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ENERGY BILL

EXPLANATORY AND FINANCIAL MEMORANDUM

INTRODUCTION

  1. This Explanatory and Financial Memorandum relates to the Energy Bill. It has been prepared by the Department of Enterprise, Trade and Investment in order to assist the reader of the Bill and has not been endorsed by the Assembly. All references throughout this Explanatory and Financial Memorandum to 'the Department' should be read as the Department of Enterprise, Trade and Investment.

  2. The Memorandum needs to be read in conjunction with the Bill. It does not and is not meant to be a comprehensive description of the Bill. So where a clause, Schedule or part of a clause or Schedule does not seem to require any explanation or comment, none is given.
    3. BACKGROUND AND POLICY OBJECTIVES

  3. The Department's current energy objective is to achieve a secure, diverse, competitive and efficient energy market in Northern Ireland.

  4. In March 2001, the Minister of Enterprise, Trade and Investment outlined to the Assembly an agenda of actions designed to lead to a new energy strategy. The preparation of a new energy strategy, in an all-island and European context, is a commitment under the Northern Ireland Executive's Programme for Government.

  5. The Department sought to begin the process of developing the strategy by publishing in March 2002 a consultation paper entitled "Towards a New Energy Market Strategy for Northern Ireland". The consultation process to date in relation both to the development of the new strategy and to the Bill is set out in more detail in paragraphs 10 to 14 below.

  6. The March 2002 consultation paper proposed that the following measurable outcomes of the energy strategy should include:

  1. The paper also indicated that some aspects of the strategy would require underpinning through legislation. The Department indicated its intention to prepare an initial Energy Bill containing priority issues to be enacted within the lifetime of the current Assembly. The paper identified priority issues requiring legislation as being changes to the regulatory and consumer representation arrangements and provision to facilitate the postalisation of gas conveyance charges. It also sought views on other priority issues for inclusion in this initial Bill. The Energy Bill, which has been developed as a result of the consultation process outlined below, is designed to set the framework to take forward some of the objectives of the proposed strategy. The Department anticipates that further legislation may be required in due course to progress other aspects of the strategy once it is finalised.
    2. KEY FEATURES

  2. The proposed Bill addresses priority energy policy issues some of which are also necessary to the achievement of commitments made by the Northern Ireland Executive itself, in relation to extension of the gas industry or to EU energy objectives to create a single energy market. It is also designed to set the framework for implementing the proposed new energy strategy for Northern Ireland. It will do so by:

  1. Some of the provisions of the Bill are based on similar provisions of the Utilities Act 2000 (GB) which reformed the electricity and gas sectors in Great Britain.
    2. CONSULTATION

  2. On 6 March 2002, the Department published a consultation paper entitled "Towards a New Energy Market Strategy for Northern Ireland". The purpose of that paper was to seek a wide range of views on the direction of a new energy market strategy for Northern Ireland. Work on the strategy is ongoing and the Department hopes to finalise a new energy strategy later this year. The consultation paper sought views on priority energy issues requiring legislation, to be included in a Northern Ireland Energy Bill which would be taken forward within the lifetime of the current Assembly. The Department identified the main priority areas as changes to consumer representation arrangements and the regulatory framework and facilitating the postalisation of gas prices, and sought consultees' views on others.

  3. In total, 60 responses including 7 nil returns were received in response to the paper:

  1. An earlier consultation paper entitled "Realising the Potential" (issued in October 2001) focused on the role of renewable energy in Northern Ireland. The responses indicated support for the implementation of a renewables obligation mechanism in Northern Ireland.

  2. In June 2002, the Department published a further paper, entitled "Consultation on Draft Energy Bill and Draft Equality and Regulatory Impact Assessments". The purpose of the paper was to seek views on a draft Energy Bill dealing, in particular, with the regulatory framework, consumer representation arrangements, postalisation of gas conveyance prices and new renewable energy arrangements. It also sought views on draft Equality and Regulatory Impact Assessments of the provisions of the draft Bill.

  3. There were 70 responses to this consultation exercise. An analysis of the key points raised in the responses and the Department's reaction to those points has been published on the DETI website. Final Equality and Regulatory Impact Assessments will also be published in due course.
    4. OPTIONS CONSIDERED

  4. Following the consultation papers on a new energy market strategy and renewable energy, the Department considered postponing the making of legislation until work on the strategy had been completed. However, it was considered desirable to press on with legislating for priority areas which had already been identified. These address commitments made by the Minister in regard to regulation and new consumer representation arrangements, and - where appropriate - keep energy legislation in Northern Ireland abreast of changes to the law made by the Utilities Act 2000 in Great Britain.
    5. OVERVIEW

  5. The Bill has 66 clauses and 5 Schedules. In addition to introducing a number of new provisions, the Bill makes substantial amendments to the Electricity (Northern Ireland) Order 1992 and the Gas (Northern Ireland) Order 1996. In this Explanatory and Financial Memorandum, these Orders are referred to as the Electricity Order and the Gas Order respectively.
COMMENTARY ON CLAUSES

Part I: New Regulatory Arrangements

Part I establishes the Northern Ireland Authority for Energy Regulation (the "Authority") and requires the General Consumer Council for Northern Ireland (the "Council") to form a new energy group. It also provides for the drawing up of a memorandum between the two bodies to ensure effective co-operation between them.

Clauses 1 - 6 and Schedule 1: The Northern Ireland Authority for Energy Regulation

Clause 1: The Northern Ireland Authority for Energy Regulation

This clause, and Schedule 1 establish the Authority. The Authority takes the place of the existing offices of the Director General of Gas for Northern Ireland and the Director General of Electricity Supply for Northern Ireland. These offices are, in consequence, abolished by the Bill. The Authority will be a body corporate and will comprise a chairman and at least two other members appointed by the Department. The Department will be required to consult the chairman in respect of the appointment of the other members. As a Non-Ministerial Government Department, the Authority will be a Crown body, its expenses will be defrayed out of money appropriated by Act of the Assembly and its staff will be civil servants.

