Draft Legislation on Energy: The CATO regime

A short briefing on the Draft Legislation on Energy recently published by DECC, which seeks to implement CATO by way of amendments to the Electricity Act 1989.

17 February 2016

In December of last year we published a briefing outlining some of the key aspects of the Ofgem initiative to extend the use of competitive tendering to onshore transmission assets within GB. 

On 21 January 2016 the Department of Energy and Climate Change published a policy paper “Draft Legislation on Energy” which contained draft provisions for the implementation of the legislative framework for the CATO regime in GB.  This bulletin highlights some of the key aspects of those proposed provisions. 

Means of implementation 
The Draft Legislation on Energy seeks to implement CATO by way of amendments to the Electricity Act 1989. 

The current proposed changes implement the overall framework, with the detail, such as what projects will be eligible for tendering, to be borne out in future subordinate legislation made by the Secretary of State.   

Substantive provisions 
The key aspects of the proposed amendments are: 

  • The introduction of a new concept of “relevant licence” which covers (i) offshore transmission licences (save for system operation); (ii) onshore transmission licences (save for system operation and which meet yet to be published subordinate legislative requirements); and (iii) distribution licences (which meet yet to be published subordinate legislative requirements). 
  • Discussions about CATOs have to date focussed on transmission however as seen from the definition of “relevant licence” the legislation also applies to electricity distribution. 
  • Competitive tenders are extended from offshore transmission licences to cover all relevant licences.  There are cost recovery mechanisms to enable the Authority to recover costs associated with the tender from applicants and from existing transmission and distribution licence holders. 
  • The Authority can amend an existing licence if that licensee is awarded a relevant licence following a tender process.
  • Property schemes can be made in respect of all relevant licences.  Any property transfer scheme must now be necessary or expedient for operational purposes.  It must not be used where the Authority considers it appropriate for the bidder to acquire rights by other means.  
  • Any transmission owner of last resort is to be treated as if it were the preferred bidder in the tender exercise.  As a result it can then be the beneficiary of a property transfer scheme.
  • The offshore commissioning period is extended to apply to all relevant licences.  This may enable generators to participate in some CATO projects. 
  • The ability of the Authority to modify codes or agreements is extended for the purposes of competitive tendering. 

Next steps  
Following its publication, the Energy and Climate Change Committee ran a process of pre-legislative scrutiny of the Draft Legislation on Energy.  The period for public consultation closed on 11 February 2016. 

It is expected that the Committee will report to the Government on the Draft Legislation in April 2016.  That report, along with any consultation responses, may influence the Bill which is then laid before Parliament (no timetable for laying the Bill has yet been set).   

For further information on the introduction of onshore tenders and understanding the impact of the proposed changes on your business please contact Patricia Hawthorn, Partner or Liz McRobb, Partner.