Energy Bill [ Lords ] (Fourteenth sitting)

Alan Whitehead Excerpts

Committee stage
Thursday 22nd June 2023 Public Bill Committees

Clause 270 disagreed to.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

On a point of order, Mr Gray. May I ask for clarification of the voting process on clause 271 and Government new clause 52? As I am sure all Committee members are aware, new clause 52 will effectively replace clause 271, with the consent of each side. However, although we will be voting on clause 271 stand part today, we will not be voting on new clause 52 until the end of the Committee’s business. We could therefore conceivably end up with clause 271 being dropped but not replaced by new clause 52. Is it within procedure to retain clause 271 but assume that new clause 52 will replace it in due course, or are there other ways of doing it?

[The Chair]

The hon. Gentleman makes an interesting point, but he is of course not correct.

[Dr Whitehead]

It was a question.

[The Chair]

Well, I am answering the question in that case. The answer is that I will put the Question on clause 271 now and, depending on what the majority decides, it will either remain in the Bill or be removed. At the end of consideration, we will come to new clause 52. If there is a majority for it, it will be added to the Bill. If there is not, it will not. The two are not conditional on each other; they are entirely separate.

Clause 271

GEMA general duties relating to climate change

Question put, That the clause stand part of the Bill.

--- Later in debate ---

[Andrew Bowie]

I now return to part 4 of the Bill, which relates to the independent system operator and planner, or ISOP.

Clause 132 introduces schedule 7. The purpose of the schedule is to empower the Secretary of State to make transfer schemes to create the ISOP and give it the capacity to carry out its functions. As discussed already, the ISOP will be founded on the existing capabilities and functions of National Grid Electricity System Operator and, where appropriate, National Grid Gas. That will require several transactions between Government, National Grid plc and other relevant parties, because the property that the ISOP requires is not currently owned by a single entity. The transfers could include matters such as personnel, IT systems, physical assets, methodologies, models, data, and other resources and inputs used by the existing entities in performing their functions.

Schedule 7 sets out a set of principles, procedures and expectations in relation to the transfer scheme that will help provide clarity to affected parties. For example, it outlines that the Government are required to consult the transferor or transferors when the transfer scheme power is expected to be used. Not all the detail of the scheme can be determined in advance, so the Bill also includes a small number of time-limited powers to make regulations, which include regulations to provide further details to all parties, including third parties, on procedures for agreeing and paying compensation.

Government amendment 19 makes a minor procedural amendment to clause 275, to include the Treasury in the list of persons that can make regulations under the Bill. Amendment 20 clarifies that, because regulations under paragraph 9 of schedule 7 deal with financial matters, they can only be annulled in the House of Commons.

Clause 133 introduces schedule 8, which relates to pensions. As part of the transfer of functions, some employees will transfer into the ISOP. The purpose of the schedule is to allow the Secretary of State to separate the pension arrangements of the ISOP and to provide scope for various forms of reorganisation that may be appropriate in the light of the transfer. That includes making provision for the responsibility for the affected employees’ qualifying pension schemes and protecting the value of their benefits during the transfer. In exercising powers, the Secretary of State must ensure that the arrangements made for each employee’s pension provision is, in all material respects, at least as good immediately after any transfer-related changes are made as they were before that point.

Clause 134 grants the Secretary of State the power to provide financial assistance to the ISOP—that is, to draw on the financial resources available to Government in the kind of circumstances when the existing electricity system operator and gas system operator would have relied on the financial strength of their corporate group to raise capital sums. The Secretary of State will have the power to set conditions on the financial assistance provided, which may include conditions about repayment with or without interests or other return. In the highly unlikely situation that the ISOP faces financial difficulty, the power would also allow the Secretary of State to step in and avoid any disruption to the electricity and gas sectors.

Finally, clause 135 removes the barriers, in section 7 of the Electricity Act 1989 and section 7B of the Gas Act 1986, to payments raised in one sector being used to benefit consumers in the other. It also introduces a provision, in each Act, to expand licence holders’ statutory duties and require them to have regard to the interests of consumers of the other energy sector where directed by their licence. The removal of such barriers is fundamental, because it will enable the ISOP to co-ordinate and ensure strategic planning across the energy sector more effectively.

