New Energy Legislation

On 21 January 2016, the Department of Energy and Climate Change (DECC) published draft legislative provisions affecting the following areas: smart metering; switching suppliers and half-hourly settlement; and CATOs. Impact assessments in respect of the latter two areas were also published.

Smart Meters

Extension of Time: The Secretary of State currently has a number of powers in relation to smart metering, including powers to amend licences and industry codes, which are due to expire in 2018. The draft legislation provides for these powers to continue until 2023.

Special Administration Regime: In order to ensure continuity of the smart meter communication service, the draft legislation modifies normal insolvency arrangements for the Data and Communications Company, as a smart meter communication licensee. Similar special administration regimes are already in place for energy network companies and suppliers.

Switching and HH Settlement Reform

Powers to modify industry codes: The Gas and Electricity Markets Authority (the Authority) is given powers to modify industry codes and agreements to provide for:

• a new single central registration system for all electricity and gas supply points and electricity export points; and
• electricity consumption to be settled on a half-hourly basis rather than on the basis of average consumer profiles.

This follows the Authority’s decision a year ago to move to reliable next-day switching using a central registration system and the Authority’s electricity settlement project. It also reflects the importance attached to these areas by the Competition and Markets Authority (the CMA) to date in its energy market investigation. The powers will last for a period of five years from the day on which the relevant sections are brought into force.

These powers are intended to be a short term solution for the perceived regulatory failure in relation to code modifications, which the Authority has already sought views on and the CMA has provisionally identified as requiring reform.

Reduced period for licence modifications to become effective: Provision is also made to allow licence modifications relating to the new single central registration system and half-hourly settlement to become effective without waiting for the full 56 day standstill period following a decision to modify a licence being made.

No appeal mechanism: It is notable that DECC has not made provision for an appeal to be made to the CMA in respect of a decision by the Authority to proceed with a code modification. This would ultimately leave aggrieved parties with the remedy of judicial review only. Currently, unless the Authority has industry backing for a modification, its decision to proceed with a code modification is subject to an appeal to the CMA.

CATOs

Powers to introduce onshore competition: The draft legislation amends the Electricity Act and provides powers for the Authority to award onshore transmission and/or distribution licences on a competitive basis if the assets to which they relate meet criteria to be specified by the Secretary of State in secondary legislation. This follows the Authority’s consultation on extending competition in electricity transmission, which was published on 19 October 2015 and to which industry was required to respond by 11 January 2016. It is notable that the legislation covers distribution as well as transmission, but it is not clear at this stage whether this reflects a policy change or is simply the result of an attempt to future-proof the legislation by drafting it widely.

Next Steps

The Energy and Climate Change Committee is conducting pre-legislative scrutiny of the measures and has invited interested parties to comment by 11 February 2016. Details of their questions and how to respond can be found by clicking here.

Further Information

To view the draft legislation, please click here.

For further information, please contact:

Robert Lane

Munir Hassan

Juliet Stradling