy policy goals. Following this review, the Government published its findings in the Command Paper "Our Energy Challenge"[1] in July 2006, and proposed further analysis and a number of consultations. This work culminated in an Energy White Paper, "Meeting our Energy Challenge"[2], published in May 2007. The 2007 White Paper set out a number of proposals, both legislative and non-legislative, to help the UK make further progress towards reducing carbon dioxide emissions and ensuring secure supplies of energy, as we become increasingly dependent on imported sources of fuel.

Overview of the bill

6.  The Energy Bill implements some of the measures flowing from the 2007 White Paper that require primary legislation. Together with the Climate Change Bill and the Planning Bill, the Energy Bill will strengthen and update the legislative framework to help support the UK's energy and climate change strategy.

7.  It will update the legislative framework to reflect the availability of new low carbon technologies; to respond to the need for new energy supply infrastructure as energy imports grow; and to ensure adequate protections for the environment and the tax payer as the energy market changes. The Bill will help the UK make further progress towards its long-term energy policy goals by:

• Enabling private sector investment in a wider range of low carbon electricity generation technologies, helping to reduce carbon emissions and maintain a diverse electricity supply;
• Strengthening the market framework to help ensure timely investment in new gas infrastructure, which will allow the UK to respond to the risks of importing gas from fewer, further away places.

8.  The Bill is divided into six Parts:

• Part 1  Gas Importation and Storage
  • Gas Importation and Storage Zones
  • Importation and Storage of Combustible Gas
  • Storage of Carbon Dioxide
• Part 2  Electricity from Renewable Sources
  • The Renewables Obligation
  • Offshore Electricity Transmission
• Part 3  Decommissioning of Energy Installations
  • Nuclear Sites: Funding of Decommissioning and Clean-Up
  • Offshore Renewables Installations
  • Oil and Gas Installations
  • Wells
• Part 4   Provisions Relating to Oil and Gas
  • Petroleum Licences
  • Third Party Access
• Part 5  Miscellaneous
  • Energy Reports
  • Smart Meters
  • Gas Meters
  • Electricity Meters
  • Electricity Safety
  • Nuclear Information
• Part 6   General

Part 1, chapter 1: GAS Importation and Storage ZONES

Clause 1 Exploitation of areas outside the territorial sea for gas importation and storage

Power conferred on:    Her Majesty

Power exercised by:     Order in Council

Parliamentary procedure:   Negative resolution

9.  The United Nations Convention on the Law of the Sea 1982 (UNCLOS) is an international agreement which defines the rights and responsibilities of nations in their use of the world's oceans. Under Part V of UNCLOS, coastal states can claim rights within an area which forms part of the area of the continental shelf and extends from the edge of the 12 nautical miles limit of the territorial waters for a further distance of 188 nautical miles. Within this area, the coastal state can claim exclusive sovereign rights over all natural resources

10.  Article 56 (1) of UNCLOS establishes that these sovereign rights extend to, amongst other things, the exploration and exploitation of the sea-bed and its subsoil. It also provides jurisdiction for the establishment and use of installations and structures in the area.

11.  The United Kingdom has previously claimed a number of rights under Article 56(1), but has not yet claimed rights in relation to the unloading and storage of gas. The purpose of this clause is to claim those rights by providing for the vesting of their ownership in the Crown within areas designated as "Gas Importation and Storage Zones".

12.  This clause will ensure that the Crown has the exclusive right to grant authorisations enabling places within such a Zone to be used for the following activities:

• exploring these areas with a view to using them for unloading or storing gas;
• the exploitation of these areas for unloading gas to installations or pipelines; and
• storing (permanently or temporarily) or recovering gas.

13.  Subsection (5) provides for Her Majesty to make an Order in Council designating an area as a Gas Importation and Storage Zone ("GISZ"). Delegated legislation is considered the most appropriate route because it allows the GISZ to be defined in stages and hence provides a more flexible approach. An Order in Council is considered appropriate here because it is giving domestic effect to an international treaty in circumstances where the boundaries of the UK are defined. This follows the precedent in section 1(7) of the Continental Shelf Act. The negative resolution procedure is believed to be suitable because it strikes the right balance between giving Parliament an opportunity for scrutiny and recognition that the provision is technical in nature.

14.  This approach reflects the one taken in section 84 (Exploitation of areas outside the territorial sea for energy production) of the Energy Act 2004 (c.20) to establish Renewable Energy Zones.

Part 1, chapter 2: Importation and Storage of Combustible Gas

Overview of the offshore gas storage provisions

15.  The UK's current offshore legislative regime was chiefly designed for licensing oil and gas production. It therefore does not easily lend itself to the types of gas supply projects that the UK will need to come on stream as indigenous production of natural gas declines.

16.  The Bill creates a new regulatory framework specifically designed for offshore gas storage and Liquefied Natural Gas (LNG) unloading projects. The regime is intended to simplify the consenting process, reduce the administrative burdens on developers and create certainty over the legal operation and construction of new facilities. The aim is to encourage timely investment in offshore gas supply infrastructure and to contribute to security of supply in the longer term.

17.  The powers will enable the setting up and operation of the licensing regime for the unloading and storage of gas offshore. The Department believes the powers strike the right balance between Parliamentary scrutiny and making administrative and technical changes in a timely manner.

Clause 2 Prohibition on unlicensed activities

Power conferred on:     Secretary of State

Power exercised by:    Order

Parliamentary procedure:   Negative resolution

18.  This clause is a general provision prohibiting activities relating to the unloading and storage of combustible gas without a licence. It defines the activities for which a licence is necessary, and for that purpose it also includes a definition of the combustible gases which the licensing regime covers. Subsection (5)(a) to (d) accordingly defines "gas" to include the most important examples of such gases (namely methane, ethane, propane and butane)).

19.  However, it is not known whether, with the advance of technology, there may be proposals to store different combustible gases under the seabed. Therefore the clause also includes a power allowing the Secretary of State to extend the definition of gas in this clause to cover other gases. Subsection (5)(e), accordingly, allows the Secretary of State to designate, by order, additional substances as gases to which this Chapter applies, should it become necessary. This follows the similar approach taken in the definition of "gas" in section 48(1) of the Gas Act 1986.

20.  The Department considers a delegated power is appropriate since designation of an additional substance would, in practice, only be a minor addition to an existing list of specified gases, and we cannot anticipate future changes in technology now. The Department anticipates that any additions to this definition would be largely technical and therefore, believes the negative resolution procedure is appropriate. This reflects the approach adopted throughout the Gas Act 1986, where section 64(2) specifies that corresponding orders under section 48(1) of that Act are subject to negative resolution procedure.

Clause 5 Applications

Power conferred on:     Secretary of State

Power exercised by:    Regulations

Parliamentary procedure:   Negative resolution

21.  This clause allows for the Secretary of State to make regulations which set out the detail of the licensing regime for offshore gas supply infrastructure projects. These regulations can cover:

• who can apply for a licence;
• the requirements that must be satisfied;
• how a licence must be applied for;
• the information required; and,
• the fee that must accompany the application.

22.  The gas supply projects covered by this legislation are relatively novel and technology in gas unloading and storage is evolving rapidly. As such, the Department believes that it would be prudent to allow some flexibility in how we set out the licensing process so as to be able to ensure that the process reflects changes in the market. Therefore, regulations are considered the most appropriate vehicle for prescribing the detail of how to apply for a licence. It may also be necessary for the regulations to require additional information to assess licence applications or amend licence application fees.

23.  As with other similar kinds of provision, the negative resolution procedure will apply (for example, section 4(3) of the Petroleum Act 1998, and paragraph 1(3) of Schedule 2 to that Act, which relate to the process of applying for a Petroleum licence).

Clause 7 Model clauses

Power conferred on:    Secretary of State

Power exercised by:    Regulations

Parliamentary procedure:   Negative resolution

24.  For the purposes of ensuring consistency and as part of creating certainty for persons wishing to apply for a licence, this clause allows the Secretary of State to issue model clauses which would normally form part of any standard gas unloading and storage licence. This approach reflects that of the petroleum licensing regime, as set out in section 4 (1)(e) of the Petroleum Act 1998 (c.17), which places a duty on the Secretary of State to prescribe model clauses by regulations subject to negative procedure.

