Dprr/15-16/24

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ENERGY BILL DELEGATED POWERS IN THE BILL

MEMORANDUM BY THE DEPARTAMENT OF ENERGY AND CLIMATE CHANGE

INTRODUCTION

1. This memorandum has been prepared for the Delegated Powers and Regulatory Reform Committee to assist with its scrutiny of the Energy Bill (“the Bill”). The Bill will be introduced in the House of Lords on 9 July 2015. This memorandum identifies the provisions of the Bill that confer powers to make delegated legislation. It explains in each case why the power has been taken and explains the nature of, and the reason for, the procedure selected.

PURPOSE AND EFFECT OF THE BILL

2. The Government made a commitment in its manifesto to continue to support the development of North Sea oil and gas, to change the law so that local people have the final say on onshore wind applications and to end new public subsidies for onshore wind. This Bill delivers those commitments.

3. The Bill will complete the work started in the last Parliament to fully implement the recommendations in Sir Ian Wood’s review into UK offshore oil and gas recovery and its regulation. Central to this was the establishment of a new arm’s length regulatory body charged with effective stewardship and regulation of petroleum recovery. The Bill will formally establish the Oil and Gas Authority (OGA) as an independent regulator, which would take the form of a government company, transfer regulatory powers and functions to it and provide it with new powers. This will ensure it has the powers it needs to become a robust, independent and effective regulator, and enable it to maximise the economic recovery of oil and gas from beneath UK waters1. The Bill will

1 The Wood Review indicated that full and rapid implementation of the recommendations could deliver 3-4 billion barrels of oil equivalent more than would otherwise be recovered over the next 20 years.

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also enable more comprehensive charging of the offshore oil and gas industry for permits and licences for environmental and decommissioning activity. This will allow Government to continue to recover its costs for its environmental and decommissioning activity in line with the ‘polluter pays’ principle of environmental law and address a gap in current legislation.

4. The Bill also makes provision, alongside other measures being taken by DECC and CLG, for changes to the planning system to empower local authorities to have a greater say on new onshore wind development applications. In addition it provides for the early closure of subsidy arrangements under the Renewables Obligation to new onshore wind developments in Great Britain.

5. Not all of the provisions relating to the OGA will be included in the Bill at Introduction. However, the Government has prioritised the provisions so that the elements to be introduced later will be those which are not critical to establishing and operating the OGA. It is also planned that more detailed provisions regarding new onshore wind developments will be added to the Bill after Introduction. It is likely that some of these provisions will include delegated powers; therefore, a revised Delegated Powers Memorandum will be published as further provisions are added to the Bill.

6. In summary the Bill will:

• Formally establish the OGA as an independent regulator, which would take the form of a government company, charged with the asset stewardship and regulation of domestic oil and gas recovery. • Transfer to the OGA the Secretary of State’s existing regulatory powers in relation to the licensing of: o offshore oil and gas exploration and production; o onshore oil and gas exploration and production (in England); o Carbon Capture and Storage; and o Gas storage and unloading. The Secretary of State’s regulatory functions in relation to the environment would not be transferred.

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• Give the OGA additional powers including access to company meetings; data acquisition, retention and transfer; dispute resolution and sanctions. • Increase the scope of fees and charges to target the costs of the OGA more closely to those who directly benefit from its services and functions. • Introduce provisions in relation to charges for the regulator’s services to the industry for the environmental regulation of offshore oil and gas. • Make legislative changes to remove the need for the Secretary of State’s consent for large onshore wind farms (over 50MW) under the Electricity Act 1989, acting in tandem with other measures to in effect transferring powers out of Whitehall to local planning authorities. • Make provision for the closure of the Renewables Obligation (RO) to new onshore wind developments from 1st April 2016.

DELEGATED POWERS

7. The Energy Bill contains delegated powers that fall into the two broad categories, both of which are included in this memorandum. First, provisions which create new delegated powers. Second, existing delegated powers that will be transferred to another party (the OGA).

