Energy Sector: Retained EU law reform – bonfire of laws or death by judicial review

The UK retained a substantial body of laws and regulations based on the status quo at the end of the “Transition Period” following the UK’s departure from the European Union. At that time, the Government stated that the intention of this retained EU law regime was to maintain a “functioning statute book”, but that UK and EU law would gradually diverge over time, and accordingly that Parliament and the devolved legislatures would “make any future changes” where necessary. To accelerate this process, the Government has now introduced the Retained EU Law (Revocation and Reform) Bill (the “Bill”) to Parliament. Among other things, the proposals in the Bill include the creation of an effective “deadline” for the longer-term assimilation process and various powers for the Government to amend, repeal and replace EU-derived provisions.

Whilst the Government has indicated that the intention behind the Bill is not to give rise to a “bonfire of rules”, the Bill nevertheless has wide-ranging potential implications for businesses across all sectors. In the energy context, the effects of the Bill in its current form would include:

• revoking a number of well-established regimes (such as REMIT, the NIS Regulations and the REGO regime) at the end of 2023 unless the Government intervenes to preserve them; and
• bringing a broader range of legislation within executive powers to amend or replace, such as the provisions with respect to ownership unbundling in the Electricity Act 1989 and the Gas Act 1986 in addition to those mentioned above.

Background

Retained EU law (“REUL”) is a category of domestic law that was created under the European Union (Withdrawal) Act 2018 (as amended, “EUWA18”), preserving certain EU-derived legislation in our domestic legal framework. These laws are broadly divided into three categories:

1. EU-derived domestic legislation (such as UK legislation that implements EU directives);
2. Direct EU legislation (such as EU Regulations); and
3. Directly effective EU law rights and obligations (such as certain treaty provisions, although we note that some have already been disapplied).

EUWA18 also provides for various other EU law phenomena, such as CJEU case law, the principle of supremacy of EU law and the general principles of EU law (such as proportionality), to continue to be relevant to the interpretation of REUL.

If the Bill were to be enacted in its current form, it would radically overhaul the existing REUL regime.

Sunset provisions – A key impact of the Bill will be to revoke every item of REUL falling within any of the three categories referred to above on 31 December 2023 (the “Sunset Date”) unless the Government takes active steps to preserve it, subject to certain exclusions. This in effect provides a “deadline” by which each Government department must decide the extent to which the REUL within its purview should be assimilated into domestic law.

There are important exclusions from the scope of the sunset provisions, including EU-derived domestic legislation that is primary legislation and Northern Ireland legislation.

Where an instrument is revoked by the sunset provisions, the Bill also expressly shields any amendments made by that instrument to other legislation from automatic revocation. Where the Government needs additional time to assess any REUL within the first two categories referred to above, the Government will be able to extend the Sunset Date up to 23 June 2026 (symbolically being the ten-year anniversary of the UK EU membership referendum). Such an extension will not be available for the third category of REUL, directly effective EU law rights and obligations, which, if not actively preserved before the Sunset Date, will be repealed at the end of 2023.

“Assimilated law” – EU law principles and case law – The Bill proposes to restyle any REUL that does survive the Sunset Date as “assimilated law”, which will be treated differently from REUL in a number of key respects. For example, the Bill proposes to abolish the principle of supremacy of EU law and the general principles of EU Law from the Sunset Date. The Bill does not provide for an option to extend this date in relation to the general principles. This would mean that these interpretive features of EU law would no longer apply to any REUL that is assimilated into the domestic statute book. Unless similar interpretive principles can be found elsewhere in UK law, there is a risk that UK courts will be left with no option but to interpret REUL differently after its “assimilation” to how it had been interpreted previously. This may result in unintended changes in the effect of REUL when it becomes assimilated law. One route by which the Bill may mitigate this risk is by allowing for the interpretive effects of the general principles to be reproduced when restating REUL in a way which makes clear that the effect of the law is not intended to change.

With respect to case law, the Bill provides for an expansion of the discretion of the higher courts to depart from retained EU case law when applying assimilated law. It also introduces a procedure for lower courts to refer such matters to higher courts for guidance where they arise (in a manner ironically similar to the CJEU preliminary reference procedure applicable under EU law).

Executive powers to amend REUL – The most far-reaching aspect of the Bill may be the powers it seeks to introduce for Government ministers to revoke, amend and/or replace REUL. The scope of the REUL that can be revoked and amended is notably broader than the REUL falling within the sunset provisions. In particular, the Bill would empower ministers to revoke or amend REUL enshrined in not only secondary legislation but also any provisions of primary legislation that were inserted by secondary legislation. So, while certain REUL may fall outside the scope of the sunset provisions, e.g. by virtue of having been inserted into primary legislation, it may nevertheless be subject to revocation, amendment and/or replacement by the Government under the provisions envisaged by the Bill.

The ability to amend REUL will be achieved through an amendment to the existing Legislative and Regulatory Reform Act 2006 (the “Regulatory Reform Act”). The Regulatory Reform Act places limitations on the powers (e.g. in that they cannot be used to “increase the regulatory burden” and any replacement provisions must be considered to “achieve the same or similar objective”). However, if the Bill were to be enacted in its current form, the Government’s ability to remove or change domestic law deriving from EU law with relatively limited scrutiny will be significantly enhanced. In turn, there will be a significant risk that the exercise of such powers would raise the prospect of judicial review.

Implications for the energy sector

In September 2021, the government commenced a review of the substance and status of REUL and created a “dashboard”, cataloguing over 2,400 items to date, many of which will to some extent fall within the scope of the Bill. This exercise of collating legislation is, however, ongoing and the latest estimate is that there will be at least 1,400 further items to be added. The legislation affected covers a broad range of regulatory areas including environmental standards and employment law. A substantial proportion of this legislation is of particular relevance to the energy sector.

The table below sets out a brief summary of some of the key energy sector legislation identified as constituting REUL, together with an indication of the extent to which each item may be affected by the sunset provisions and/or the revocation and amendment provisions in the Bill if it is enacted in its current form.

Even to the extent that this legislation is permanently assimilated, the manner in which “assimilated law” is to be treated under the Bill may have a significant impact on its application.

Comment and next steps

The Bill had its first reading in the House of Commons on 22 September 2022 and is now in the Committee stage. The first committee sitting took place on 8 November 2022, with further sittings scheduled in November 2022. Given the constitutional significance of the Bill, and in particular the extent to which it seeks to delegate legislative powers to the executive, it is likely that the Bill will undergo extensive parliamentary scrutiny – a process which could take some time given current administrative priorities. Further, the timescales set out in the Bill have been viewed as ambitious, with recent updates on the scope of the exercise making this even more acute.

The passage of the Bill will not go unchallenged – for example, the Scottish Constitution Secretary has expressed concerns in a letter to the UK Government regarding the impact and administration of the Bill, particularly from the perspective of the devolved nations.

Article co-authored by Natasha Kenber, Trainee Solicitor at CMS.