25.  However, in the present case there will be a power, rather than a duty, to issue model clauses. The Department believes the flexibility to make regulations in this regard, rather than specify the detail on the face of the Bill, is appropriate in order to allow the regulatory environment to adapt in response to technological advances or changes in the market. In the Department's opinion, negative resolution procedure strikes the right balance between enabling flexibility while allowing for appropriate Parliamentary scrutiny.

Clause 9 Offences relating to licences

Power conferred on:    Secretary of State

Power exercised by:     Order

Parliamentary procedure:    Negative resolution

26.  Subsection (1)(a) to (c) specifies the breaches of licence conditions that will amount to a criminal offence. However, in order to take account of future developments, it may be necessary to extend the range of breaches that are considered sufficiently serious to attract a criminal sanction. Therefore, subsection (1)(d) enables the Secretary of State to specify, by order, additional breaches of licence provisions which will be considered criminal offences. The Department believes this to be more proportionate than providing for any infringement of the licence to attract an automatic criminal sanction.

27.  A delegated power is considered appropriate since the decision to specify such additional breaches will be made in light of future experience. For instance, certain breaches may become more frequent or more serious as a result of changing market conditions. The need to make an order under subsection (1)(d) will then have to be considered, which will enable the views of industry to be taken into account. Any new offence created will attract the same maximum penalties as laid down in relation to the offences specified in this clause, i.e. on summary conviction a fine not exceeding the statutory maximum or, on conviction on indictment, an unlimited fine.

28.  The Department considers that requiring the order-making power to be subject to negative Parliamentary procedure strikes the right balance between giving Parliament an opportunity to scrutinise the creation of new offences under this clause and recognition that the new provision or condition is likely to be technical in nature.

Clause 13 Inspectors

Power conferred on:    Secretary of State

Power exercised by:    Regulations

Parliamentary procedure:   Negative resolution

29.  This clause allows the Secretary of State to appoint inspectors to assist in carrying out his functions and ensuring licence holders act in accordance with the licence provisions. Subsection (3) enables the Secretary of State to make regulations specifying the powers and duties of inspectors. Subsection (5) sets out that regulations made under this clause may provide for the creation of criminal offences. However, the power to determine the penalties for such offences is limited as set out in subsection (5)(a) and (b).

30.  The regulations may apply to inspectors and any other person acting on the direction of the Secretary of State. Since the powers and duties of inspectors, or directed persons, will need to be amended in accordance with changes to licence provisions and to reflect market developments, they are to be set out in regulations to ensure flexibility. This approach mirrors that in section 20 of the Petroleum Act 1998 (for submarine pipelines inspectors, where the powers are conferred by regulations, subject to negative resolution procedure.

31.  The types of power and duties to be set out in regulations may include those set out in section 108(4) of the Environment Act 1995 (c.25), such as powers to enter premises, to carry out an investigation, to require information and to take samples. The Department considers that, as with the approach for submarine pipeline inspectors in the Petroleum Act 1998, the negative resolution procedure strikes the right balance between giving Parliament an opportunity to scrutinise while recognising the administrative detail involved.

PART 1, CHAPTER 3 — STORAGE OF CARBON DIOXIDE

Overview of the carbon dioxide storage provisions

32.  The objective of this legislation is to enable carbon dioxide storage to be regulated in the UK offshore area. The provisions therefore establish a framework for carbon dioxide storage by requiring a licence to be obtained in order to carry out the activity of storing carbon dioxide offshore, and extending the necessary aspects of existing offshore legislation to the regulation of carbon dioxide storage.

33.  The proposed licensing powers are essentially permissive in nature. The intention is to implement the detail of what must be included in a licence, and of other relevant arrangements, through secondary legislation (which it is intended to consult on in the late spring of 2008). The Department has taken this approach because of the inherent flexibility needed in developing and implementing the licensing and other arrangements in this new and evolving regulatory area (for example, the Department is currently involved in negotiating the EU Commission Proposal for a Directive on the geological storage of carbon dioxide; once agreed, such legislation would establish the minimum standards to be met when licensing carbon dioxide storage sites onshore and offshore).

34.  Following an agreement with the Scottish Ministers, the provisions of this Chapter extend to Scottish territorial waters (0 to 12 nautical miles) where the Scottish Ministers will have the relevant legislative, licensing and enforcement powers. The practical arrangements as well as any cross-boundary issues arising in connection with the extension of the provisions of this Chapter to Scotland will be addressed in a Memorandum of Understanding to be entered into between the Secretary of State and the Scottish Ministers.

Clause 19 Requirements relating to grant of licences

Power conferred on:    Secretary of State / Scottish Ministers

Power exercisable by:    Regulations

Parliamentary procedure:    Negative resolution

35.  This clause allows the Secretary of State (or the Scottish Ministers in relation to licences granted by them) to make regulations relating to the application process for a licence for carbon dioxide storage and other related activities, and the other requirements to be met before a licence is granted. As with the corresponding provisions for offshore gas supply infrastructure in this Bill, these regulations can cover:

• who can apply for a licence;
• how a licence must be applied for;
• the information required; and
• the fee that must accompany the application.

The regulations can also require the provision of financial security by applicants for licences, and prescribe requirements to be met in relation to the circumstances of the application (this is included in order to enable the inclusion of any requirements specified in European legislation).

36.  This legislation is designed to enable the first commercial scale application of carbon dioxide capture and storage, by creating the necessary regulatory environment. As a novel technology, some of the processes of carbon dioxide capture and storage are still being developed. As such, the Department believes that it would be prudent to allow some flexibility in how to set out the licence application process so that it can be adapted as experience develops. In particular flexibility is required to allow the regulatory environment to adapt as best practice on the licensing of carbon dioxide storage develops in line with domestic and international experience of this type of activity. There may also be a need to set out constraints on the granting of licences, in order to implement future EU requirements.

37.  Regulations are considered the most appropriate vehicle for prescribing the detail of how one must apply for a licence. It may also be necessary for the regulations to require additional information to assess licence applications or amend licence application fees, which would be minor technical changes.

38.  Although this power covers matters that are more than purely procedural, it is considered that it is suitable for the negative resolution procedure, as the requirements laid down will be governed by technical considerations relating to making an application. This approach mirrors that set out in the Petroleum Act 1998 (c17) for licences to search and bore for and extract petroleum, under section 4(3) of the Petroleum Act 1998, and paragraph 1(3) of Schedule 2 to that Act.

Clause 21 Content of licences: regulations

Power conferred on:    Secretary of State / Scottish Ministers

Power exercisable by:    Regulations

Parliamentary procedure:    Negative resolution

39.  This clause confers on the Secretary of State (or the Scottish Ministers in relation to licences granted by them) a power to make regulations prescribing the terms that must be included in licences. Such regulations would limit the scope of the licensing authority's otherwise unfettered power to issue licences on such terms and conditions as it sees (although an indicative list of the types of provisions that may be included in licences (e.g. a provision as to financial security, a provision as to closure, or a provision as to termination of the licence) has been included at clause 20 of the Bill). Another restriction on the licensing authority's discretion in issuing licences is derived from the fact that such licences will be subject to any regulations on termination that may be issued under clause 31. Thus a provision in any licences (including those already granted) which was inconsistent with the regulations, would be overridden by such regulations.

40.  The Department believes the flexibility to make regulations in this regard, rather than specify the detail on the face of the Bill, is appropriate in order to allow the regulatory environment to adapt as best practice on the licensing of carbon dioxide storage develops in line with domestic and international experience from regulating these activities. The carbon dioxide storage activities concerned will have a potential effect on the environment and on other uses of the sea and the seabed. Therefore, this power will enable carbon dioxide storage to be regulated in a proportionate manner for the purpose of safeguarding such matters in the public interest.

41.  In the Department's opinion, negative resolution procedure strikes the right balance between enabling flexibility while allowing for appropriate Parliamentary scrutiny.

Clause 23 Offences relating to licences

Power conferred on:    Secretary of State

Power exercisable by:    Order

Parliamentary procedure:    Negative resolution

42.  Subsection (1)(a) to (c) specifies those breaches of licence conditions that will amount to a criminal offence. These offences relate to the infringement of those aspects of the licence that are thought to be the most serious in terms of their potential impact on the environment, human health or other uses of the seabed. For example, if the licence specifies that a particular activity (such as the drilling of a borehole) requires prior consent from the Secretary of State (or, in relation to licenses granted by them, the Scottish Ministers), it will be an offence to do so without obtaining consent. We believe this to be more proportionate than providing for any infringement of the licence to attract an automatic criminal sanction.

