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Explanatory Notes to Energy Act 2004
2004 Chapter 20 |
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These notes refer to the Energy Act 2004 (c.20) which received Royal Assent on 22 July 2004 ENERGY ACT 2004EXPLANATORY NOTESINTRODUCTION 1. These explanatory notes relate to the Energy Act which received Royal Assent on 22 July 2004. They have been prepared by the Department of Trade and Industry in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament. 2. These notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given. OVERVIEW 3. The Act covers three main areas: the civil nuclear industry; sustainability and renewable energy sources; and energy markets and regulation. It implements commitments made in the Government's White Papers "Our energy future: creating a low carbon economy" (Cm. 5761, February 2003) and "Managing the Nuclear Legacy - A Strategy for Action" (Cm. 5552, July 2002). The latter set out the Government's plans for improving the management of public sector civil nuclear liabilities, in particular through the establishment of the Nuclear Decommissioning Authority ("NDA"). It also outlined plans for the restructuring of British Nuclear Fuels plc ("BNFL") as part of new arrangements for funding the decommissioning and clean up of the public sector civil nuclear legacy. 4. The Act will also create a single wholesale electricity market for Britain, the British Electricity Trading and Transmission Arrangements ("BETTA"). Provisions covering electricity and gas interconnectors implement a number of requirements in the EU's 2003 Gas and Electricity Directives and its Electricity Regulation. 5. The Act is in four parts with 23 Schedules. The main provisions of the Act: Part 1: The Civil Nuclear Industry
Part 2: Sustainability and Renewable Energy Sources
Part 3: Energy Regulation
Part 4: Miscellaneous and Supplemental
TERRITORIAL EXTENT AND TERRITORIAL APPLICATION 6. Most of the Act's content relates to reserved matters. Except as set out in paragraph 10 below, the Act extends to the whole of the United Kingdom. Scotland 7. On 4 February 2004, the Scottish Parliament agreed that a number of provisions should cover functions devolved in Scotland. These include:
8. The NDA will have functions which relate to both reserved and devolved matters in Scotland and so will have the status of and be similar to a cross border authority. The Act sets out the responsibilities which Scottish Ministers will have in relation to the operation of the NDA, and arrangements to ensure the accountability, where appropriate, to the Scottish Parliament as well as to Westminster. In respect of safety zones, the DTI and Scottish Executive have agreed that the Secretary of State will exercise the powers in the Act after consultation with Scottish Ministers. Wales 9. The Act does not cover any areas where power has been devolved to the National Assembly for Wales except the provisions amending the Radioactive Substances Act 1993 (c.12) where functions of the Assembly are modified in the same way as functions of the Secretary of State and Scottish Ministers. Otherwise the Act does not confer functions on the Assembly. Northern Ireland 10. The Act extends to Northern Ireland except:
THE ACT PART 1: THE CIVIL NUCLEAR INDUSTRY SUMMARY AND BACKGROUND 11. Proposals for most of this Part were published for pre-legislative scrutiny as the draft Nuclear Sites and Radioactive Substances Bill in June 2003. Principal exclusions were Chapter 3, covering the Civil Nuclear Constabulary and the provisions on nuclear security, devolution, tax and structure and finance of transferee companies. The House of Commons Select Committee on Trade and Industry published a report on these proposals in October 2003 which can be found at: http://www.parliament.the-stationery-office.co.uk/pa/cm/cmtrdind.htm - reports Chapters 1 and 2: Nuclear Decommissioning and Transfers Relating to Nuclear Undertakings 12. Chapter 1 and its related Schedules deal with the establishment of the NDA, its functions (including its strategy, plans and reports in respect of its functions), powers and statutory duties and the funding of its activities. 13. The creation of the NDA and its functions will not affect the existing regulatory regime in respect of nuclear sites and storage and disposal of radioactive waste under the Nuclear Installations Act 1965 (c.57) and the Radioactive Substances Act 1993 (c.12) respectively. The powers of the Health and Safety Executive as the licensing authority and the Environment Agency and the Scottish Environment Protection Agency to enforce those requirements are also unaffected. 