Schedule 1 sets out detailed provisions for the appointment and terms and conditions of members of the Authority. It also sets out provisions relating to the staff and procedures of the Authority.

Clause 2: Transfer to Authority of functions, property, etc, of Directors

This clause provides for the transfer of the functions, property, rights and liabilities of the Director General of Gas for Northern Ireland and the Director General of Electricity Supply for Northern Ireland to the Authority. The clause also provides that, after the transfer, all references in any statutory provision or any other document to either of the Directors General shall be deemed to be a reference to the Authority. Provision is also made for the continuation by or in relation to the Authority of anything which was being done by or in relation to either of the Directors General before the transfer.

Clause 3: Forward Work Programme of the Authority

This clause requires the Authority to consult each year on a draft "forward work programme", and then to publish the final version. The forward work programme must contain a description of the non-routine projects which the Authority plans to undertake during the year and their objectives, together with an estimate of overall expenditure but could also include such additional information as the Authority wishes.

Clause 4: Annual and other reports of the Authority

This clauserequires the Authority to make an annual report to the Department which is to be laid before the Assembly and published by the Department. The clause identifies what should be included in the report. The Department may also require the Authority to make further reports on matters falling within the Authority's functions or on the progress of the projects described in its forward work programme. The Authority may prepare and publish other reports with respect to matters falling within the scope of its functions and must copy any such report to the Department. The Authority must send a copy of its annual and other reports to the Council.

Clause 5: Publication by Authority of advice and information about consumer matters

This clause enables the Authority to publish information and advice which it thinks would promote the interests of consumers.

Clauses 4 and 5 both require the Authority to have regard to the need to exclude from reports and other documents published under them - so far as is practicable - any matter relating to the affairs of a particular individual or body of persons where publication would or might have serious and prejudicial effects on that individual or body. There is also a requirement in clause 5 for prior consultation before publishing any advice or information relating to a particular individual or body.

Clause 6: Powers of Authority in relation to external matters

This clauseenables the Authority to co-operate and enter into arrangements with certain persons outside Northern Ireland either in another part of the UK or in another member State or any other State in which there is a gas pipe-line or electricity transmission system which is or may be connected directly or indirectly to a pipe-line or system in Northern Ireland. Such persons include those who exercise electricity or gas related functions corresponding to those of the Authority or the Department as well as those who conduct activities which include generating, supplying or participating in the transmission of electricity or supplying, storing or participating in the conveyance of gas.

Clauses 7and 8: The energy group of the General Consumer Council ('the Council')

The Council currently has responsibility, pursuant to the General Consumer Council (Northern Ireland) Order 1984, for matters connected with the interests of consumers in relation to the supply of energy except for electricity. (The Northern Ireland Consumer Committee for Electricity established by the Director General of Electricity Supply for Northern Ireland under the Electricity Order currently has responsibility for such matters in the electricity sector). Part III of the Bill (see below) confers on the Council responsibility for such matters in relation to the supply of energy including electricity. Clauses 7 and 8 accordingly provide for the Council to establish a group in connection with its energy-related functions.

Clause 7: The energy group of the General Consumer Council for Northern Ireland

This clause requires the Council to establish a new group in connection with the exercise of its energy-related functions. Both the group established by the Council in connection with the exercise of its existing (non-electricity) energy supply-related functions and the Northern Ireland Consumer Committee for Electricity are abolished.

Clause 8: Forward work programme of the Council

This clause requires the Council to consult each year on a draft "forward work programme", and then to publish the final version. The forward work programme must contain a description of the non-routine projects which the Council plans to undertake during the year in the exercise of its energy related functions and their objectives, together with an estimate of overall expenditure. The Council is not precluded from including additional information in its forward work programme.

Clause 9: General

Clause 9: Co-operation between Authority and Council

This clause requires the Authority and the Council to draw up a memorandum setting out the arrangements for securing co-operation between them as well as the consistent treatment of matters which affect both of them. The memorandum is to be sent to the Department which will lay the document before the Assembly. The detailed contents of the memorandum are for the parties to agree, and can be amended over time. However, examples of the ground that might be covered in the document include the arrangements for:

Part II: Objectives of Regulation of Electricity and Gas

Clauses 10 - 13: General duties in relation to electricity and gas

Part II sets out the principal objectives and general duties of the Department and the Authority in carrying out their functions in relation to electricity and gas and certain exceptions to them.

Clauses 10 (The principal objectives and general duties of the Department and the Authority in relation to electricity)and12 (The principal objectives and general duties of the Department and the Authority in relation to gas):

These clausesreplace the existing general duties of the Directors General which direct the manner in which they exercise their respective functions. The clauses give the Department and the Authority a principal objective, in carrying out its functions in each sector. The principal objective of the Department and the Authority in each sector, as well as their primary and secondary duties, are different, reflecting the differing stages of development of the two sectors in Northern Ireland. In the case of electricity, the principal objective is to protect the interests of consumers, wherever appropriate by promoting effective competition, and in the case of gas, it is to promote the development and maintenance of an efficient, economic and co-ordinated gas industry in Northern Ireland. The Department and the Authority will each have a primary duty to carry out its functions under the Bill and the relevant Order in the way best calculated to further the relevant principal objective.

In both sectors, in exercising the primary duty referred to above, the Department and the Authority must recognise that, to the extent that the energy legislation places obligations on energy companies (whether directly, through licence conditions or otherwise), such companies must be able to finance those obligations.

The Department and the Authority must also have regard, in exercising its primary duty in relation to electricity, to the need to:

In exercising the primary duty in relation to gas, the Department and the Authority must also have regard to the need to:

In performing their primary duties in each sector, the Department and the Authority are entitled to take into account the interests of any group or class of consumer. However, they must always have regard to the interests of consumers:

and, in the case of electricity, those who live in rural areas.

Identifying groups of consumers in this way, however, does not oblige the Department or the Authority to give these consumers preferential treatment.

In carrying out their duties in relation to the interests of consumers, the Department and the Authority are required to have regard to the interests of those who will be consumers in the future as well as existing consumers, since clause 64(1) defines 'consumers' as including both future and existing consumers.

