Insolvency (Moratorium) (Special Administration for Energy Licensees) Regulations 2020

Lord Paddick Excerpts

Friday 9th October 2020 Lords Chamber

[Lord Paddick (LD)]

My Lords, I am guessing that the difference between these regulations with their sparsity of speakers and the previous regulations where there were a lot of speakers is that many people know about the hospitality sector but not many know about administration and insolvency moratoriums as they apply to energy companies. I include myself in that, but let us give it a go.

As I understand it, there are already regulations in place whereby the Secretary of State or Ofgem can ensure continuity of supply of gas and electricity to consumers in the event of insolvency of energy companies. In the event of a large supplier of gas or electricity, electricity and gas transmission companies or network distribution companies becoming insolvent, arrangements can be put in place to ensure that customers continue to be supplied with gas or electricity as cost-effectively as possible until the company in difficulty is either rescued or sold or its customers are transferred to other suppliers.

That is done by the Secretary of State, or Ofgem with the Secretary of State’s consent, applying to the court for an energy administration order, a smart meter communication licensee administration order or an energy supply company administration order. However, as the Minister has said, companies that are in financial distress, including energy companies, can apply for the protection of a moratorium under Part A1 of the Insolvency Act 1986, which was inserted into the 1986 Act by the Corporate Insolvency and Governance Act 2020. Without these regulations, Ofgem or the Secretary of State would be unable to intervene to ensure security of supply without the permission of the court because of the protections provided by the moratorium, which could result in an interruption of supply.

The Government claim that the urgency of passing this legislation is twofold: first, because energy companies face significantly increased financial pressures due to the coronavirus pandemic; and secondly, because these pressures will become more acute in the autumn and winter of 2020, for example, as electricity suppliers are liable for significant payments that are due under the renewables obligation scheme by the end of October. This scheme requires a certain level of electricity to be generated from renewables or a payment in lieu if that threshold is not reached.

The Minister will correct me if I am wrong on any of this but if I have understood everything correctly, then several questions arise. Why was the potential difficulty of energy companies applying for a moratorium under Part A1 of the Insolvency Act 1986, as inserted by the Corporate Insolvency and Governance Act 2020, not foreseen when the 2020 Act was drafted? The Minister said that the Government moved quickly to bring in this legislation; one has to wonder whether it was brought in too quickly.

How will the Secretary of State ensure that the provisions in this statutory instrument will not discourage energy companies from looking into restructuring and rescue options before filing for insolvency? What are the specific causes of the increased financial pressures on energy companies as a result of the coronavirus pandemic? The Minister says it is unlikely that these regulations will be needed, yet the accompanying advice from his department to noble Lords says that they are necessary and urgent.

What scope is there for the Government to defer payments due under the renewables obligation scheme for energy companies in financial distress to prevent them having to apply for insolvency or a moratorium on insolvency? What scope is there for the Government to provide other forms of financial assistance that have been given to support other sectors during the coronavirus pandemic, as an alternative to these regulations?

In normal times, such interventions are to enable another supplier to be put in place to provide continuity of supply. Although the Minister, on the one hand, paints a rosy picture about these regulations not being likely to be needed, on the other the advice is that they are needed urgently. To what extent is the whole energy industry facing difficulty, such that it requires this urgent action by the Government? Can the Minister assure consumers that the Government will take whatever steps are necessary to ensure continuity of supply, even outside the provisions of these regulations? I look forward to hearing the Minister’s reply.