knowledge 25 February 2019 |

B-Day for the CRU: Government Proposes to Augment the Regulator’s Powers in the Event of a ‘No-Deal’ Brexit

The Withdrawal Bill is designed to “reduce the possibility of serious disturbance” to the Irish economy by making preparations for “B-Day”: the date the UK is scheduled to withdraw from the EU ( See our general briefing here). Energy is addressed in Part 4 of the Withdrawal Bill. This provides the Commission for the Regulation of Utilities (the “CRU”) with a power of one year’s duration to modify electricity licences in the all-island electricity market. As currently drafted, Part 4 of the Withdrawal Bill authorises the CRU to exercise this power where the regulator deems it necessary or expedient to do so to safeguard Ireland’s compliance with EU rules on cross-border electricity trading post-Brexit.

Background to Ireland’s All-Island Electricity Market

Energy is a transferred matter in Northern Ireland under the Northern Ireland Act 1998. As a result, generally speaking Great Britain and Northern Ireland have separate legislation for their electricity and gas sectors. The Electricity (Northern Ireland) Order 1992, Gas (Northern Ireland) Order 1996 and Energy (Northern Ireland) Order 2003 form the legislative foundations of Northern Ireland’s energy regulatory framework and establish the responsibilities of the Northern Ireland Authority for Utility Regulation (the “Utility Regulator”) and a licensing framework. These Orders are supplemented by further primary and secondary devolved legislation to incorporate subsequent EU law.

Since 2007, Northern Ireland has shared an all-island wholesale electricity market with Ireland, the Single Electricity Market (the “SEM”). The SEM was established following the signing of a Memorandum of Understanding by the UK and Irish governments in 2006 and required parallel legislation to be enacted in Northern Ireland and Ireland. Consequently while the SEM’s framework has a legal underpinning, and the UK and Irish governments remain committed to its continuation; questions remain on its day-to-day operation post-Brexit. 

UK B-Day Preparations and the SEM

To underline the UK’s continued commitment to the SEM, in December 2018 the British Government issued the Electricity and Gas Amendment (EU Exit) Regulations 2019 (the “UK’s EU Exit Regulations”). The UK’s EU Exit Regulations made minor amendments to the relevant Northern Irish legislation, the Electricity (Single Wholesale Market) (Northern Ireland) Order 2007, in anticipation of the UK’s exit from the EU. The UK’s EU Exit Regulations do not amend the definition of the SEM, which references EU rules on cross-border electricity trading which will not apply in the UK post Brexit. This was explained to be due to a practical need for the definitions of the SEM in Ireland’s and Northern Ireland’s legislation to continue to align.

What Will Change for UK Market Participants Seeking to Trade in the SEM? 

On 6 February 2019, the Northern Irish Utility Regulator highlighted one major change which will occur post Brexit, when it advised UK-based market participants (including market participants based in Northern Ireland) to re-register with another National Regulatory Authority (“NRA”) to continue electricity trading in the EU in compliance with REMIT, in the event of a no-deal Brexit. 

The Northern Irish Utility Regulator specifically stated: “In a “no deal” Brexit, all market participants entering into transactions, or placing orders to trade, in wholesale energy products where delivery is within the SEM, will be required to register with the Utility Regulator (the "UR") within four weeks of EU exit. However, the UR recognises the existing registration of all currently registered market participants in accordance with REMIT Article 9(1) and therefore participants registered with either CRU, Ofgem or with an NRA of an EU Member State, will not need to re-register until otherwise directed by the Utility Regulator.”

Irish B-Day Preparations, the Withdrawal Bill and the SEM

Part 4 of the Withdrawal Bill is designed to provide the CRU with sufficient powers to react rapidly to any security of electricity supply issues resulting from UK withdrawal from the EU. It provides the CRU with a one-year power to modify specific licence terms where it considers it necessary or expedient to do so to ensure Ireland remains in compliance with EU rules governing cross-border trade in electricity. 
In these specific circumstances, the CRU: 

• can exercise this power to modify licence conditions, including incidental or consequential modifications;
• will be bound to consult with the licence holder, the relevant UK Authority and such other persons as the CRU thinks appropriate; and
• is required to notify consulted parties as soon as possible after a modification has been made; and publish the notification on the CRU’s website and in such other manner as the CRU thinks appropriate.

Comment

A number of features distinguish this proposed power from the CRU’s day-to-day licensing powers. The Withdrawal Bill states that this particular licensing power may only be exercised by the CRU for a period of one year from the date it comes into operation. Should the CRU decide to amend a licence under this section, the licence holder would not be able to appeal the changes to a Ministerial Appeal Panel, as would be the case for general licence amendments. In addition, licence holders would not be permitted to petition the CRU to modify their licence terms in the manner provided for by s19 of the Electricity Regulation Act 1999, as amended. Perhaps most significantly, the CRU would not be bound by the statutory procedural requirements which normally need to be met, before licence amendments can be made. Similarly, the CRU would not be bound to directly address objections or representations by accepting or rejecting them, or determining whether they warrant a public hearing.  

If you have queries on how electricity trading is likely to be affected by these developments, please contact Valerie Lawlor, Patricia Lawless, Eva Barrett or your usual contact within McCann FitzGerald.