In carrying out their statutory functions in relation to electricity, the Department and the Authority will be entitled to have regard to the interests of consumers of gas. Similarly, in carrying out their statutory functions in relation to gas, the Department and the Authority will be entitled to have regard to the interests of consumers of electricity. This contrasts with the current position under the Electricity Order and the Gas Order respectively.

To the extent that it is consistent with furthering their principal objectives, the Department and the Authority should carry out their functions in relation to electricity and gas in the manner best calculated:

while having regard to the effect on the environment of connected activities.

The Department and the Authority should also, to the extent that it is consistent with furthering their principal objective, carry out their functions in relation to electricity in the manner best calculated to:

in relation to gas, in the manner best calculated to facilitate competition between persons whose activities consist of, or include, storing, supplying or participating in the conveyance of gas.

Clauses 11 and 13: Exceptions from the general duties

These clauses provide for certain exceptions from the general duties of the Department and the Authority and between them have the following effects:

Part III: Functions of the General Consumer Council

Part III sets out the main functions of the Council in relation to gas and electricity supplied by authorised suppliers, which are: to keep itself informed of consumer matters and the views of consumers of gas and electricity in Northern Ireland; to provide advice and information to regulatory authorities, Government, energy companies and anyone else whose activities may affect the interests of consumers of gas and electricity; to seek to resolve specific complaints from consumers; to provide information and advice to consumers; and to publish information in the interests of consumers. The Part also gives the Council power to carry out investigations, and sets out the Council's rights of access to information from the Authority and energy companies and the reciprocal rights of access of the Authority to information from the Council.

Clause 14: Preliminary

This clause defines "the interests of consumers" as meaning the interests of consumers in relation to gas or electricity supplied by authorised suppliers and "consumer matter" as meaning any matter connected with the interests of consumers. Under clause 64(1), consumers is defined to include both existing consumers and future consumers. In considering the interests of consumers, both in relation to electricity and gas, the Council is required to have regard to the interests of four categories of disadvantaged consumers - the disabled or chronically sick, individuals of pensionable age, individuals with low incomes and individuals living in rural areas. The clause clarifies, however, that this does not mean that the Council cannot have regard to the interests of other types of consumer.

Clause 15: Acquisition and review of information

This clause requires the Council to obtain and keep under review information about consumer matters and the views of consumers on such matters. In addition, the clause requires the Authority to send to the Council a copy of any statutory notice which it is required to publish under the Bill, the Electricity Order or the Gas Order.

Clause 16: Provision of advice and information to public authorities and other persons

This clause gives the Council the power to make proposals and to give advice and information to regulatory authorities and other public bodies, Government, energy companies and to any other body (for example environmental groups, trade unions or industry lobby groups) whose activities may affect the interests of consumers. In exercising the power under this clause, the Council is subject to restrictions on disclosing information when this may have serious and prejudicial consequences for persons to whom it relates.

Clause 17: Provision of information to consumers

This clause gives the Council the power to provide information about consumer matters to gas and electricity consumers. This power applies solely to information which is already publicly available. Consumers often face practical obstacles in making informed decisions about offers from energy companies because the relevant information is located in a variety of places, often in differing forms, so that comparison is difficult. The intention is that the Council may bring this information together, and make it available (both on its own initiative, and on request) in forms which will be useful to consumers.

Clause 18: Publication of statistical information about complaints

This clause gives the Council power to publish sets of statistics on complaints made against licence holders (whether made to the licence holders, the Authority, or the Council) and the handling of those complaints. The Council will have discretion over the form and frequency of its publication of these statistics.

Clause 19: Power to publish advice and information about consumer matters

This clauseequips the Council with general powers to publish information where it thinks that this will be in the interests of consumers. This will enable it to publish material ranging from informal advice to individuals or groups to more formal reports available to anyone who is interested. The Council will be able to publish previously undisclosed information without the consent of the person or persons to whom it relates, provided publication will not cause serious and prejudicial effects to those to whom it relates. The Council is obliged to consult such persons and to consider any opinion offered by the Authority before deciding whether to publish the information.

Clause 20: Consumer complaints

This clause sets out the circumstances in which the Council should seek to help resolve consumer complaints against energy companies about regulated matters. The Council will have powers to obtain information relevant to a complaint from the company concerned in order to facilitate the process of seeking to resolve the complaint in a satisfactory manner (see note on clause 22 below). The Council does not have the power to impose a settlement between the parties in any complaint, but is required to advise the consumer if he has a right to refer a dispute to the Authority for resolution. The Council must inform the Authority of all complaints which appear to raise licence enforcement issues, unless it thinks the Authority already knows of the matter. The memorandum between the Council and the Authority (see note on clause 9 above) is expected to cover the inter-relationship between the Council and the Authority, including procedures for handling and liaising on complaints.

Clause 21: Power of Council to investigate other matters

This clause gives the Council the power to carry out investigations which go wider than the narrowly defined function of trying to resolve specific complaints. Investigations undertaken may range from simple fact-finding telephone calls to in-depth research on a particular matter leading to the publication of a formal report. Where the Council produces a report based on an investigation it will be able to send the report, if it chooses, to particular persons or bodies, such as the Authority, the Department, the Office of Fair Trading or any other public authority which may have functions relevant to the matter in question, without formally publishing it.

Clause 22: Provision of information to Council

This clause gives the Council rights to obtain information it needs to carry out its functions from the Authority and licensees, subject to certain conditions. The intention is that the Council should approach the Authority first, where it is seeking energy company information which the Authority might already have, so as to minimise the risk of duplicate or similar requests being made to licensees. The Authority and licence holders have to provide the information as soon as reasonably practicable and in the form the Council wants. The Council is required to have regard to the desirability of minimising the compliance burden on the Authority and the licence holders. If the Authority does not provide information sought by the Council, it must give the Council its reasons if the Council wants them. If the licensee does not provide information sought, the Council may pursue the matter under clause 25 (see below).

