Electricity and Gas etc. (Amendment etc.) (EU Exit) Regulations 2019

Lord Fox Excerpts

Tuesday 26th February 2019 Grand Committee

In conclusion, while leaving the EU without a withdrawal agreement is not what the Government want or are aiming for, these regulations make the necessary changes to ensure that the electricity and gas markets continue to function as normal, including the continuation of the single electricity market on the island of Ireland. This will maximise business continuity for UK market operators, facilitate the continued efficient international trade in energy and ensure that consumers continue to benefit from reliable, affordable and clean electricity and gas. I beg to move.

[Lord Fox (LD)]

I think we are down to the hard core now.

If I were a member of the EU 27 and I were sitting over there listening to this, I would detect a pulling up of the drawbridge, because that is what it feels like. Of course we are doing no such thing, because for UK consumers to continue to have the electricity and gas they need, they will rely very much on the interconnector and on gas pipelines, and on the island of Ireland there is an integrated supply. So it is with great regret that we are having this debate.

Even though we are debating what would happen in the event of a crash-out, for us to participate in the single European energy market seems very unlikely, no matter what deal Mrs May and others manage to hatch. This points the way not just to the future of this country’s energy market in the event of a crash-out but to what sort of market we will have and how we intend to regulate it even in the event of a deal. Again, that is regrettable.

Even if we are not within the energy market, our electricity system will remain contiguous with that on the continent of Europe thanks to interconnection, and our gas system will remain plugged into European gas networks. It seems to me that completely absenting ourselves from balancing and suchlike is not where we want to be—although I understand that that is what we would do in the wake of an emergency. I would like some assurance from the Minister that this is not where we want to be in the event of a negotiated exit or no-deal exit.

We are placing consumers at some risk, not least around the point of no longer participating in balancing. If there are outages or if supplies go down in one place, we have been able to use the European energy market to fill in and take more power quickly through interconnection. On security of supply for British consumers, we will be absenting ourselves from having that option. In the event of a crash-out or of not having made an appropriate deal to remain part of the energy market, consumers will be at more risk of blackouts and interruption of supply. Perhaps the Minister would like to comment on that point.

Ofgem clearly has an important role, and I have the same questions that I have asked Ministers lots of times. Does Ofgem have the capacity and capability to do that? If not, is it likely to have it at the end of next month, or when will it have? What extra requirement is needed for Ofgem?

I note that we have in the SI a requirement to commence registration four weeks after exit day. It is not clear to me what happens in the four weeks between exit day and the registration of suppliers. Where are they legally? Are they in limbo? I await the Minister’s answers.

[Lord Grantchester (Lab)]

I am grateful to the Minister for his full and thorough explanation of the regulations before the Committee. Once again, I note that this instrument is brought forward under a no-deal scenario, such that it merely transposes existing regulations into UK jurisdiction with no appreciable policy differences. I am therefore happy to approve the instrument: it does exactly what it says on the tin.

However, I would add that, as they would normally be negative instruments, I am grateful to your Lordships’ Secondary Legislative Scrutiny Committee for recommending that they be upgraded to the affirmative procedure. I agree that they are important for the internal energy market and, more importantly, for the all-Ireland energy market.

We are nevertheless concerned that, in future scenarios, interconnectors will become a key feature in the supply of electricity to the UK and to the EU. How it will operate effectively into the future is a matter of anxiety.

At present, it is an integrated seamless supply, and the single energy market should be able to operate unimpeded in any situation after withdrawal. Last week, Munir Hassan, head of clean energy at CMS, told Utility Week that even in the event of no deal the internal energy market “just has to continue”. In view of this, and of the fact that the internal energy market is seamless, will it be a bit less easy to understand the nature of the electricity market should frictions be put in place with changes between the all-Ireland energy market and the UK, and across the interconnectors into the EU? Is the Minister confident that these regulations and others will enable all that to happen with seamless continuity?

As a result of these regulations, powers will be transferred to UK organisations such as the Gas and Electricity Markets Authority, represented by Ofgem. I Fourth Delegated Legislation

Committee ask again: what organisational and budgetary support will be offered to these groups by the Government to allow them to cope with every necessary increase in workload?

There is also concern over how the all-Ireland energy market will operate in relation to the EU internal market through southern Ireland and into the internal energy market of the UK. I agree that the regulations are largely technical in nature but they assume agreement. We can agree to a grid agreement update, but this nevertheless brings philosophical anxiety.

Lastly, there is concern that the Explanatory Memorandum has not been amended in relation to the upgrade to an affirmative instrument. Under a negative instrument, there are often sections dealing with compliance with the European Convention on Human Rights, but that has not been included. These points may not be strictly material to the upgrade, but nevertheless it would be informative to understand from the Minister why there has not been a redrafting in relation to the affirmative procedure.

--- Later in debate ---

[Lord Fox]

That was the point I was trying to make.

[Lord Henley]

We use electricity at different times and, therefore, when we have a surplus, we can export it to them and vice versa. I cannot see that that will not continue to happen and bring benefit to consumers.

I move to the question of registration and the remit of Ofgem. Ofgem and its counterpart in Northern Ireland, the Utility Regulator, intend to continue to recognise registrations made by each other and by EU regulators, so we believe this will have no impact on the regulators’ ability to regulate. I hope that they will continue to be able to do the job that they do very well at the moment. We have engaged extensively with them and are confident that they will be able to meet their obligations within existing budgets. Where new systems are required, such as reporting mechanisms under the remit, the cost can be recouped through fees.

Finally, the noble Lord, Lord Grantchester, asked about Ireland and the single electricity market. We are confident that new arrangements can be put in place for trading in a no-deal scenario that will minimise disruption to the single electricity market. We have been working very closely with colleagues in the Northern Ireland Civil Service, the Northern Ireland Utility Regulator, Ofgem, systems operators and interconnectors to understand what day one arrangements for trading between the SEM would be in a no-deal scenario—not only the SEM within Ireland but interconnectors going to and fro between the two countries.

I think that deals with the points made by both noble Lords, and I therefore commend the first of the five regulations.