Energy Act (Northern Ireland) 2011 Explanatory Notes

Energy Act (Northern Ireland) 2011

2011 CHAPTER 6

Commentary on Sections

Part 2 – Special administration regime for protected energy companies

Part 2 of the Act (sections 17 to 33) creates a special administration regime for gas conveyance and electricity transmission and distribution companies facing actual or threatened insolvency.  Usual insolvency arrangements would mean that, in the unlikely event that a utility becomes insolvent, the primary responsibility is towards creditors.  However, the Act provides for gas and electricity networks to remain in place and operational to ensure gas and electricity supply to customers can continue.  Responsibility for a utility which becomes insolvent will be transferred to a Special Administrator appointed by the High Court.  The Special Administrator will put the interests of energy consumers above those of creditors and shareholders.

Section 17 provides that a court may make an energy administration order appointing an energy administrator in relation to a protected energy company i.e. a company which holds a gas conveyance licence or an electricity transmission licence.   Subsections (1), (2) and (3) explain the terms "energy administration order" and "energy administrator" and how the energy administrator is to perform its duty.  Subsection (4) establishes that an energy administration order can only apply to the affairs and business of a non-NI company (i.e. a company incorporated outside Northern Ireland) which are carried out in Northern Ireland and to its property in Northern Ireland.  Subsection (5) sets out which licence holders may be subject to an energy administration order (i.e. all regulated natural monopolies in the energy sector).

Section 18 establishes that the objective of the energy administrator in performing its duty is (i) to secure that the company's system is maintained and developed as an efficient, economical and co-ordinated system; and (ii) to render the continuation of the energy administration unnecessary for this purpose by one of the means in subsection (2). Subsection (2) defines the means by which energy administration may be rendered unnecessary. These are either the rescue of the company as a going concern or transfers which satisfy subsection (3).   Subsection (4) provides examples of the types of transfer which may satisfy subsection (3).  Subsection (5) provides that rescue is to be preferred to transfer in achieving the objective of energy administration.  Transfers are only to be effected when rescue is not reasonably practicable without transfers, where the objective of the energy administration cannot be achieved through rescue without transfers or where such transfers would produce a better result for the creditors or members of the company.

Section 19 provides that an application for an energy administration order can only be made by the Department or by the Utility Regulator with the consent of the Department.  It also requires the applicant to give notice to relevant persons, listed in subsection (2), as soon as reasonably practicable after the making of the application.

Section 20 sets out the powers of the court in relation to an energy administration order.  Subsection (1) sets out the court's powers on hearing an application for energy administration.   Subsection (2) provides that the court can only make an energy administration order if it is satisfied that the company is insolvent, facing insolvency or that on a petition from the Department under Article 104A of the Insolvency Order it would be just and equitable (aside from the objective of energy administration) to wind up the company in the public interest.   Subsections (3) and (4) provide that in certain circumstances the court cannot make an energy administration order.   Subsection (6) provides that an interim order made under subsection (1)(d) may, amongst other things, restrict the exercise of a power of the company or its directors or confer a discretion on a qualified insolvency practitioner in relation to the protected energy company.   Subsection (8) provides that the company will be deemed to be insolvent in accordance with Articles 103 or 186 to 188 of the Insolvency Order.

Section 21 defines the status of the energy administrator.  It further provides that the administrator must exercise its management functions for the purpose of achieving the objective of the energy administration as quickly and efficiently as is reasonably practicable and that it must exercise and perform its powers and duties in the manner which, insofar as it is consistent with the objective of the energy administration, best protects the interests of the creditors of the company as a whole and, subject to those interests, the interests of the members of the company as a whole.

Section 22 gives the Department the power to make regulations for the purpose of applying provisions of the Insolvency Order (with or without modifications) in relation to an energy administration order or an application for such an order.  It also gives effect to the Schedule, which makes provision for transfer schemes to achieve the objective of an energy administration.

Sections 23 to 27 prevent an energy administration being frustrated by prior orders of various types being granted before the Department or the Utility Regulator have been given an opportunity to apply for an energy administration order or by other steps being taken when an energy administration order has been made or an application is outstanding.

Section 23 provides that a winding up order sought by a person other than the Department in respect of a protected energy company cannot be made unless notice has been served on the Department and the Utility Regulator and at least fourteen days have passed since the last of those notices was served. It also provides that if an application for an energy administration order is received before the winding up order is made; the court can consider that application instead of making the winding up order.

Section 24 prevents a protected energy company voluntarily winding itself up without the permission of the court and prevents the court from granting permission unless notice has been served on the Department and the Utility Regulator and at least fourteen days have elapsed since the service of the last of those notices. It also provides that if an application for an energy administration order is received before such permission is given, the court can consider that application instead of granting the permission.

Section 25 prevents a protected energy company entering ordinary administration if it is already in energy administration, or an energy administration order has been made but is not yet in force.  It also provides that an ordinary administration order must not be granted by the court and the court must not exercise its powers under paragraph 14 of Schedule B1 to the Insolvency Order (including its powers to make interim orders) unless notice has been served on the Department and the Utility Regulator, fourteen days have elapsed since the service of the last of those notices, and no energy administration order is outstanding.

