RESTRICTED

(DPRR/10-11/29)

ENERGY BILL

Memorandum from DECC to the Delegated Powers and Regulatory Reform Select Committee

  1. INTRODUCTION
  1. This Memorandum identifies the provisions in the Energy Bill which confer power to make delegated legislation. It explains the purpose of the delegated power proposed; why the matter is to be dealt with in delegated legislation; and the nature and justification for any parliamentary procedures which is proposed.
  2. Most of the delegated powers are to be exercised by the Secretary of State (or, in some cases, the Scottish Ministers) by statutory instrument. However the Bill also confers powers on the Lord Chancellor. In addition, clause 76 extends an existing power under the Continental Shelf Act 1964 to make Orders in Council.
  3. The Bill contains 54 individual provisions for delegated legislation. Annex A provides a reference for all delegated powers in the Bill.
  4. The descriptions of the powers are arranged in the order that they appear in the Bill. For completeness, the narrative presented in this memorandum describes each part of the Bill. Where there are no legislative powers conferred on the Secretary of State or others under a particular part of the Bill that is noted in the text.
  1. BACKGROUND

Policy context

  1. The Coalition Programme, published in May 2010, set out the Government’s commitments on energy and climate change, with a focus on supporting the transition to a secure, safe, low-carbon, affordable energy system in the UK, and mobilising commitment to ambitious action on climate change internationally. This was followed by the Government’s first Annual Energy Statement on 27 July 2010 outlining the commitments in more detail, and setting strategic energy policy to guide investment.
  2. Both documents make it clear that the move to a secure, low-carbon energy system in a cost-effective way is extremely challenging; with the need for a clear, transparent, long-term policy framework fundamental to a smooth transition and to take advantage of a huge economic opportunity. DECC’s Business Plan focuses on the specific actions government is taking to implement the necessary reforms and provides the policy framework that will act as a catalyst for households, business and private investors to invest to deliver a UK energy system fit for the 21st century.
  3. The Energy Bill seeks to provide for some of the key elements of these documents that Government has committed to and is ready to legislate on; and will be a first step in the legislative programme to meet DECC’s goals. Further legislation will be sought later in the Parliamentary session to implement work on fulfilling DECC’s objectives as set out in DECC’s Business Plan, published November 2010, and as a result of the recent Spending Review.
  1. OVERVIEW OF THE BILL
  1. The Bill is in five parts:

Part 1: Energy efficiency bytackling barriers to investment in energy efficiency by launching the Green Deal and measures to maximise uptake, introducing a new Energy Company Obligation from 2012 to underpin the Green Deal, making energy performance data from Energy Performance Certificates more widely available, extending powers to direct the roll out of smart meters and requiring cheapest tariff information on energy bills.

Part 2: Security of energy supplies by enhancing energy security through better monitoring of future electricity security; strengthening market incentive mechanisms for ensuring sufficient gas is available during a gas supply emergency; improving third party access to UK oil and gas infrastructure; putting in place a special administration regime for gas and electricity suppliers; and providing flexibility in managing the UK continental shelf resource.

Part 3:low carbon generation by enabling implementation of the enduring offshore electricity transmission regime beyond 2010 and giving investors in new nuclear increased certainty over their obligations.

Part 4: Coal Authority by extending the powers of the Coal Authority to allow it to act (and charge for services) in relation to water pollution not from coal mines and subsidence not caused by coal mining activities.

Part 5: Miscellaneous and General includes the repeal of the Home Energy Conservation Act (HECA) 1995.

  1. TERRITORIAL EXTENTAND APPLICATION
  1. With regards to the territorial extent of the Bill:

This Bill extends to England and Wales, Scotland and Northern Ireland, as described below.

All provisions in the Bill apply to Wales.All matters are reserved in respect of Wales.

Only the provisions related to the continental shelf and nuclear funded decommissioning programmes extend to Northern Ireland.Both these matters are reserved in respect of Northern Ireland.

