Energy Sector: Is this REUL-ly happening? Update on the Retained EU Law (Revocation and Reform) Act 2023

We reported in 2022 on the introduction to Parliament of the Retained EU Law (Revocation and Reform) Bill (the “Bill”). The legislation underwent some significant amendments before the ultimate enactment of the Retained EU Law (Revocation and Reform) Act (the “Act”) in June 2023. In this Law-Now, with the end-of-2023 sunsetting deadline just having passed (and even as the President of the European Commission publicly invites the younger generation to “fix” the UK’s departure from the EU), we briefly look at what has and has not changed since our previous article, and what this may mean for the energy sector.

Overview

In broad terms, Retained EU Law (“REUL”) comprises EU-derived laws existing prior to the end of 2020 that were retained in UK law. The fate of each item of REUL in light of the Act will fall into one of three categories:

• Repeal – the REUL ceases to have effect, either automatically at the end of 2023 by way of the “sunsetting” provisions under the Act or actively by the exercise of Government revocation powers provided under the Act;
• Restatement or replacement – the Government actively retains and amends the REUL, creating equivalent new domestic law in its place; or
• Assimilation – in the absence of either of repeal, restatement and/or replacement, the REUL will become “assimilated law”, with respect to the interpretation of which the Act will make some important changes.

Sunsetting

The most significant turning point in the evolution of the Bill was the Government’s announcement in May of a fundamental watering down of section 1 regarding the sunsetting of pre-Brexit direct EU legislation and EU-derived UK legislation (as retained into UK law post-Brexit). The Bill originally provided for REUL being repealed at the end of 2023 by default unless Government intervened to preserve it. However, the Act now provides an exhaustive list of around six hundred specific items of REUL that have, as of the end of 2023, been sunsetted. The Government published a separate schedule of these items with brief reasons for their inclusion, in general relating to the redundancy or obsolescence of the relevant legislation. The shift came in response to fears that the full scale of the REUL that would fall off the statute books was not known, and the resources available to Government within the time available before the deadline were not sufficient to ensure that legislation of continuing importance was maintained in force.

We noted in our previous article that a number of key pieces of energy legislation were in principle among the REUL due (unless actively preserved) to be repealed under the Bill in its original form, including the GB versions of REMIT and the 2019 Electricity Regulation and associated codes, the NIS Regulations, the REGO Regulations and legislation with respect to the offshore storage of carbon dioxide (together “Direct and Derived Energy Legislation”). Following the Government’s shift in approach, none of these has been included in the exhaustive list of sunsetted REUL appended to the Act, so the theoretical cliff-edge for these established energy sector regimes has (at least in the short term) been averted.

Some minor energy sector legislation does, however, appear within the list of specific items appended to the Act that remain within the scope of the sunsetting provisions. For example:

• The Promotion of the Use of Energy from Renewable Sources Regulations 2011, which implemented the 2009 EU Renewable Energy Directive. The Government deemed this legislation to be “largely inoperable” given the targets and standards it set out had expired or been superseded.
• The Guarantees of Origin of Electricity Produced from High-efficiency Cogeneration Regulations 2007, which provided an equivalent to REGO certificates for certain CHP generators (“CHPGOs”). The Government noted that no applications for CHPGOs had been received since the regime was introduced in 2007, and CHP is adequately stimulated via the CHP Quality Assurance scheme, such that the CHPGO legislation was redundant.

While section 1 of the Act was fundamentally reimagined, section 2, regarding the sunsetting of certain residual categories of REUL with direct effect (including EU treaty provisions and directives), remains in the form originally introduced to Parliament. So, for example, with respect to matters arising after the end of 2023, it is no longer possible to rely directly on the original text of an EU directive (such as the 2019 recast Electricity Directive enacted as part of the EU’s Clean Energy Package) rather than the UK legislation implementing the directive in the UK. However, to the extent that UK legislation was enacted to implement an EU directive, and there is ambiguity in the text of the UK legislation that renders it necessary to examine the UK legislators’ intent, the courts may still wish to refer to the EU directive in determining that intent. In light of section 2 of the Act, we might expect divergences in approach between the EU and GB in the context of the certification of ownership unbundling for operators of transmission systems and interconnectors, for example, to continue to develop.

Powers to restate, revoke and replace

By contrast with the major changes made in the sunsetting context, the sweeping powers set out in the latter half of the Bill, including ministerial entitlements to revoke REUL (and assimilated law – see below) and Henry VIII powers to make “such alternative provision as the relevant national authority considers appropriate”, have made it into the Act largely without amendment. While the sunsetting regime grabbed the headlines, these extraordinarily broad executive powers seemed to fly relatively under the political radar. Read at their broadest, these provisions appear to give the Government significant freedom to legislate with relatively little scrutiny across a wide range of subject areas solely on the basis that there has been some REUL in the context of those areas. The revocation and replacement powers have been in effect since the Act received royal assent in June.