Section 26 provides that an administrator cannot be appointed for a company by its secured creditors, directors or the company itself, if an energy administration order in relation to the company is in force, has been made but is not yet in force, or has been applied for. An administrator cannot be appointed to a protected energy company unless none of the above conditions apply and, additionally, the Department and the Utility Regulator have been served with copies of all relevant documents filed or lodged with the court and at least 14 days have elapsed since the service of the last of these copies.

Section 27 provides that security over the property of a protected energy company cannot be enforced unless the Department and the Utility Regulator have been notified of the intention to enforce the security and at least 14 days have elapsed since the service of the last of those notices.

Section 28 enables the Department, with the consent of the Department of Finance and Personnel, to give a grant or loan to a company in energy administration where this appears to the Department to be appropriate to achieve the objective of energy administration.  Specifically, subsections (2), (3), (4) and (5) enable the Department to set the terms of a grant or loan including: requiring whole or part of a grant to be repaid if other terms on which the grant is made are breached and setting terms for the grant of any loan - i.e. terms for repayment of a loan, the rates of interest due on it and changing these loan terms by direction.  Subsection (6) requires the Department to secure Department of Finance and Personnel consent before giving grants or loans and giving any directions in respect of the terms on which any loan is granted under subsection (5) of this section.

Section 29 enables the Department, with the consent of the Department of Finance and Personnel, to indemnify persons in respect of liabilities incurred or loss or damage sustained in connection with the exercise of the energy administrator's powers and duties.  Specifically, subsections (2), (3), (4) and (5) enable the Department to set the terms of an indemnity.  Where any sums are paid out by the Department (in respect of the indemnity) to the energy administrator, the Department can direct that the protected energy company make a payment towards the repayment of those sums, together with interest.  Subsection (6) provides that subsection (4) does not apply if the sums paid out by the Department are paid to the company in energy administration.  Subsection (7) requires the Department to secure Department of Finance and Personnel consent before setting any of the terms of an indemnity under subsections (2), (4) and (5).  Paragraph (b) of subsection (8) enables the Department to agree to indemnify persons who subsequently become relevant to the energy administration e.g. persons who become employees of the energy administrator in the course of the energy administration.  Subsection (9) specifies the categories of person who may be indemnified under the terms of this section.

Section 30 enables the Department, with consent of the Department of Finance and Personnel, to provide guarantees in relation to a protected energy company in energy administration.  Specifically, subsections (2) and (3) set out that the Department may guarantee sums borrowed by the protected energy company, the payment of interest on those sums and the discharge of any other related financial obligation, and that the Department may set the terms of the guarantee as it sees fit.  Subsection (4) requires the Department to lay a statement before the Assembly as soon as practicable after any guarantee is made.  Subsections (5) and (6) enable the Department, where any sums are paid out by him in respect of the guarantee to direct that the protected energy company pay such amounts as are directed towards the repayments and interest on those amounts whilst they are outstanding.  Subsections (7) and (8) require the Department to lay a statement before the Assembly about any sum paid out under such a guarantee as soon as practicable after the end of the first financial year in which a payment is made and at the end of every subsequent year until the company has discharged the liability.  Subsection (9) requires the Department to obtain Department of Finance and Personnel consent before giving any guarantee or direction under subsection (5) or (6) of this section.

Sections 31 and 32 enable the Department to modify the conditions of gas and electricity licences. It outlines that such modifications can provide for circumstances where there is a shortfall in the property of a protected energy company, which is or has been in energy administration, for meeting the costs of energy administration.  In particular, the Department can require that in such circumstances the protected energy company or its successor raises a levy on other energy companies and uses the sums raised to discharge debts incurred during energy administration. These will include sums paid by the Department under sections 28, 29 and 30.

Specifically, in section 31, subsection (1) enables the Department to modify the conditions of any one particular licence and the standard conditions of gas and electricity licences in relation to the new regime for energy administration.  Subsection (2) extends the power under subsection (1) to include the making of incidental, consequential or transitional modifications.  Subsection (3) and (4) require the Department to consult the holder of any licence being modified and anyone else it thinks appropriate before making a modification.  Subsections (5) and (6) require the Department to publish modifications made under this section.  Subsection (8) requires the Utility Regulator to incorporate any modification of standard conditions made by the Department into new licences it grants and to publish these modifications.   Subsection (9) limits the exercise of the powers under this section to the eighteen months after commencement of this section.

Section 32 outlines how the Department can amend the conditions of gas and electricity licences to secure the funding of energy administration.  Subsection (1) specifies that the modifications that the Department can make to gas and electricity licences include requiring the holder of the licence to raise the charges imposed by him so as to raise such amounts as may be determined and to pay the amounts raised to specified persons for the purpose of making good a "shortfall" (as defined in subsection (3)) in the property of a protected energy company available to meet the expenses of energy administration, or for contributing to the making good of such a shortfall.  Subsection (2) provides that the modifications may require a licence holder to which the sums raised under subsection (1) are paid to apply those sums towards discharging the "shortfall".  Subsection (3) defines a "shortfall" in meeting the expenses of energy administration as the property of the company being insufficient to meet the costs of energy administration. It also defines making payment to make good the shortfall as discharging "relevant debts" which cannot otherwise be met out of the available property.  Subsection (4) defines "relevant debts". These include obligations to repay the grants, loans, sums paid out under an indemnity and sums paid out under guarantees under sections 28, 29 and 30.

Section 33 defines the terms used in Part 2, and how certain references are to be interpreted.