Clause 23: Publication of notice of reasons

This clause allows the Council to publish reasons that the Authority gives under clause 22 for its failure to provide information sought by the Council, provided that those to whom the information relates have consented, or it is already in the public domain, or it will not cause serious and prejudicial effects to those to whom it relates. The Council is obliged to consult such persons, and to consider the opinion of the Authority, before deciding whether to publish the reasons.

Clause 24: Provision of information by Council to Authority

This clause requires the Council to supply to the Authority any information the latter wants for the exercise of its functions. The Authority is entitled to reasons from the Council for a refusal to provide the information requested. The Authority may publish the reasons, subject to the need to exclude information whose publication might cause serious and prejudicial effects to persons to whom it relates.

Clause 25: Sections 22 to 24: supplementary

This clause gives the Department a power to make regulations setting out the categories of information which the Authority or a licensee may refuse to provide when the Council requests it, or which the Council may withhold from the Authority when the latter makes a request, together with the circumstances in which each may refuse. The clause also provides the means of resolving disputes between energy companies and the Council over information requests. The Council can refer a company's refusal to supply information for adjudication to a person appointed by regulations or, if there is no such appointment, to the Authority. The person appointed by the regulations (or the Authority) will determine whether the licence holder is entitled to withhold the information. The Authority or other adjudicator, if one is appointed, must give reasons for determinations to the parties involved, who may publish them as long as that is not likely to have serious and prejudicial effects for those to whom it relates.

Part IV: Licences

Part IV makes a number of changes to the current licensing regime in both the electricity and gas sectors. In order to provide transparency and efficiency in the operation of an electricity transmission system or a gas pipe-line, it may be desirable that the operation of the system or pipe-line be carried on by someone other than its owner. If so, it will be necessary for both the operator and the owner to be licensed to carry on different activities in relation to the transmission of electricity through the system or the conveyance of gas through the pipe-line. In order to permit this, Part IV of the Bill replaces the prohibition in the Electricity Order on transmitting electricity for specified purposes without a licence or exemption with a prohibition on participating in such transmission without a licence or exemption, and also replaces the prohibition in the Gas Order on conveying gas from one place to another without a licence or exemption with a prohibition on participating in such conveyance without a licence or exemption. It also provides for existing licences to transmit electricity or convey gas to be converted into licences authorising the licence holder to participate in the transmission of electricity or the conveyance of gas as appropriate and for the determination by the Department of new standard conditions for licences to participate in the conveyance of gas. In addition, Part IV contains provisions clarifying certain of the obligations which may be placed on electricity and gas companies through their licences, amending the provisions in the Electricity and Gas Orders relating to the modification of licences following a Competition Commission report and giving the Department certain powers to alter licensable activities.

Clauses 26 - 29: New kinds of licences

Clause 26: New kind of electricity transmission license

For the reasons set out in the previous paragraph, this clause replaces the prohibition in Article 8(1)(b) of the Electricity Order against transmitting electricity for specified purposes unless authorised to do so by a licence or exemption, with a new prohibition on participating in the transmission of electricity for the same purposes. It defines "participation in the transmission of electricity" as including both carrying out any activities of a system operator and making available for use any part of a transmission system. The clause, together with amendments made by Schedule 3, removes from the Electricity Order the concept of an "authorised area" in relation to licences to participate in the transmission of electricity and makes clear that a licence to participate in transmission may be general (i.e. authorise participation in transmission anywhere in Northern Ireland) or only authorise such participation in an area specified in the licence, that any term specifying such area may be modified by the Authority with the consent of the licence holder and that transmission licence conditions may restrict the activities authorised by the licence and/or impose a limit on the area in which the licence holder may engage in any particular activity so authorised. As a result, it will be possible after the enactment of the Bill for two companies to be licensed to carry out different activities connected with the transmission of electricity in relation to the same transmission system. The activities which may be carried out by each will be defined by its licence conditions.

Clause 27: Conversion of existing electricity transmission licences

This clause provides for any existing licence to transmit electricity under Article 10(1)(b) of the Electricity Order to have effect as a licence to participate in the transmission of electricity under that Article as amended by the Bill within the area which was formerly its "authorised area" and with such incidental, consequential and supplementary modifications as appear to the Department to be necessary or expedient after consultation with the Authority and the licence holder. Any necessary consequential amendments to other types of electricity licence will be effected under the powers of the Department under paragraph 12 of Schedule 4 to the Bill (see below). In consequence, following the enactment of the Bill, existing electricity transmission licence holders will be authorised by their converted licences to carry on the same activities in the same area as previously but the barriers to the future development of a separate transmission system operator which are inherent in the current legislation will have been removed.

Clause 28: New kind of gas conveyance licence

This clause effects similar amendments to the Gas Order to those made to the Electricity Order by clause 26, including replacing the prohibition in Article 6(1)(a) of the Gas Order against conveying gas without a licence or exemption with a new prohibition against participating in the conveyance of gas without a licence or exemption, andClause 29 (Conversion of existing gas conveyance licences) makes similar provision in relation to the conversion of existing licences to convey gas into licences to participate in the conveyance of gas to that made by clause 27 for the conversion of licences to transmit electricity. The effect of clauses 28 and 29 on the holders of existing licences to convey gas will be that they will be authorised to carry on the same activities in the same area as before. The Bill does not seek to remove any exclusivity conferred on any existing licence holder under Article 9 of the Gas Order to carry on particular gas conveyance activities in any area, although paragraph 23 of Schedule 3 to the Bill amends Article 9 so that any term of a licence granting such exclusivity may be modified, with the consent of the licence holder, either to extend or reduce such exclusivity. Again, therefore, existing gas conveyance licence holders will not be precluded, as a result of the enactment of the Bill, from carrying on the same activities which they are currently authorised to carry on but any future development of a separate transmission system operator for one or more pipe-lines will be facilitated by the changes made by the Bill.

