Core fuel sector resilience in the UK: the role of Part 12 of the Energy Act 2023

On 11 January 2024, a new set of requirements came into force, focussed on the downstream transport fuel industry, and designed to ensure core fuel sector resilience in the UK, in particular that (i) economic activity in the UK is not adversely affected by disruptions to core fuel sector activities; and (ii) the risk of emergencies affecting fuel supplies is reduced. It is important that those companies falling within the scope of the new requirements carefully ensure compliance, since failure to do so may attract criminal sanctions.

The new requirements are contained in Part 12 (sections 267 to 289) of the Energy Act 2023 (the “2023 Act”). The 2023 Act received Royal Assent on 26 October 2023, and represents a significant step in the UK’s efforts to achieve net zero emissions by 2050. Several provisions of the 2023 Act came into force on 26 October 2023, while other provisions (such as Part 12) have been brought into force at a later date (following further commencement orders). 

Who does Part 12 of the 2023 Act apply to?

Part 12 of the 2023 Act applies only to “core fuel sector participants”. This is defined in the 2023 Act as either “a person carrying on core fuel sector activities” or “a Part 12 facility owner.”

“Core fuel sector activities” is defined as being one of a specified list of activities, so far as the activity (i) is carried on in the United Kingdom in the course of a business; and (ii) contributes directly or indirectly to the supply of core fuels to consumers in the United Kingdom or persons carrying on business in the United Kingdom. The types of activities include:

• Storing oil or renewable transport fuel.
• Handling oil or renewable transport fuel.
• The carriage of oil or renewable transport fuel by sea or inland water.
• Transporting oil or renewable transport fuel by road or rail.
• Conveying oil or renewable transport fuel by pipes.
• Processing or producing oil or renewable transport fuel (whether by refining, blending or otherwise).

A “Part 12 facility owner” is defined in the 2023 Act as being the owner of a pipeline, terminal or other facility or infrastructure which is used, or any part of it is used, for the purpose of core fuel sector activities.

What obligations does Part 12 of the 2023 Act place on “core fuel sector participants”?

Part 12 of the 2023 Act places a number of obligations on core fuel sector participants, subject to meeting certain threshold criteria. In each case, a failure to comply is made a criminal offence. 

1. Obligation to follow directions

This obligation applies to core fuel sector participants in the course of a transport fuel business which has capacity in excess of 50,000 tonnes; and Part 12 facility owners if the owned facility has capacity in excess of 20,000 tonnes.^[1]

The Secretary of State may make a direction to a core fuel sector participant for the purpose of maintaining or improving core fuel sector resilience. Where there is disruption to (or the Secretary of State considers there is a significant risk of the disruption to), or a failure of, continuity of the supply of core fuels, the Secretary of State may direct a person to do anything in relation to the person’s relevant activities or assets^[2] which the Secretary of State considers necessary or expedient for the purpose of restoring continuity of supply of core fuels or counteracting the disruption or failure (and/or reducing the identified risk).

In addition, the Secretary of State may only give a direction if there is not a sufficient number of cases to justify making a regulation or if, by reason of urgency, it is not practical to make a regulation (see more on regulations below).

Prior to giving a direction, the Secretary of State must provide written notice along with a draft of the proposed direction. Anyone subject to the notice has the opportunity to provide any representations to assist the Secretary of State’s decision as to whether to issue the direction or not.

There is currently little information as to the scope that may be intended for such directions, however the 2023 Act provides two express examples – requiring the recipient of a direction to acquire and install specific equipment or to carry out specific works, at the recipient’s own expense.

2. Obligation to follow regulations

This obligation applies to persons of a class or description specified in regulations which may in future be made in terms of Part 12. This may not include persons other than those carrying on core fuel sector activities in the course of a transport fuel business which has capacity in excess of 1,000 tonnes; or Part 12 facility owners if the owned facility has capacity in excess of 1,000 tonnes.

The Secretary of State may only make a regulation if it considers a class or description of persons have failed to make sufficient progress with the steps that the Secretary of State considers necessary for maintaining or improving core fuel resilience.

Before making a regulation, the Secretary of State must consult with any appropriate public bodies. Although not stated expressly, therefore, it appears to be envisaged that there will be an opportunity for the industry to make voluntary progress to address an issue the Secretary of State may raise before the matter is dealt with by way of regulations.