43.  However, because there is no practical experience of regulating carbon dioxide storage, it may be necessary to extend the range of breaches that are considered sufficiently serious to attract a criminal sanction. Therefore, subsection (1)(d) enables the Secretary of State (or, in relation to licenses granted by them, the Scottish Ministers) to specify, by order, additional breaches of licence provisions which will be criminal offences. This discretionary approach allows for minor breaches of licence provisions to be dealt with through regulatory action (for example a regulatory direction (clause 24) rather than automatically imposing criminal sanctions.

44.  A delegated power is considered appropriate since the decision to specify such additional breaches will be made in the light of experience in regulating carbon dioxide stores. Any new offence created will attract the same maximum penalties as laid down in relation to the offences specified in this clause, i.e. on summary conviction a fine not exceeding £50,000 and, on conviction on indictment, imprisonment not exceeding two years, or an unlimited fine, or both. (Lower penalties are, however, applicable if the breach relates purely to exploration activity or to the building or maintenance of an installation for the purposes of exploration).

45.  The Department considers that requiring the order making power to be subject to negative resolution procedure strikes the right balance between giving Parliament an opportunity to scrutinise the creation of new offences under this clause and recognition that the new provision or condition is likely to be technical in nature. A similar approach is adopted in relations to offences under the offshore gas storage provisions in this Bill.

Clause 27 Inspectors

Power conferred on:    Secretary of State, / Scottish Ministers

Power exercisable by:    Regulations

Parliamentary procedure:    Negative resolution

46.  This clause allows the Secretary of State (or, in relation to their functions under this Chapter, the Scottish Ministers) to appoint inspectors to assist in carrying out functions under the carbon dioxide storage provisions (for example, those of ensuring that licence holders act in accordance with the licence provisions). Subsection (3) enables the Secretary of State (or the Scottish Ministers) to make regulations specifying the powers and duties of inspectors in undertaking these activities. These regulations may provide for the creation of criminal offences (subsection (5)). However, the maximum penalties for such offences are specified on the face of the Bill (in subsections (5) (a) and (b)).

47.  The regulations may apply to inspectors and other persons acting on the Secretary of State's (or the Scottish Ministers') directions. It is likely that over time the powers and duties of inspectors and such persons will need to be amended to reflect the development of carbon dioxide storage activities and any learning and knowledge we gain from their regulation. Therefore, it is considered appropriate that these powers and duties should be set out in regulations to ensure the necessary flexibility. This approach mirrors that set out in section 20 of the Petroleum Act 1998 for submarine pipeline inspectors, where the powers are made by regulations, subject to negative resolution procedure.

48.  The types of power and duties that will be set out in regulations may include those set out in section 108(4) of the Environment Act 1995, such as powers to enter premises, to carry out an investigation, to require information and to take samples. The Department considers that, as with the approach for submarine pipeline inspectors in the Petroleum Act 1998, the negative resolution procedure strikes the right balance between giving Parliament an opportunity to scrutinise while recognising the administrative detail involved.

Clause 29 Requirement for public register

Power conferred on:    Secretary of State

Power exercisable by:    Regulations

Parliamentary procedure:    Negative resolution

49.  This clause confers on the Secretary of State a power to make regulations about the information relating to carbon dioxide licences which must be maintained on the public register kept by the Secretary of State (or the authority to which that function has been transferred under clause 34) for example, to reflect the type of information that may be of interest to the public in practice. A similar public register is required under section 14 of the Food and Environment Protection Act 1985 where the requirements are prescribed by regulations, subject to the negative resolution procedure.

50.  The power conferred by this clause is subject to the negative resolution procedure because it is administrative in nature and the Department believes it strikes the right balance between giving Parliament an opportunity to scrutinise and recognising the administrative detail involved.

Clause 30 Abandonment of installations

Power conferred on:    Secretary of State / Scottish Ministers

Power exercisable by:    Regulations

Parliamentary procedure:    Negative resolution

51.  The intention is that the structures used for injecting carbon dioxide into the seabed will be subject to essentially the same obligations on abandonment (sometimes described as "decommissioning") as those applicable to other offshore structures. This clause accordingly ensures that the requirements of Part 4 of the Petroleum Act 1998 will apply to any carbon storage installations.

52.  However, subsection (4) provides for the Secretary of State (or, in relation to carbon dioxide storage installations licensed by them, the Scottish Ministers) to modify those provisions in the event that in practice the obligations need to be adjusted to take into account the specific technical nature of installations used for carbon dioxide storage.

53.  The Department considers it to be important to have this flexibility because currently there is no experience of operating and decommissioning a commercial scale carbon capture and storage project. By using this power, the Secretary of State or the Scottish Ministers (as appropriate) will be able to ensure that the marine environment is properly protected, by making any necessary amendments to the decommissioning obligations relating to carbon dioxide storage installations, so that they remain fit for purpose. It is difficult at present to foresee all of the changes that might be necessary.

54.  Regulations made under this clause will be subject to the negative resolution procedure. This is because any modifications to the provisions of Part 4 of the Petroleum Act would be of a technical nature, reflecting the specific engineering, construction, environmental and other relevant considerations associated with carbon dioxide storage installations and facilities.

Clause 31 Termination of licence: regulations

Power conferred on:    Secretary of State / Scottish Ministers

Power exercisable by:    Regulations

Parliamentary procedure:    Negative resolution

55.  This clause confers on the Secretary of State (or, in relation to licences granted by them, the Scottish Ministers) a power to make regulations covering the circumstances in which a licence may be terminated. The intention is to make regulations that prescribe the circumstances in which the regulatory authority may accept termination of a licence, thus restricting the regulatory authority's discretion in this regard.

56.  The regulations might also prescribe circumstances, additional to those contained in carbon dioxide storage licences, as to when termination may occur (this may include, for example, termination upon application from the licence holder with consent of the regulatory authority, or termination at the regulatory authority's discretion). This clause will also allow the Secretary of State or the Scottish Ministers to incur financial expenditure, or make other financial arrangements (including, for example, requiring the licensee to make a payment to the Secretary of State or the Scottish Ministers), where the long term stewardship of the store after licence termination is undertaken by the Secretary of State, or the Scottish Ministers or another body to which that function may be transferred under clause 34.

57.  The Department proposes that regulations made under this clause will be subject to the negative resolution procedure to strike the right balance between enabling flexibility and allowing for appropriate Parliamentary scrutiny.

Clause 33 Enhanced petroleum recovery: power to make orders

Power conferred on:    Secretary of State

Power exercisable by:    Order

Parliamentary procedure:    Negative resolution

58.  The injection of carbon dioxide can take place either as a process ancillary to petroleum production (often known as enhanced oil recovery (EOR)) or for the purpose of storage. EOR can take place where there is no intention to store the injected carbon dioxide permanently, but may also serve the dual purpose of petroleum production and carbon dioxide storage.

59.  This clause excludes EOR from the requirement to obtain a carbon dioxide storage licence, but provides a power for the Secretary of State to define the circumstances in which EOR activities are brought within the scope of the carbon dioxide storage arrangements in the Bill. This will in particular, enable the implementation of any EU requirements regarding the treatment of EOR for the purposes of carbon dioxide storage. A delegated power is needed to enable the relevant circumstances to be defined in the light of any such future requirements.

60.  The Secretary of State will also have the power to extend the application of the carbon dioxide storage provisions in the Bill to EOR activities carried out in those areas of the Continental Shelf which extend beyond any Gas Importation and Storage Zone declared under this Bill. The need for this arises because EOR activities, as licensed under the Petroleum Act 1998, can in principle be carried out beyond the area covered by any Gas Importation and Storage Zone, and it is therefore necessary to ensure that the carbon dioxide storage regime can be extended to such activities.

61.  The power to extend the carbon dioxide regime to EOR would be used where the intention of the EOR operator is to engage both in petroleum extraction and in the permanent storage of carbon dioxide for the purposes of obtaining allowances, under the EU Emissions Trading Scheme, for the carbon dioxide stored (when such allowances become available). Orders made under this clause are subject to the negative resolution procedure because they are considered to be of a technical nature.