[Dr Whitehead]

We come to a part of the Bill that we should have discussed a couple of weeks ago: clauses 132 to 139. When we discussed the rest of the business relating to the ISOP, these debates were moved by the Government towards the end of the consideration of later clauses in the Bill. At the time, I thought that was because there was some blockbusting new clause that the Government were thinking of introducing, which was not quite down the slipway at that point. I thought it would appear when we considered the clauses today.

I was disappointed to see that nothing has appeared. There are two Government amendments that were there previously, and nothing in the way of new clauses. I assume the reason for discussing the provisions now—although the Minister may have an interesting explanation up his sleeve—may well be because Ofgem has just produced a consultation—[Interruption.] No, the Minister is shaking his head. In any event, had the Minister consulted with Ofgem about whether it was going to produce a consultation on transfers and various other things, then he would have found that they have produced a consultation, “Funding the transition to a Future System Operator”, which was published today. The Minister will understand that not a great deal of time has elapsed since the publication of that consultation.

That consultation is very relevant to the provisions we are discussing. If the Minister did think the consultation would be published in time, it would have been helpful of him to bring that to the Committee’s attention. Apparently, however, there are different reasons for discussing these provisions later in the Committee cycle than planned.

A headline in Utility Week said the full costs of the transition to a future system operator could come to about £392 million. I read that headline but I am too mean to go behind the paywall of Utility Week to read the rest of the article. I sought out the Ofgem consultation instead and got the full picture. The consultation indicates that this level of cost for the transition is accurate. In clauses 132 to 139, provision is given for the bringing together of the various agencies’ present responsibilities for what would be the new independent system operator. That extends beyond just taking the National Grid ESO away from National Grid and putting it into ISOP. It involves other agencies—the Minister is absolutely right.

In this instance, however, the prime issue of the transition is of course the ESO itself. At the moment and for a long time, the ESO has had a relationship with National Grid involving separation by Chinese walls. It was, in effect, owned by National Grid and so was part of the National Grid family of companies, but over the recent period, since the ESO was set up, its operation has been separated from that of National Grid. Previously, we have discussed the extent to which the Chinese walls were strong enough for what ESO was doing in relationship to what National Grid might be doing—for example, potential conflict on interconnectors, with National Grid owning at least part of an interconnector while ESO was planning for interconnectors overall.

The fact that the separation will take place and that the business of the ESO will be transferred fully into the ISOP is important. That will complete the process of setting up the ISOP properly, so that it can operate fully independently from day one—in Committee, we have expressed strong interest in ensuring that. However, with the Ofgem consultation, the issue of compensation for those transfers arises to some extent. According to the consultation, part of the transfer arrangements relates to transferring personnel across and part to what assets and so on will be transferred. What is not entirely clear in the consultation is also alluded to in the provisions in the group, in particular schedule 7.

Paragraph 8 of schedule 7, headed “Compensation”, appears to start talking about compensation in general terms for, as it were, the loss to National Grid of its ownership of the ESO, as well as of the various things relating to the transfer of assets and individuals. Compensation would be couched in two parts: literally, which desks and pot plants are going over to the ISOP, with personnel and various other things, and what the compensation for that is, presumably; and compensation for the fact that the ESO was part of the National Grid corporate family and no longer will be.

I am not clear whether the provision on compensation encompasses that consideration. If so, what might that consideration be? Do the Government have a figure in mind for compensating National Grid for its losing ESO to the ISOP? Is that facilitated through these clauses or a separate arrangement to be arrived at? In other words, do the clauses deal just with compensation relating to bodies, pot plants and desks, or with compensation more widely?

--- Later in debate ---

[Andrew Bowie]

Inspiration has arrived.

[Dr Whitehead]

Good.

As I was saying, this is potentially important, because the clauses in this part of the Bill relate to the Secretary of State’s ability to provide the ISOP with finance. Will the ISOP undertake the job of providing the compensation due under the clause—presumably it would be provided with money by the Government to do that—or will the Government deal with that separately before the ISOP is set up?

There is also an important point about compensation for the loss of the ESO to the ISOP. It would seem inappropriate for the ISOP to pay compensation to National Grid, given its removal from National Grid in the first place. I therefore assume that other mechanisms will be in place to provide that compensation. If that compensation is paid, there are provisions in the Bill allowing for such payments to be recovered by companies involved in the process in the course of their activities. [Interruption.] I will pause for a moment while the Minister consults his Whip.