14. Chapter 2 gives the Secretary of State powers to make transfer schemes both to facilitate the restructuring of BNFL and to enable the NDA, where appropriate, to improve arrangements for the management of the nuclear sites for which it is given responsibility. It also consolidates the power of the Secretary of State to make transfer schemes under the Atomic Energy Authority Act 1995 (c.37). 15. The Government has also published other documents relating to the proposed NDA, so as to give stakeholders a better understanding of the overall framework within which the NDA would operate. Principal amongst these are a draft management statement outlining the intended relationship between Government and the NDA and a draft Memorandum of Understanding between the NDA and the nuclear regulators. These can be found at: www.dti.gov.uk/nuclearcleanup/pdfs/draftmou.pdf and www.dti.gov.uk/nuclearcleanup/pdfs/ndastatement.pdf Chapter 3: Civil Nuclear Constabulary 16. Chapter 3 implements proposals in the White Paper, "Managing the Nuclear Legacy - A Strategy for Action" (Cm. 5552), to reform the governance arrangements for the UKAEA Constabulary, and to set it up on a statutory basis similar to that for other police forces. 17. The UKAEA Constabulary operates in England, Scotland and Wales but not in Northern Ireland. Accordingly the Constabulary provisions (with some minor exceptions) extend only to England, Wales and Scotland. 18. The Atomic Energy Authority Act 1954 (c.32) conferred power on UKAEA to nominate persons to be special constables for the purposes of section 3 of the Special Constables Act 1923 (c.11). The body of special constables so nominated by UKAEA and appointed under section 3 forms the existing UKAEA Constabulary. Members of the existing Constabulary have police powers to enable them to protect certain civil licensed nuclear sites and nuclear material in transit. The Constabulary is currently part of UKAEA, and is fully funded by the nuclear site licensees whose sites it polices (currently UKAEA, BNFL and URENCO). It is overseen by a non-statutory committee of UKAEA - the UKAEA Constabulary police authority - composed of representatives of the nuclear site licensees, the Director of the Office for Civil Nuclear Security (part of the DTI), an expert police adviser and another representative of DTI. The Chair rotates on an annual basis between UKAEA and BNFL. 19. sites and escorts sensitive nuclear material in the course of transport. It has a specialist anti-terrorist policing role focussed on the protection of proliferation-sensitive nuclear material. It is an integral part of the civil nuclear security framework and works within security parameters set by the Director of Civil Nuclear Security on behalf of the Secretary of State. The Constabulary has limited contact with the public or with general crime for which Home Office and Scottish Executive forces continue to have operational responsibility within the areas in which the Constabulary operates. 20. The Act provides for the separation of the UKAEA Constabulary from UKAEA, and its transfer to a statutory Police Authority (a Non-Departmental Public Body) created by the Act, to become the new Civil Nuclear Constabulary. The Police Authority will be accountable to the Secretary of State and have overall supervisory responsibility for the force and for ensuring that it carries out its role effectively. 21. The Anti-terrorism, Crime and Security Act 2001 (c.24) (the "ACTS Act") modified and extended the UKAEA Constabulary's jurisdiction to bring it into line with its core nuclear security role. This Act essentially restates those provisions (with the consequent repeal of the relevant ATCS Act provisions). It makes minor changes to the Constabulary's current jurisdiction to focus this more firmly on its specialist nuclear security role, and gives the Constabulary police powers and privileges throughout Great Britain for any purpose connected with the core jurisdiction set out in section 56(1) to 56(4). It also enables a senior officer of the Civil Nuclear Constabulary to authorise, under section 44 of the Terrorism Act 2000 (c.11), stop and search for articles which could be used in connection with terrorism without grounds for suspicion, and extends the offences of assault on constables and impersonation of police to members of the Civil Nuclear Constabulary. The existing staff of the UKAEA Constabulary (both constables and civilian support staff) will be transferred to the new Police Authority under the provisions of the Act. The Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE") will apply to the transfer, and employees will continue to be eligible for membership of the UKAEA pension scheme. 