Clause 34 Power of Secretary of State to transfer functions

Power conferred on:    Secretary of State / Scottish Ministers

Power exercisable by:    Order

Parliamentary procedure:    Negative resolution

62.  This clause provides a delegated power for the Secretary of State (or, in relation to their functions, the Scottish Ministers) to transfer some or all of the functions under the carbon dioxide storage provisions in the Bill to another person (with the exception of functions exercisable by statutory instrument). Therefore, as a result of such a transfer the relevant authority could, for example, undertake the following functions:

• grant a carbon dioxide storage licence;
• direct a licence holder to comply with any provision of a licence;
• apply to the court for an injunction in relation to a breach of the prohibition in clause 17;
• prosecute offences;
• appoint inspectors; and
• maintain a public register.

The Secretary of State or the Scottish Ministers will be able to transfer different functions to different persons, and change or revoke the transfer, and will have the power to direct the relevant authorities in the exercise of the functions transferred to them.

63.  The function of making secondary legislation under the carbon storage provisions in the Bill cannot however be transferred. The Secretary of State will retain the function of making regulations in relation to licences granted by him (for example, under clauses 19 or 31) and of making orders under clause 23 to create new offences relating to such licenses or clause 33 to bring EOR projects within scope of the carbon dioxide storage licensing regime. The Scottish Ministers will retain the function of making regulations in relation to licences granted by them (for example, under clauses 19 or 31) and of making orders under clause 23 to create new offences relating to such licences.

64.  An order transferring functions to another person in this clause may also include provision concerning finances. In particular, the order may provide for payments to be made to the relevant authority in respect of the functions it is exercising and it may require fees collected by that authority to be paid to the Consolidated Fund (i.e. the main bank account of the Government) or, in relation to fees collected by authorities exercising the Scottish Ministers' functions, the Scottish Consolidated Fund.

65.  An order may also modify section 188 of the Energy Act 2004 or regulations under that section. Section 188 gives the Secretary of State the power to collect charges in respect of its performance of energy-related functions. The Energy Bill will also amend section 188 to give equivalent powers to the Scottish Ministers where they exercise functions under or related to the carbon dioxide provisions of the Bill.

66.  The intention is to use these powers to delegate regulatory responsibility to one or more independent authorities other than the Secretary of State or the Scottish Ministers, should this be considered appropriate in the future, while retaining the power to direct the relevant authorities in the exercise of their functions, should this be deemed necessary. It is also considered important to ensure that financing can be made available to the person undertaking certain functions if required, while at the same time retaining the power, if needed, to require fees collected by that person to be transferred to the Consolidated Fund (or the Scottish Consolidated Fund).

67.  The Department proposes that the powers made under this clause be subject to the negative resolution procedure. The decision to transfer functions to another body is obviously one which requires Parliamentary scrutiny. However, any such transfer would be technical in nature, requiring an assessment of the suitability of the proposed regulatory authority to carry out the specific function. The scrutiny afforded by negative resolution would therefore be sufficient. Similarly, although there is a power to amend section 188 of the Energy Act 2004 and related regulations by an order (amounting to a Henry VIII power), the power is limited to making amendments "in consequence of the transfer of a function" under this clause. It is anticipated that section 188 of the Energy Act 2004 and the related regulations would be modified so as to enable the authority to which functions under the carbon dioxide storage provisions in the Bill have been transferred, to collect charges, if necessary, in connection with the performance of those functions.

68.  Exercise of the Henry VIII power by negative resolution is not unprecedented. By way of an example, the Companies Act 2006 contains a number of Henry VIII powers, some of which are subject to the negative resolution procedure. For example, section 237 of the Companies Act 2006 confers on the Secretary of State a power, by order, to increase certain financial limits contained in the Bill, including those in section 185 (loans, quasi-loans and credit transactions: exception for expenditure on company business) and section 201 (payments for loss of office: exception for small payments). It was decided that it would be appropriate for the order to be subject to negative resolution procedure, given the technical nature of the provision and the limited scope of the provision made in exercise of the power.

PART 2 - ELECTRICITY FROM RENEWABLE SOURCES

Overview of the Renewables Obligation provisions

69.  Section 32 of the Electricity Act 1989 allows the Secretary of State to impose a renewables obligation, by order, on specified electricity suppliers. A renewables obligation has been imposed on licensed electricity suppliers in England and Wales by the Renewables Obligation Order 2006 and in Scotland by the Renewables Obligation (Scotland) Order 2007. These orders govern the operation of the Renewables Obligation in Great Britain.

70.  The Renewables Obligation is the Government's key policy mechanism for encouraging new renewable electricity generating capacity. Until 2016 it requires licensed electricity suppliers to source a specific and annually increasing percentage of their sales from electricity generated from eligible renewable sources. From 2016 to 2027, the obligation will remain level. Electricity suppliers can demonstrate their compliance with their obligation by presenting certificates; paying a buyout price into a buyout fund (if they have not supplied the required amount of renewable-generated electricity); or a combination of the two.

71.  The certificates that are presented are known as Renewable Obligation Certificates (ROCs). ROCs are currently issued to renewable electricity generators for every 1 megawatt hour (MWh) of electricity that they generate. Generators can then sell their ROCs to electricity suppliers and thereby get a premium for their electricity. The incentive for electricity suppliers to meet the obligation through presenting ROCs, rather than paying a buyout price is that at the end of an obligation period money in the buyout fund is recycled pro rata to electricity suppliers who presented ROCs.

72.  The purpose of amending this power is to allow a change in the way the Renewables Obligation operates. The detail of how the new powers will be applied will be set out in new Renewables Obligation Orders. There is a requirement in the existing section 32, which is retained in the new section 32L inserted by clause 37, that before making a Renewables Obligation Order, the Secretary of State must consult with certain named parties as well as any other persons considered to be appropriate.

Clause 37 The renewables obligation

73.  This clause replaces existing sections 32 to 32C of the Electricity Act 1989 with sections 32 to 32M. These sections include a number of new powers.

74.  In summary, the new powers will enable the Secretary of State to make an order to:

• Impose an obligation requiring suppliers to present a specified number of Renewables Obligation Certificates (ROCs), rather than provide evidence that they have supplied a percentage of their electricity from renewable sources (Sections 32 and 32A).
• Extend current powers to permit ROCs to be issued where renewable electricity has been supplied to a customer over a private wire network (Section 32B).
• Provide for generating stations using both fossil fuel and renewable sources (i.e. energy from waste plants) to be able to claim ROCs only for the proportion of electricity generated by the renewable source. The order will specify how the proportion is to be calculated and the consequences for issuing ROCs to a generating station where it uses more than a certain proportion of fossil fuel during a period. This will address a regulatory barrier raised by the cost of taking accurate repeated measurements (Section 32C).
• Band the Renewables Obligation to provide different levels of support for different groups of technologies based on cost and other considerations specified in the Bill (Section 32D).
• Provide for the bands to be reviewed periodically or if a specified condition triggers a review (Section 32D).
• Maintain the rights of most existing generating stations to claim 1ROC/1MWh (Section 32E).
• Provide for a mechanism to prevent a price crash in the event of an anticipated oversupply of ROCs, instead reducing the buyout price for ROCs.
• Require generators burning biomass to provide information to the Authority on the source of the biomass fuels to ensure the sustainability of those fuels (Section 32J).
• Enable the Authority to recover the costs of administering the Renewables Obligation from the buyout fund (Section 32I).

75.  One of the most important changes is to allow the introduction of banding. Following this change, the Renewables Obligation Order will determine the bands within which different technologies and renewable sources will be allocated, which will determine the level of support they will receive. Banding will allow renewable electricity generators to receive more or less support for each 1MWh of electricity generated, depending on the type of technology they have used to generate that 1MWh. In practice this will be implemented by varying the amount of electricity that generators must produce for each ROC with which they are issued.

76.  The introduction of banding requires a change in how the obligation applies to electricity suppliers. It will change from being an obligation to demonstrate that a specified percentage of the electricity supplied to customers has been generated using renewable sources to an obligation to present a specific number of certificates. This follows on from the way in which banding removes the direct equivalence between the amounts of electricity generated from renewable sources and the number of certificates issued.

77.  The order will specify how the number of certificates to be produced by suppliers will be calculated. The total number of ROCs to be produced by suppliers collectively will be set with the aim of always keeping it above the level of actual generation. If the supply of ROCs were to exceed the level of the obligation, the market value of ROCs can be expected to fall sharply to a level close to zero. A perceived risk of this over-compliance will tend to dampen investment in renewable generation projects. By ensuring that the obligation level exceeds the level of generation, the demand for and value of ROCs will be maintained, providing investors with the confidence and certainty that they require. The cost to consumers will be capped by establishing a maximum value of the Obligation. The Order may also specify a mechanism for providing that the size of the Obligation may be increased beyond the maximum value of the obligation while the buy-out price decreases in proportion, in order to maintain investor confidence without adding to consumer costs beyond the cap.

