The Gas and Electricity (Internal Markets) Regulations (Northern Ireland) 2011

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations inter alia amend the Electricity (Northern Ireland) Order 1992 (“the Electricity Order”), the Gas (Northern Ireland) Order 1996 (“the 1996 Gas Order”), the Energy (Northern Ireland) Order 2003 (“the Energy Order”), the Energy Act (Northern Ireland) 2011 (“the Energy Act”) and the Electricity (Applications for Licences and Extensions of Licences) (No. 2) Regulations (Northern Ireland) 2007 to ensure that they conform with the requirements of:

(1) Directive 2009/72/EC of the European Parliament and of the Council concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (“the Electricity Directive”);

(2) Directive 2009/73/EC of the European Parliament and of the Council concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (“the Gas Directive”);

(3) Regulation (EC) No. 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No. 1228/2003 (“the Electricity Regulation”);

(4) Regulation (EC) No. 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No. 1775/2005 (“the Gas Regulation”); and

(5) Regulation (EC) No. 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (“the Agency Regulation”).

Part I

Part I contains certain introductory provisions and definitions of terms used in these Regulations.

Part II

Part II implements certain provisions of the Electricity Directive and the Gas Directive dealing with the protection of electricity and gas consumers. In particular—

(a) Regulation 3 amends Article 12(3) of the Energy Order to require the Department of Enterprise, Trade and Investment (“the Department”) and the Northern Ireland Authority for Utility Regulation (“the Authority), in carrying out their electricity functions, to have regard to the need to protect certain categories of electricity customers, consistent with the Electricity Directive;

(b) Regulation 4 amends Article 14(3) of the Energy Order to require the Department and the Authority, in carrying out their gas functions, to have regard to the need to protect certain categories of gas customers, consistent with the Gas Directive;

(c) Regulations 5 and 6 amend Articles 26 and 42A of the Electricity Order to provide for a defined period of time for resolution of disputes;

(d) Regulation 7 substitutes a new Article 47A in the Electricity Order, in place of the existing Article 47A, giving the Authority, or an arbitrator appointed by the Authority, power to determine electricity billing disputes and sets out requirements regarding such determination;

(e) Regulation 8 inserts a new Article 24A into the Gas Order, giving the Authority, or an arbitrator appointed by the Authority, power to determine gas billing disputes and sets out requirements regarding such determination; and

(f) Regulation 9 amends Section 2 of the Energy Act to provide for a defined period of time for resolution of disputes.

Part III

Part III implements certain provisions of the Electricity Directive and the Gas Directive which provide for a new unbundling regime for transmission system operators. This new regime requires the full separation of electricity and gas transmission activities from production and supply activities and for the certification of operators approved under procedures laid down in the Electricity Regulation and the Gas Regulation. Under the Directives there are a number of different models for the achievement of this unbundling and the Regulations set out the different grounds that an operator must satisfy for each model. In particular—

(a) Regulation 10 inserts new Articles 10B to 10L into the Electricity Order, which sets out the process for the certification and designation of electricity transmission system operators;

(b) Regulation 11 provides for the modification of electricity licence conditions where the Authority is minded to make a final decision on certification;

(c) Regulation 12 inserts new Articles 8B to 8L into the Gas Order, which set out the process for the certification and designation of persons who convey gas through gas transmission pipelines; and

(d) Regulation 13 provides for the modification of gas licence conditions where the Authority is minded to make a final decision on certification.

Part IV

Part IV provides for the modification of gas and electricity licence conditions to implement certain requirements of the Electricity Directive and the Gas Directive. In particular—

(a) Regulation 14 substitutes a new Article 11A in the Electricity Order, requiring the inclusion of appropriate conditions in licences to ensure that the authorised activities comply with various requirements of the Electricity Directive; and

(b) Regulation 15 substitutes a new Article 10A in the Gas Order, requiring the inclusion of appropriate conditions in licences to ensure that the authorised activities comply with various requirements of the Gas Directive.

Part V

Part V provides for the introduction, under the Electricity Order, of a separate prohibition on the unauthorised distribution of electricity, creates a licensing regime for distribution and widens the scope of duties of electricity distribution system operators. In particular—

(a) Regulation 16 amends Article 3 of the Electricity Order to include a new definition of “distribution licence” and an amended definition of “electricity distributor”;

(b) Regulation 17 inserts a new sub-paragraph (bb) into Article 8(1) of the Electricity Order to introduce a new prohibition on unauthorised distribution of electricity for the purposes of giving a supply to any premises or enabling a supply to be so given;

(c) Regulation 18 amends Article 9 of the Electricity Order to provide for the Department to make exemptions from the requirement to hold a distribution licence, to provide for electricity licence exemptions to be granted subject to conditions and to provide for a power of revocation of such exemptions where the conditions are not complied with;

(d) Regulation 19 amends Article 10 of the Electricity Order to provide for the grant of distribution licences;

(e) Regulation 20 inserts a new Article 10AA into the Electricity Order to provide for distribution licences to be granted for a particular area;

(f) Regulation21 and Regulations 23 to 30 make consequential amendments to the Electricity Order;

(g) Regulation 22 amends Article 12 of the Electricity Order to widen the scope of duties of the holder of a distribution licence, to ensure that those duties reflect the requirements of the Electricity Directive for long-term planning and security of supply;

(h) Regulation 31 suspends the effect of the new prohibition on the unauthorised distribution of electricity until 30 September 2012 and Regulation 32 provides for the extension of that date;

(i) Regulation 33 amends the Electricity (Applications for Licences and Extensions of Licences) (No. 2) Regulations (Northern Ireland) 2007 to provide for the making of applications for distribution licences, and given effect to Schedule 2 of these Regulations which provide for the form or application for a distribution licence and the documents and particulars that to accompany the application; and

(j) Regulation 34 makes consequential amendments to the Energy Order.

