Select committee inquiry
Pre-legislative scrutiny of the Government’s draft legislation on energy inquiry
Closed
What the inquiry looked at
“Government Response Pre-legislative scrutiny of the Government's draft legislation on energy: Government Response to the Committee's Sixth Report of Session 2015-16 Pre-legislative scrutiny of the Government's draft legislation on energy: Government Response to the Committee's Sixth Report of Session 2015-16 (PDF 208KB) The Government has published draft legislation on smart metering, supply and switching and competitive tendering for onshore transmission. The Committee is conducting pre-legislative scrutiny of these proposals to understand whether they are workable, necessary, efficient and clear. The Committee intends to publish a report in April so that the Department of Energy and Climate Change has time to consider its recommendations and, if appropriate, reflect them in the final legislation. Terms of reference: Pre-legislative scrutiny of the Government’s draft legislation on energy”
The committee's words, from the inquiry page on parliament.uk ↗.
What the government said
The government responded on 19 July 2016.
Summary written by Accountability Index from the government's response.
The Government welcomes the Committee's support for the draft energy legislation, agrees to some recommendations, such as an Ofgem impact assessment for code modifications, and declines others, such as a statutory right of appeal.
- On a statutory right of appeal against Ofgem code modifications, the Government "shares Ofgem's view" that judicial review is the most appropriate route, citing possible delay to switching and settlement programmes from an appeal to the Competition and Markets Authority.
- It agrees with the Committee's alternative approach: "amendments will be made to the legislation" to require Ofgem to produce an impact assessment alongside proposed code modifications, including for mandatory half-hourly settlement.
- It "does not intend to amend the draft legislation" to require project-specific impact assessments for competitive tendering, saying they would create uncertainty about the pipeline and lengthen the tender process.
- It confirms it will not commence the provisions on competition for distribution assets during the current RIIO-ED1 price control period, which runs until 2023, and would assess costs and benefits at the time of commencement.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 21 January 2016 to 19 July 2016.
- Oral evidence 2 sessions
- Report 4 May 2016
- Government response 19 Jul 2016
- Correspondence 2 letters
What it recommended 13 recommendations · 8 conclusions
1The extension beyond 2020 of the Secretary of State’s powers on smart metering has raised...
Recommended (the committee's words)
The extension beyond 2020 of the Secretary of State’s powers on smart metering has raised legitimate questions about whether the smart meter roll-out programme is on track to meet its 2020 target. We accept, however, that extending them until 2023 will enable the Secretary of State to address the outcomes of the programme in order to ensure its maximum benefits. We therefore support the extension of these powers, with the caveat that the Government must state whether the 2020 target is realistic and ensure that all those involved in the roll-out programme are committed to, and capable, of meeting it. We recommend that parliamentarians press the Government, during the passage of the Bill through Parliament, on what progress is being made towards achieving the 2020 roll-out target.
2Enabling consumers to switch suppliers as quickly as possible, and helping suppliers to obtain a...
Concluded (the committee's words)
Enabling consumers to switch suppliers as quickly as possible, and helping suppliers to obtain a more accurate understanding of their customers’ energy consumption, thereby allowing market participants to offer more competitive tariffs, are two significant undertakings. A more formal role for Ofgem to modify industry codes and licences in this area will help to ensure that the needs of consumers are put first. We therefore consider the proposals to give Ofgem the power to initiate modifications to industry codes to be necessary and proportionate. For too long the priorities of some in the industry have not aligned with those of consumers.
3Ofgem has provided assurances that it will work with stakeholders “up front” to develop industry...
Recommended (the committee's words)
Ofgem has provided assurances that it will work with stakeholders “up front” to develop industry code modifications. Given the draft measures, which ensure that Ofgem must also consult stakeholders after it has published its proposed changes, we understand why Ofgem suggests that any provision for an appeal against such changes on merit would be unnecessary. However, industry remains concerned that the draft provisions include the right only to a judicial review of the process, rather than to an appeal to the Competition and Markets Authority against the change itself. We recommend that the legislation be amended to include a statutory right of appeal. However, should this prove undesirable, we consider that the argument for Ofgem’s preferred approach would be bolstered if it was specifically required to produce an impact assessment when it publishes a notice of a proposed code modification in relation to the switching and settlement reform programmes.