78.  The Government has already consulted extensively on the proposed bands for generation technologies and published its response to this consultation in January 2007.

79.  As is the case under the current arrangements, the power is subject to an affirmative resolution procedure (section 32L), which will provide Parliament with an opportunity to scrutinise the detailed rules in question before they are made. In addition, there is a statutory requirement to consult before the power is exercised. To enable the new RO banded regime to come into effect in April 2009, Clause 38(1) will allow the Government to start the consultation process before the relevant provisions in this Bill are brought into force.

Overview of offshore electricity transmission provisions

80.  The Government is currently working with the Gas and Electricity Markets Authority ("the Authority") to create an offshore transmission regime to allow for the cost effective connection of offshore renewables installations to the onshore electricity grid. The powers to establish the new licensing regime are set out in the Energy Act 2004.

81.  Once the regime is established, the Authority will award the licences via competitive tendering exercises. Where large wind farms already exist, the successful bidder for the licence will need to take over the property, rights and liabilities of existing offshore transmission wind farm projects from their current generator-developer "owners".

82.  As the proposals have been developed it has become apparent that additional powers are required to ensure the regime can operate effectively.

Clause 41 Offshore Electricity Transmission and Schedule 2 Property Schemes

Power conferred on:    The Gas and Electricity Markets Authority

Power exercised by:    Regulations

Parliamentary procedure:    None

83.  The Authority's existing powers of cost recovery do not enable it to recover its costs of running competitive tenders to identify an offshore transmission licence holder from the participants in that tender exercise. This Bill proposes to give the Authority the necessary powers to recover their costs.

84.  This clause inserts a new section 6D into the Electricity Act 1989. It supplements section 6C which gives the Authority the power to make regulations to enable it to run competitive tender processes for offshore transmission licences and determine the successful bidders. These regulations can include provisions about the process the Authority will follow in making such determinations.

85.  New subsection 6D of the Electricity Act 1989 gives the Authority the ability, in making regulations under section 6C, to create new mechanisms to recover its costs in carrying out and administering tender exercises and certain other related costs, as set out in the Energy Bill.

86.  The new provisions also include the ability for the Authority to require payment of a deposit or provision of other security from certain parties, including the developer of an offshore generating station, in respect of a potential liability to pay the Authority's costs. For example, the Authority could use this power on the basis that such security would be realised if the generator-developer aborted its project (and hence rendered the tender exercise obsolete) before the tender exercise was complete. The Authority will also be able to set out in the tender regulations how payments will be treated, including the circumstances in which payments should be made, the timing of payments, and mechanisms for refunding or withholding payments.

87.  Although there is no Parliamentary procedure in respect of the regulations made by the Authority under section 6C of the Electricity Act 1989, the regulations must be approved by the Secretary of State. This is a similar process to that where Ofcom makes regulations under section 45 of the Wireless Telegraphy Act 2006. It is also anticipated that the Authority will consult on the way in which these provisions will be implemented, before these regulations are made.

88.  Further scrutiny of the Authority's estimated expenditure and previous year's expenditure is also available through the annual report and accounts which are laid before Parliament each year.

Extension of period for applications for property transfer schemes

Power conferred on:    Secretary of State

Power exercised by:    Order

Parliamentary procedure:    Negative resolution

89.  New section 6E and Schedule 2A to the Electricity Act 1989, set out in clause 41(2) and (3) and Schedule 2 to the Bill, make provision for "property schemes". For most projects, transmission assets connecting the offshore generating station to the onshore system will be built by the offshore transmission licence holder, selected by competitive tender. However, for some projects, by the time the offshore transmission regime comes into force, generator-developers will either:

• have funded and already built the transmission assets, or
• have funded and be part way through building the transmission assets, or
• be ready to construct the assets (in that it has all necessary funding in place to do so).

These projects will require the transfer of property, rights and liabilities (including the transmission assets) to the successful bidder for the offshore transmission licence. In most cases, we expect this to take place through commercial negotiations between the parties. However, there is currently no compulsory transfer scheme, if commercial negotiations break down. This may result in unnecessary disruption or delay to offshore wind generation development. The new provisions are intended to address this.

90.  The new Schedule 2A for the Electricity Act 1989 grants the Authority the power, upon application by an eligible party, to make a scheme to transfer property, rights or liabilities from the existing owner to the successful bidder for the offshore transmission licence, in the context of a competitive tender exercise under section 6C regulations. The property, rights or liabilities could include transmission assets (such as sub-sea cable and associated equipment and plant used for conveying the electricity from an offshore generating station to the onshore network).

91.  The power to make a transfer scheme is designed to catch projects that have already been, or are in the process of being, built by the time the new offshore transmission licensing regime comes into force. It is anticipated that the transfer scheme power should only be needed for a set period of time (in this case 4 years after the section 6C tender regulation making power comes into force). However, paragraph 5 of Schedule 2A makes provision for the Secretary of State to extend the time-limited period (referred to as the "transitional period") in which applications for a transfer scheme can be made.

92.  For a variety of reasons, such as delays in financing or building the assets, certain projects may not have reached the point where transfer of property, rights and liabilities can be considered until after the 4 year transitional period has ended. Through paragraph 5 of the new Schedule 2A, the Secretary of State will have the power to extend, by order, the time-limited period. To ensure the transfer scheme is not open-ended, the period may only be extended by a maximum of a further 3 years.

93.  There is a requirement on the Secretary of State to consult all those affected before making any order. Orders may be made in relation to a particular case or group of cases. It is considered that negative resolution is an appropriate form of Parliamentary procedure for any extension to the period of time in which applications for a transfer scheme can be made.

PART 3, CHAPTER 1 — NUCLEAR SITES: FUNDING OF DECOMMISSIONING AND CLEAN-UP

Overview of the nuclear waste and decommissioning provisions

94.  The objective of the nuclear waste and decommissioning provisions in the Bill is to ensure that operators of any new nuclear power stations meet the full costs of decommissioning and their full share of waste management costs. The provisions in the Bill will:

• create the legislative framework that will require funded decommissioning programmes to be submitted to the Secretary of State;
• allow for the approving and monitoring of such programmes;
• create offences for non-compliance;
• enable the creation of regulations and guidance that will contain information about the preparation, content, implementation and modifications of funded decommissioning programmes; and
• enable the nuclear waste and decommissioning provisions in the Bill to be extended to operators of other nuclear installations who apply for new site licences.

95.  When this legislation comes into effect, an operator applying for a nuclear site licence will have to submit to the Secretary of State a funded decommissioning programme for approval. The funded decommissioning programme will have to consist of two elements. Firstly, the operator must set out the technical and practical steps it will take to manage and dispose of hazardous waste (including radioactive waste) and spent fuel, to decommission the power station and clean up the site. The operator must also provide prudent cost estimates for those steps. Secondly, the operator must set out how it will make financial provision to cover the costs of decommissioning the power station and cleaning up the site and the costs relating to certain aspects of waste management.

96.  To ensure a robust regulatory framework, the Secretary of State will have the power to:

• by order, specify what matters relating to the management and disposal of waste during the operation of a nuclear power station are designated technical matters such that operators are required to demonstrate, not only that prudent technical provision is made in relation to these matters (as for the "technical matters" referred to in the Bill), but that prudent financial provision is also made in relation to these matters;
• approve or reject a funded decommissioning programme;
• require amendments to or impose conditions on the approval of, funded decommissioning programmes;
• obtain relevant information at any time e.g. at the time of regular reviews of the programme or on an ad hoc basis;
• require the operator to take remedial action (i.e. in situations where the operator has failed to comply with the programme or committed a criminal offence which the Secretary of State thinks may affect the programme); and
• by order, extend the above powers to apply to operators of new nuclear installations other than new electricity generating stations who apply for a new nuclear site licence.

97.  It will be a criminal offence to build or operate a nuclear power station without an approved programme in place; to fail to comply with an approved funded decommissioning programme; to disclose information obtained under the Bill except where this is permitted, or to supply false information in relation to the programme.

