After section 8Q of the Gas Act 1986 M1 insert—

“Storage facilities: independence

8RIndependence of storage facilities

(1)

This section applies to a storage facility unless a minor facility exemption is in force in respect of that facility under section 8S.

(2)

The owner of a storage facility to which this section applies must, notwithstanding any licence held by the owner, refrain from producing gas in an EEA state.

(3)

The owner must also, notwithstanding any licence held by the owner, refrain from carrying out any of the following activities in an EEA state except to the extent that the activity is necessary for the efficient operation of the storage facility or of another facility used by the owner to store gas—

(a)

the supply to any premises of gas which has been conveyed to those premises through pipes;

(b)

the making of an arrangement with a gas transporter for gas to be introduced into, conveyed by means of or taken out of a pipe-line system operated by that gas transporter;

(c)

any other sale of gas.

(4)

If an affiliate of the owner carries out in an EEA state an activity which, under subsection (2) or (3), the owner must refrain from carrying out, the owner must operate the storage facility independently of the interests of that affiliate and must, in particular, ensure that—

(a)

no senior officer or manager of the owner is a senior officer or manager of the affiliate;

(b)

if a senior officer or manager of the owner has an interest in the affiliate that conflicts, or is likely to conflict, with the interests of the storage facility, the owner maintains procedures to ensure that the storage facility is operated independently of that interest in the affiliate;

(c)

the owner is entitled to take decisions without the consent of that affiliate in respect of any assets necessary to operate, maintain or develop the storage facility; and

(d)

the owner does not take instructions from the affiliate regarding day to day operations or individual decisions concerning the construction or upgrading of the storage facility.

(5)

Subsection (4)(c) and (d) does not prevent a parent undertaking of the owner from requiring the owner—

(a)

to obtain the parent undertaking's approval of the owner's annual financial planning;

(b)

to comply with restrictions on the owner's overall indebtedness.

(6)

The owner must establish a programme (the “independence programme”) in relation to the owner's senior officers, other officers, managers and employees for the purpose of ensuring that they do not cause the owner to—

(a)

discriminate against persons who are not affiliates of the owner; or

(b)

breach any of the owner's obligations under section 11C M2 regarding the disclosure or use of information.

(7)

The owner must—

(a)

ensure that compliance with the independence programme is monitored; and

(b)

each year, publish a report setting out the measures taken in accordance with the independence programme and send a copy to the Authority.

(8)

For the purposes of this section a person produces gas if the person—

(a)

gets natural gas from its natural condition in strata otherwise than as an unintended consequence of the storage of gas, and requires a licence under section 3 of the Petroleum Act 1998 (licences to search and bore for and get petroleum) to do so or would require such a licence if getting the gas in Great Britain; or

(b)

produces any other gas, including in particular biomethane, which is suitable for conveyance through pipes to premises in accordance with a licence under section 7.

(9)

In this section—

“affiliate”, in relation to a person (“person A”), means—

(a)

a person who has control of person A; or

(b)

a person who is under the control of the same person as person A;

“control” has the meaning given by section 8Q(1);

“manager”, in relation to the owner of a storage facility or an affiliate of the owner, means a natural person who is responsible, directly or indirectly, for the day to day management of the owner or the affiliate;

“parent undertaking” has the meaning given by section 1162 of the Companies Act 2006 M3.

(10)

The reference in subsection (4)(b) to a conflict of interests includes a conflict of interest and duty and a conflict of duties.

8SIndependence of storage facilities and duty to allow others to use them: exemptions for minor facilities

(1)

A person who is or expects to be an owner of a storage facility may apply in writing to the Authority for an exemption from the requirements of sections 8R and 19B M4 in respect of that facility (a “minor facility exemption”).

(2)

The Authority must give a minor facility exemption in respect of a facility where it is satisfied that use of the facility by other persons is not technically or economically necessary for the operation of an efficient gas market.

(3)

A minor facility exemption—

(a)

must be in writing;

(b)

may be given—

(i)

for an indefinite period or for a period determined under the exemption;

(ii)

unconditionally or subject to such conditions as the Authority considers appropriate.

(4)

The Authority must publish its decision to give or refuse to give a minor facility exemption together with the reasons for the decision.

(5)

A minor facility exemption may be revoked—

(a)

in accordance with provisions contained in it;

(b)

at any other time, if the Authority considers that the condition in subsection (2) is no longer met.

(6)

The Authority must from time to time publish a document setting out how it will determine whether the use of a facility by other persons is technically or economically necessary for the operation of an efficient gas market, including the matters it will take into account when determining this.

(7)

Publication under subsection (4) or (6) must be in such manner as the Authority considers appropriate.

(8)

Before publishing a document under subsection (6) the Authority must consult—

(a)

the Secretary of State; and

(b)

such other persons as the Authority considers appropriate.”.