The Bill extends to Scotland, except where the Bill amends legislation which does not itself extend to Scotland (see for example, clause 99 [j121] containing provisions on decommissioning nuclear sites).

Parts 2 and 3 relate to reserved matters. In Part 1, aspects of the Green Deal (Chapter 1), Private Rented Sector (Chapter 2) and Energy Company Obligation (Chapter 4) may relate to devolved matters, as may clause 71 [j020c] in Chapter 5 (access to register of energy performance certificates: Scotland) and the provisions about the Coal Authority’s functions in Part 4. The repeal of the Home Energy Conservation Act (Part 5) is devolved to Scotland. A Legislative Consent Motion will therefore be required for the devolved matters.

  1. All three administrations have had an opportunity to provide input into the clauses.
  1. PROVISIONS FOR DELEGATED LEGISLATION

PART 1 - ENERGY EFFICIENCY

Chapter 1: Green Deal - Overview

This Bill will establish a Green Deal scheme to tackle the current lack of investment in energy saving measures in homes and non-domestic buildings that has resulted in many properties with poor energy efficiency ratings. The Green Deal will consist of a financial framework that will enable energy saving measures to be paid for in instalments via energy bills, avoiding the need for upfront capital outlay by owners or occupiers.

The key elements and principles of the Green Deal scheme are set out on the face of the Bill. Further detailed work will be undertaken to give effect to these provisions. Therefore, the Department considers that it is appropriate to address the detailed design of the scheme in secondary legislation.

Clause 1: Green deal plans

Power conferred on:Secretary of State

Power exercised by:Order

Parliamentary procedure:Negative resolution

  1. This clause sets out what constitutes an ‘energy plan’ and a ‘green deal plan’. It allows the Secretary of State to set out in an order: (i) the descriptions of energy efficiency measures which can be installed under a green deal plan (paragraph (b) of subsection (4)) and, (ii) any descriptions of property which are ineligible for green deal plans (subsection (9).
  2. The Secretary of State needs to be able to specify the kindsand descriptions of measure which can be paid for by bill payments on energy bills of a property to ensure that the Green Deal delivers in its aim to reduce energy use from buildings through fixed assets that give energy efficiency benefits to successive bill payers. This power will be used to ensure that only suitable measures can be installed under a ‘green deal plan’. For example, the Secretary of State is unlikely to approve measures that are likely to be removed if the property changes hands. The ability to make regulations rather than specify the measures on the face of the Bill is necessary to allow for amendments to cater for changes to the types and criteria for the measures as the technologies and economics evolve.
  3. Similarly, there may be certain types of property for which ‘green deal plans’ are not suitable; for example, properties subject to a compulsory purchase order. The Secretary of State needs to be able to specify in an order any types of property for which green deal finance is not available, which may change over time.
  4. The Department judges that the negative procedure is appropriate for these matters, as it strikes the right balance between giving Parliament opportunity for scrutiny, whilst recognising the provision is of an administrative nature.

Clause 2: Green deal plans: supplementary

Power conferred on:Secretary of State

Power exercised by:Order and regulations

Parliamentary procedure:Negative

  1. Subsections (4), (5) and (6) enable the Secretary of State to extend, by order, the meaning of the term “energy efficiency improvements” beyond the definition at subsection (4) of the clause. The power would enable the Secretary of State, if he thought it appropriate, to include in the green deal measures which:

(a)Improve efficiency in the use of sources of energy other than electricity or gas;

(b)Generate electricity or gas by microgeneration or by other low-emissions sources or technologies;

(c)Reduce the consumption of electricity or gas;

(d)Enable the property to be supplied with electricity or gas from a generating station which produces both electricity and heat or a cooled gas or liquid.