98.  Under the proposals, regulations may be made to prescribe the preparation, content, implementation and modifications of decommissioning programmes and for the charging of fees. In line with other regulations in the nuclear sector, such as for safety (under the Nuclear Installations Act 1965), the Government will also publish guidance that will set out information on what an approvable funded decommissioning programme for a nuclear power station might include. This guidance will assist businesses in understanding their obligations under the Bill. The Department intends that the first set of guidance will assist businesses in setting out and costing the steps involved in decommissioning a power station and managing radioactive waste and spent fuel and cleaning up the site. It intends that the second set of guidance will assist operators in setting out acceptable proposals for financing the costs identified.

99.  Both sets of guidance are being consulted upon in the first half of this year. Recognising the importance of this guidance, the Department proposes to go further than other aspects of nuclear regulation, by requiring all guidance published under the nuclear waste and decommissioning provisions in the Bill to be laid before Parliament. Creating a power for ministers to issue guidance in relation to certain obligations under the Bill in any event goes further than the requirements on the Secretary of State under the Nuclear Installations Act 1965.

100.  The Department believes that requiring guidance to be laid before Parliament is the appropriate vehicle for these particular provisions. This has been guided by the need to ensure flexibility in responding to technological advances and developments in accounting standards. It also reflects the fact that the Department does not consider it appropriate to put detailed technical provisions on the face of the Bill, and that the guidance is not intended to impose legal obligations.

101.  The Department is also making a number of provisions to ensure proper scrutiny of regulations and statutory guidance and its application, for example:

• The Department is giving an opportunity to MPs, interested parties and the public to comment, through the public consultation which will be launched in the first quarter of 2008.
• The Government will be required to consult the safety and environmental regulators before making any modifications to regulations or guidance.

102.  Although not within the nuclear waste and decommissioning provisions in the Bill, it should be noted that the Government intends to create a new independent advisory body, the Nuclear Liabilities Financing Assurance Board (NLFAB) to provide independent scrutiny and advice on the suitability of funded decommissioning programmes submitted by nuclear operators, to give the Secretary of State assurance that the guidance is adhered to.

Clause 42 Duty to submit a funded decommissioning programme

Power conferred on:    Secretary of State

Power exercisable by:    Order

Parliamentary procedure:    Affirmative resolution

103.  This clause requires a person applying for a nuclear site licence for the purpose of constructing a nuclear power station to generate electricity to notify the Secretary of State, and at the same time submit a funded decommissioning programme for approval. This clause gives an order-making power to the Secretary of State to designate the technical matters relating to the management and disposal of waste during the operation of a nuclear installation for which a funded decommissioning programme must make prudent financial provision.

104.  The order is subject to affirmative resolution procedure which will provide Parliament with a further opportunity for scrutiny. The affirmative procedure applies to this power because it gives ministers the power to determine (to some degree) the scope of the matters to which this Chapter of the Bill applies.

Clause 47 Power to disapply clause 46

Power conferred on:    Secretary of State

Power exercisable by:    Regulations

Parliamentary procedure:    Negative resolution

105.  This clause allows the Secretary of State to disapply the usual process for modifying a funded decommissioning programme. The standard procedure is set out in clause 46, as follows:

• a request to make a modification must be made in writing by the operator of the nuclear power station,
• the Secretary of State can charge a fee for any advice obtained from a third party, for example where he sought verification of any submission to modify a programme,
• where the Secretary of State makes a proposal for a modification, the operator or other persons with obligations under a programme have the opportunity to respond in writing,
• the Secretary of State has the power to decide whether a modification should be made, but has a duty to inform the operator and every person who has obligations under the funded decommissioning programme (and, where the decision is that the modification should be made, any person who acquires obligations as a result of it) with the reason for this decision;
• before deciding on whether a modification is to be made, the Secretary of State must consult the Health and Safety Executive, the Environment Agency and the Department of the Environment for Northern Ireland where his decision relates to one or more of their statutory functions.

106.  This clause then confers on the Secretary of State a power to make regulations to disapply clause 46 in order to create some flexibility within the modification process. The power does not extend to cases where the modification is proposed by the Secretary of State himself. The power is exercisable (in particular) by reference to the financial consequences of the modification. If a proposed modification fell within the scope of the proposed regulations, it would not be necessary to go through the approvals process referred to above.

107.  This delegated power is to make regulations that disapply a procedure where (inter alia) the financial impact on the funded decommissioning programme is below a specified level. By doing this, Government is meeting its better regulation principles by seeking to limit the impact of the regulatory regime in appropriate cases. If the modification is of minor financial consequence to the programme, then the process for modification set out in clause 46 would be considered inappropriate and unnecessarily burdensome (and it is in these circumstances that ministers would expect to exercise the power to disapply it).

108.  Before the Secretary of State makes regulations he must consult the Health and Safety Executive, the Environment Agency and the Department of the Environment for Northern Ireland. Regulations made under this clause are subject to the negative resolution procedure because they are administrative in nature and this strikes the right balance between giving Parliament an opportunity to scrutinise and recognising the administrative detail which the regulations are likely to contain. This power does not relate to scope, since modifications made under the regulations would be regulated by the other nuclear waste and decommissioning provisions of this Bill. Therefore ministers would, for example, be entitled to obtain information about compliance with the programme as amended under clause 50 in the normal way.

Clause 51 Nuclear decommissioning: regulations and guidance

Regulations

Power conferred on:    Secretary of State

Power exercisable by:    Regulations

Parliamentary procedure:    Negative resolution

109.  This clause confers on the Secretary of State a power to make regulations about the preparation, content, implementation and modifications of funded decommissioning programmes and for the charging of fees under this Chapter of the Bill. Regulations can also create offences where specific provisions of the regulations are contravened. Specifically regulations may be made about:

• how radioactive (and other hazardous) waste will be managed during the operation of the installation and disposed of, and how the installation will be decommissioned and cleaned up;
• how the costs of financing the designated technical matters covered by a funded decommissioning programme will be estimated, and about the manner in which such estimates should be verified. By clause 52, the regulations may enable the Secretary of State to rely on financial information verified by a third party;
• the financing of such expenditure including the security arrangements which is required to be put in place;
• payments from funds accumulated under the programme to the site operator or another person;
• the information required to be supplied in relation to the funded decommissioning programme; and
• how fees payable under this Chapter are calculated and when they are to be paid.

110.  It should be noted that the Department currently intends only to make regulations on fees. We have also included other matters that we may prescribe in order to future proof the legislation should we decide at a later date that we wish to compel certain activities to be undertaken (as mentioned above, for example prescribing certain information to be provided and/or security arrangements to be put in place in all cases).

111.  Although this power covers matters that are more than purely procedural, it is considered suitable for the negative resolution procedure, as the requirements laid down will be governed by technical considerations and points of detail. This mirrors the approach set out in section (111) of the Energy Act 2004 for decommissioning offshore installations. Section (111) allows the Secretary of State to make regulations under negative procedure for decommissioning offshore installations on the following aspects :

• Standards and safety requirements;
• Security that may be provided;
• Prevention of pollution;
• Inspections, including payment to inspectors;
• Sanctions; and
• Consultation with organisations affected by the regulations and other persons considered appropriate.

We take a view that the powers in the Bill follow these vires relatively closely and it is therefore appropriate that they are subject to the same parliamentary procedure.

Guidance

Power conferred on:    Secretary of State

Power exercisable by:    Statutory guidance

Parliamentary procedure:    Laid before Parliament

112.  As well as power to make regulations, this clause confers on the Secretary of State a power to publish guidance about the preparation, content, modification and implementation of funded decommissioning programmes. A copy of any guidance published must be laid before Parliament. Specifically guidance may be provided about:

• how radioactive (and other hazardous) waste will be managed during the operation of the installation and subsequently disposed of, and how the installation will be decommissioned and cleaned up
• how the costs of financing the designated technical matters covered by a funded decommissioning programme are to be estimated, and the manner in which such estimates should be verified;
• the financing of such expenditure including the security arrangements that must be put in place;
• payments from funds accumulated under the programme to the site operator or another person; and
• factors that the Secretary of State may take into account when approving the funded decommissioning programme or approving a modification to the programme.

113.  Using guidance to set out these requirements creates the flexibility to adapt the guidance in the future and allow for changes such as technological advances or developments in regulation or accounting standards. This approach is analogous to the existing safety and environmental licensing regime for nuclear whereby the Health and Safety Executive and the Environment Agency issue guidance in relation to the exercise of their statutory powers. (The Health and Safety Executive issue guidance in relation to their licensing functions under the Nuclear Installations Act 1965 and the Environment Agency in relation to the management of radioactive substances under the Radioactive Substances Act 1993).

