The Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) is one EU measure which the UK has promoted with enthusiasm; it is among the leading member states in effectively implementing the legislation into domestic energy enforcement. What impact might Brexit have on this regime?
REMIT thus far – a recap
Wholesale energy market participants are:
- prohibited from insider trading and from actual or attempted market manipulation;
- obliged to register with Ofgem, publish inside information in a timely and effective manner and to report (and have systems in place to identify) suspicious transactions.
Ofgem enforces this in Britain (not Northern Ireland) by way of market monitoring, a triage of suspicious transaction reports and other market intelligence and, in some instances, opening investigations.
Ofgem doesn’t publicise its REMIT casework but it has said that between 2013 and 2017 it dealt with 619 alerts, assessed 182 and opened 11 investigations. No cases have yet gone so far that decisions on (potential) liability or penalty have been made public. But in July 2017 Ofgem published a notice stating an investigation into National Grid Electricity Transmission (NGET) had been opened, that clear evidence of breach had been found, but that the investigation had subsequently been closed due to a lack of materiality and NGET remedial actions.
The process for investigation and then criminal prosecution or civil enforcement is complicated and defies an easy or brief summary. In civil cases it combines statutory requirements and a process modelled on that used in FCA regulatory cases, with Ofgem’s own enforcement decision making processes. In criminal cases, Ofgem uses its enforcement decision making processes to decide whether to commence a prosecution through the criminal courts.
Ofgem has extensive enforcement powers, including powers to require information, to enter premises and to conduct interviews. In the case of criminal offences, fines can be unlimited and prison terms can be imposed.
Does Brexit matter?
It seems highly unlikely that a UK government will abandon the REMIT-based regime and the enforcement of that regime within Britain in the foreseeable future.
Through the European Union (Withdrawal) Act 2018 and secondary legislation made under it, EU law will be integrated into UK law on Brexit. The Government is bringing forward a statutory instrument that will give the secretary of state the power to amend REMIT definitions and reporting obligations so that they work, post-Brexit.
The difficulty though is that whilst it is one thing to continue REMIT, within this country, in so far as it relates to trading that is wholly within Britain, it is quite another where trades cross the border between Britain and the EU.
One issue is data sharing. At present market participants are required to provide the EU’s Agency for the Co-operation of Energy Regulators (ACER) with records of wholesale transactions and with “fundamental data” on capacity and infrastructure. ACER shares data with national member state regulators which helps them in their market monitoring and enforcement roles and ACER facilitates national regulator cooperation.
Many British-based market participants trade via EU exchanges and with EU-based counter-parties; it is because the wholesale market so often defies national boundaries that ACER exists to facilitate regulation of that cross-border European wholesale market. Post-Brexit, UK law will require British-based market participants to report data to Ofgem (only), and EU participants will continue to report to ACER (as well as their own relevant national regulators). But without more there will be no provision for regulatory data sharing across the EU and UK/British border.
More generally, there are no existing provisions in REMIT for third party equivalence for non-EEA members. In other words, the UK keeping a regime in place in Britain that exactly matches the EU’s REMIT regime will not mean that the UK / British regime will be recognised as equivalent if the UK is outside the EEA. As a result, any market participants trading in any way across the UK/EU border could find that they need to comply with two regimes (British or UK, and EU). This could be hugely burdensome for participants, as well as complicating for regulators (who, as noted, may not be able to share vital data). It will become even more complicated if a future post-Brexit UK government in anyway departs from mirroring the EU’s REMIT regime (as varied from time to time) so that substantive differences begin to develop.
A Brexit deal may yet emerge under which these and the many other questions in relation to the UK’s continuing participation in the European energy markets are resolved. However, it seems very far from certain. As yet, there is no UK government guidance on the impact of a “no deal” exit on the energy sector, beyond some limited specifics in relation to civil nuclear, environmental certificates and upstream oil and gas.