Delegated Powers created by the Energy Bill Part 1 Clause 2(2): Power to transfer functions to OGA

Power conferred on: Secretary of State Power exercised by: Regulations made by statutory instrument Parliamentary Procedure: Negative/Affirmative procedures

Purpose: The clause transfers certain functions from the Secretary of State to the OGA and provides a power to transfer functions (in both primary and secondary legislation) from the Secretary of State to the OGA by regulations. It also provides a power to make consequential amendments.

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8. Justification: The intention is that powers will be transferred to Scottish and Welsh Ministers in relation to onshore licensing as part of the new devolution settlement. These functions are currently contained in the Petroleum Act 1998. The Scotland Bill was introduced on 28 May 2015 and we expect the Wales Bill to be introduced later in the first session, both of which would amend the Petroleum Act 1998 to allow the new devolution settlements to be realised. The sequencing of these Bills causes complexities with drafting textual amendments in primary legislation, as amendments would be needed to the Energy Bill provisions on its passage through Parliament to reflect any changes to the Scotland Bill. It has also not been decided when the relevant legislation will be commenced, including in which order.

9. These complexities would take up an unnecessary amount of time and resource both in the Department and in Parliament and can be avoided by transferring the Secretary of State’s functions by regulations after the Scotland and Energy Bills receive Royal Assent. We will also need to be able to make amendments to legislation as a consequence of this and have therefore made appropriate provision. The intention of this Bill is clear and this transfer power is simply there to give effect to the intention behind this Bill in the most efficient way possible.

10. There is also a power so that functions that are to be transferred to the Scottish Ministers or Welsh Ministers may be exercisable by the OGA until the transfer takes effect. This is necessary in case there is a delay in transferring functions to the Scottish or Welsh Ministers.

11. While every effort has been made to ensure all other relevant functions set out in primary legislation are transferred on the face of the Bill we may subsequently identify one or more functions, which it would be appropriate for the OGA to perform, which would need to be transferred. Given the risk that we may have overlooked functions which we would like to transfer, we think that it would be prudent to take a power so that we may transfer the relevant functions by way of regulations. We have also taken provision so that we may make relevant consequential amendments.

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12. We will also need to transfer certain functions under secondary legislation to the OGA and it is standard provision for these to be transferred by regulations. Again we have taken a power so that we may make consequential amendments.

13. We have also made clear that the power to make consequential amendments includes a power to amend licences, pipeline authorisations and storage permits. This is essentially so that they reflect the fact that the OGA rather than the Secretary of State will be exercising functions. This is standard provision.

14. We have also made clear that the power may include provision that anything commenced by the Secretary of State before the regulations take effect may be completed by or under the authority of the OGA. This is standard provision.

15. Rationale: We do not think transferring functions to the OGA will create any additional burdens on industry, so we do not propose to require the Secretary of State to consult prior to any future use of this power. Where we will be amending primary legislation, DECC accept that it is appropriate to use the affirmative procedure. Where we will be amending secondary legislation, we take the view that the negative procedure is appropriate. Where we are amending primary and secondary legislation at the same time, we take the view that it would be sensible to include the amendments in one instrument and adopt the affirmative procedure.

Clause 5(1): Power to give directions to OGA as to the exercise of its functions Power conferred on: Secretary of State Power exercised by: Direction Parliamentary Procedure: None

Purpose: This clause enables the Secretary of State to give directions to the OGA as to the exercise of any of its functions in the interests of national security or otherwise in the public interest.

16. Justification: There may be circumstances where national security or broader reputational, financial or other public interests are at stake in relation to the exercise of functions conferred on the OGA. As these circumstances will arise and change from time

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to time, it is important that the Secretary of State should have the flexibility to give a direction that takes account of the differing circumstances of each case.

17. Rationale: In the event that the Secretary of State gives a direction to the OGA, the Secretary of State will be under a duty to lay a copy of that direction before Parliament, subject to the exclusion of material that it would be contrary to the interests of national security or otherwise not in the public interest to publish. This is considered sufficient, since the direction applies only to the OGA, whilst also providing transparency as to the directions given to the OGA.

Clause 6(1): Power to give directions to the OGA specifying cases, matters or circumstances that must be notified to the Secretary of State Power conferred on: Secretary of State Power exercised by: Direction Parliamentary Procedure: None

Purpose: This clause enables the Secretary of State to give directions to the OGA specifying cases, matters or circumstances that must be notified to the Secretary of State.