3. Obligation to provide information requested by the Secretary of State

This obligation applies to core fuel sector participants in the course of a transport fuel business which has capacity in excess of 1,000 tonnes; and Part 12 facility owners if the owned facility has capacity in excess of 1,000 tonnes. There is also a separate power by which the Secretary of State may by notice in writing also require a wetstock manager^[3] to provide the Secretary of State with information relating to the relevant activities or assets of a person carrying out core fuel sector activities to whom the relevant wetstock manager provides stock management services.

The Secretary of State’s power is framed in very broad terms and it seems that any information relating to a person’s relevant activities or assets may be required. There are, however, a few restrictions – for example, the information may only be requested for the purpose of maintaining or improving core fuel sector resilience.

The Secretary of State, prior to making a request to provide information, must provide a written notice setting out the information requested and the time limit for providing that information. At this stage, the person subject to the notice has the opportunity to provide any representations which must be considered before the notice is finalised and issued.

Any information provided to the Secretary of State in terms of this power may be disclosed:

• to any government department or devolved authority for the purpose of (i) maintaining or improving core fuel sector resilience; or (ii) restoring, or counteracting a disruption to, or failure of, continuity of supply of core fuels; or
• if the disclosure is necessary for the purpose of criminal proceedings.

In addition, HMRC may disclose information to the Secretary of State for the purpose of facilitating the Secretary of State’s functions relating to core fuel sector resilience. There are separate restrictions preventing the onward disclosure by the Secretary of State of that information.

4. Obligation to report incidents

This obligation applies to core fuel sector participants in the course of a transport fuel business which has capacity in excess of 500,000 tonnes; and Part 12 facility owners if the owned facility has capacity in excess of 500,000 tonnes.

If a person knows, or has reason to suspect, that a notifiable incident is occurring or has occurred, it must notify the Secretary of State as soon as possible. The 2023 Act provides that a ‘notifiable incident’ is one which:

• Affects a person’s relevant activities or assets; and
• Does so in such a way as to create a significant risk of, or cause, disruption to or failure of the continuity of supply of core fuels.

It seems that the intention is that only serious and material incidents require to be reported. If there are mitigations in place which remove or sufficiently mitigate the risk of disruption to or failure of the continuity of supply of core fuels, there may be no duty to report the incident.

The Government has published guidance in relation to this obligation.^[4] This sets out in some detail the reporting process and provides examples of incidents that must be reported.

Enforcement and sanctions

Compliance with the obligations set out in Part 12 is underpinned by criminal sanctions in the event of non-compliance. Under the 2023 Act, the Secretary of State is required to issue guidance as to the sanctions for which a person who commits an offence may be liable and the action which the Secretary of State may take to enforce offences. So far as we are aware, that guidance has not yet been produced.

Notwithstanding this, Part 12 provides that non-compliance with any of the obligations listed above (without reasonable excuse) is an offence and can result in imprisonment, a fine, or both. In addition, there is potential for individual as well as corporate liability - when an offence by a body corporate is proved to have been committed with the consent or connivance of an officer of the body corporate or to be attributable to neglect on the part of an officer of the body corporate, that officer (as well as the body corporate) commits the offence.

Comment

Given the possible imposition of criminal sanctions in the event of non-compliance, it is important to consider whether these new obligations under Part 12 of the Energy Act apply to you, and if so, to consider in detail the specific requirements set out in Part 12 so as to ensure timely compliance.

Article prepared with assistance from Soha Ahmed, trainee solicitor in our Energy Disputes team
 

^[1] A business “has capacity in excess of” a specified number of tonnes if in the most recently ended calendar year, core fuel sector activities were carried on in that business in relation to more than that number of tonnes of core fuel. A facility or infrastructure “has capacity in excess of” a specified number of tonnes if in the most recently ended calendar year, it was used for the purposes of core fuel sector activities in relation to more tan that number of tonnes of core fuels.

^[2] “Relevant activities or assets” is defined in the 2023 Act as a person’s core fuel sector activities (as defined above).

^[3] “Wetstock manager” is defined in the 2023 Act as someone who provides to persons who make retail supplies of core fuels in the UK stock management services in respect of such supplies.

^[4] Duty to report incidents under Part 12 of the Energy Act 2023 - GOV.UK (www.gov.uk)