Clause 30: New standard conditions for gas conveyance licences

This clause provides for the Department to determine new standard conditions for the purposes of licences to participate in the conveyance of gas. This will enable the Department to introduce new standard conditions which will be more appropriate to the new licensable activity introduced by clause 28 and to ensure that such conditions do not inhibit the future development, if desirable, of a separate system operator for one or more gas pipe-lines. For example, the Department may wish to provide, in accordance with Article 11 of the Gas Order as amended by clause 33 (see below), for conditions which relate to a particular activity to be capable of being switched on or off depending on whether the licence holder is authorised by his licence to carry out such activity. Clause 30 further provides for the Department to modify existing gas conveyance licences to include such new standard conditions and to make incidental, consequential and supplementary modifications to such licences.

Clauses 31 - 33: Conditions of Licences

Clauses 31 (Conditions of electricity licences)and 32 (Conditions of gas licences)

These clauses amend Article 11 of the Electricity Order and Article 10 of the Gas Order respectively. The purpose of these amendments is to clarify some of the conditions which may be included in electricity and gas licences. In particular, the clauses make it clear that licence conditions in certain such licences may provide for the raising of a levy through the increase of the charges of a licence holder and the payment of such levy to such other licence holders as may be determined by the licence conditions. This will permit, should it be desirable, certain costs associated with the future development of the electricity or gas industry in Northern Ireland to be spread among all customers of the relevant commodity.

Clause 33: Standard conditions of gas licences

This clause amends Article 11 of the Gas Order to provide for the standard conditions of gas licences to be capable of being brought into effect, suspended and reactivated ("switched on" or "switched off") in respect of any particular licence in particular circumstances specified in or determined under such standard conditions. This is intended to permit more flexible licensing arrangements in the gas sector. For example, while all gas suppliers will, by and large, have licences containing the same standard conditions, not all suppliers will necessarily serve all segments of the gas supply market. Some may decide to serve only the industrial and commercial segments. In such cases, it will not normally be necessary for a licence holder to be subject to the additional standard conditions which regulate supply to the domestic market segment. Under this provision, it will be possible for these conditions to be switched off in individual licences unless and until a direction is given bringing them into force. Similarly, in the event that two companies who are licensed to participate in the conveyance of gas carry out different functions in connection with the conveyance of gas through the same pipe-line (for example, if a separate system operator operates a pipe-line owned by someone else), the standard conditions of such licences which apply to system operation activities can, to the extent appropriate in the circumstances, be "switched on" in respect of the system operator and "switched off" in respect of the pipe-line owner. No similar provision is required in relation to the Electricity Order which contains no provision for standard conditions of licences.

Clauses 34 - 35: Modification of licences following Competition Commission report

These clauses amend the provisions of the Electricity Order and the Gas Order which relate to licence modification references to the Competition Commission by the relevant Director General (whose functions in that regard will be taken over by the Authority pursuant to clause 2 of the Bill), reports on such references by the Competition Commission and modifications of electricity and gas licences which may result. Under the existing provisions of the two Orders, the Authority will have power to refer to the Competition Commission the questions whether any specified matters related to any licensed activity operate or may be expected to operate against the public interest and, if so, whether the adverse effects can be remedied by the modification of the conditions of a particular licence or, in the case of gas licences, the standard conditions thereof. If the Competition Commission concludes that any such matter does operate or may be expected to operate against the public interest and that this can be remedied by the modification of licence conditions, the Authority will be empowered to make modifications of licences for such purpose.

The amendments made byClauses 34 (Modification of electricity licences followingCompetition Commission report) and35 (Modification of gas licences followingCompetition Commission report) will enable the Competition Commission to review the Authority's proposals to modify the conditions of electricity licences and gas licences (respectively) following the Commission's report on a licence modification reference made by the Authority. If it appears to the Commission that the proposed modifications are not requisite for the purpose of remedying or preventing the adverse effects specified in its report, the Commission is required to substitute its own licence modifications which are requisite for that purpose. These Clauses set out procedures for the notification by the Commission of its intention to substitute its own modifications and for consultation on the modifications themselves.

Clauses 36 - 37 and Schedule 2: Powers to alter licensable activities

Under the current gas and electricity regimes, neither the Department nor the Regulator has the ability to add to the list of activities prohibited without a licence or exemption, or to remove activities from regulatory control. The only means currently available to achieve this is primary legislation. The purpose ofClauses 36 (Power to alter activities requiring electricity licence)and 37 (Power to alter activities requiring gas licence) and Schedule 2 is to introduce more flexibility into the regulatory system to adapt to developments in the structure of the electricity and gas markets. Clause 36 covers the case of electricity and clause 37 covers gas, the provisions being largely identical in substance. Schedule 2 sets out the procedures required in order to effect an alteration to the licensable activities in either electricity or gas.

The effect of the clauses and Schedule will be to give the Department an order-making power to create new licensable activities for gas and electricity, with certain restrictions, or to remove the need for a licence or exemption. Any order would be subject to affirmative resolution procedure.

The key restrictions on the ability to create new licensable activities are:

In the case of a proposal to de-regulate an activity, either the Department or the Authority may initiate the process. All those likely to be affected, the Council and either the Department or the Authority (depending on which initiated the process) must be consulted before any decision to proceed with an order.

Part V: Enforcement

Part V relates to the enforcement by the Authority of electricity and gas licence conditions, certain statutory duties of electricity and gas licence holders and the standards of performance required of public electricity suppliers. These provisions replace the existing enforcement provisions in the Electricity Order and the Gas Order respectively, which are repealed. The main effects of the new provisions are to add to the statutory duties of licence holders which can be the subject of an enforcement order, to give the Authority discretion to make enforcement orders in certain situations where the Directors General would previously have been precluded from doing so, to accelerate the enforcement process by reducing the period for making representations in response to a notice of intention to make an order from 28 days to 21 days and to give the Authority an entirely new power to impose financial penalties on companies for past and current contraventions of their licence conditions or specified statutory duties or, in the case of public electricity suppliers, failure to achieve standards of performance prescribed under the Electricity Order. This power to impose financial penalties will replace the existing power under the Gas Order (but not the Electricity Order, which contains no similar power) for a final order to impose a monetary penalty on the licence holder concerned.