[The Chair]

There is no need to pause. Please crack on.

[Dr Whitehead]

This is something I specifically want the Minister to say something about. It is important that we get it right.

Assuming that compensation is given for the loss of the ESO and the companies concerned can recover that, do the Government intend for the ISOP to have a part in the mechanism whereby costs are recovered through standing charges on bills? As the Minister knows, standing charges are substantially made up of a combination of charges for TNUoS and DUoS—transmission network use of system and distribution use of system—and a balancing charge, and, as he and other hon. Members will know, standing charges are increasing substantially as a proportion of our electricity bills. They are now about 25% of our energy bills.

It looks as if the compensation, if it can be recovered by somebody—I assume it could be recovered one way or another by National Grid in its network charges, or by the ISOP in what it eventually contributes to the standing charge—will eventually work its way into the standing charge, and hence on to customers’ bills. That makes it important to understand what the Government have in mind about what compensation should be paid to National Grid for the loss of ESO and its transfer to the ISOP.

It may be that there has been a nice agreement that no one will pay anyone compensation, and National Grid will just hand over ESO to the ISOP. I suspect that is not the case, but I have not seen anywhere—and it is not explicit in the consultation—what the level of compensation might be, who will pay it, how it might be transferred to bills and standing charges, if necessary, and how the process overall might work. It would be helpful if the Minister could give us an understanding of all that. It would certainly enable us to better judge schedule 7, as it relates to the process of how those transfers take place and what their consequences are.

[Andrew Bowie]

On the question of why we have returned to these clauses, I am sorry that I was unable to turn up today with a blockbuster moment for the Committee. I know they were all expecting it and waiting with bated breath. Unfortunately, it is a simple matter of procedure. We temporarily skipped over the remaining clauses in part 4 to ensure that the necessary Ways and Means motion could be agreed by the House. I am pleased to confirm that the resolution was obtained on Tuesday, allowing us—I was expecting a “Hear, hear!”—to continue with clauses 132 to 139.

The Ways and Means resolution was necessary as a result of provisions that confer power on the Treasury to make regulations setting out the way taxes have effect in connection with a transfer of assets from one body to another. It was impossible to proceed with debate on the clauses until the motion was passed by the House. That has now been done, so we can proceed.

On the consultation that was published this morning, I cannot mandate when Ofgem publishes its consultations, so unfortunately that was not a consideration. However, we note that the Ofgem consultation launched today, and I will of course consider it in detail. I am happy to provide hon. Members with more detail in writing should they wish.

The hon. Member for Southampton, Test spoke about transfers. The Bill provides multiple steps for agreement on the value of compensation: first, simple agreement between parties—in this case the Secretary of State, National Grid and the owners of National Gas—secondly, in a situation of non-agreement, the joint appointment of an independent valuer to assess the value of the assets to be transferred; or, thirdly, as a fall-back option, the appointment of an independent valuer by the Secretary of State on behalf of both parties. The framework of considerations to be made by the independent valuer will be set out in regulations to be made under the Bill.

The entire process is an ongoing commercial transaction, so the Government are limited in the extent of the information they can provide at this point, although I recognise the importance of the hon. Gentleman’s questions. I will respond specifically to his point about the standing charge and his worry that that could have an effect on bills. We do not expect costs to rise at all as a result of the establishment of the ISOP. The ISOP will be funded by Government, and its ongoing operations will continue to be supported by funding from the network balancing charges at a level determined through a price-control mechanism, much like the current gas and electricity system operators are. However, we expect the ISOP to enable a long-term reduction in costs compared with the status quo.

--- Later in debate ---

[Dr Whitehead]

I think the Minister just said that he expects compensation to be included in network charges, which means that in the end it will go on standing charges for customers. There will be an effect on customers’ bills.

[Andrew Bowie]

I reiterate that we are not expecting any increase in customers’ bills as a result of the creation of the ISOP. There will be no increase. We expect the ISOP to enable a long-term reduction in costs, so its creation will have the opposite effect on customers’ bills. Future network decisions will be built on the expert and impartial advice of the truly whole-system body that many in the industry and outside it have been calling for for some time.