4Mandatory half-hourly settlement may involve significant initial costs to industry and, by extension, to customers.
Recommended (the committee's words)
Mandatory half-hourly settlement may involve significant initial costs to industry and, by extension, to customers. It may also impact on individuals who are unable to switch their energy consumption to any effective degree. We are grateful to the Minister Pre-legislative scrutiny of the Government’s draft legislation on energy 35 for clarifying that his expectation is that Ofgem would conduct an impact assessment of mandatory half-hourly settlement. In order to leave no room for uncertainty we recommend that the legislation include the provision that Ofgem must conduct an impact assessment of mandatory half-hourly settlement.
5Settling against customers’ actual half-hourly electricity consumption represents a big step forward from the current...
Recommended (the committee's words)
Settling against customers’ actual half-hourly electricity consumption represents a big step forward from the current practice of settling on a non-half-hourly basis against average consumption profiles. But technological innovation will allow an increasing number of people to see how much energy they have consumed during periods shorter than 30 minutes. In turn, this will allow them to identify with even more precision when they can get the best value for money from their energy use. Such innovation is pushing the boundaries of existing regulation here and abroad, so the Government must ensure that the draft legislation and the detailed licences, codes and regulations that flow from it are, as far as possible, future-proofed, particularly in relation to moving beyond half-hourly settlement, should consumers and suppliers choose to.
6Competitive tendering for onshore transmission is in principle a positive step that should bring benefits...
Concluded (the committee's words)
Competitive tendering for onshore transmission is in principle a positive step that should bring benefits to consumers and communities. But the process of determining whether and how to tender for onshore transmission has still to be finalised. In particular, we have heard concerns that Scottish transmission operators would be differentially exposed to competition compared with their English and Welsh counterparts. Before introducing the Bill in Parliament the UK Government should consult further with Scottish stakeholders to ensure that there is a level playing field for transmission projects across Great Britain.
7Ofgem has consulted on a potential regime but it is clear from the responses to...
Recommended (the committee's words)
Ofgem has consulted on a potential regime but it is clear from the responses to that work and from evidence we have received that stakeholders have ongoing concerns and further clarity is needed. Our main concern is to ensure that value for money is at the heart of any decision to take a project through the competitive tendering process. To that end, we recommend that Ofgem clarify, before the draft Bill receives its Second Reading, what exactly it will be doing to mitigate against the risk of delaying projects that are subject to tendering.
8We also welcome the use of two different competitive tendering models for onshore transmission, which...
Recommended (the committee's words)
We also welcome the use of two different competitive tendering models for onshore transmission, which should provide different benefits for different projects. To ensure that efforts are concentrated on projects with the biggest potential benefits, we recommend that the legislation be amended to direct Ofgem to introduce project- specific impact assessments.
9We were given a clear example of how the draft legislation does not take account...
Recommended (the committee's words)
We were given a clear example of how the draft legislation does not take account of the planning regime in Scotland, which could lead in that part of Great Britain to project delays that do not occur elsewhere. We note the Minister’s evidence to us that officials in the Scottish and UK Governments are discussing the matter, and that he thinks it 36 Pre-legislative scrutiny of the Government’s draft legislation on energy can be “fairly readily overcome”. We recommend that the Government set out in this or other relevant legislation how the potential delays to late model projects due to Scotland’s planning regime will be overcome.
10We welcome the Government’s reassurance that competitive tendering for distribution assets will not take place...
Concluded (the committee's words)
We welcome the Government’s reassurance that competitive tendering for distribution assets will not take place until the end of the current RIIO-ED1 price control period in 2023; and that an impact assessment will be published before it is decided to give effect to the provision in further legislation. This should be reiterated as a clear undertaking by the Minister during the Second Reading debate on the draft Bill.
11The draft legislation includes a proposal to enable generators to build, test and operate, temporarily...
Recommended (the committee's words)
The draft legislation includes a proposal to enable generators to build, test and operate, temporarily without a licence, onshore transmission assets. We welcome the Government’s willingness to think very carefully about the points that have been made to us during our inquiry. There are concerns about the impact of such work on the wider transmission and distribution networks, and on other generators that wish to connect to them; and that provision should be made to deal with these issues while the generator is operating without a licence. We recommend that the Government undertake to consult further with the industry on, and to carry out a dedicated impact assessment of, this specific proposal before it is commenced through legislation.
