Clause 62
Energy Bill
6:15 pm
Malcolm Wicks (Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform; Croydon North, Labour)
It seems that I must give a more detailed explanation of this clause, albeit a fairly technical one. I hope that the Committee will bear with me.
The purpose of the clause is to ensure that the Secretary of State has adequate tools at his disposal to ensure that prudent provision is made for waste and decommissioning. To that end, it is appropriate and necessary to define bodies that are associated with the operator, so that the Secretary of State can impose on them certain responsibilities. The clause sets out which bodies come within the scope of the provisions in this chapter. It also minimises the prospect of operators avoiding their obligations under the Bill—for example, through certain company structures.
Before I go any further, it is important to emphasise that the clause does not define which associated bodies are automatically fixed with liability under the programme. That depends on the exercise of the Secretary of State’s powers to approve or modify the programme. However, it does define the scope of the Secretary of State’s powers to impose obligations on associates. The clause provides that one body corporate is associated with another if one of them has a significant interest in the other, or a third company has a significant interest in both of them.
Under the definition in the Bill, company A will have a significant interest in company B if it has either a 20 per cent. interest in company B or if it has the power directly or indirectly to ensure that the affairs of company B are conducted in accordance with its wishes.
I believe that that is an appropriate threshold for the inclusion of associated companies, given the nature of nuclear waste and decommissioning. Setting the test for significant interest in that way ensures the robustness of the programme. For example, a situation might arise in which the Secretary of State formed the view that the operator might not be able to fulfil its obligations under the programme. In such a case, the clause sets out which associates of the operator could be required to ensure that some or all of the operator’s decommissioning and waste liabilities were provided for. The clause seeks to provide legal certainty to operators of new nuclear power stations in that regard by defining the associates that can be captured in that way.
The clause is also designed to ensure that prudent provision is made for the decommissioning and waste liabilities where there is no single parent. For example, a consortium might come forward with a structure in which three or more bodies each have significant influence over the operator but none holds 50 per cent. or more of the shares. Those so-called parents would all be beyond the Secretary of State’s reach if the threshold were set at 50 per cent.
I know that some concerns have been raised by the industry about the 20 per cent. threshold that we have set, so I want to use this opportunity to explain why we believe that 20 per cent. is right. It has been said that alternative thresholds of 30 or even 50 per cent. should be considered, but I have concerns about both of those figures. In the case of a single corporate body undertaking new nuclear build and owning the operator, the practical difference between a 50, 30 or 20 per cent. threshold is unlikely to be of material significance, given that the operator will be part of that group and the group will wish to exercise control over the operator at all levels.
In contrast, where a joint venture is undertaking the new nuclear build and there are several interests in the operator, the threshold is important. In establishing a consortium, one does not have to be unduly creative to structure the interests of those participating in the programme below either a 50 or 30 per cent. threshold and still ensure that those participants enjoy significant influence over the operator. If the threshold is set at the relatively high level of 50 or even 30 per cent, there is an incentive for those involved to put in place a structure that enables them to minimise the risk of being fixed with liability under the clause.
They might choose to do that even though it might add to the risk of increasing costs and complexity in both the structure and operation of the consortium arrangements. That is because the benefit derived from avoiding the potential risk exposure of obligations under a funded decommissioning programme is likely to outweigh such additional costs and operating complexity. With a 20 per cent. threshold, I would expect the complexity of putting in place and administering each consortium’s arrangements to be increased, thereby reducing the incentive.
I recognise that, at whatever level the threshold is set, there is the possibility that some people might seek to create a structure that avoids the consequences of the powers in the Bill, but I believe that setting the threshold for significant interest at 20 per cent., together with other provisions in the clause, strikes the correct and appropriate balance between the commercial interests of prospective operators and investors and the proper interests of the Government and taxpayers.
I would like to emphasise that our policy is not “nuclear at any cost.” We have discussed the potential effect of the clause with the industry and will continue to do so if needed, but I shall be clear that operators will be expected to meet their full decommissioning costs and full share of waste management costs, and the clause will provide further safeguards behind that important principle. A 20 per cent. threshold will also ensure that such shareholders want operators to take sensible decisions on waste and decommissioning costs in order to minimise the risk to their own shareholders and associates. That will put further pressure on operators properly to fund and implement their programmes.
The 20 per cent. threshold reflects existing legislative precedents, because I can anticipate the question of where the 20 per cent. comes from. For example, paragraph 20 of schedule 4A of the Companies Act 1985 refers to a significant interest over operating and financial policy where one undertaking holds 20 per cent. or more of the voting rights in another undertaking.
The clause also provides for indirect holdings to be taken into account in deciding whether a person with holdings of that nature has obligations under a programme. In this context, indirect holdings arise when one company owns a stake in a different company, which in turn has an interest in an operator of a new nuclear power station. When the holding is indirect, the Secretary of State may impose obligations on the holding company only if it has more than 50 per cent. of the shares in the company that has an interest in the nuclear operator. I believe that to be the right level.
We consider that a 20 per cent. threshold for indirect interest would bring a disproportionate number of bodies within the scope of potential liability under the programme. We have balanced that consideration carefully against the anti-avoidance risk, involving setting the threshold at 50 per cent. Furthermore, where the holding of such a company is less than 50 per cent., but it is exercising a de facto control over the operator, it will still be caught by the provisions relating to the power of a third company to ensure that the affairs of the operator are conducted in accordance with its wishes.
The threshold for control is akin to those in the decommissioning provisions on associates for bodies corporate for offshore renewables and oil and gas decommissioning installations, which apply a 50 per cent. threshold across the board. The clause applies to limited liability partnerships that are associated with the operator, with appropriate amendments, given that limited liability partnerships do not have shares. It is recognised that such organisations might have a role to play in new nuclear or as part of a corporate group involved in the area. Had we not extended the clause to include limited liability partnerships, we could have created a situation in which companies were incentivised to restructure themselves as such partnerships to avoid the consequences of the clauses in this chapter. Our approach is consistent with provisions concerning other decommissioning liabilities in the Bill.