114.  As mentioned in the summary section of this memorandum, it is the Government's intention to create a new independent advisory body the Nuclear Liabilities Financing Assurance Board (NLFAB) to provide independent scrutiny and advice on the suitability of funded decommissioning programmes submitted by potential nuclear operators. It will provide advice to the Secretary of State on all aspects of the financial arrangements operators plan to put in place to cover waste management and decommissioning. The NLFAB will also provide advice to the Secretary of State on the regular reviews and ongoing scrutiny of funding arrangements, once new nuclear power stations are operational.

115.  We expect the NLFAB to consist of experts from relevant fields such as current or former fund managers, pension trustees, actuaries, or nuclear engineers. The board members will be appointed by the Secretary of State. As the NLFAB will be a purely advisory body, focused solely on ensuring that sound financial arrangement are put in place by operators, there will be no overlap with the work of existing regulators.

116.  If a material amendment to the guidance is required, as with established Government practice, the Department would seek to consult before amending the guidance.

117.  The Department does not consider it necessary to subject this guidance to a Parliamentary procedure because it is analogous to the approach taken for the existing safety and environmental regime for nuclear, where guidance is not even laid before Parliament. Furthermore, the Department considers that the requirement for flexibility and the safeguards mentioned above (the technical detail which will have been consulted on publicly in the first half of 2008 and the scrutiny of the NLFAB), also alleviates the need for Parliamentary scrutiny. Whilst the guidance will assist business in understanding its duties under the Bill (by its very nature), it will not have the force of law nor is it appropriate that it should do so. This also reduces the case for applying a parliamentary procedure in relation to the guidance.

Clause 59 Power to apply this Chapter to other nuclear installations

Power conferred on:    Secretary of State

Power exercisable by:    Order

Parliamentary procedure:    Affirmative resolution

118.  This clause gives an order making power to the Secretary of State to extend clause 42 to apply to operators of other nuclear installations who apply for new site licences, in relation to sites on which they intend to construct installations for a purpose connected with the generation of electricity.

119.  Clause 42 requires a person applying for a nuclear site licence for the purpose of constructing a nuclear power station to generate electricity to notify the Secretary of State and at the same time 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.

120.  Discretion is needed for the Secretary of State to classify additional types of projects that may be proposed in due course by energy companies to sustain and support the development of a growing nuclear energy sector so as to ensure that they comply with these and the other arrangements under the nuclear waste and decommissioning provisions in the Bill.

121.  The Order is subject to an affirmative resolution which will provide Parliament with a further opportunity for scrutiny. This is thought to be appropriate on the basis that the provision gives the Secretary of State the power to extend the scope of the legislation in appropriate cases.

PART 5 — MISCELLANEOUS

Overview of the smart meters provisions

122.  In the 2007 Energy White Paper, the Government indicated the importance it placed on improving the information energy customers receive about their energy use, so as to enable them better to manage and reduce their energy consumption, and as a result also reduce their carbon emissions.

123.  In this context, the Government set out its expectation to see the roll out of smart meters to domestic customers within the next 10 years and to consult on a roll out to medium sized businesses within 5 years. Depending on the technical specification, smart meters have the ability to:

• Provide real time information to customers on their energy use and cost;
• Communicate between customers, meters and energy suppliers;
• Improve the accuracy of energy bills;
• Allow for remote reading of meters; and
• Switch customers to different types of energy tariff remotely.

124.  The objective of this element of the Bill is to enable the roll out of smart meters on a customer-segment basis. The provisions allow for the modifications of electricity distribution and supply licences, and gas transporter, shipper and supply licences, or documents made under licence conditions, to require licence holders to install, or facilitate the installation of, smart meters. The intention is to implement the detail of the requirements being placed on licensees, and other relevant arrangements, through modified licence conditions and/or amendments to the agreements and codes entered into under the licences.

125.  It is the Government's intention to use the provisions in the Energy Bill to roll-out Smart Meters to medium businesses[3] in the first instance and, subject to further analysis and consultation, potentially all energy consumers. The roll-out to medium businesses, announced as part of the 2008 Budget is based on our analysis demonstrating a positive business case for moving forward with smart meters for this sector. We propose to consult on draft modifications for medium business during the passage of the Energy Bill, with the intention that they come into force as soon as possible after the Bill receives Royal Assent.

126.  This element of the Bill would also enable the Government to mandate a roll out of smart meters to smaller business and domestic consumers.

127.  The Department believes the approach in this element of the Bill strikes the right balance between Parliamentary scrutiny and necessary flexibility to specify the details of any roll-out of smart meters in a timely manner.

Clause 81 Modifications of licence conditions

Power conferred on:    Secretary of State

Power exercisable by:    Modification of licence conditions

Parliamentary procedure:    Negative resolution (in relation to draft modification of licence conditions and documents maintained under licences).

128.  This clause allows the Secretary of State to modify the licence conditions of relevant categories of gas and electricity licences. It also enables the modification of other documents which underpin aspects of the distribution and supply of gas and electricity, for example industry codes. Subsection (2) specifies that the purpose of such modifications is limited to requiring the roll-out of meters of a particular type.

129.  Subsection (3) (a-l) gives an indication of the types of modifications which the Secretary of State may seek to make to licence conditions and the other documents. This includes setting the technical specifications/functionality for the meters and prohibiting the supply of gas or electricity through a meter which does not meet this specification. It also enables the Secretary of State to make provisions related, for example, to the roll out and installation of new meters (e.g. the speed of any roll out of smart meters), the protection of consumers and access to infrastructure related to smart meters. Final decisions on each of these variables will be taken following further analysis and consultation with key interested parties. This will help ensure the policy is delivered in the most cost effective way.

130.  Subsection (4) sets out the detail of how this power may be exercised; this includes an ability to make different provisions in relation to different types of customer or different circumstances. Subsection (5) is a "sunsetting" provision, stating that the power in subsection (1) may not be exercised beyond a period of 5 years after coming into force.

131.  In general, in the electricity and gas sectors, powers to make modifications do not have a precedent of involving further Parliamentary scrutiny. See, for example, section 15A of the Electricity Act 1989 (inserted by section 68 of the Utilities Act 2000); and section 134 of the Energy Act 2004. However, whilst the Department believes that this type of power is the most appropriate route forward for this policy area, it also recognises that smart meters are potentially an important issue, with direct implications for business and consumers and high potential costs to the economy.

132.  In recognition of this, the Department has, in this instance, incorporated a procedure to allow Parliamentary scrutiny of the detail of how this power will be implemented via modifications. This will ensure Parliament has an appropriate opportunity to scrutinise draft changes to licence conditions and other documents to be implemented via this power. Clause 82 sets out this procedure. In short, as is usual practice, before exercising the powers in clause 81, the Secretary of State must consult relevant licensees, the Authority and any other appropriate persons. However, Subsection (3-9) places an additional requirement on the Secretary of State to lay the draft modifications in Parliament and allow a period of 40 days in which either House of Parliament can reject the draft conditions.

Clause 83 Smart Meters: supplemental

Power conferred on:    Secretary of State

Power exercisable by:    Order

Parliamentary procedure:    Negative resolution; but affirmative resolution where power will be exercised to amend Acts of Parliament or Acts of the Scottish Parliament

133.  Clause 83 contains an order making power for the Secretary of State to make amendments to primary or secondary legislation as a consequence of exercising the modification power conferred by clause 81. Consequential amendments in relation to smart meters are likely to be as a consequence of the provision the Secretary of State chooses to make under the Act (i.e. as a result of specific licence modifications) rather than as a consequence of the Act itself, so the power in clause 96 would not suffice. By virtue of clause 94(2)(b), the power is (as with other powers in the Bill) subject to affirmative procedures where it is proposed to be exercised to make changes to Acts of Parliament or to Acts of the Scottish Parliament.

Gas Meters

Clause 86: Power to amend licence conditions: gas

Power conferred on:    Secretary of State

Power exercisable by:    Modification of gas transporter licence conditions

Parliamentary procedure:    None

134.  Section 5 of the Gas Act 1986 (c.44) prohibits certain activities unless they are licensed or exempt from the requirement to be licensed. The regulator, the Gas and Electricity Markets Authority (the Authority), therefore grants licences allowing persons to undertake these activities, which includes the transportation of gas.