Clause 38: Introductory

This clause introduces Part V as relating to the enforcement of conditions contained in electricity and gas licences, of certain statutory requirements to which electricity and gas licence holders are subject and of the standards of performance expected of public electricity suppliers. As a result, the ambit of the enforcement powers of the Authority has been widened somewhat beyond those of the Directors General under the Electricity Order and the Gas Order so that they will now be exercisable additionally in relation to:

All of the enforcement steps available to the Authority as set out in Part V may be used in respect of the enforcement of licence conditions and the specified statutory requirements. In the case of failure by a public electricity supplier to achieve the prescribed standards of performance, the enforcement method available to the Authority is the imposition of a financial penalty under clauses 42 - 47 (see below).

Clauses 39 - 41: Orders for securing compliance

These clauses enable the Authority to make orders to secure compliance by licence holders with licence conditions and with specified statutory requirements. They set out the circumstances in, and procedures through, which the Authority may make, modify and revoke, and the basis upon, and procedures through, which a licence holder may challenge the validity of, such orders. They also set out their legal effect.

These clauses largely replicate the provisions relating to enforcement orders currently set out in the Electricity Order and the Gas Order. Those provisions are amended in two respects. Firstly, the period for making representations in response to a notice from the Authority of its intentions to make an enforcement order is reduced from 28 days to 21 days. This will not only accelerate the enforcement process but aligns the period for making representations in relation to enforcement orders with those which apply in relation to financial penalties. Secondly, at present, neither of the Directors General can make or confirm an enforcement order in respect of a contravention: where he is precluded by his statutory duties from doing so; where the company has agreed to take and is taking steps to remedy the contravention; where the contraventions are trivial; or where he is satisfied that the Competition Act 1998 provides the most appropriate way of proceeding. The Bill will change this prohibition on enforcement action into a discretion not to take action in cases where the contravention is trivial or where the company is taking steps to comply. The Authority will not be compelled to make an enforcement order in those circumstances but would be able to do so if it considered it appropriate.

Clause 39: Orders for securing compliance

This clause requires that, where a gas or electricity licence holder is contravening, or is likely to contravene, a licence condition or specified statutory requirement, the Authority shall make a final order or, where it considers it sufficient, a provisional order, requiring compliance. Such orders take effect at such time as the orders prescribe, may be revoked at any time and, in the case of unconfirmed provisional orders, are effective for no more than three months.

In determining whether it is sufficient to make a provisional order, the Authority shall have regard to:

The qualifications of the requirement for the Authority to make a final order or make or confirm a provisional order are as summarised in the note to clauses 39 - 41 above.

Clause 40: Procedural requirements

This clause sets out the procedural requirements governing the making (and, in the case of provisional orders, confirmation), modification or revocation of final and provisional orders. In particular, the Authority must publish a notice that it intends to make, confirm or revoke an order. It must consider any representations or objections made within the prescribed period to the making or confirmation of the order or revocation thereof.

Clause 41: Validity and effect of orders

This clause sets out the basis upon, and procedures by, which a licence holder may challenge the validity of an order, together with the legal effect of such an order. A licence holder to whom an order relates may challenge the validity of that order on the grounds that, in making or confirming the order, the Authority has exceeded its powers under clause 39 or failed to comply with the procedural requirements of clause 40. In order to do so, the licence holder must apply to the High Court on such grounds within 42 days of receipt of the order. If the High Court accepts the licence holder's challenge, it may quash all, or part of, that order.

This clause also provides that the obligation to comply with an order is a duty owed to any person who may be affected by a contravention, a breach of which causing loss or damage is actionable by the person to whom the duty is owed, and defensible only on the grounds that the licence holder took all reasonable steps and exercised all due diligence to avoid contravention. Compliance with an order will also be enforceable by civil proceedings by the Authority for an injunction or other appropriate relief.

Clauses 42 - 47: Financial penalties

These clauses introduce a power for the Authority to impose financial penalties on licence holders in both the electricity and gas sectors for past or current contraventions of their licence conditions, of other specified statutory requirements, and, in the case of public electricity suppliers, of standards of performance in individual cases prescribed under the Electricity Order. The power gives the Authority an additional mechanism for ensuring compliance with these conditions, requirements and standards of performance, and for deterring future contraventions. The power does not apply to contraventions committed before the power comes into effect. Receipts from financial penalties will be paid into the Northern Ireland Consolidated Fund.

The new power will operate alongside the Authority's powers (described above) to make orders requiring compliance where non-compliance is continuing or likely, but is not to be tied to them. Hence, a financial penalty may be imposed alongside a provisional or final order, or equally, where no enforcement order has been issued (this might be, for example, where a contravention has already taken place but did not come to the Authority's attention at the time). Where enforcement action has been initiated, penalties can only be imposed within specified periods after the making or confirmation of enforcement orders. Otherwise, penalties can only be imposed within a 12 month period after the contravention in question unless notice of intention to impose a penalty or of investigation of the contravention is served within that period.

The penalty will be limited to an amount which is reasonable in all the circumstances of the case, but which cannot in any case exceed 10% of the turnover of the licence holder. The relevant definition of turnover will be set out in an order to be made by the Department by affirmative resolution. The Authority cannot impose a penalty under these provisions where it is satisfied that the most appropriate way of proceeding is under powers in the Competition Act 1998. In addition, the Authority is to be required to consult on and publish its policies with regard to the imposition and amount of a penalty, and then to have regard to those policies. The company may apply to the Authority to pay a penalty in instalments.

There are procedural requirements to be followed for the imposition of a penalty. These include:

The company may also make an application to the court to challenge the imposition of a penalty on certain prescribed grounds. The grounds are that procedural requirements have not been followed and that this has substantially prejudiced the company's interests, or that the imposition of the penalty, including its amount, was not within the Authority's powers or that it was unreasonable for the Authority to require the penalty, or part of it, to be paid by the specified date or dates. The requirement to pay a penalty is suspended until the case is determined. The court may cancel or reduce the penalty or extend the timescale to pay. It may also require interest to be paid on the penalty, including on a reduced penalty.

