Gas Tariffs Code (Amendment) (EU Exit) Regulations 2019

Lord Teverson Excerpts

Thursday 26th September 2019 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy and Northern Ireland Office (Lord Duncan of Springbank) (Con)]

My Lords, I did not expect such a packed House for my statutory instrument. Let me give your Lordships some background. EU legislation governing our energy markets will be incorporated into domestic legislation via the withdrawal Act retained law. The department is working to ensure this energy legislation continues to function smoothly after exit, and supports a well-functioning, competitive and resilient energy system for consumers.

What does this statutory instrument do? The Article 50 extension to 31 October means that additional EU law will now be retained. Chapters 2, 3 and 4 of the TAR code, which established network code on harmonised transmission tariff structures for gas, have applied since 31 May. We need to amend our previous legislation, the Gas (Security of Supply and Network Codes) (Amendment) (EU Exit) Regulations 2019, to address inoperabilities in these additional chapters—for example, with reference to the naming of EU institutions. This supports our aim to retain regulatory functions and frameworks in all eventualities by keeping Great Britain and Northern Ireland’s gas markets working effectively, and by providing continuity for UK industry and its consumers.

The aims of TAR are to increase transparency and the coherence of tariff structures for gas sale and purchase and procedures used to set tariff structures. Tariff structures cover ways in which transmission system operators collect revenues associated with the provision of services at entry and exit points, and collect via capacity and commodity-based transmission tariffs and non-transmission tariffs.

Chapters 2, 3 and 4 applied across the UK and the EU from 31 May 2019. Regulations need to be amended by this statutory instrument to correct deficiencies in what will be the retained EU law—namely, where we state EU entity functions and references to EU institutions and bodies. Deficiencies need to be removed or replaced with reference to UK entities—for example, replacing “member states” with references to UK elements. The regime introduced by TAR is retained, subject to these amendments. The statutory instrument aims to maintain existing domestic rules while amending or removing provisions no longer functioning on exit day. It also aims to retain technical specifications wherever possible, with the result of maximising business continuity for market participants and cross-border gas trading.

In conclusion, the regulations are an appropriate use of the powers of the withdrawal Act to maximise business continuity for UK market operators, facilitate continued efficient international trade in gas, and help to protect security of affordable gas supplies for UK consumers. On that basis, I commend these regulations to the House.

[Lord Teverson (LD)]

My Lords, first, I welcome the Minister to his role. I know this has already been done by our official Front-Bench spokesman, but I very much welcome that he has taken on this broader brief, particularly when the areas of climate change and energy are of great importance—globally as well as within this country. I have no issue with this secondary legislation, but it enables us to ask some key questions related to energy markets, Brexit and, in particular, gas.

The first area that I want to explore is the island of Ireland. As the Minister will be well aware, there is a single energy market across the Irish Sea. I notice particularly that this statutory instrument covers the whole United Kingdom, including Northern Ireland. It is important for the Minister at this stage, particularly in the context of potential no deal, which this secondary legislation is about, to assure us that the single energy market, which includes gas as well as electricity, remains coherent. There are ways of making it remain coherent, given the total dependency that there is on energy supplies between both sides of the border in a no-deal situation. The Republic of Ireland is almost completely dependent on the UK for its gas supplies—gas is starting to come through from its own fields, but that is far from full at the moment—and any disruption of that totally integrated market would be very negative for both the Province of Northern Ireland and the Republic.

I also want to ask about interconnectors, which are an increasingly important part of our energy strategy, and rightly so; I have welcomed many times the fact that we have pushed the interconnector concept forward in relation to energy balancing within the UK, particularly with the increase in renewables. When it comes to gas, we have three interconnectors: one is with Ireland, of course, but we also have them with the Netherlands and Belgium. Again, I seek the Minister’s reassurances—I hope with some reason—that those interconnectors will continue to work, given the fact that we have had, albeit on the electricity side rather than gas, a number of energy incidents recently that mean that our energy security is particularly important in this area. As I understand it, PRISMA and the systems around it will stay in place but, as we come out of the internal energy market if we have a no-deal Brexit, I am not confident that those interconnectors will be quite so straightforward as they might be.

I wish to push the envelope slightly into the important area of oil. As I understand it, the Government have said that when we leave the European Union, however we do so, one area that has not been dealt with in terms of a rollover of European law will be the reserves of petroleum held by the UK after Brexit, and that the Government do not feel bound by the European Union rules on fuel reserves, which I think would mean some 85 million barrels of petroleum being held within our reserves. Rather, they are looking to the International Energy Agency rules, which would reduce that to 35 million barrels, under half that figure. I understand that some of that reserve is actually held in the Rotterdam/Antwerp area. If that is the case, I wish to be reassured by the Minister that in the event of no deal we would still have access to those reserves abroad.

Given the situations in Saudi Arabia with the drone attack, in the Strait of Hormuz, in Iran and in Venezuela, I caution strongly that at this time we should not look to reduce our petroleum reserves in the United Kingdom. This is fundamental to our national security and I urge severe caution on the Government. I would be very interested to hear the Minister’s response to that.