135.  A gas transporter licence allows the licensee to convey gas through pipes to premises, or to another system of pipelines operated by another gas transporter. Standard conditions of that licence require licensees to pay a fee which covers the costs incurred by the Authority of carrying out its statutory functions, including its metrological functions in relation to gas meters. These functions include, amongst other things, gas and meter approvals, stamping of new meters, the appointment of meter examiners and disputed meter accuracy testing.

136.  Through the Energy Bill, statutory responsibility for the technical functions relating to gas meters will transfer to the Secretary of State, whose functions in this regard will be performed by the National Weights and Measures Laboratory (NWML, an executive agency of the Department for Innovation, Universities and Skills). It is proposed that when the functions are transferred, the costs associated with them should continue to be recovered through the licence fee by the Authority on behalf of the NWML. Amendments to the payment conditions of the licences of the relevant network operators (gas transporters) will be required in order to make this possible.

137.  This clause therefore confers on the Secretary of State a power to modify gas transporter licence conditions under section 7 and 8 of the Gas Act 1986 (c.44). Section 7 covers the requirements for licensing gas transporters whilst section 8 covers standard conditions of such licences.

138.  This approach reflects the one used to recover funds on behalf of the National Consumer Council (previously energywatch), the gas and electricity watchdog, whereby the money is taken by the Authority and passed directly into the Consolidated Fund. It also represents the simplest and least burdensome means by which NWML can recover its costs. The proposal has been discussed and agreed through consultation with network operators.

139.  Although not specifically for the same purpose, this power also closely reflects the method used to modify licence conditions in:

• section 7 (Sale of electricity generated by microgeneration: power to modify distribution and supply licences etc) and section 8 (Exercise of powers under section 7) of the Climate Change and Sustainable Energy Act 2006 (c.19); and,
• section 90 of the Energy Act 2004 (c.20) (Modification of licence conditions for offshore transmission and distribution)

140.  In all cases, the nature of the licence modification is technical and the power to make such modifications is only necessary for a short period. This is demonstrated by subsection (10) which states that modifications may only be made to licence conditions for 6 months after the clauses in this part of the Bill come into force. Given their technical nature, it is not considered appropriate to detail the licence modification on the face of the Bill.

Electricity Meters

Clause 89 Power to amend licence conditions: electricity

Power conferred on:    Secretary of State

Power exercisable by:    Modification of electricity transmission and distribution licence conditions

Parliamentary procedure:    None

141.  Section 4 of the Electricity Act 1989 (c.29) prohibits certain activities unless they are licensed or exempt from the requirement to be licensed. The regulator, the Gas and Electricity Markets Authority (the Authority) therefore grants licences allowing persons to undertake these activities, which include electricity transmission and electricity distribution.

142.  An electricity transmission licence allows the licensee to participate in the transmission of electricity for the purpose of enabling a supply to be given. An electricity distribution licence allows the licensee to distribute electricity for the purpose of enabling a supply to be given.

143.  Standard conditions of these licences require licensees to pay a fee which covers the costs incurred by the Authority in carrying out its statutory functions, including its metrological functions in relation to electricity meters. These functions include, amongst other things, electricity meter approvals, certification (electricity) of new meters, the appointment of meter examiners and disputed meter accuracy testing.

144.  Through the Energy Bill, statutory responsibility for the technical functions relating to electricity meters will transfer to the Secretary of State, whose functions in this regard will be performed by the National Weights and Measures Laboratory (NWML, an executive agency of the Department for Innovation, Universities and Skills). It is proposed that when the functions are transferred, the costs associated with them should continue to be recovered through the licence fee by the Authority, on behalf of the NWML. Amendments to the payment conditions of the licences of the relevant network operators (electricity transmitters and distributors) will be required in order to make this possible.

145.  This clause therefore confers on the Secretary of State a power to modify electricity transmission and distribution licence conditions under section 6(1)(b) or (c) and section 8A of the Electricity Act 1989 (c.29). Section 6(1)(b) covers the requirements for licensing electricity transmitters and section 6(1)(c) covers the requirements for licensing electricity distributors, whilst section 8A covers standard conditions of such licences.

146.  This approach reflects the one used to recover funds on behalf of the National Consumer Council (previously energywatch), the gas and electricity watchdog, whereby the money is taken by the Authority and passed directly into the Consolidated Fund. It also represents the simplest and least burdensome means by which NWML can recover its costs. The proposal has been discussed and agreed through consultation with network operators.

147.  Although not specifically for the same purpose, this power also closely reflects the method used to modify licence conditions in:

• section 7 (Sale of electricity generated by microgeneration: power to modify distribution and supply licences etc) and section 8 (Exercise of powers under section 7) of the Climate Change and Sustainable Energy Act 2006 (c.19); and,
• section 90 of the Energy Act 2004 (c.20) (Modification of licence conditions for offshore transmission and distribution)

148.  In all cases, the nature of the licence modification is technical and the power to make such modifications is only necessary for a short period. This is demonstrated by subsection (10) which states that modifications may only be made to licence conditions for 6 months after the clauses in this part of the Bill come into force. Given their technical nature, it is not considered appropriate to detail the licence modification on the face of the Bill.

PART 6 - GENERAL

Clause 93 Subordinate legislation

149.  This clause provides for a number of matters that may be included in Orders in Council, orders or regulations under the Bill. These include consequential and transitional provisions, the making of different provisions for different cases, and the exercise of a discretion under the secondary legislation. The power to include consequential and transitional provisions includes a power to amend Acts of Parliament or Acts of the Scottish Parliament. However, where this is done, the statutory instrument in question is subject to the affirmative resolution procedure (see subsections (2)(b), (3) and (4) of clause 94)

Clause 96 Minor and consequential amendments

Power conferred on:    Secretary of State and Scottish Ministers

Power exercisable by:    Order

Parliamentary procedure:    Negative resolution, unless changes are proposed to Act of Parliament or Act of the Scottish Parliament, in which case affirmative resolution

150.  This clause confers on the Secretary of State the power to make modifications to any Act of Parliament or Act of the Scottish Parliament passed before or in the same session as the Bill; or to any instrument made before the passing of the Bill or in the session in which the Bill is passed, where the Secretary of State considers this to be appropriate in consequence of the Bill. Similar powers are conferred on Scottish Ministers, to the extent specified in subsection (3).

151.  This power is required to ensure that changes can be made to legislation enacted prior to the Bill (or in the same session as the Bill) in order to take account of the Bill. Except where the power is used to amend an Act of Parliament or Act of the Scottish Parliament, orders under this clause are subject to negative resolution procedure. Parliament would already have approved the provisions that gave rise to the need for these consequential amendments, and so it is felt that the consequential amendments themselves need not be subject to the same level of scrutiny. That said, it is felt that where the power is used to amend an Act of Parliament or Act of the Scottish Parliament, affirmative procedure should apply, in accordance with normal practice.

Clause 98: Transitional provision etc

Power conferred on:    Secretary of State and Scottish Ministers

Power exercisable by:    Order

Parliamentary procedure:    Negative resolution, unless changes are proposed to Act of Parliament or Act of the Scottish Parliament, in which case affirmative resolution

152.  This clause gives the Secretary State the power, by order, to make any transitional, transitory or saving provision which may appear appropriate in consequence of or in connection with this Act. Transitional provision and savings are additional and without prejudice to that made by or under any other provision of this Act. Similar powers are conferred on Scottish Ministers, to the extent set out in subsection (2)

153.  This power includes a power for the Secretary of State (or, to the extent set out in subsection (2), Scottish Ministers) to make modifications to any Act of Parliament or Act of the Scottish Parliament passed before or in the same session as the Bill; or to any instrument made before the passing of the Bill or in the session in which the Bill is passed.

154.  Orders under this section are normally subject to negative resolution procedure because it is likely that any amendments made under the power would be minor and technical in nature. However, the power also enables the amendment of Acts of Parliament or Acts of the Scottish Parliament, and in such a case the order is subject to affirmative resolution procedure.

Clause 99: Commencement

Power conferred on:    Secretary of State

Power exercisable by:    Order

Parliamentary procedure:    None

155.  This is a commencement power and as such is not subject to parliamentary procedure.

Department for Business, Enterprise and Regulatory Reform

May 2008

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1   http://www.berr.gov.uk/files/file25079.pdf Back

2   http://www.berr.gov.uk/files/file39387.pdf Back

3   To note that in this context 'medium business' refers to a business within meter profile class 5, 6, 7 or 8 and/or gas consumption of less than 2,196,000 kWh and more than 732,000 kWh. Back