[Dr Whitehead]

I appreciate that the Minister cannot tell me—presumably because of an ongoing discussion relating to commercial companies—what the compensation for National Grid is likely to be. However, I assume that, in stating that he cannot tell me, he has confirmed that that will be part of the transfer arrangements. I was trying to distinguish between the compensation for pot plants and desks, and compensation for the loss of the ESO by National Grid.

That leads us to an unsatisfactory position in which we do not know how much the compensation will be. Presumably, we have to take it on trust that the Government will be fairly rigorous about ensuring that the compensation is proportionate to the actual loss, but I am not sure how it will be determined. Sorry, Mr Gray, this is a long intervention.

[The Chair]

No, it is a speech. The Minister finished, and therefore the hon. Member is making a speech.

[Dr Whitehead]

Good, I can go on forever then. I was trying to make my remarks as brief as possible in order to accommodate the Minister’s previous comments, so I will just round them off.

We do not know the detail of the procedure for determining compensation, we do not know even what ballpark figure the Government have in mind for compensation to National Grid for the loss of the ESO, we do not know what strategies the Government might adopt in their negotiations on what the compensation might consist of, and we do not know whether there is any process of arbitration if National Grid, for example, thinks that the compensation it receives is not the right amount, or what mechanisms—perhaps under the Bill—would enable the final amount to be determined to the satisfaction of all sides.

We do know that some compensation may find its way on to network charges, one way or another. Therefore, it is important for the economy and the effectiveness of network charges that we at least have a ballpark figure for the sort of compensation that might be considered. If the Government are minded to provide huge amounts of money in compensation to National Grid, that might have an inflationary effect on network charges; if they have a more robust view of what the compensation should look like, that would have a lesser effect on charges. Either way, as I think the Minister will agree, we are in a position of some fog.

As the Bill makes progress we legislate for all this to happen, we still do not have a clear handle on what those procedures will look like or the money that might be involved. I do not know whether the Minister will respond to this speech, but I think that he should be able at least to write to us about the procedure and the arrangements. Ideally, that would include further and better particulars on the range of compensation, while not giving away anything commercially sensitive. Alternatively, he could take His Majesty’s loyal Opposition into a position of trust and get around a table with us to talk these things through, so that, between us, we are clear about how they might proceed.

--- Later in debate ---

[Andrew Bowie]

Clause 136 ensures that when carrying out various functions in relation to the ISOP under the Bill, the Secretary of State and Ofgem must have regard to their principal objective and general duties as defined in the Electricity Act 1989 and the Gas Act 1986. The principal objective of the Secretary of State and Ofgem can be characterised as protecting the interests of existing and future electricity and gas consumers. General duties include promoting effective competition in the energy sector, having regard to security of supply and securing a healthy energy market.

It is relatively common to extend the application of those principles where a new Act gives new, freestanding functions to the Secretary of State or Ofgem. The clause states that the Secretary of State must have regard to the principal objective and general duties when carrying out new functions relating to designation under clause 120 or when making an order that an existing transmission licence becomes the ISOP’s electricity system operator licence.

Clause 137 introduces schedule 9, which contains necessary consequential amendments to the Gas Act and Electricity Act to enable the ISOP and its licensable activities to be integrated into the existing framework of the energy system regulated by Ofgem.

Clause 138 contains provisions on the interpretation of terms used in part 4 of the Bill. I draw hon. Members’ attention in particular to subsection (3), which is intended to make it clear that whenever part 4 includes a proposition about the ISOP’s functions, that is to be understood as applying to any and all of the ISOP’s functions, whether provided by the Bill, by other legislation, or as functions ancillary to them.

Clause 139 concerns the limited regulation-making powers in part 4. Government amendment 18 is consequential on Government amendment 20, which we have already discussed. It ensures that regulations made by the Treasury under schedule 7(9) are not subject to the negative procedure. As these are financial regulations, the intention is for them to be laid before the House of Commons only and approved by the House of Commons alone.

[Dr Whitehead]

These measures are essentially consequential on those we have already discussed. I have no particular comment to make on them other than to say hooray; I am happy to let them go through undiscussed.

Question put and agreed to.

Clause 136 accordingly ordered to stand part of the Bill.

Clause 137 ordered to stand part of the Bill.

Schedule 9 agreed to.

Clause 138 ordered to stand part of the Bill.

