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

Claire Perry Excerpts

Thursday 1st November 2018 General Committees

[The Minister for Energy and Clean Growth (Claire Perry)]

I beg to move,

That the Committee has considered the draft Electricity and Gas (Powers to Make Subordinate Legislation) (Amendment) (EU Exit) Regulations 2018.

It is a pleasure to serve under your chairmanship, Sir David. The regulations were laid before the House on 5 September. They are part of a package of measures that we promised to introduce to carry forward what we said in the European Union (Withdrawal) Act 2018, incorporating relevant EU legislation into domestic law and ensuring that Ministers have the proper powers to act under the legislation.

The legislation we are discussing today is part of the third energy package. Much of this is very technical—it is known as the European network codes and guidelines. As promised, the European Union (Withdrawal) Act will incorporate the majority of that legislation into domestic law.

The instrument before us will ensure that relevant legislation works effectively in two ways after our departure from the European Union. First, it will ensure that directly applicable EU law concerning electricity and gas is effectively incorporated into domestic law. Secondly, it will confer powers on the UK Government and Northern Ireland Executive to amend elements of that retained EU law, should we wish to do so.

The instrument will transfer legislative functions conferred by four regulations to our UK Government and the Northern Ireland Executive under section 8 of the withdrawal Act, and I will turn now to those four powers.

The first power is the incorporation of provisions of network codes into UK law. This provides a limited ability, essentially, to create European network codes. The withdrawal Act says that we will incorporate all direct EU legislation

“so far as operative immediately before exit day”.

That means, of course, that we are not future-proofing for provisions that are enforced on exit day but that do not apply until a later date. That will be the case for several European network codes, so without the transfer of the power, gaps in the energy regulatory framework could be created. It is therefore important that we can incorporate the missing provisions promptly through legislation. That is accomplished by part 2 of the instrument, which substitutes limited powers for the Secretary of State and the Northern Ireland Department for the Economy to make regulations, bringing into domestic law provisions corresponding to the codes, or parts of the codes, not captured by the withdrawal Act, and revokes the European Commission’s powers to make new codes. The statutory instruments, should we use them, will be subject to affirmative procedures to ensure that they are scrutinised effectively.

The second power is to amend network codes. It enables us to transfer powers currently held by the European Commission to the Secretary of State and the Northern Ireland Department. Again, those powers would be exercised using affirmative statutory instruments.

Power three is to amend the regulation on wholesale energy market integrity and transparency—REMIT—and the reporting requirements. The instrument transfers to the Secretary of State and the Northern Ireland Department powers to amend definitions and reporting requirements under REMIT. This is an important, albeit technical, code because it prohibits insider trading and market manipulation in wholesale energy markets, and provides existing energy regulations with tools to fight those crimes. The power to amend the definitions is limited and can be used only to ensure coherence with other relevant financial activities and energy legislation, or to take into account developments in wholesale energy markets.

The fourth, very important, power is the security of gas supply regulation, which creates common standards and indicators to measure threats to gas security, and defines how much gas is needed to maintain security of supply. Quite an interesting document is produced at regular intervals that sets out the definitions of gas security and risk assessment for the relevant group of European countries. The regulation transposing it into EU legislation contains templates for risk assessments, preventative action plans and emergency action plans to be carried out by Governments. It currently contains powers for the European Commission to amend the templates using delegated Acts. This instrument will transfer those powers to the Secretary of State, and they would be exercised if required through subsequent negative statutory instruments. We believe that is appropriate, as the powers permit only very narrow amendments to very limited provisions of the regulation.

The instrument applies to Northern Ireland. It transfers powers variously to the Secretary of State and the Department for the Economy in Northern Ireland, respecting the devolution settlement. Of course, we have consulted extensively with the Northern Ireland Department during the development of this process.

The instrument allows the Secretary of State to exercise powers in respect of Northern Ireland, but that would occur only in respect of a reserved area, such as international relations or where the Department for the Economy determines that, as is currently the case, it is unable to act in the absence of Northern Ireland Ministers. Should that power be used, it will be accompanied each time by ministerial statements explaining why it is necessary.

Although deeply technical in nature, these regulations are, as we have promised, a sensible, proportionate and necessary transfer into domestic law of powers currently applicable to our markets and delivered under EU law. This will maximise continuity in our energy regulation as we leave the EU. I therefore commend these regulations to the House.

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[Claire Perry]

As most Members here voted to trigger article 50 and begin a process of—[Interruption.] Well, most of us voted to trigger it, and most of our constituents would have expected us to do so, as we live in a democracy. My point is that, in the process of bringing forward the Brexit that our country voted for, we must ensure that there is a smooth and orderly transposition of EU law—the acquis—into UK law so we can exercise proper scrutiny of the sorts of powers that we are referring to. I believe it is called taking back control and exercising parliamentary sovereignty.

I commend my officials in the Department for Business, Energy and Industrial Strategy, the Clerks and the Panel of Chairs, because we will all be troubling them a lot over the next few months as we do what people expect us to do—transfer the powers to ensure that there is absolutely no break in the continuity of activity. That is vital to ensure we have a smooth Brexit. In some cases, we will take contingency powers, in the very unlikely event that we have a disorderly Brexit, which would be deeply unpalatable.

Some of the speeches that have been made, including that of the hon. Member for Inverness, Nairn, Badenoch and Strathspey, encapsulated a whole other load of stuff relating to devolution and the transfer of additional powers to the UK Government. I have reminded him several times that his constituents, like all constituents in our very powerful united group of countries, have benefited from legislation such as the price cap Bill, and the enormous growth of the renewable industries in Scotland has happened with the help of subsidies brought about by the taxes and powers taken by this Government. I suspect it is in his constituents’ interests to have as much alignment as possible with the Westminster Parliament on energy matters.

