As our previous LawNow mentioned, the Department for Business, Energy and Industrial Strategy (“BEIS”) released a letter on 14 December 2018 summarising a number of proposed SIs relating to the energy sector. The purpose of these SIs is to provide for the relevant amendments to retained EU law in the field of the electricity and gas markets to ensure that the markets continue to function with minimum disruption in the event of a no-deal Brexit. Under the European Union (Withdrawal) Act 2018 (the “Withdrawal Act”), any directly applicable EU law will be converted into UK law. The SIs will tackle a number of issues, for example “inoperabilities” such as retained references to the formal roles of EU bodies in UK legislation, which will no longer apply to the UK after its exit from the EU.
The SIs amend primary and secondary domestic legislation, EU regulations and EU tertiary legislation(as they will apply in the UK after Brexit). In particular, the five SIs focused on are:
- The Electricity and Gas etc. (Amendments etc.) (EU Exit) Regulation 2019;
- The Gas (Security of Supply and Network Codes) (Amendment) (EU Exit) Regulations 2019;
- The Electricity Network Codes and Guidelines (Markets and Trading) (Amendment etc.) (EU Exit) Regulation 2019;
- The Electricity Network Codes and Guidelines (System Operation and Connection) (Amendment etc.) (EU Exit) Regulation 2019; and
- The Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019.
The Electricity and Gas etc. (Amendments etc.) (EU Exit) Regulation 2019
Although EU legislation will become retained EU law pursuant to the Withdrawal Act, the UK will no longer be able to participate in the mechanisms the EU legislation is designed to facilitate. Consequently, without amendment through the use of this SI, the legislation would become inoperable. For example, references to the roles and powers of “EU Institutions” and cross-border processes will be amended or removed. The SI also removes the role of the European Commission from the transmission system operator certification process, the ability of EU institutions to make ‘binding decisions’ on UK energy actors post-exit and amends the duties of the UK energy regulators to reflect the UK’s exit from the EU.
The Gas (Security of Supply and Network Codes) (Amendment) (EU Exit) Regulations 2019
Much of the EU legislation on the security of gas supply (eg. Regulation (EU) 2017/1938 (the “Gas Regulation”)) provides for processes, definitions and obligations relating to EU institutions and member states. This SI ensures that those provisions become operable domestically, following their conversion under the Withdrawal Act.
For example, it will amend the Gas Regulation to maintain alignment with EU rules in so far as possible, but will remove the requirement for the UK to facilitate gas sharing with EU Member States in the event of a gas emergency or where an EU Member State can no longer provide supply.
The SI will also amend the Network Code on Interoperability and Data Exchange Rules (INT), Harmonised Transmission Tariffs for Gas (TAR), Gas Balancing of Transmission Networks (BAL) and the Network Code on Capacity Allocation Mechanisms in the Gas Transmission System (CAM) to ensure operability once incorporated into domestic legislation.
The Electricity Network Codes and Guidelines (Markets and Trading) (Amendment etc.) (EU Exit) Regulation 2019
Mechanisms for wholesale electricity trading and allocation of capacity, as allowed for by EU legislation, will no longer be available to the UK in the event of a no-deal Brexit. This SI allows for the revocation of the Guidelines on Capacity Allocation and Congestion Management and the Forward Capacity Allocation Guideline, for which BEIS anticipate trade arrangements may be agreed with the EU. The Guideline on Electricity Balancing will be retained, although amendments will be made in respect of references to a European platform for the exchange of balancing energy, to which the UK will not have access, in the event of a no-deal Brexit. The SI also makes provision to permit TSOs to continue to operate irrespective of their participation in the Inter-Transmission System Operator Compensation (ITC) regime, whereby TSOs are required to pay and are paid for the cost of hosting cross border flows of electricity.
The Electricity Network Codes and Guidelines (System Operation and Connection) (Amendment etc.) (EU Exit) Regulation 2019
EU Legislation creates common standards and allows for cross-border cooperation in relation to the operation of the electricity system. In the event of a no-deal Brexit and following its retention, this legislation would otherwise become inoperable. This SI will amend the Guideline on Electricity Transmission System Operation (TSOG) in the UK, for example by removing provisions requiring information sharing between the UK and EU Institutions and TSOs. The Network Code on Electricity Emergency and Restoration (ER) will also be amended by limiting the GB System Operator’s obligations to provide emergency assistance solely to Northern Irish TSOs, rather than TSOs generally. It also removes the GB System Operator’s obligation to share information with non-UK TSOs.
BEIS also intends to incorporate the Connection Codes into UK domestic law under the Electricity and Gas (Powers to Make Subordinate Legislation) (Amendment) (EU Exit) Regulations 2018 following the SI’s amendment to revoke EU law relating to connections to electricity networks (Connections Codes).
The Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019
The market abuse regime under Regulation (EU) No 1227/2011 on Wholesale Energy Market Integrity and Transparency (“REMIT”) is to be retained. This SI provides for amendments to ensure its operability in the event of a no-deal Brexit. In order to achieve this, the SI will make amendments to ensure that Great Britain and Northern Ireland regulators can maintain market surveillance and enforcement powers and that market participants continue to publish relevant transparency data. There will also be a requirement for energy market participants to register with the appropriate national regulatory authority; the Gas and Electricity Markets Authority for Great Britain and the Northern Ireland Authority for Utility Regulation for Northern Ireland.
The government announced on 18 December that more than £2 billion additional funding is to be provided across 25 government departments for all Brexit scenarios, including the event of a no-deal, in continued preparation for the UK’s exit from the EU, to ensure that the UK will continue to have a well-functioning statute book and stable energy system.