12We ask the Government to explain why under the draft legislation an existing licence holder,...
Concluded (the committee's words)
We ask the Government to explain why under the draft legislation an existing licence holder, whose licence Ofgem seeks to modify as a result of the holder being awarded a competitive onshore transmission or distribution licence, has no right of appeal to the Competition and Markets Authority against the proposed modification.
13We ask the Government to clarify whether, in the event of a licence holder being...
Concluded (the committee's words)
We ask the Government to clarify whether, in the event of a licence holder being directed to act as a transmission owner of last resort, it would modify the licence to reflect any difference in costs required to deliver the project.
14Given the concerns we have highlighted earlier, about the potential for the legislation to create...
Recommended (the committee's words)
Given the concerns we have highlighted earlier, about the potential for the legislation to create an uneven playing field for transmission operators and consumers in Scotland and those in England and Wales, we recommend that the regulations setting out the criteria for those onshore transmission assets that may be competitively tendered, which the Secretary of State introduces under her powers in the schedule, be subject to the affirmative resolution procedure to ensure adequate scrutiny.
15We recommend the Government clarify why in the draft legislation a smart meter communications licensee...
Recommended (the committee's words)
We recommend the Government clarify why in the draft legislation a smart meter communications licensee administrator should have to operate under closer ministerial direction than an administrator exercising their responsibilities in relation to other energy licensees under the Energy Act 2004.
16Given the potential impact on consumer bills, we recommend that Parliamentarians pursue with Ministers the...
Recommended (the committee's words)
Given the potential impact on consumer bills, we recommend that Parliamentarians pursue with Ministers the provision enabling the Secretary of State to require a licensee to raise money to finance a smart meter communication licensee subject to a special administration regime. We recommend also that the Government explain why the draft legislation gives the Secretary of State the power to modify licences where she considers it “appropriate”, rather than, as under the Electricity Act 1989, where she considers it “necessary or expedient”.
17We recommend that the Government clarify why clauses 11 to 13 give Ofgem the power...
Recommended (the committee's words)
We recommend that the Government clarify why clauses 11 to 13 give Ofgem the power to modify a “document” rather than a “code” maintained in accordance with an energy licence; and explain why the draft legislation goes further than, for example, the Electricity Act 1989 and empowers Ofgem to “remove or replace all of the provisions” of a document or agreement.
18We recommend that the Government explain why it is seeking to broaden the range of...
Recommended (the committee's words)
We recommend that the Government explain why it is seeking to broaden the range of bodies from which it seeks to recover costs after an onshore transmission or distribution tender exercise to include those who made a connection request in relation to a previous tender exercise, and existing transmission and distribution licence holders.
19We ask the Government to clarify whether cost assessment costs are included in the tender...
Concluded (the committee's words)
We ask the Government to clarify whether cost assessment costs are included in the tender costs that Ofgem must account for when, as the draft legislation makes provision for, it must ensure that the total it has received in tender costs does not exceed the actual costs. If they are not included, we ask the Government to explain their omission from the calculation that Ofgem must make.
20We ask the Government to explain why it proposes to remove Ofgem’s seven-year limit on...
Concluded (the committee's words)
We ask the Government to explain why it proposes to remove Ofgem’s seven-year limit on transmission and distribution code modifications by virtue of the draft legislation’s omitting section 6H(8) of the Electricity Act 1989.
21The Government’s draft legislation on energy recognises a need for and provides for continued oversight...
Concluded (the committee's words)
The Government’s draft legislation on energy recognises a need for and provides for continued oversight and analysis of the smart meter programme; for the co- ordination of industry switching and settlement processes in the interests of consumers; and for the introduction of competition to some onshore transmission projects. It includes important and necessary provisions that, if enacted with certain amendments as described in this report, could help to drive innovation in the energy sector and potentially lower people’s energy bills.
Evidence
Oral evidence sessions 2
- 22 Mar 2016No witnesses recordedparliament.uk ↗
- 9 Mar 2016No witnesses recordedparliament.uk ↗
Correspondence 2 letters
- 12 Apr 2016Pre-legislative scrutiny of DECC's measures correspondence
- 26 Jan 2016Letter from Secretary of State regarding draft legislation on energyTo committee