Part VI

Part VI implements certain provisions of the Electricity Directive and the Gas Directive dealing with national regulatory authorities and cross-border co-operation within the European Union. In particular—

(a) Article 35 inserts:

(i) a new Article 3A(1) into the Energy Order, designating the Authority as national regulatory authority for Northern Ireland;

(ii) a new Article 3A(2) into the Energy Order, requiring the Authority to ensure that its staff act independently; and

(iii) a new Article 3A(3) into the Energy Order, providing for the Authority to make representations to the energy regulator in Great Britain for the purposes of representing the interests of Northern Ireland at meetings of the Agency for the Cooperation of Energy Regulators;

(b) Regulation 36 inserts:

(i) a new Article 6A into the Energy Order requiring the Authority to prepare each year a report on its activities as designated regulatory authority for Northern Ireland; and

(ii) a new Article 6B into the Energy Order to provide for the implementation by the Authority of decisions of the Agency for the Cooperation of Energy Regulators and of the European Commission;

(c) Regulation 37 inserts new paragraphs (5) and (6) into Article 7 of the Energy Order to provide for the preparation by the Authority of guidance for customers (the consumer checklist);

(d) Regulation 38 inserts a new Article 8A into the Energy Order, requiring the Authority to have regard to the need for consultation and cooperation with other regulatory authorities;

(e) Regulations 39 to 42 amends Articles 12(1) and 14(1) of the Energy Order, as well as making some consequential amendments, to align the Authority’s principal objectives for electricity and gas with the Directives;

(f) Regulations 43 and 44 amend Article 62 of the Energy Order to expand the Authority’s obligation to give reasons for its decisions;

(g) Regulation 45 amends Schedule 2 to the Energy Order, by inserting a new paragraph 2A and substituting paragraph 3, to strengthen the provisions dealing with the independence of the Authority and its board members;

(h) Regulation 46 amends Article 6(3) of the Energy Order to strengthen the autonomy of the Authority;

(i) Regulations 47 to 54 make various amendments to the Electricity Order to vest in the Authority, rather than the Department, the power to grant electricity licences and to allow for the determination, publication and modification of standard licence conditions for electricity licences, to align the licence provisions with those under the Gas Order;

(j) Regulation 55 substitutes a new Article 31A(1) in the Electricity Order to widen the scope of disputes to be resolved by the Authority pursuant to that Article;

(k) Regulation 56 amends Article 50(2) of the Electricity Order to strengthen the autonomy of the Authority;

(l) Regulation 57 inserts a new paragraph 3B into Article 50 of the Electricity Order, to widen the Authority’s monitoring functions in relation to electricity;

(m) Regulations 58 to 66 make various amendments to provisions of the Gas Order to vest in the Authority, rather than the Department, the power to grant gas licences;

(n) Regulations 67 and 68 amend Article 27(2) and Article 30(2) of the Gas Order respectively, to strengthen the autonomy of the Authority;

(o) Regulation 69 inserts a new paragraph 3B into Article 27 of the Gas Order, to widen the Authority’s monitoring functions in elation to gas; and

(p) Regulation 70 substitutes a new Article 27A(1) in the Gas Order to widen the scope of disputes to be resolved by the Authority pursuant to that Article.

Part VII

Part VII amends the Authority’s enforcement powers under the Energy Order, to implement certain requirements of the Electricity Directive and the Gas Directive and to give the Authority power to enforce certain requirements of the Electricity Regulation and the Gas Regulation. In particular;

(a) Regulations 71 to 74 amend Articles 41 to 52 of the Energy Order, to extend the enforcement power to all persons regulated under the Electricity Order and the Gas Order, not just licence holders;

(b) Regulation 75 substitutes the definition of “relevant requirements” in Article 42(2) of the Energy Order to refer to new Articles 41A and 41B of the Energy Order;

(c) Regulation 76 inserts a new Article 41A into the Energy Order to clarify the meaning of “relevant requirements” in the context of electricity and to include relevant provisions under the Electricity Directive and the Electricity Regulation. It also inserts a new Article 41B into the Energy Order to clarify the meaning of “relevant requirements” in the context of gas and to include relevant provisions under the Gas Directive and the Gas Regulation;

(d) Regulation 77 substitutes a new Article 45(9) in the Energy Order to allow the maximum penalty that may be imposed by the Authority in relation to the contravention of certain requirements of the Directives to be calculated by reference to the turnover of vertically integrated undertakings; and

(e) Regulations 78 and 79 make consequential amendments to the Electricity Order.

Part VIII

Part VIII (Regulations 89 to 89) makes consequential amendments to the Electricity Order, the Gas Order, the Energy Order and the Energy Act.

Part IX

Part IX sets out various transitional provisions. In particular—

(a) Regulation 90 provides for the existing transmission licence held by Northern Ireland Electricity plc to be treated as a transmission licence and distribution licence, and also provides for the separation of the terms and conditions of the existing licence into the two successor licences;

(b) Regulations 91 and92 provide for the modification of existing electricity and gas licences to ensure compliance with the provisions of the Electricity Directive and the Gas Directive;

(c) Regulation 93 provides for transitional provisions dealing with the terms of appointment of members of the Board of the Authority, applying to those members of the Board who have already been appointed at the date these Regulations come into operation; and

(d) Regulation 94 gives effect to Schedule 1 of these Regulations. Schedule 1 gives the authority powers to make certain property arrangements schemes, where required pursuant to the transmission unbundling provisions set out in Part III.