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

Lord Henley Excerpts

Tuesday 26th February 2019 Grand Committee

Moved by

[Lord Henley]

That the Grand Committee do consider the Electricity and Gas etc. (Amendment etc.) (EU Exit) Regulations 2019.

Relevant document: 16th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, I will also speak to the other four statutory instruments listed on the Order Paper.

As we approach EU exit, the department is working to ensure that our energy legislation continues to function effectively after exit day, ensuring that consumers continue to benefit from reliable, affordable and clean electricity and gas. A significant part of the legislation that governs our energy markets takes the form of direct EU legislation. This will be incorporated into domestic law as retained EU law upon our departure from the EU by the European Union (Withdrawal) Act. These instruments amend EU regulations that will become retained EU law and address a range of highly technical issues, from cross-border trade to the energy market objectives of regulators.

The instruments simply remove inoperabilities in retained EU law in the event that we leave the EU without a deal. In the main, they remove references to the EU and EU institutions that would make no sense following EU exit. This ensures that, in the event of a no-deal exit, we would retain the regulatory functions and frameworks needed to keep Great Britain and Northern Ireland’s electricity and gas markets working effectively, facilitating continuity for UK industry and consumers. This is a sensible contingency to minimise uncertainty and disruption to our energy markets.

The instruments make similar amendments to legislation applying to Northern Ireland and Great Britain, although they are not always identical. This will ensure a consistent approach to retained EU legislation that previously applied across the UK while still recognising the unique nature of the single electricity market on the island of Ireland. On the single electricity market, let me be clear that the Government will take all necessary steps to seek to ensure that it can continue in a no-deal scenario. These instruments help to facilitate that. In preparing this legislation, the department has worked closely with Ofgem in Great Britain, and the Department for the Economy and the Utility Regulator in Northern Ireland.

In sifting this and related instruments, the Secondary Legislation Scrutiny Committee Sub-Committee A reported that the draft regulations,

“are necessary to enable UK energy markets to operate effectively if there is no agreement with the EU”,

and that,

“the proposed changes … do not appear to present significant policy or regulatory changes”.

The Electricity and Gas etc. (Amendment etc.) (EU Exit) Regulations amend and make “workable” the retained EU electricity and gas legislation that was created to harmonise energy markets and regulation across the EU. They also revoke guidelines for trans-European energy infrastructure which set out processes for development of EU infrastructure, as these will be redundant in a domestic setting.

The Gas (Security of Supply and Network Codes) (Amendment) (EU Exit) Regulations amend retained EU gas legislation. They ensure that the regulatory framework relating to gas is maintained, including the technical EU network codes that cover the cross-border gas trade. This will maintain maximum business continuity and efficiency for UK gas operators and UK gas consumers. It also maintains the framework for dealing with security of supply, such as responding to gas supply emergencies by updating the security of supply regulation to remove references to EU institutions.

The Electricity Network Codes and Guidelines (Markets and Trading) (Amendment) (EU Exit) Regulations address EU electricity legislation relating to markets and trading, ensuring that they operate as part of domestic law. In particular, this instrument amends a wider package of rules, known as EU network codes for electricity. It revokes the guideline on forward capacity allocation and the guideline on capacity allocation and congestion management. These codes govern how cross-border trade operates within the EU’s internal energy market. The EU has been clear that, were the UK to leave the EU without an agreement, we would no longer be part of the internal energy market. These codes would therefore have little to no practical application in UK law and are being revoked. Alternative arrangements for cross-border trade are being put in place by GB interconnectors similar to those that were in place prior to European market coupling. Fallback arrangements will be in place for the interconnectors between the single electricity market and GB to ensure that trading can continue to take place in a no-deal scenario.

This instrument also amends the inter-transmission system operator compensation mechanism regulation, which established a mechanism to compensate national transmission system operators for hosting cross-border flows of electricity. The cross-border elements are removed as they cannot be provided for by domestic UK legislation. Provisions relating to the setting of domestic network charges are retained.

--- Later in debate ---

[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.

[Lord Henley]

My Lords, as I made clear, these are pretty technical regulations that are designed purely for no deal. We laid a package of five instruments to resolve those inoperabilities across the body of retained EU law. As I think the noble Lord, Lord Grantchester, implied, although the committee that looked at them—I am trying to remember which committee it was; I think it was the Secondary Legislation Scrutiny Committee—recognised that they were absolutely necessary, it felt that the cumulative effect of all five warranted the affirmative rather than the negative procedure. That is why we are here today. Whether that means that the Explanatory Memorandum needs an upgrade, I really cannot tell him. I will write to him and deal with that point if it needs dealing with.

The broader question from both noble Lords, but particularly from the noble Lord, Lord Fox, is whether we would continue to participate in the internal energy market in the event of a deal. In the political declaration we agreed that we should put in place mechanisms as part of the future relationship to ensure as far as possible continued efficient electricity and gas trade over the infrastructure linking the UK and the EU, supported by technical co-operation. Further details are obviously a matter for negotiation. It is our position to seek a deal, and I reiterate that the regulations are for a no-deal scenario only.

It is worth reminding the noble Lord, Lord Fox, if he was being overly negative, that interconnectors are already in place between the UK and France and other countries. There is advantage for both parties in continuing to make use of them.

[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.

Motion agreed.