As noted in our previous article, unlike the sunsetting provisions, the revocation and replacement powers apply not only to REUL set out in secondary legislation but also to REUL inserted into primary legislation by secondary legislation. In addition to all of the Direct and Derived Energy Legislation listed above, provisions including the ownership unbundling regime under sections 10A-10O of the Electricity Act 1989 and 8C-8Q of the Gas Act 1986 are therefore also within the scope of the powers. So, while EU-derived energy sector regimes may be safe from automatic repeal for the time being, the industry will no doubt be vigilant for any signals from Government with respect to their future.

There may of course be political limits on the exercise of the new renovation and replacement powers. “Future relationship” arrangements between the UK and the EU, such as the Trade and Co-operation Agreement (and in particular the energy principles set out thereunder, at least up to June 2026 or such later date as they may be extended to apply until) are likely to provide a basis for a degree of ongoing consistency. Further, from a domestic accountability perspective, the House of Lords inserted a new section 17 into the Act requiring the Government to report to Parliament on a biannual basis on REUL reforms to date and, crucially, plans for further reforms in the future. The first such report is due within the 30 days following 23 December 2023.

The Energy Act 2023, the latest major primary legislation for the sector, has not interfered with most of the above-mentioned EU-derived energy sector regimes (perhaps given the Government no longer needs to pursue primary legislation for this purpose following the Act). It has, however, built on existing offshore carbon storage legislation in the context of the new economic licensing regime for the transportation and storage of carbon dioxide, a move which appears to indicate that the existing offshore carbon storage licensing regime administered by the NSTA (as amended by and under the Energy Act 2023) is intended to remain broadly intact.

Assimilated law and its interpretation

REUL that has survived the sunsetting provision and the Government’s revocation powers beyond the end of 2023, to the extent is has not yet been fully restated or replaced by the Government, has now been rebranded as “assimilated law”. While minor clarifications were made to section 5 of the Act with respect to the nomenclature for specific individual types of assimilated law, the overall approach has not materially changed from the original Bill.

Pending enactment of the necessary secondary commencement legislation to bring sections 3, 4 and 6 of the Act into effect:

• the doctrine of supremacy of EU law and so-called “general principles” of EU law will no longer be relevant to the interpretation of assimilated law; and
• the picture with respect to pre-Brexit EU case law relating to assimilated law and UK case law relating to EU law remains complex. Since 2020, certain UK higher courts including the Supreme Court and Court of Appeal have been entitled to depart from such EU case law where it appears right to do so. As noted in our previous article, the Act changes the test in a manner intended to encourage such departures further, broadens the circumstances in which higher courts can depart from their own case law relating to EU law and introduces a mechanism by which lower courts can refer a question on EU-related case law to higher courts with the power to depart from it. However, the various degrees of influence that EU law may have had on UK legislation and case law over decades and the varying extent to which aspects such as general principles of EU law and sunsetted legislation may have influenced previous judgments will make these provisions complex to navigate.

While EU law supremacy and general principles and EU-related case law will not generally be relevant to REUL that has been restated or replaced, “equivalent effects” can be expressly preserved in relation to specific new provisions. The Government introduced clarificatory additional drafting into what is now section 13 of the Act making clear that this ability to provide for equivalent effects would not extend as far as an ability for the Government to resurrect EU supremacy or general principles of EU law in general terms.

Provisions of EU-derived energy law, including all of the Direct and Derived Energy Legislation listed above, are classified as assimilated law from 1 January 2024 (unless and until they are restated or replaced), so will be subject to the abolition of EU law supremacy and general principles and the further reforms on case law referred to above when these reforms come into effect. In this regard:

• With respect to supremacy, to the extent that anything in existing or future domestic legislation is inconsistent with any aspect of these regimes or their underlying EU-derived frameworks, the regimes will no longer be protected by the doctrine of supremacy and they will be “subject to” domestic law to the extent they cannot be interpreted consistently with it. So, for example, if the Government’s Review of Electricity Market Arrangements were ultimately to produce legislative reforms that are not wholly consistent with the assimilated versions of the 2019 Electricity Regulation or REMIT, the new GB regime would take precedence.
• With respect to case law, the courts may now have greater freedom to disregard pre-Brexit judgments regarding EU law. For example, a higher court considering Government regulation of prices for the supply of electricity or gas may choose to disregard CJEU judgments noting that such interventions must be proportionate and limited in duration (such as Case C-121/15 ANODE v Premier Ministre (ECLI:EU:C:2016:637) and Case C-473/17 Repsol Butano SA v Administración del Estado (ECLI:EU:C:2019:308)) on the basis that these can now be considered non-binding foreign judgments, and circumstances have changed in that the EU law general principle of proportionality will (subject to commencement of section 4 of the Act) have been abolished in the UK; though the court may also need to consider the extent to which domestic law implementing the Trade and Co-operation Agreement may require such principles to continue to be respected.

Conclusion

While the Act may not immediately bring about the wholesale bonfire of REUL that was originally feared, EU-derived energy regimes remain very much within the potential sphere of influence of the Act. Businesses across the energy sector will be scanning the horizon for any plans to exercise powers to restate or revoke and replace existing sector regimes, which the Government may be able to progress quietly and with limited parliamentary scrutiny. For as long as such regimes remain in place unamended, the treatment of “assimilated” law under the Act could still lead to significant changes in the way they are interpreted and applied when the Government brings sections 3, 4 and 6 of the Act into effect.