Once the imposition of a penalty has ceased to be appealable as described in the previous paragraph, the penalty, if not paid by the due date, and any interest payable on it, may be recovered by the Authority as a civil debt due to it.

In the gas sector, the existing power to impose a monetary penalty as part of a final order imposed by the Regulator, which is superseded by the new power, is repealed.

Clause 48: Power to require information

This clause provides that, where a licence holder may be contravening, or may have contravened, a relevant condition or requirement or, in the case of a public electricity supplier, may be failing or may have failed to achieve the standards of performance in individual cases required of such a supplier under the Electricity Order, the Authority may serve a notice on any person requiring that person to provide such documents and information as it specifies. However, the Authority may not require the provision of documents or information which a person could not be compelled to produce in civil proceedings in the High Court. Failure to comply with a notice, or obstruction of the purpose thereof, is a criminal offence.

Part VI: Electricity from Renewable Sources

Clauses 49 - 55: Electricity from renewable sources

Part VI provides the Department with a flexible power to impose obligations on all licensed Northern Ireland electricity suppliers in relation to the generation of electricity from renewable sources (i.e. excluding nuclear generation and generation from fossil fuel or peat). An obligation will be based on the requirement that a proportion of total supply of electricity to consumers must be renewable electricity. However, to ensure that the cost to consumers is acceptable, the Department may provide for an alternative means of compliance with the obligation (payment).

Clauses 49 (Obligation in connection with electricity from renewable sources) and 50 (Orders under section 49: supplementary)

These clauses provide flexibility in imposing an obligation in relation to its duration and size, including the possibility that it can increase or decrease over time, that a proportion of an individual supplier's obligation may be carried forward or back into another period, the types of generation that may be used in its fulfilment, and the provision of information necessary to set and determine the fulfilment of suppliers' individual obligations.

Clause 51: Green certificates

This clause introduces the concept of "green certificates", which will be tradeable certificates issued by the Authority, evidencing the production and supply of renewable electricity in Northern Ireland, the possession of which will count towards a supplier's obligation.

Clause 52: Payment as alternative to complying with order under section 49

This clause provides an alternative way of meeting an obligation by making a payment to the Authority. The Authority must pay the amounts received to electricity suppliers in line with a system of allocation specified in an order made by the Department.

Clause 53: Power to amend this Part

This clause enables the Department to amend Part VI to take account of amendments to the corresponding Great Britain provisions. It also enables the Department to amend Part VI to give effect to Community obligations or arrangements between the Governments of the UK and any other member State.

Clause 54: Non-fossil fuel obligations

This clause removes the Department's power, in Article 35 of the Electricity Order, to impose a non-fossil fuel obligation (NFFO) on holders of electricity transmission or public electricity supply licences. Two NFFO orders have previously been made, resulting in the making of arrangements (fixed term NFFO contracts) for the purchase of renewable electricity. Those arrangements still subsist, so clause 54 provides for the Department to preserve them, modified as appropriate.

Clause 55: Abolition of fossil fuel levy

This clause accordingly removes the Department's power to impose a fossil fuel levy which could previously be imposed under Article 36 of the Electricity Order as a means of funding NFFO arrangements. This power has never been used.

Part VII: Miscellaneous and Supplemental

Part VII contains provisions giving the Department powers to modify licences in connection with the introduction of the postalisation of gas conveyance charges and to provide grants for energy purposes, requiring the Authority, the Department and the Secretary of State to give reasons for certain decisions and restricting the disclosure of information as well as a number of supplementary provisions.

Clauses 56 - 57: Common tariff for conveyance of gas through designated pipe-lines

The purpose of these clauses is to facilitate the introduction of the "postalisation" of gas conveyance charges in Northern Ireland such that the charges for conveying a therm of gas through the relevant pipe-lines will be the same regardless of the distance it is conveyed or the number of such pipe-lines through which it is conveyed. The term "postalisation" is drawn from the analogy of the use of the postal system where the cost of delivery of a letter is the same regardless of the place it is posted and the address to which it is posted.

Clause 56: Designation of pipe-lines for purposes of common tariff

This clause enables the Department, after consultation with the Authority, to designate any high-pressure pipe-line, being a pipe-line whose design operating pressure exceeds 7 bar gauge, as a pipe-line which will fall within the postalised gas network. It also requires the Department, before making any such designation, to give notice and consider any representations or objections which are duly made.

Clause 57: Modification of gas licences: common tariff for conveyance of gas through designated pipe-lines

This clause enables the Department, after consultation with the Authority, or the Authority, with the consent of the Department, to modify the conditions of a particular gas conveyance or supply licence or the standard conditions of such licences where necessary or expedient for the purpose of implementing, or facilitating the operation of, arrangements designed to secure:

Accordingly, such modifications may include, inter alia, modifications concerning the operation of designated pipe-lines and modifications requiring or authorising a licence holder to act on behalf of other licence holders.

Before making modifications the Department or Authority must consult the relevant licence holder and the Department or the Authority must publish any modifications.

Clauses 58 - 60: Miscellaneous

Clause 58: Grants for energy purposes

This clause enables the Department to make grants, on such terms as it may determine, to persons carrying out activities connected with the generation, transmission or supply of electricity, the conveyance, storage or supply of gas or related activities. The Department may only make grants which are reasonable in amount and which will be likely to secure a diverse and viable long term energy supply or to promote energy supply-related research and development, or efficiency and economy in electricity transmission or supply, or the development and maintenance of an efficient, economic and co-ordinated gas industry in Northern Ireland. The Department is also given power to prescribe other purposes for which grants may be given, subject to the approval of the Department of Finance and Personnel. The Department's existing power to provide financial assistance in the electricity and gas sectors under the Industrial Development (Northern Ireland) Order 1982, as saved on a transitional basis by the Industrial Development Act (Northern Ireland) 2002, is repealed by Schedule 5 to the Bill.

Clause 59: Reasons for decisions

This clause requires the Authority, the Department or the Secretary of State to give reasons for certain of the key decisions that they take. The clause specifies the decisions to which this requirement applies. In these cases, the Authority (or Department or Secretary of State, as the case may be) is required to produce a notice giving the reasons for its decision and to publish it in a manner which will bring it to the attention of those likely to be interested. A copy must also be sent to the licence holder to whose licence, or to whom, the decision relates.