In the Mansion House speech by the previous Prime Minister, and indeed this has since been confirmed by the previous Minister, Claire Perry, we intended to remain—if we could, difficult though that may be outside the single market—a member of the internal energy market, where we have been one of the greatest proponents of liberalisation and one of the countries that has done most to set up that internal market. I wonder whether it is still government policy to try to remain within that energy market, which covers gas as well as electricity.

One of the fears of the gas industry on Brexit is about our need for labour mobility. This industry, more than almost all others, depends on the mobility of expertise and the way that it operates. Why should the Minister be confident of keeping that expertise in circulation following Brexit?

Lastly, this statutory instrument mentions the transmission systems operator. Since the electricity brownout during the Summer Recess, there has been a question about conflict of interest and whether National Grid is the right body to remain as the transmission systems operator. Will the Minister comment on this with reference to the gas side of that operation?

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[Lord Duncan of Springbank]

I thank all noble Lords for their participation in this short but none the less instructive debate. I will begin where the noble Lord, Lord McNicol, left off, to answer some of the questions specific to the statutory instrument.

The issue to remember is that because we did not leave on 31 March, the legislation that had been passed at that point as retained law had to incorporate the fact that this piece of EU law was passed on 31 May and therefore became part of EU retained law. The reason we have brought this back now is that there are certain elements of that retained law which would need to be adjusted to be functional after Brexit within domestic law. The changes are relatively modest but none the less critical.

The answer to why it was done via the affirmative procedure is simple: because it has elements in relation to fees. As to whether it represents any shift in our policy, at a fundamental level the answer is no. This is simply a tidying-up exercise, which is modest in its implications but none the less critical to make sure that there is a functioning statute book after Brexit. As to the transfer of powers to Ofgem—it was not in my briefing pack but it is now—in the transfer of powers from the EU regulator ACER to Ofgem, no additional powers are created.

Those are the specific answers to the questions on the statutory instrument. I will now turn to the questions raised by noble Lords and begin, in order, with the noble Lord, Lord Teverson. One of the important things to stress about the market on the island of Ireland is that it is a single electricity market, not a single gas market. The gas does not cross the borders, only the electricity. The UK Government remain fully committed—as do the Irish Government—to ensuring the single electricity market on the island of Ireland. We believe that will be a priority for both Governments to ensure.

There is an interconnector transferring gas from the United Kingdom into the Republic of Ireland and we do not anticipate that that will be affected by any of these issues. The gas market across the EU is a remarkably—I want to use the term without meaning it as a pun—liquid market, but it is a very significant and successful market.

When it comes to interconnectors with the EU, touching on some of the issues raised by the noble Lord, Lord Liddle, we secure only 5% of our gas from the EU. It is a modest amount. Will that be affected by some of the geopolitics on the continent of Europe? We do not anticipate so, but have reserves which will allow us to secure continued use of gas during any such period.

My noble friend Lord Howell raised the wider situation on the continent of Europe. It is important to look at some of the real challenges this creates for the continent, the EU and ourselves. The first thing to stress is that we believe the Nord Stream pipeline is a problematic reality, which is why we are supportive of where Ukraine stands. However, there are also serious issues for the states to the east of the European Union. In this country we are moving swiftly towards decarbonisation but Poland, the Czech Republic, Slovakia and others are presently faced by the impossible devil’s dilemma of having to continue with their indigenous coal reserves being utilised or importing from Russia. Noble Lords can appreciate the dilemma that creates for the EU as it seeks to determine a decarbonised agenda. We have been, as a number of noble Lords have noted, a very liberalising influence in trying to secure the movement going forward to help those countries decarbonise, but it is, as my noble friend Lord Howell correctly stresses, one of the greater challenges faced by the continent today.

We will seek to continue to be participants in the energy markets of the EU. Brexit will have an impact on that and it is very difficult for me to anticipate exactly how we shall continue in that area. For example, one of the issues on which we have been a great leader inside the European Union is emissions trading, where we have sought from a leadership position to encourage the decarbonisation through a market-based regime. Exactly how we will continue to do so after Brexit remains to be determined. Part of the difficulty, with which noble Lords will be very familiar, is that we are unable to begin to negotiate the future relationship until we have established the departure. Some of these questions which rightly should not only be answered now but should have been some time ago have not been answered. On that basis, we cannot do it unanimously and must wait until such time as we can move this forward with the EU after Brexit.

[Lord Teverson]

I thank the Minister for giving way. What I am trying to get at here is that the previous Government—the previous Prime Minister and her Ministers—were able to say, “We want to remain a part of the internal energy market. We may not achieve it, but that is our intent”. I am very aware that the present Prime Minister is trying to quite substantially change the political agreement within any withdrawal agreement, and I am trying to determine what government policy relating to this is known. Is the position the same or has it changed?

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[Lord Duncan of Springbank]

I do not believe that the Brexit situation changes the dynamic of how we approach the wider question of gas storage. We need to make sure that the storage is adequate for any—in fact, every—eventuality. Brexit itself has not changed the policy on that. It will be our intention to ensure that it is not only adequate but able to anticipate whatever challenges come ahead. We will remain committed to that end.

[Lord Teverson]

I will not interrupt again. However, I feel that this is a really important national issue. Will the Minister confirm or give us assurance that, following Brexit, the Government will not—immediately or within a short period of time—reduce the amount of petroleum reserves that have to be held in this country?