Power to make regulations
1 (1) The Secretary of State may, by regulations, make provision entitling the relevant electricity distributor to exercise the reimbursement powers in cases where conditions A, B, C and D are met.
(2) Condition A is met if any electric line or electrical plant is provided for the purpose of making a connection (the “first connection”)—
(a) between premises and a distribution system, or
(b) between two distribution systems.
(3) Condition B is met if a payment in respect of first connection expenses is made by one or more of the following persons—
(a) a person requiring the first connection in pursuance of section 16(1);
(b) a person who otherwise causes the first connection to be made (including by means of contractual arrangements).
(4) Condition C is met if any electric line or electric plant provided for the purpose of making the first connection is used for the purpose of making another connection (the “second connection”)—
(a) between premises and a distribution system, or
(b) between two distribution systems.
(5) Condition D is met if the second connection is made within the prescribed period after the first connection was made.
(6) “First connection expenses” are any expenses reasonably incurred by a person in providing any electric line or electric plant for the purpose of making the first connection.
(7) It does not matter whether the first connection, or the second connection, is made by an electricity distributor or a person of another description.
The reimbursement powers
2 (1) The “reimbursement powers” are—
(a) the power to demand a reimbursement payment from—
(i) a person requiring the second connection in pursuance of section 16(1), or
(ii) a person who otherwise causes the second connection to be made (including by means of contractual arrangements); and
(b) the power to apply the reimbursement payment in making such payments as may be appropriate towards reimbursing any persons for any payments they were previously required to make in respect of first connection expenses (whether that requirement arose by virtue of paragraph (a) or otherwise).
(2) A “reimbursement payment” is a payment, of such amount as may be reasonable in all the circumstances, in respect of first connection expenses.
Other provision about regulations under this Schedule
3 (1) The Secretary of State must consult the Authority before making regulations under this Schedule.
(2) Regulations under this Schedule may make provision requiring relevant electricity distributors to exercise a reimbursement power (whether in all cases or in cases provided for in the regulations).
(3) Regulations under this Schedule may make provision for the relevant electricity distributor to establish or estimate the amount of first connection expenses — or an amount of any aspect of those expenses — in cases where that distributor is not the person who made the first connection.
(4) Regulations under sub-paragraph (3) may not require any person to supply the relevant electricity distributor with information about any expenses incurred.
(5) Regulations under sub-paragraph (3) may provide for an estimate of an amount of first connection expenses to be calculated by a relevant electricity distributor by reference only to a combination of—
(a) expenses which that distributor would incur if that distributor were making the connection at the time of the estimate, and
(b) changes in prices since the time when the connection was actually made.
4 (1) In this Schedule—
“first connection” has the meaning given in paragraph 1;
“first connection expenses” has the meaning given in paragraph 1;
“reimbursement payment” has the meaning given in paragraph 2;
“reimbursement powers” has the meaning given in paragraph 2;
“relevant electricity distributor”, in relation to the exercise of a reimbursement power, means—
(a) in a case where the first connection was made between premises and a distribution system, the electricity distributor that (at the time of the exercise of the power) operates that distribution system;
(b) in a case where the first connection was made between two distribution systems, the electricity distributor that (at the time of the exercise of the power) operates the distribution system into which the first connection has been, or is expected to be, incorporated.
(2) A reference in this Schedule to a payment in respect of first connection expenses includes a reference to such a payment made in pursuance of section 19(1).”
(4) In section 16 (duty to connect on request), in subsection (4), after “23” insert “and Schedule 5B”.
(5) In section 16A (procedure for requiring a connection), in subsection (5)(b)—
(a) omit “or regulations under section 19(2)”;
(b) after “19(2)” insert “or regulations under Schedule 5B”.
(6) In section 23 (determination of disputes)—
(a) after subsection (1) insert—
“(1ZA) This section also applies to any dispute arising under regulations under Schedule 5B between—
(a) an electricity distributor, and
(b) a person in respect of whom the electricity distributor exercises the reimbursement powers conferred by the regulations.”;
(b) after subsection (1C) insert—
“(1D) No dispute arising under regulations under Schedule 5B may be referred to the Authority after the end of the period of 12 months beginning with the time when the second connection (within the meaning of Schedule 5B) is made.”;
(c) after subsection (2) insert—
“(2A) Where a dispute arising under regulations under Schedule 5B falls to be determined under this section, the Authority may give directions as to the circumstances in which, and the terms on which, an electricity distributor is to make or (as the case may be) to maintain the second connection (within the meaning of Schedule 5B) pending the determination of the dispute.”;
(d) in subsection (4), after “(2)” insert “, (2A)”.” —(Amber Rudd.)
This amendment broadens powers to recover expenditure on new electricity connections; and powers to reimburse those who have met costs of making electricity connections (if later used for making other electricity connections). The Gas and Electricity Markets Authority is given powers to determine disputes about recovery of expenditure and reimbursement.
Obtaining a timely and affordable connection to the electricity distribution network is essential for our growth and energy ambitions. It means that customers, including private citizens, renewables generators, house builders and commercial property developers, get access to the network to supply electricity to, or take electricity from, the grid when they need to.
When seeking a connection, a customer can use the local monopoly distribution network operator or an independent connection provider. There are now about 194 independent connection providers. Over the years, they have gained a growing share of the connections market. The Government support competition in network connections, as it gives customers greater choice and drives up standards across the board.
The Government want to ensure a level playing field for independent connection providers. However, the legislation that makes up the second-comer regime potentially places independent connection providers and their customers at a disadvantage. The regime is based on a power in and regulations under the Electricity Act 1989, which allows for the recovery of expenses for electricity connections. The regime is designed to ensure that the cost of connecting to the electricity distribution network is shared between different parties. Specifically, it provides that where a customer—the second comer—connects to, and benefits from, infrastructure that was paid for by an earlier customer, they can be required to reimburse the earlier party for a proportionate share of the costs.