Clause 60: General restrictions on disclosure of information

This clause provides that unauthorised disclosure of information obtained under the Bill, or under Part II of the Electricity Order or Part II of the Gas Order, and which relates to the affairs of any individual or to any particular business, is a criminal offence. It includes a number of exceptions, where disclosure is permitted. Generally these exceptions are for disclosures from one regulatory authority to another for the purpose of facilitating the performance of the other authority's statutory functions. The clause substantially reproduces, updates and replaces the existing general restrictions on disclosure in Article 61 of the Electricity Order and Article 44 of the Gas Order.

Clauses 61 - 66 and Schedules 3 - 5: Supplementary

Clause 61 (Amendments, transitional and transitory provisions and repeals) and Schedules 3, 4 (see below) and 5 deal with amendments, transitional provisions, savings and repeals. Clause 65 gives the Department the power to make any necessary further transitional provisions and savings. Clause 63 sets out certain procedural arrangements relating to regulations, orders and directions made under the Bill.

Schedule 4sets out the transitional and transitory provisions and savings which will apply in consequence of the Bill. These relate to the abolition of the Consumer Committee for Electricity; the first financial year of the Authority; the first forward work programmes of the Authority and the Council; the last annual reports of the Directors General; investigations being carried out under the Electricity Order and the Gas Order respectively; the modification of licences following a Competition Commission report; enforcement; financial penalties; consultation concerning the common tariff; references to the Directors General; references to the Office of Fair Trading; and references to provisions of the Enterprise Act 2002. Paragraph 12 of the Schedule gives the Department, after consultation with the Authority, or the Authority, with the consent of the Department, power to modify the conditions of electricity and gas licences where necessary or expedient in consequence of the passing of the Bill. The Department or the Authority, as appropriate, must consult the relevant licence holder before making such a modification and must publish such modifications when made. The exercise of such power is time-limited and it will expire after two years from the commencement of the power.

Commencement

UnderClause 62 (Commencement), clauses 56 and 57, which provide the powers necessary to facilitate the implementation of the "postalisation" of the gas network in Northern Ireland, will have effect from the date on which the Bill receives Royal Assent. The remaining provisions of the Bill will come into effect on such day or days as the Department appoints by order.

FINANCIAL EFFECTS OF THE BILL

  1. The effect of the Bill will be neutral in terms of public expenditure. It is expected that any increase in the costs of the new regulatory and consumer representation arrangements will be met by electricity and gas customers, through licence holders. The other provisions should not incur additional public expenditure. The Bill may lead to a very marginal net increase in the numbers of public sector staff, especially in the General Consumer Council which is taking on new responsibilities. However, this has no public expenditure implications.

  2. The Minister of Finance and Personnel has seen a draft of the Bill and has indicated that he is content that the proposals will not have an impact on public sector finances. Section 63 of the Northern Ireland Act 1998 does not apply for the purposes of the Bill.
    3. EFFECTS ON EQUAL OPPORTUNITY

  3. The Bill will not unlawfully, unfairly, or unjustifiably discriminate, directly or indirectly, against specified sections of the community.
    4. HUMAN RIGHTS ISSUES

  4. The provisions of the Bill are considered to be compatible with the terms of the Human Rights Act 1998.
    5. EQUALITY IMPACT ASSESSMENT

  5. The Department published a draft Equality Impact Assessment for consultation purposes alongside the draft Bill. A screening exercise concluded that the majority of provisions did not have a differential equality impact. Many of the provisions will have an overall positive impact on all electricity and gas consumers, particularly vulnerable consumers.

  6. The key issue addressed in the draft Equality Impact Assessment was the postalisation of gas conveyance costs which, the Department acknowledged, will have an impact on electricity prices. The Assessment also noted, however, that the major customer of the project to extend the gas industry was a new, highly efficient power station which, operating at market risk, would introduce greater competition and a downward pressure on electricity prices. The Department believes that this will alleviate the impact of postalisation which, in the light of other steps to create a more competitive market, will not therefore necessarily result in higher electricity bills for customers.

  7. There was overwhelming support in the consultation process for extension of the gas industry and the potential it has to bring economic, environmental and social benefits. There was also a general acceptance that postalisation is essential for the project to proceed. There were few substantive comments on the draft Equality Impact Assessment but the Department is reviewing these thoroughly before publishing a final Assessment.
    8. REGULATORY IMPACT APPRAISAL

  8. The Department also published a draft Regulatory Impact Assessment with the draft Bill. It noted that most of the provisions in the Bill would not directly affect business generally. However, businesses and other organisations are expected to benefit from the improved regulatory and consumer representation arrangements.

  9. The Assessment set out initial figures in relation to the costs of both the new regulatory arrangements and the new consumer representation arrangements. Further work will be required to assess the precise requirements and the Department will continue to work with the Council and Ofreg to determine precise requirements, both in terms of staff and other resources.

  10. The Department acknowledges that many of the provisions in the Bill will impact directly on licence holders, for example the provisions permitting financial penalties to be imposed, the postalisation provisions and the new provisions which have been inserted to permit restructuring of energy business activities. The powers in the Bill are enabling rather than prescriptive, and are not unfettered. Licence holders will be consulted fully before the powers in the Bill are exercised, and it is only in the exercise of those powers that impacts can be precisely determined. The Department and the Authority will work closely with the companies affected before such provisions are implemented - to ensure that the desired result can be achieved with the minimum disruption and cost to companies concerned.
    11. SECRETARY OF STATE'S CONSENT

  11. The Secretary of State has consented under section 10(3)(b) of the Northern Ireland Act 1998 to the Assembly considering this Bill.
    12. LEGISLATIVE COMPETENCE

  12. At Introduction the Minister of Enterprise, Trade and Investment had made the following statement under section 9 of the Northern Ireland Act 1998:

    "In my view the Energy Bill would be within the legislative competence of the Northern Ireland Assembly."