After section 19A of the Gas Act 1986 insert—

“19AAReview and revocation of exemptions under section 19A

(1)

If the Authority gives, or refuses to give, an exemption under section 19A it must send the following to the European Commission as soon as is reasonably practicable—

(a)

if the exemption was given, a copy of the exemption and of the terms on which it has been given;

(b)

the Authority's reasons for giving the exemption or not giving it, which must address each of the matters listed in Article 36(1) of the Gas Directive;

(c)

any supporting information held by the Authority which is relevant to the application for an exemption, including in particular any—

(i)

relevant financial information;

(ii)

analysis of the likely effect of the exemption on competition and on the effective functioning of the EU market for natural gas;

(d)

if the exemption was given, the basis on which the Authority determined—

(i)

the period of the exemption or how that period is to be determined; and

(ii)

the capacity to which the exemption applies;

(e)

any contribution by the storage facility to the diversification of the supply of gas; and

(f)

any other information requested by the European Commission.

(2)

If, in accordance with Article 36(9) of the Gas Directive, the European Commission requires the Authority to revoke an exemption given under section 19A, or to modify the terms on which it is given, the Authority must—

(a)

comply with that request within the period of 1 month beginning with the day on which it receives the request; and

(b)

inform the European Commission when it has done so.

(3)

The Authority must revoke an exemption given under section 19A in respect of a facility—

(a)

if the construction of the facility, or (as the case may be) the making of the modification to which the exemption relates, has not been started within the 2 years beginning with the relevant date; or

(b)

if the facility, or (as the case may be) the modification to which the exemption relates, is not operational within the 5 years beginning with the relevant date.

(4)

In subsection (3) “relevant date” means—

(a)

if the European Commission notified the Authority that it approved the exemption and terms as copied to it under subsection (1), the date of that notification;

(b)

if, in accordance with Article 36(9) of the Gas Directive, the European Commission required the Authority to modify the terms, the date of that requirement;

(c)

otherwise, the date 4 months after the Authority sent the Commission a copy of the exemption and terms under subsection (1).

(5)

The Authority may at any other time revoke an exemption given under section 19A, or modify the terms on which such an exemption is given, in respect of a facility—

(a)

in accordance with the provisions of the exemption; or

(b)

by giving the owner of the facility a notice of revocation at least 4 months before the revocation takes effect.”.

In section 19B of the Gas Act 1986 (acquisition of rights to use storage facilities) M12, after subsection (3) insert—

“(3A)

At least 2 months before publishing the main commercial conditions, or any changes to the published conditions, under subsection (1), the owner of a relevant facility must—

(a)

publish a draft of the proposed conditions or changes; and

(b)

inform any person who has a right to have gas stored in the facility that the draft has been published.

(3B)

When finalising conditions or changes under subsection (1), the owner of a relevant facility must take into account any representations it has received about the proposed conditions or changes.”.

After section 19C of the Gas Act 1986 insert—

“19CAReview and revocation of exemptions under section 19C

(1)

If the Authority gives, or refuses to give, an exemption under section 19C it must send the following to the European Commission as soon as is reasonably practicable—

(a)

if an exemption was given, a copy of the exemption and of the terms on which it has been given;

(b)

the Authority's reasons for giving the exemption or not giving it, which must address each of the matters listed in Article 36(1) of the Gas Directive;

(c)

any supporting information held by the Authority which is relevant to the application for an exemption, including in particular any—

(i)

relevant financial information;

(ii)

analysis of the likely effect of the exemption on competition and on the effective functioning of the EU market for natural gas;

(d)

if an exemption was given, the basis on which the Authority determined—

(i)

the period of the exemption or how that period is to be determined; and

(ii)

the capacity to which the exemption applies;

(e)

any contribution by the storage facility to the diversification of gas supply; and

(f)

any other information requested by the European Commission.

(2)

If, in accordance with Article 36(9) of the Gas Directive, the European Commission requires the Authority to revoke an exemption given under section 19C, or to modify the terms on which such an exemption is given, the Authority must—

(a)

comply with that request within the period of 1 month beginning with the day on which it receives the request; and

(b)

inform the European Commission when it has done so.

(3)

The Authority must revoke an exemption given under section 19C in respect of a facility—

(a)

if the construction of the facility, or (as the case may be) the making of the modification to which the exemption relates, has not been started within the 2 years beginning with the relevant date; or

(b)

if the facility, or (as the case may be) the modification to which the exemption relates, is not operational within the 5 years beginning with the relevant date.

(4)

In subsection (4) “relevant date” means—

(a)

if the European Commission notified the Authority that it approved the exemption and terms as copied to it under subsection (1), the date of that notification;

(b)

if, in accordance with Article 36(9) of the Gas Directive, the European Commission required the Authority to modify the terms, the date of that requirement;

(c)

otherwise, the date 4 months after the Authority sent the Commission a copy of the exemption and terms under subsection (1).

(5)

The Authority may at any other time revoke an exemption given under section 19C, or modify the terms on which such an exemption is given, in respect of a facility—

(a)

in accordance with the provisions of the exemption; or

(b)

by giving the owner of the facility a notice of revocation at least 4 months before the revocation takes effect.”.

