Draft Electricity and Gas (Powers to Make Subordinate Legislation) (Amendment) (EU Exit) Regulations 2018

Chris Green Excerpts

Thursday 1st November 2018 General Committees

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

It is a pleasure to serve under your chairmanship, Sir David.

I will not rehash in detail the function of this statutory instrument. In her comprehensive speech, the Minister gave us a good landscape of what the measures do. Essentially, they are part of the ongoing process of establishing EU network codes and guidelines through the third energy package in member state and UK legislation. As she says, some of those guidelines are completely in UK legislation; some are in UK legislation but have not yet become active; and some are in neither category. Clearly, there is a position where a number of those codes will no longer be completed on EU exit. That includes arrangements relating to networks in a number of other areas as well.

That process is not particularly in dispute. The question is rather more about what needs to be done at the point of exit to make sure the process is as smooth as possible. The procedure that has been chosen in this SI to do that is a little strange. I note that the SI did not fall foul of the Joint Committee on Statutory Instruments and came through without reference. However, I would point out that the structure of the SI, which is a secondary piece of legislation, enables the Secretary of State to make further secondary legislation on the back of the first bit of secondary legislation. To my mind, that is a deeply unsatisfactory way of making legislation.

The Minister assures us that changes would be made in the form of affirmative SIs and would therefore be debated in this Chamber. She is obviously fully aware that those are not amendable, so we would, effectively, have a process outside primary legislation, where the Secretary of State would make regulations and the most that could happen is that we would have a debate and raise our concerns, but that would be it.

The question is how those new regulations would be advanced, with what kind of discussion and through what authorities. There is nothing on the face of this SI that indicates how arrangements would be undertaken. It says merely that the Secretary of State can make regulations in the absence of the continuing implantation in UK legislation of the EU network codes and guidelines procedure, and effectively place this within a GB remit, but clearly there is rather a lot more to it than that.

It is a question of what has happened already in terms of those EU network codes and guidelines being established in UK legislation. That has been done, for example, through extensive discussion with industry and the long-established joint European stakeholder group. There is no mention of that procedure and how it would work as far as these arrangements are concerned; there is merely the idea that the Secretary of State can do these things because he or she can. The construction of the legislation is pretty unsatisfactory in terms of how the procedure will work.

The first question for the Minister is therefore whether she is satisfied that the SI, as it stands, tells the whole story about the UK’s implementation of these arrangements for the future, or does she intend to bring forward a further SI that clarifies them and creates a more rounded and satisfactory arrangement for the future?

The second issue is the status of these changes. Are they, in the form of an SI, contingent measures that—depending on what negotiations are undertaken with the EU as regards not only exit day but the transition period that follows—might fall should we not arrive at suitable negotiated arrangements, such as continuing membership of, or close association with, the internal energy market? If there is continued membership of the internal energy market or close association with it, my understanding is that these changes will not be necessary. Indeed, a note sent out by Ofgem to all interested stakeholders in July 2018 stated:

“Our initial conclusion was that we had found nothing in the current licence conditions that would appear to become inoperable on exit day”.

On the SIs that relate to changing those operating terms, Ofgem said:

“The terms of those Statutory Instruments depend on the outcome of the UK-EU negotiations. Those Statutory Instruments will amend the law that governs the regulation of our licences and so the specific changes to our licences cannot be finalised until it is clear how the law that they operate under is changed.”

[Chris Green (Bolton West) (Con)]

In the post-EU relationship that we are looking forward to, is the hon. Gentleman concerned more about the relationship between the United Kingdom and France on the undersea interconnectors or about the energy market on the island of Ireland, where there is that common framework?

[Dr Whitehead]

The hon. Gentleman slightly anticipates one or two things that I will say, particularly about Northern Ireland. There is substantial concern about that issue, and it ought to be addressed through the SI, but I do not think it is.

The hon. Gentleman rightly raises the issue of how interconnection will work when there are different codes at each end of the interconnector. I do not think that makes a great deal of difference to the interconnector’s efficient operation. I have other concerns about interconnectors and the UK’s relationship with the EU once we are not a member of it, but that is not an issue for today.

As far as the relationship with France is concerned, we must look at that in the wider context of how we will operate the arrangements that are already under way, such as the internal energy market and the Trans European Replacement Reserves Exchange—Project TERRE—which is an EU-wide, inter-country balancing mechanism that would be under severe strain if there were not a negotiated agreement to allow those arrangements to continue.