18. Justification: There are circumstances in which the Secretary of State may wish to give directions to the OGA specifying cases, matters or circumstances that must be notified to the Secretary of State – for example, so that the Secretary of State may consider whether to exercise the power to give directions to the OGA as to the exercise of its functions under clause 5. As these circumstances, and the case, matters or circumstances of which the Secretary of State will wish to be notified, may vary from time to time, it is important that the Secretary of State should have flexibility to make these changes.

19. Rationale: No parliamentary procedure is proposed, as directions apply only to the OGA.

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Part 2

Clause 11(2): Power providing for the OGA to specify the manner in which a dispute is to be referred to it

Power conferred on: OGA Power exercised by: Guidance Parliamentary Procedure: None

Purpose: Clause allowing the OGA to specify the manner in which a dispute is to be referred to it.

20. Justification: The Bill makes provision for the OGA to consider disputes on issues that are relevant to the principal objective or that relate to activities carried out under an offshore petroleum licence. Certain parties to a dispute are able to refer it to the OGA for the OGA to take a decision on whether to reject it, adjourn it for further negotiations between the parties or accept it for consideration. This clause provides the OGA, if it so wishes, to specify the manner in which such a referral should be made. Due to the wide scope of the dispute resolution scheme, there is potential for a significant number of disputes to be referred to the OGA. Inconsistency in the method in which they are referred would impact on the resources of the OGA and may cause delays to the dispute resolution process.

21. This clause provides the OGA with the flexibility to determine what works best operationally for it and industry. It would further have the flexibility to make amendments to the referral requirements as the scheme becomes established, the OGA gains experience and as technology develops, for example the OGA may in future wish for all referrals to be made via an online portal. This power, if exercised, will limit burdens on industry as it will give them clear requirements to follow, allowing them to provide the OGA with the required information in the required format at the point of making an application.

22. Rationale: For the reasons set out above, we do not think it would be possible to specify in an enactment the process which would apply to all sorts of disputes that the OGA may deal with under this power. The power to set administrative processes of this

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nature without recourse to Parliament through scrutiny of a statutory instrument are not without precedent. For example, see section 185(4) of the Communications Act 2003, which provides for Ofcom, the communications regulator, with a power to specify the manner in which a referral is to be made under its industry dispute resolution scheme.

23. The OGA is obliged to draw the requirements, and any subsequent amendment, to them to the attention of any likely affected parties.

Clause 12(2): Obligation on OGA to issue guidance on dispute resolution process Power conferred on: OGA Power exercised by: Guidance Parliamentary Procedure: None

Purpose: Clauses requiring the OGA to issue guidance detailing the matters that it will consider when deciding whether to reject, adjourn or accept a dispute referral.

24. Justification: As noted above the scope of the dispute resolution scheme is wide and the Bill provides the OGA with the power to reject, adjourn or accept a dispute for consideration (“the triage process”). This triage process will allow the OGA, where necessary such as a result of a large volume of referrals, to focus its resources on those disputes that have the greatest potential to impact on the fulfilment of the principal objective. To ensure transparency, the Bill places the OGA under an obligation to publish guidance about the matters to which it will have regard when making a decision at triage and in performing its duties under the dispute resolution process.

25. Rationale: The OGA’s dispute resolution powers will cover a broad range of issues and therefore the matters that it will take into consideration may differ greatly between disputes dependent on their nature and basis. Additionally, the matters to which the OGA will have regard to may change and develop over time as the MER UK Strategy beds in and changes are seen within industry operating in the UK Continental Shelf. On this basis it would not be desirable to attempt to define and future proof the considerations the OGA will have either at triage or in performing its duties, and particularly as the OGA will be best placed to set these out.