After section 19D of the Gas Act 1986 M15 insert—

“19DZADuty to allow others to use LNG import or export facilities: exemptions in relation to take-or-pay commitments

(1)

The owner of an LNG import or export facility may apply to the Authority for an exemption under this section with respect to the facility if the owner—

(a)

receives an application under section 19D(4) with respect to the facility; and

(b)

considers that allowing the application would cause the owner serious financial difficulties because of take-or-pay commitments of the owner under one or more gas-purchase contracts.

(2)

The owner of an LNG import or export facility must apply to the Authority for an exemption under this section with respect to the facility if—

(a)

the owner refuses an application under section 19D(4) with respect to the facility; and

(b)

the reason, or one of the reasons, given under section 19D(7) for the refusal is the consideration mentioned in subsection (1)(b).

(3)

An application made by virtue of subsection (2) must be made before the end of the 7 days beginning with the day of the refusal.

(4)

An application for an exemption under this section must enclose all relevant information, including in particular information in respect of—

(a)

the nature and extent of the difficulties mentioned in subsection (1)(b) which the owner considers would arise (the “difficulties”);

(b)

any steps taken by the owner to prevent the difficulties from arising; and

(c)

the period over which the owner considers the difficulties would arise.

(5)

The Authority may give an exemption under this section if it considers that—

(a)

having regard to any steps taken by the owner to prevent the difficulties from arising, the only reasonably available means of prevention is an exemption under this section; and

(b)

an exemption ought to be given, having regard to—

(i)

the objective of achieving a competitive gas market;

(ii)

the need for the owner to comply with any relevant public service obligation, within the meaning of paragraph (2) of Article 3 of the Gas Directive, which is imposed on the owner pursuant to that paragraph;

(iii)

the need to ensure security of the supply of gas;

(iv)

the position of the owner of the facility in the gas market and the level of competition in the market;

(v)

the level of seriousness of the difficulties;

(vi)

the time when the gas-purchase contract was entered into, and the extent to which the owner could reasonably have foreseen at that time that the difficulties were likely to arise;

(vii)

the terms of the gas-purchase contract, including the extent to which the contract allows for market changes;

(viii)

the significance of the facility to the gas market; and

(ix)

the overall effect of the exemption on the operation of an economically efficient gas market.

(6)

An exemption under this section must be given for a limited period and in writing and must specify—

(a)

the period of the exemption; and

(b)

any conditions the Authority considers necessary in order to ensure that the owner takes all reasonably practicable steps to ensure that, by the time the exemption expires, the difficulties would no longer arise.

(7)

If the Authority has given an exemption under this section it must send to the European Commission as soon as is reasonably practicable—

(a)

a copy of its decision to give the exemption, including the terms on which the exemption was given; and

(b)

any other information the Authority considers relevant to the exemption or to the terms on which the exemption was given.

(8)

An exemption under this section may be modified or revoked by the Authority—

(a)

in accordance with its provisions;

(b)

at any other time, if the Authority considers that an exemption under this section is no longer required.

(9)

The Authority must modify or revoke an exemption given under this section if required to do so by the European Commission in accordance with Article 48(2) of the Gas Directive.

(10)

In this section “take-or-pay commitment” and “gas-purchase contract” have the same meanings as in Article 48(1) of the Gas Directive.”.

After section 19DA of the Gas Act 1986 M16 insert—

“19DBAllocation of capacity in exempt new and modified facilities

(1)

This section applies in relation to an application for an exemption—

(a)

under section 19A(2), in respect of all or part of the capacity of a storage facility; or

(b)

under section 19C(2), in respect of all or part of the capacity of an LNG import or export facility.

(2)

The application must specify the criteria that will be used to determine—

(a)

who is to be granted rights to use the facility, or the part of the capacity of the facility, to which the application relates (the “exempt infrastructure”); and

(b)

the way in which those rights may be exercised,

(the “capacity allocation mechanism”).

(3)

The Authority must not give an exemption under section 19A or 19C in response to the application unless it has—

(a)

approved the capacity allocation mechanism specified in the application; or

(b)

approved the mechanism on condition that certain modifications are made to it.

(4)

The Authority may only approve the capacity allocation mechanism under subsection (3)(a) if it considers that the mechanism meets the following three conditions.

(5)

The first condition is that before a right to use the exempt infrastructure is granted to the owner of the facility or to any other person—

(a)

the intention to grant a right to use the exempt infrastructure must be published in a way that the Authority considers appropriate for the purpose of bringing it to the attention of persons likely to be interested in using the infrastructure; and

(b)

such persons must be able to register an interest in using the exempt infrastructure.

(6)

The second condition is that the mechanism must require that any unused capacity in the exempt infrastructure be made available to other users or potential users.

(7)

The third condition is that the mechanism must not prevent, and must not be capable of being used to prevent, subsequent trading of rights to use the exempt infrastructure.

(8)

The Authority may only approve the capacity allocation mechanism under subsection (3)(b) if it considers that the mechanism will meet those three conditions once the modifications on which the approval is conditional have been made.”.