22. Members of the Constabulary will be prohibited from joining trade unions (subject to limited exceptions). In this and other respects the Act puts on a statutory footing the current informal arrangements, and brings those arrangements into line with the long established principles incorporated in other police legislation. For example, it will also be made an offence to induce a member of the Constabulary to withhold his services. The Act also makes provision for recognition of a Civil Nuclear Police Federation, and requires the Police Authority to align any provision it makes about conditions of service with the provision made on such matters by police regulations (unless differences are justified due to the circumstances and structure of the Constabulary). Civilian staff are not affected by these arrangements. Chapter 4: Authorisations Relating to Radioactive Waste 23. Chapter 4 makes amendments to the Radioactive Substances Act 1993 (c.12) which will allow the Environment Agency, the Scottish Environment Protection Agency and the chief inspector in Northern Ireland to use a streamlined and simplified process in dealing with applications for the transfer of radioactive discharge authorisations when there is a change of operator at a nuclear site. The changes will improve the effectiveness and efficiency of regulation whilst maintaining the robustness of the discharge authorisation process. Chapter 5: Miscellaneous Provisions Relating to Nuclear Industry Nuclear Liability 24. Section 76 gives the Secretary of State a power to amend UK legislation by order in respect of the UK's international obligations governing third party liability in the event of nuclear accidents (Paris and Brussels Conventions). Nuclear Security 25. Section 77 extends the scope of the enabling power in section 77 of the Anti-terrorism, Crime and Security Act 2001 (c.24) to make regulations to ensure the security of the UK's civil nuclear industry. The territorial application of this provision is the same as section 77 of the ATCS Act i.e. to the United Kingdom. Nuclear security is a reserved matter in Scotland, an excepted matter in Northern Ireland and is not a transferred matter in Wales. 26. Section 77 of the ATCS Act does not currently permit regulations to be made to ensure the security of equipment capable of being used to enrich uranium or software containing information relating to uranium enrichment (including uranium enrichment carried out overseas) held outside nuclear premises, and the security of this equipment and software when they are being held, transported or transmitted. Uranium enrichment technology is used in the civil nuclear industry and has been sought by States seeking to develop nuclear weapons. 27. Section 77 of the ATCS Act does not currently permit regulations to be made to ensure the security of sensitive nuclear information being held, transported and transferred by carriers, where such carriers are not directly involved in activities on or in relation to nuclear sites or other nuclear premises. 28. Section 77 of the ATCS Act does not currently permit regulations to be made to ensure the security of holdings of sensitive nuclear information in the United Kingdom, where (a) such information is held in relation to uranium enrichment activities outside the United Kingdom, and the transport and transmission of such information; and (b) the person holding the information is not involved in activities on or in relation to nuclear sites or other nuclear premises in the United Kingdom. Authorisation of Government expenditure 29. As part of the restructuring of British Energy ("BE"), the Government has agreed to enter into a series of principal agreements with the company. The agreements detail the arrangements by which British Energy and HMG will contribute to the costs of discharging BE's nuclear liabilities going forward. 30. The Secretary of State intends to give effect to most of his obligations under the agreements using his powers under Schedule 12 to the Electricity Act 1989, as amended by the Electricity (Miscellaneous Provisions) Act 2003 (c.9) ("EMPA"), and as to be amended by section 34 of the Act. He will also have available additional, free-standing powers conferred by EMPA. 31. Section 79 gives the Secretary of State explicit statutory authority to incur expenditure as a result of options included in the documents. The provision is general, but goes further than the free-standing provisions in EMPA by authorising spending on two elements of the agreements not currently covered by legislation:
32. As a matter of law, the Appropriation Acts give the Secretary of State the authority to spend money on the exercise of his functions, but as a matter of practice, the agreement with Parliament known as the Baldwin agreement and the guidance set out by the Treasury in Government Accounting have the effect that new functions involving significant and continuing expenditure should normally be identified by an Act other than the Appropriation Act. Option to purchase BE's nuclear stations from third party 33. As part of the restructuring documentation, British Energy will grant the Secretary of State an option to acquire any of its power stations. The option may be exercised in relation to any of the nuclear power stations currently owned by British Energy. The option can be exercised at a time when British Energy, or a third party purchaser, chooses to shut them, and the reason for exercising the option would be either to prolong the operation of the station or stations where it is economically advantageous to do so, or to decommission them within the private sector. 34. The Electricity (Miscellaneous Provisions) Act 2003 (c.9) provides specific statutory authority for the Secretary of State to spend money on the acquisition of assets of British Energy and on carrying on an undertaking using such assets. However, it does not authorise expenditure on acquiring or running assets which at the time they are acquired no longer belong to a BE company. This section will provide such authority. Option for the Secretary of State to acquire BE's shares in Nirex 35. As part of the restructuring documentation British Energy will grant an option for the Secretary of State to acquire British Energy's shares in Nirex. Nirex is a company formed jointly by British Energy, BNFL and UKAEA to manage the UK's intermediate level radioactive waste. If he exercises the option, the Secretary of State will acquire the company's shares in Nirex, its rights and benefits under loans made by the company to Nirex and British Energy's liabilities, as a Nirex shareholder, under its research and advisory contracts with Nirex. 36. This section again gives the Secretary of State specific statutory authority to incur expenditure in connection with the acquisition of any securities in Nirex or in consequence of such an acquisition. COMMENTARY ON SECTIONS CHAPTER 1: NUCLEAR DECOMMISSIONING Section 1: The Nuclear Decommissioning Authority 37. Section 1 provides for the establishment of the NDA as a body corporate and makes it clear that it is not to be treated as a body enjoying Crown status, privilege or immunity or (with one exception mentioned below) as exercising functions on behalf of the Crown. Section 2 and Schedule 1: Constitution of NDA 38. Section 2 deals with the membership of the NDA and the basis on which members are to be appointed. It should be read in conjunction with Schedule 1 which contains more detailed provisions on terms of appointment and the basis on which the NDA is to conduct its business. 39. The section essentially provides for an NDA board of not less than seven and no more than thirteen members of which the majority must be non-executive members. This reflects the Government's view that the role of the board should be to challenge the executive management team to do better and to hold it to account for its performance. Subsections (8) and (9) are specifically designed to ensure, so far as practicable, that the non-executive majority is maintained at all times. 40. The non-executive members will consist of a Chairman and up to eleven other persons (depending upon how many executive members are appointed). The Government intends that all appointments will be made by open competition under the rules set out by the Office of the Commissioner for Public Appointments ("OCPA"). The Chairman will be appointed by the Secretary of State. Other non-executives will be appointed by the Secretary of State after consultation with the Chairman. The Secretary of State will consult Scottish Ministers before making these appointments. 41. The executive members will consist of a Chief Executive (appointed by the non-executive members subject to the approval of the Secretary of State) and where the Secretary of State so provides up to a maximum of three other persons appointed by the non-executives after consultation with the Chief Executive. Again, appointments will be made following open competition carried out on an open and transparent basis. The Secretary of State will consult Scottish Ministers before approving the appointment of the Chief Executive. Subsection (6) provides that the requirement to consult Scottish Ministers may be satisfied by consultation that took place wholly or partly before the commencement of section 2. 42. All these provisions are designed to ensure that final decisions on the NDA's strategy and annual work plans (see notes to sections 11 to 13 below), rules of procedure and delegation of functions are taken by the Board and are not effective unless a majority of members present are non-executives. The procedure during the initial period (as defined) is set out in Schedule 1, paragraph 4. | |
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