I should preface my remarks by saying that we will clearly have to prepare for a number of fractious Committees ahead if, in the process of introducing the legislation we have committed to, which is an attempt to transfer smoothly some very technical powers on day one, we try to turn this into a rerun of the referendum on Scottish independence, which was thankfully rejected, and the EU referendum.

The concerns of my opposite number, the hon. Member for Southampton, Test, were, as always, valid. He raised a number of issues. The first was what happens if there is no deal? Are we effectively putting things in place that we would have to change in a no-deal scenario? The answer is no. The regulations would be needed in all scenarios. They do not prejudge the outcome of the negotiations. They are designed to target a very limited set of legislative powers, which are held by the European Commission and would otherwise be left behind. They are helpful to our industry. Of course, it is entirely within our remit, once we have left the EU, to decide to change them completely.

One of the most important issues is how we consider gas security—a vital matter for us. It is entirely within Parliament’s power to introduce additional legislation or regulations to create our own domestic view of what gas supply, and reporting and security measures, look like. Those are not Henry VIII powers; as is set out in these regulations, if we wanted to do something as broad as that, it would be for the Secretary of State to introduce it, and it would be subject to the normal legislative scrutiny. We have not had much chance to scrutinise the current regulations under the rather remote functioning of the European Commission.

If we enter into an implementation period, which I believe strongly is what we need, these transfer powers would not need to be exercised immediately, but they may still be needed after the implementation period. The hon. Gentleman referred to an Ofgem note; I hesitate to suggest that it was referring to a slightly different issue, but it was—it was referring to domestic licences that had been granted. It is quite proper for Ofgem to determine whether any amendments are needed for conditions of its licences, in both an EU exit scenario or any other scenario. That is a different issue from amending the EU’s network codes and guidelines, which are currently directly applicable in the EU legislation.

[Dr Whitehead]

I am afraid I handed my copy of the Ofgem letter to Hansard, but my understanding of that letter is that although it relates primarily to domestic licences, there is reference to the European codes and what they represent. That is not surprising inasmuch as the European codes are intended to underpin domestic licences in any event. Therefore, what Ofgem said about whether those changes would be necessary on exit day relates to what is half in and half out of the legislation and what is completely in the legislation. That has a bearing on whether those changes are made immediately or at the end of negotiations.

[Claire Perry]

Again, I think we should all take comfort from that Ofgem letter, which suggests that the markets will operate smoothly, even without these changes. It is a prudent Government who ensure that we transpose relevant codes, as we said we would, where we believe there is a potential threat. We do not want to trouble a Committee in future months to make those changes; a potential change might come up as a result of the governance gap once we leave the EU.

The hon. Gentleman raised an important point about the single energy market in Northern Ireland, which is a critical element of ensuring that we have a smooth-functioning energy system. The substance of the codes created after exit day will be the same; these amendments are needed only to reflect the life of the UK outside the EU. This statutory instrument does not directly relate to the single energy market.

It is the same point with interconnectors: they work under access agreements, as the hon. Gentleman knows. There are already potential changes in elements of the markets on both sides of the interconnector. The amendments we are bringing forward do not materially affect any of those interconnector contracts—as he knows, they are commercial decisions that essentially flow when the price signal is right, rather than Government decisions to bring forward supply.

[Dr Whitehead]

The Minister is right to distinguish interconnection from integrated market arrangements. Other than a brief response to an intervention, I did not mention the question of interconnectors in this context. In EirGrid, what is in place is the integration of what were previously interconnections into a single seamless grid. The question is not the relationship between interconnectors in Northern Ireland and the Republic of Ireland, but the status of an entirely integrated single grid system that is different from an internal energy market, which is another matter that presumably we need to deal with in a different way. There is a specific question here of an interconnection arrangement transformed into a single network, and the relationship with sets of codes on either side of what is not a border at all as far as EirGrid is concerned.

[Claire Perry]

Allow me to remind the hon. Gentleman that we are talking about the existing set of network codes being transposed, and making provision for codes that have already been announced and will come into place post our departure date, to ensure that we do not end up with a different set of codes. It will be our sovereign decision, should we wish to change any aspects of our energy market. We would expect to do that in proper and full negotiation with our EU friends and partners or companies involved in that process. In a way, we are talking about ensuring there is complete continuity, because we are talking about codes that are already announced.

[Dr Whitehead]

This SI repeals those part codes.

[Claire Perry]

No, it does not repeal the part codes; it essentially suggests that we will bring into force those codes that are announced but not yet in place on exit day.

I have set out that the instrument is one of a very large number of SIs that my Department will introduce to ensure that we have a smooth and orderly departure and that we are fully prepared in the event of a no-deal scenario. I hope that we scrutinise those instruments adequately. However, the hon. Member for Southampton, Test asked me why we are not setting out the full legislative programme that we would want to engage in were we to change any element of the legislation. I am not aware of any piece of legislation we go through where we ask how we would subsequently debate it were we to decide to amend it in the future. Frankly, that is probably an ask too far, given that the House voted to trigger article 50 and to start the process.

My No. 1 focus is ensuring that we have a very smooth EU exit for our energy system, to maintain security of supply and low prices and to ensure that the price cap Bill applies. I appreciate the hon. Gentleman’s frustration about being unable to amend the legislation, but if we are to re-run arguments about referendums and have arguments about how we might introduce future legislation when we are debating very technical and narrow changes to existing EU acquis being transposed into UK law, we are in for a very long and jolly autumn and winter. Of course, it would be a pleasure to share that with my friends on both sides of the House, but our constituents might not thank us for doing so. I commend the regulations to the House.

Question put.