  1. These provisions are similar to powers contained in section 33BC Gas Act 1986 and section 41A Electricity Act 1989, which govern the measures which can be included in an order establishing carbon emissions reduction targets. They are included here so that the green deal can be extended at a future date, if the Secretary of State considers it appropriate, to measures other than those which improve efficiency in the use of electricity or gas.
  2. The Department considers that the negative procedure is appropriate for this order, as it is technical in nature and narrow in scope. This is in contrast to orders made under section 33BC Gas Act or section 41A Electricity Act 1989, which make similar provision as part of an order dealing with the wider exercise of establishing carbon emissions reduction targets, and hence are subject to the affirmative procedure.
  3. Subsection (10) allows the Secretary of State to define in regulations certain terms used in this Chapter of the Bill. The Secretary of State needs the flexibility to be able to define certain terms in regulations to allow for the inevitable evolution of the policy on the operation and availability of ‘green deal plans’. The Secretary of State should be able to define “energy”, “energy bill” and “relevant energy supplier”, so as to specify whether payments under a ‘green deal plan’ are collected via electricity bills, gas bills or both. The decision on this may change as:our understanding of the how the Green Deal is functioning evolves following its launch; in light of continuing analysis as to whether payments should be collected via electricity or gas bills or both; and in response tofuture developments in the energy industry (such as the introduction of smart meters). In addition, the Secretary of State needs to be able to specify the types of person who can enter into a green deal plan as “owner” or “occupier” of a property.
  4. The Department judges due to the technical nature of these issues, the negative procedure is appropriate for these regulations,which will be limited in scope.

Clause 3: Framework Regulations

Power conferred on:Secretary of State

Power exercised by:Regulations and Codes of Practice

Parliamentary procedure:Affirmative resolution for regulations, none for

Codes of Practice

  1. The objective of these provisions is to create the framework to determine what standards those operating under the Green Deal banner must maintain, whether they be assessors, installers or providers.
  2. This clause givesthe Secretary of State power to establish, through regulations referred to as the “framework regulations”, a scheme for authorising persons to act as Green Deal assessors, installers or providers (referred to collectively as “green deal participants”), and for regulating their conduct. Subsection (3) lists examples of the matters that may be dealt with in the scheme. These include provision for payment of an authorisation fee, the issuing of a code of practice, and establishing a register of green deal participants and persons from whom authorisation has been withdrawn. Authorised Green Deal participants may be required to comply with Codes of Practice, and subsections (4) and (5) list examples of the matters that may be dealt with in the Code of Practice.
  3. Subsection (7) provides that the scheme or code of practice can also deal with matters connected to energy plans which are not green deal plans. This will enable customers to benefit from the assurance that the scheme provides in cases where they wish to carry out energy efficiency improvements but do not wish to pay for them under a green deal plan.
  4. Subsection (8) gives examples of the kind of provision that may be made in the scheme for securing compliance with the conditions of authorisation. This can include cancellation or suspension of a bill payer’s liability to make green deal payments, requiring a green deal participant to rectify improvements installed or to pay compensation or a financial penalty.
  5. It is vital to the success of the Green Deal that the scheme’s reputation is protected and that customers are supported with robust systems of assurance and redress. This will provide confidence to customers looking to take out a Green Deal plan, protect future bill payers at a Green Deal property and allow the Secretary of State to monitor progress of the Green Deal.
  6. The Department believes it to be appropriate to establish the scheme in regulations as it will set out detailed requirements which will need to change as Green Deal finance develops and matures.
  7. The scheme and provisions governing sanctions will bedetailed and fundamental to ensure customers and successive bill payers are adequately protected and that Green Deal participants operate to appropriate standards. Accordingly, we suggest that the framework regulations should be subject to the affirmative procedure to provide Parliament with the appropriate level of scrutiny.
  8. On the other hand, the code of practice will deal with more practical issues regarding green deal participants’ conduct in specified situations (e.g. complaints handling, qualifications and marketing). As such we do not consider that Parliamentary scrutiny should be necessary for the code of practice.