Clause 139

Regulations under Part 4

Amendment made: 18, in clause 139, page 122, line 32, at end insert—

“(2) Subsection (1) does not apply to regulations under paragraph 9 of Schedule 7.”

This amendment excludes regulations made by the Treasury under paragraph 9 of Schedule 7 from the provision about negative procedure in Parliament made by clause 139. This is consequential on Amendment 20.—(Andrew Bowie.)

Clause 139, as amended, agreed to.

New Clause 8

Key definitions

“(1) This section applies for the purposes of this Chapter.

(2) ‘Carbon storage licence’ means a licence granted, or having effect as if granted, by the OGA under section 18(1) of the Energy Act 2008 (and references to a ‘licensee’ are to a person who holds such a licence).

(3) ‘Exploration operator’, in relation to a carbon storage licence, means a person who is responsible for organising or supervising—

(a) the carrying on of exploration, within the area within which activities are authorised under the licence, with a view to, or in connection with, the carrying on of activities within section 17(2)(a) or (b) of the Energy Act 2008, or

(b) the establishment or maintenance in a controlled place (as defined in section 17 of the Energy Act 2008) of an installation for the purposes of such exploration.

(4) ‘Carbon storage information’ means information acquired or created by or on behalf of a licensee in the course of carrying out activities under the licensee’s carbon storage licence.

(5) ‘Carbon storage samples’ means samples of substances acquired by or on behalf of a licensee in the course of carrying out activities under the licensee’s carbon storage licence.

(6) ‘Sanctionable requirement’ means a requirement imposed on a person by or under a provision of this Chapter which, by virtue of the provision, is sanctionable in accordance with this Chapter.—(Andrew Bowie.)

NC8 to NC28 and NS1 and NS2 make provision about carbon storage information and samples, and the powers of the OGA, corresponding to the provision made by Chapters 3, 5 and 6 of Part 2 of the Energy Act 2016 in respect of offshore petroleum. They are intended to form new Chapter 4A in Part 2. This new clause defines key terms for the purposes of the intended new Chapter.

Brought up, and read the First time.

[Andrew Bowie]

I beg to move, That the clause be read a Second time.

[Andrew Bowie]

New clause 8 provides the key definitions for the purposes of this new chapter, enabling the effective understanding of all carbon storage information and samples provisions. The powers provided by this chapter specifically support the Oil and Gas Authority, the business name of which is the North Sea Transition Authority, in its role as a regulator of carbon storage.

New clause 9 provides the Secretary of State with the power to make regulations on the retention of information and samples acquired by carbon storage licensees acting under the authority of the NSTA. The provisions will align carbon storage information requirements with existing petroleum licensing provisions, as established in the Energy Act 2016.

The specific type of information and samples that licensees will be required to retain will be set out in regulations. That will be alongside the form and manner in which they are to be retained, the period of retention and the events that trigger the commencement of such requirements. The various exploration, appraisal and monitoring activities that will be carried out on and under the seabed by carbon storage licence holders will yield important information, supporting the NSTA to carry out its regulatory functions.

New clauses 10 and 11 establish requirements for the preparation and agreement of information and samples plans. These are agreements between the NSTA and a carbon storage licence holder that set out what should happen to carbon storage information and samples held by the licence holder before the occurrence of certain carbon storage licence events. Provisions involving information and samples plans were introduced for petroleum licences in the Energy Act 2016. We therefore expect them to provide the same benefits for carbon storage licence events.

New clause 12 establishes provisions for the designation of information and samples co-ordinators, which will monitor compliance with obligations imposed under the new chapter, uphold the requirements of any information and samples plans, and help to protect against the risks of data loss during a licence event. Information and samples co-ordinators are expected to prove a valuable aid in respect of data reporting compliance. That is evident in the instrumental role they currently play in relation to petroleum licensees under the Energy Act 2016.

New clause 13 establishes powers for the NSTA to obtain information and samples collected through carbon storage activities to support its regulatory functions. This includes information and samples held by persons in accordance with regulations made under new clauses 9 and 10.

New clause 14 prohibits the NSTA from disclosing any information and samples it holds in accordance with the powers in this chapter, subject to the provisions of new schedule 1 and the power of the Secretary of State to obtain information from the NSTA in new clause 15. This will provide carbon storage licensees with the reassurance that any information and samples provided to the NSTA in support of their regulatory functions will not be allowed to be disclosed, except in specified circumstances.

