Last week the Department for Energy and Climate Change published
the Government's combined response to three consultations on
the EU's "Third Package" of energy reforms. The first
consultation, issued in July 2010, sought views on its proposals to
implement the new requirements of the EU legislation. The second
consultation, issued in October 2010, sought views on a new process
for Ofgem to make changes to licences and a new appeals process,
whilst the third consultation, also issued in October 2010, sought
views on proposals for requiring private licence exempt
distribution networks to provide third party access to allow
customers to switch suppliers. The Government has used the response
document to set out its final proposals prior to implementing the
legislative and structural changes necessary to implement the Third
Package in the UK. This will be of interest to all stakeholders
involved in transmission, supply or production activities in the
UK's gas and electricity markets.
The Third Package
The Third Package, also known as IME3, consists of two
Directives (covering the gas and electricity markets separately),
and three Regulations. It consists mainly of measures aimed at
separating transmission network operations from supply and
production activities, improving investments in key electricity and
gas infrastructure and cross-border co-operation, reinforcing the
independence of national regulators, and improving consumer rights,
in order to achieve greater security of supply and more competitive
prices and services.
The response
The response is broken down into five main areas, under which
the Government sets out its final proposals:
Consumer protection
The Government proposed to insert a new Licence Condition requiring
a new supplier of gas or electricity to give new customers a 14 day
calendar period after the contract has been entered into to
consider whether they wish to proceed; if the customer does change
their mind then the supplier must switch the customer within three
weeks. Although the Government recognises that the proposed
timescales are tight and may not be met in all cases, it has
decided that the inclusion of the three week switching requirement
in the customer's contract will become a licence requirement,
as well as a licence requirement for suppliers to take reasonable
steps to improve their systems and processes to increase switching
times. Ofgem will be providing the industry with guidance on steps
needed to improve systems and processes.
The role of the National Regulatory Authority (NRA)
Ofgem will be designated as the NRA for Great Britain, and NIAUR as
the NRA for Northern Ireland. The Government intends to impose a
new duty on Ofgem to ensure that Ofgem's staff and Board
members cannot carry out any activity nor have any financial or
other interests that might compromise their independence, as well
as imposing new formal monitoring duties, together with necessary
information gathering powers, on Ofgem, to ensure that Ofgem
carries out all the duties listed in Article 37 of the Electricity
Directive and Article 41 of the Gas Directive.
Licence Modification Appeals
Although many respondents felt that the current licence
modification process is compliant with the Third Package, the
Government states that further changes will need to be made to
ensure compliance with requirements such as the autonomy and
independence of the NRA, and its ability to implement binding
decisions of the European Commission. As such the Government
intends to replace the current licence modification process with an
ex-post right of appeal. The Government maintains that the
Competition Commission is best placed to act as the appeal
body.
Transmission and Distribution Networks
Full ownership unbundling, the ISO model and the Article 9(9)
derogation will be made available in both the electricity and gas
sectors, and the ITO model will be made available for gas
interconnectors. Certification will be made a requirement of
transmission and interconnector licences. The Government has agreed
to certain limited exceptions from the general prohibition on
persons having interests in both transmission and generation or
supply, e.g. a de-minimis provision for small-scale generation and
supply, and arrangements that allow testing and limited operation
of transmission assets pending transfer to a TSO, such as an
OFTO.
Gas Infrastructure
The Government intends to amend the Gas Act 1986 in order to
implement the requirements of the Gas Directive. The new key
requirements include rules requiring legal and functional
separation of gas storage operators from parent and affiliate
undertakings involved in production and storage, Ofgem's power
to publish criteria regarding exemptions from negotiated third
party access, and the requirement for gas storage operators to
consult system users when developing commercial conditions for the
provision of ancillary services. There will also be changes to the
process required for applications for third party access exemptions
for new or expanded infrastructure, as well as new confidentiality
requirements.
Third party access provisions for gas storage fields will be
brought together in the Gas Act 1986 (effectively moving certain
provisions from the Petroleum Act 1998), and the regulation of gas
storage and LNG facilities will be expanded to cover the whole of
the UK continental shelf in order to treat onshore and offshore
facilities in the same way.
Requirements on exempt undertakings
The Government's initial proposal, set out in its October 2010
consultation, was to extend the right of third party access to
private licence exempt distribution networks. This proposal has now
been solidified and the Government intends to make the requirement
to provide third party access to such networks "relevant
requirements" under the Electricity Act 1989 and the Gas Act
1986, enforceable by Ofgem. This will be accompanied by guidance
that will enable exempt undertakings to assess the steps they may
need to take to ensure compliance, and guidance on the use of
system charging methodology.
The Government has also confirmed that the obligations in the
Directives to offer consumer protection measures will also apply to
unlicensed energy suppliers.
For further information on the third package, please see our
previous law-now
here.
To view the Government response and associated consultation
documents, please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 19/01/2011.