Clause 4: Assessment of the property etc

Power conferred on:Secretary of State

Power exercised by:Regulations

Parliamentary procedure:Affirmative

  1. This clause provides (subsection (1)(b)) that the Secretary of State may provide for conditions as to the assessment of the property in the framework regulations, in addition to those specified in subsections (2) to (9) of the clause.
  2. The purpose of these conditions is to ensure bill payers and building owners are protected against inappropriate Green Deal plans being set up.
  3. Subsections (2) to (9) set out the conditions which have been identified. However, the Secretary of State needs to be able to provide for further conditions if it becomes clear that provision is needed, for example, as Green Deal finance evolves. This power might be used, for example, to make provision requiring improvers to provide proof of any necessary consents to the proposed energy efficiency instalments (e.g. planning permission, if required).
  1. Subsections (4) to (7) enable the Secretary of State to make provision in relation to specified matters, that is(i) the calculation of the estimated savings on energy bills resulting from the improvements, (ii) the calculation of the estimated period for which those improvements will result in savings on energy bills (i.e. the estimated useful life of the improvements), (iii) the relationship between the estimated amount of the instalments and the estimated savings on energy bills, and (iv) the relationship between the period over which instalments are to be paid and the estimated useful life of the improvements. This will be used to make provision designed to ensure that improvements “pay for themselves” by generating energy bill savings which are similar to the amount of green deal payments. This needs to be done in regulations as the provision will be detailed and complex, and will change as the green deal develops and new types of measure are included.
  2. We propose this provision should be made as part of the framework regulations provided for in clause 3(3). As the provision made here is central to government ensuring that customers and bill payers are protected, the Department believes the affirmative procedure is appropriate.

Clause 5: Terms of plan etc

Power conferred on:Secretary of State

Power exercised by:Regulations

Parliamentary procedure:Affirmative resolution

  1. This clause sets out the conditions as to the terms of a ‘green deal plan’. Subsection (1)(b) provides that the Secretary of State may provide for further conditions as to terms in the framework regulations.
  1. As with clause 4, the purpose of this clause is principally to ensure that customers and bill payers are adequately protected. Subsections (2) to (4)to (4) set out specific conditions as to the terms of a Green Deal plan. However, the Secretary of State needs to be able to provide for further conditions if it becomes clear that they are required. It may, for example, become apparent that we need to prescribe financial terms in order to ensure access to the capital markets and low cost finance.
  2. There are also some matters which it is intended should be provided for but the detail of which needs to be set out in regulations, because it is likely to change as the green deal develops. These are listed in subsection (5), and are (i) terms regarding voluntary early repayment, (ii) any requirement for improvements to be guaranteed, and (iii) provision for dealing with problems with measures or installation of measures.

Clause 6: Consents and redress etc

Power conferred on:Secretary of State

Power exercised by:Regulations

Parliamentary procedure:Affirmative

  1. Subsection (1) enablesthe framework regulations to make provision for cases where (i) the improver and bill payer are different people (e.g. in a rented property) and (ii) cases where the identity of the bill payer changes during the course of the green deal plan. This power is required to ensure that appropriate provision can be made to bind and benefit bill payers who did not themselves instigate the green deal plan, but who are nevertheless required to make green deal payments. Given that provision will address the detailed terms of green deal plans, this needs to be done in regulations rather than in the Bill, so that it can reflect provision made in the framework regulations as to the terms of the plan (see clause 5).
  2. Subsections (4) and (5) enable the Secretary of State to provide in the framework regulations for redress in cases where it transpires that the improver falsely or improperly confirmed that all necessary consents to the improvements had been obtained (see subsection (2)(b) of clause 5). In particular, the regulations can provide for suspension or cancellation of liability to make green deal payments, or for the refund of payments already made, and for compensation to be paid by the improver to the green deal provider in respect of cancelled, suspended or refunded payments. This provision is necessary to protect bill payers who might otherwise be in a position where they were liable to pay for improvements which had been required to be removed from the property (e.g. by a planning authority, or an owner of the property) as a result of consent not having been obtained.
  3. It is appropriate to make the provision provided for in this clause in the framework regulations, rather than the Bill, as the detailed arrangements may be subject to change as the green deal develops. As explained above, we consider that the framework regulations should be subject to the affirmative procedure.

Clause 7: Installation of improvements