I thank the hon. Gentleman for his intervention, because it brings me to my next point. Ofgem concluded that

“any necessary licence and industry code modifications can only be fully implemented once the changes to retained EU legislation have taken effect in GB law…We consider that the potential changes identified in our initial analysis are likely to be straightforward, seeking to remedy any technical deficiencies arising from EU exit, and as such would not justify the use of an SCR”—

a significant code review. Has the Minister had discussions with Ofgem about its original position? Has its original position changed and, if so, how?

Ofgem appears to be telling us that, although it would be a nice idea to have made these changes by exit day, they are not essential to the running of the market, with one exception. Therefore, does this SI signify an intention to have no further negotiations with the EU about the internal energy market and things such as Project TERRE? Does it represent the end of the intention to negotiate further and place into law things that make a clear break with the current arrangements? Or will the Minister clarify whether, like a number of the pieces of secondary legislation relating to Euratom, these are purely contingency devices that can be set aside if new arrangements come forward to continue the relationship?

[Chris Green]

My understanding is that it is very much along the lines of the legislation that the Department for Transport has prepared. It is preparation in case, but there is no expectation that it will be applied. Does the hon. Gentleman read it similarly?

[Dr Whitehead]

Again, I am grateful for the hon. Gentleman’s intervention, inasmuch as I am not sure which way I read this. There is certainly nothing in the SI to guide me clearly, whereas there has been in legislation, including secondary legislation, relating to membership of Euratom, for example. At the very least, I would hope that the Minister could clarify the position substantially; ideally—this would be a rather better idea—we would have an SI that set that out.

Another question follows on from the issue of whether this is a contingent break or an actual break with existing arrangements. If it is an actual break, what authorities are likely to be involved in implementing additional SIs to bring into UK legislation European legislation that is, as the Minister said, halfway in and halfway out? Would it be National Grid? Would it be Ofgem? Who would it be? At the moment, there is nothing in the SI to indicate what arrangements there would be—it says just that the Minister would be able to do these things.

I am reassured a little that the procedure would be affirmative, but there is nothing to guide us on how things would happen; indeed, Energy UK has raised concerns about how the arrangements would work. I mentioned the long-established joint European stakeholder group. Would that be the vehicle under which new SIs were looked at and agreed? What arrangements, other than “The Secretary of State can just do it,” would there be to allow for a satisfactory and transport procedure in the future? It is very unsatisfactory that we do not have that sort of guidance in this SI.

The final point I would like to raise is about Northern Ireland. Of course I understand that we are making legislation at the moment in the absence of a Northern Ireland Executive, but the position, if these changes are made by Parliament here in the absence of that Northern Ireland Executive, is that, on exit day, we would have one grid in Ireland running on two codes. The code for Northern Ireland would be clearly distinct on exit day, inasmuch as we are seeking by this SI to repeal all those pieces of EU legislation that may complete their passage through to UK legislation in the long term. Therefore, this is not a question of contingency, long-term considerations or otherwise; it is a fact that, on exit day, that will be the situation with EirGrid.

That is a matter of some concern, inasmuch as we would at the very least need assurances that it would not, in itself, undermine the integrity of EirGrid in the future, and that the difference in codes would not mean, metaphorically, that a gentleman would have to arrive at the border with a large pair of bolt cutters and snip the link to make sure that we were integral as far as codes and arrangements were concerned. I sincerely hope that nothing like that would happen, but it is clearly a matter for considerable further negotiations. There is a big question mark against whether we have jumped the gun in terms of those negotiations by putting these issues into practice here in the UK Parliament.

To summarise the Opposition’s concerns, we find this SI pretty unsatisfactory on a number of grounds. However, we understand that it is probably necessary to do a number of the things that it does as we move towards exit day. As the Minister is aware, there are no circumstances under which we can amend secondary legislation. What I would like to have done was to table an amendment to clarify some of these points. I therefore think we will have to signify that we are not happy with the SI and that we would prefer it to be written in another way by not supporting it this morning. That does not mean that we do not understand why a number of these things are taking place.

It would be good to hear from the Minister a specific response to the points that I have raised, to clarify why this SI is necessary right now, what its purpose will be and how that purpose can best be undertaken in the future—things I would like to have seen on the face of the SI. It may be that light can be shed on those things this morning in a way that causes us not to vote against it to indicate our displeasure. I trust the Minister will understand the position we are in, and I hope that one way or another—whether by the institution of a further SI or by further correspondence—we can clear up a number of these matters.