However, independent connection providers are not currently covered by that regime. That reflects the fact that they did not exist in any meaningful numbers at the time when the original legislation was drafted. That means that customers who have their original connection provided by independent connection providers may not be able to recover any costs from the subsequent connecting customers. That, in turn, can make using an independent connection provider less attractive. That is an anomaly, and the proposals will update the power in the 1989 Act to ensure that it reflects the current market in connections by allowing a wider range of connection providers to be included in the second-comer regime.
That will also be beneficial for consumers. When wider network reinforcement is carried out beyond that needed for a specific connecting customer, the costs are currently covered by the distribution network company and then passed through in network charges to consumer bills. When future customers benefit from wider reinforcement paid for, in effect, through consumer bills, they too can be reimbursed. However, because of the anomaly that I have described, when an independent connection provider has carried out the connection, that reimbursement cannot happen.
The proposals will simply update the regime and ensure that the costs can be reimbursed, regardless of who completed the initial connection. That change will support competition in the energy market, and it is good news for connecting customers and good news for consumers.
To implement the change, subsequent secondary legislation will be required to amend or replace the Electricity (Connection Charges) Regulations 2002. New clause 9 replaces the existing enabling power in section 19 of the 1989 Act with a provision conferring on the Secretary of State a power to make regulations that will enable customers of independent connection providers to recover a proportion of the cost of a new connection from customers who subsequently connect to the same infrastructure. The power is included in proposed new schedule 5B to the Act, which sets out in some detail the matters to be specified in the regulations. In particular, the regulations will allow for electricity distributors to administer reimbursements and, in some cases, to estimate the cost of connections for that purpose. The new clause also amends the power of the Gas and Electricity Markets Authority to determine disputes related to connections, to bring it into line with the updated second-comer provisions. As before, the Secretary of State requires the consent of the Gas and Electricity Markets Authority to make regulations under the power.
The other amendments are consequential to new clause 9. Amendment 40 makes provision for the new clause to extend to England, Wales and Scotland; amendment 42 makes provision for the new clause to come into force on the day appointed by the Secretary of State in regulations; and amendment 4 amends the Bill’s title.
The new clause seems to be a sensible change and, as the Minister is aware, we do not have a particular problem with it. There are a couple of points that she may be able to help with, however. I listened to what she was saying, and I do not think that she covered these points of detail, which may be helpful.
Obviously this is called the second-comer regime, but in some scenarios there may well be a third comer or fourth comer as well. As I understand it, the new powers cover scenarios where there is an initial connection and then a subsequent connection, in which case the party behind the second connection partially reimburses the party behind the first. Is the intention that the equivalent reimbursement should flow further down the chain if there were to be a third or fourth connector, particularly given that the Minister hopes this dynamic will encourage a number of potential suppliers in this part of the market?
I note also that Ofgem is being given the power to resolve disputes. What assessment has been made of the regulator’s capability and capacity to do that? Is that intended to become additional work for the part of Ofgem that already deals with the issue in relation to network companies, and does the Minister anticipate that there will be a greater requirement for the regulator to do that work? Does she intend that to be covered by any secondary legislation arising from this new clause?
Paragraph 2 of proposed new schedule 5B covers the powers relating to reimbursement. Does the Minister intend the secondary legislation to determine what forms reimbursement must take? Do the Government have a view on whether the reimbursement would be a lump sum or paid by instalments, or would that be determined by the regulator? Am I correct in understanding that the regulator will have the role of determining the level of reimbursement to be applied in all cases in the first instance, or is it anticipated that agreement will initially be sought between the first comer, the second comer and any subsequent companies? I hope that the Minister will respond to those specific points.
I thank the hon. Gentleman for his broad support for the proposed new clause and for his specific questions. He asks about the number of individuals, businesses or other entities that might benefit. He is absolutely right: it is not just the second comer. It is called the second-comer regime, but the new clause will allow us to extend the scope of the second-comer regime so that all customers can qualify for the so-called second-comer payments, regardless of whether they have used the local distribution network operator or an independent provider for making a connection. That is the overall point to make about the proposal: it is not about changing the structure of who is eligible for second-comer payments. Rather, it is about ensuring that independent operators can also participate in what is an existing regime.
I think that that theme will also address the hon. Gentleman’s point about Ofgem. Ofgem is already administering this for other providers. The regime will be administered by the licensed distribution network operators in compliance with their standard licence conditions, which of course are set by Ofgem. If first or second comers feel that they have been treated unfairly, they may refer the dispute to Ofgem to seek a determination. Ofgem has already indicated that it is content with the arrangements.
The hon. Gentleman also asked about the payments and how they are calculated. He asked whether it was a lump sum or staged payments. The lump-sum payment goes back to the first comer, but if I make some wider comments about the calculation of second-comer payments, that might help to clarify how the payments will be made.
As the owner and operator of the local network, the distribution network operator will administer the payments from second comers to those who paid for the initial connection. The DNO will not always have access to the detailed cost information if the connection was made by an independent provider, but requiring the independent connections providers to share the data might damage competition, as it would mean sharing the ICPs’ commercially sensitive costing and pricing information. The DNO will therefore be required to estimate the cost of the connection and the associated second-comer payment. The amendment will allow for estimates to be made, but the detail will need to be set out in secondary legislation.
I hope that I have reassured the hon. Gentleman on the levels of payments and on the process for making them. As I said, the regime is already in existence, and we are merely adding to the people who may benefit from it in order to promote competition. The structure of the regime is already in place. We are merely enhancing it and adding to the competition, while incorporating independence, our desire for which I am sure he shares.