New schedule 1 sets out the circumstances in which, to whom, and for what purposes the NSTA can disclose information. This includes providing for disclosure in accordance with regulations made by the Secretary of State that may permit protected material to be published, or made available to the public, after a specified period. The public disclosure of this information after a suitable period of confidentiality will support effective regulation by the NSTA.

New clause 15 provides powers to the Secretary of State to require information and samples held by, or on behalf of, the NSTA. It will align powers for carbon storage information and samples with the equivalent powers established for petroleum information and samples under the Energy Act 2016. This power will be used to enable the Secretary of State to carry out statutory functions, to monitor the performance of the NSTA, or to provide information for the purposes of parliamentary proceedings. Carbon storage licences return to the Government once storage sites have been closed for a designated period, and the Government are liable for any potential future leakage.

I turn now to new clauses 16 to 25. New clause 16 provides the NSTA with powers to issue sanction notices to persons who fail to comply with the requirements imposed on them under this chapter of the Bill. Such sanction notices can be in the form of an enforcement, a financial penalty, a revocation or operator removal notices. New clauses 17 to 20 make the necessary provisions for each of those types of notice. Importantly, new clause 21 places a requirement on the NSTA to issue a sanction warning notice ahead of any sanction notice that it proposes to issue under the powers established in new clause 16.

New clause 22 establishes that the NSTA may publish details of any sanction notices issued under new clause 16, including details of any sanction notice that is cancelled or withdrawn. New clause 22 also provides that the NSTA may not publish information that it considers to be commercially sensitive, not in the public interest or otherwise inappropriate to publish. New clause 23 places a restriction on the NSTA issuing more than one sanction notice in respect of the same contravention. New clause 24 provides the NSTA with the power to withdraw any sanction notices issued. Finally, new clause 25 enables the NSTA to require specified documents or information to support an investigation into whether a sanction notice ought to be provided under new clause 16.

New clause 26 introduces new schedule 2 to the Bill. Alongside new schedule 22, new clause 26 provides for an appeal to be made to the first-tier tribunal against any decision made by the NSTA. This is in relation to the NSTA exercising its new power to require carbon storage information samples. As I am sure Committee members will agree, the right of appeal for licence holders is a necessary and important part of conferring new regulatory powers on the NSTA.

New clause 27 will require the NSTA to determine and publish the procedure it proposes to follow in its decision making when issuing a sanction notice under new clause 16, which ensures public transparency in how the NSTA will enforce the sanctionable requirements and provides clarity for licence holders in respect of the NSTA’s procedures.

Finally, new clause 28 provides definitions to aid the interpretation of the provisions relating to carbon storage information samples detailed in this chapter. The definitions cross-reference the relevant existing legislation where appropriate.

[Dr Whitehead]

This group consists primarily of new clauses that the Government introduced. A substantial number of new clauses relate to the very sensible business of securing samples and various other things that can be of use in the regulation of the process and quality control, and in various other things relating to carbon capture and storage activity. So far, so good. These are certainly sensible clauses that establish arrangements for disputes and various other things, such as sanctions for when samples are not properly provided and so on—all good stuff.

However, there is an important point about the collection and retention of samples, as set out in the factsheet, which was subsequently published, that the Minister kindly provided me with when he said he intended to produce these new clauses. By the way, the factsheet refers to the NSTA, but the legislation refers to the OGA—again, maybe that is something we can discuss later. The Government say:

“We are legislating to provide the NSTA with appropriate powers to require carbon storage licensees to retain and report information and samples gathered as part of activities associated with the geological storage of carbon dioxide, and to enable the NSTA to publicly disclose this information after a suitable confidentiality period.”

I understand and appreciate the need for a suitable confidentiality period, but it is really important that the samples and data collections are available publicly for the greater benefit of the sector as a whole, in terms of its future development of carbon capture and storage. Government new clause 14 has a fairly fierce title: “Prohibition on disclosure of information or samples by OGA”. It effectively prohibits disclosure except under slightly unclear circumstances set out in new schedule 1, which states that the material may nevertheless be published and put into the public domain, but there is no real definition of how that may be done.