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Clause 20(1): Petroleum related information and samples to be retained

Power conferred on: Secretary of State Power exercised by: Regulations made by statutory instrument Parliamentary Procedure: Negative procedure

Purpose: The clause confers on the Secretary of State the power to make regulations placing an obligation on those persons obliged to comply with the principal objective (as set out in section 9A(1) of the Petroleum Act 1998) referred to as “relevant persons”, to retain certain “petroleum-related information and samples”. Those regulations may specify the different types of information and samples to be retained, the period for which they are to be retained and the manner in which they are to be retained. The regulations may make different provisions for different purposes and may also provide for the requirements to continue following termination of rights under an offshore licence, though they may not make provision for any period for which an information and samples plan has effect. An information and samples plan is to be put in place after certain licence events, such as transfer and expiry. The information and samples plan will deal with what is to happen to the petroleum-related information and samples after the specified licence event occurs. For the purposes of the clauses “petroleum-related information and samples” is expected to cover information in physical and digital form, accounts, plans, maps, surveys, meta-data, and structured and unstructured data sets.

26. Justification: Part of the role of the OGA is to be an effective steward of the assets in the UK’s waters. This includes retaining important information gathered from under UK waters, such as seismic or geological surveys and rock or chemical samples from wells and other explorations of the seabed. However, an obligation to retain all “petroleum- related information and samples” would be extremely broad in scope and would be burdensome on relevant persons as it would require them to retain information acquired or created by them (or those acting on their behalf) in the course of either (i) carrying out activities under an offshore licence, or (ii) that relates to activities relevant to their fulfilment of the principal objective. It is not possible to set out in primary legislation exactly what information should be retained as this will change over time as the interests of the OGA and the needs of the basin develop together with any developments in technology. Therefore a more flexible approach is needed to allow for retention of the

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sort of information and samples that are likely to be of benefit to the future of oil and gas in the North Sea, without being overly burdensome on industry.

27. Rationale: Because the obligations for which provision is made in these clauses are potentially burdensome on industry and because breach of those obligations has potential penalties attached to it, we consider that it is appropriate that the obligations be set out in regulations. It is usual for powers to be limited through regulations to ensure that no unnecessary burdens are placed on industry. However, in this instance we do not consider that the affirmative procedure is necessary and that regulations made through the negative procedure should provide a suitable degree of Parliamentary scrutiny here. These regulations do not create new criminal offences and the enforcement of them is in accordance with provisions set out on the face of the Bill. Although there will be some burdens on industry created by these regulations (in the cost of the retention of information and samples) this should not be too great as the purpose of the regulations is to target the information retention obligation. We therefore do not think that the extra burden of Parliamentary time through affirmative regulations is justified here.

28. Before laying any regulations made under this power the Secretary of State will be required to consult the OGA, which will ensure that the regulations meet its current interests and the needs of the basin. It will also ensure that the OGA’s view on proportionate burdens on industry is taken into consideration.

Clause 27(8): Confidentiality periods that are to apply to information acquired by the OGA using its statutory powers

Power conferred on: Secretary of State Power exercised by: Regulations made by statutory instrument Parliamentary Procedure: Negative procedure

Purpose: The OGA will be able to acquire significant quantities of commercially sensitive information from relevant persons. Information such as seismic surveys, geological samples etc. might be of significant use to competitors if made publicly available and that information can be extremely costly to acquire. Whilst it would be in the greater interest of the basin for that information to be released so everyone could use it, that would prejudice the commercial benefit of those who have acquired it in the first place. There

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therefore needs to be a limitation on the OGA’s ability to disclose it. The clause provides the Secretary of State with the power to stipulate confidentiality periods that must apply to information and samples that the OGA has acquired under its statutory powers before the OGA can use or publish the information and/or samples. The regulations may specify different confidentiality periods for different types of relevant information and samples and in respect of different sorts of licence and the point from which the period starts.

29. Justification: Much of the information that the OGA will acquire from relevant persons will have a commercial value, which should be protected. As has been set out above, we are unable to set out in primary legislation exactly the information and samples that should be retained, so it would also not be possible to detail in primary legislation the individual confidentiality periods that should apply to them. We do not think it would be appropriate to specify a single confidentiality period as a balance needs to be struck between the interests of those obtaining the information and the basin more generally and that balance will lie in different places in relation to different sorts of information. Additionally, the confidentiality periods may need to be updated over time as the interests of the OGA and the needs of the basin develop and technology progresses.

30. Rationale: As with the above information retention clause, it is usual for powers to be limited through regulations to ensure that no unnecessary burdens are placed on industry. As with the rationale for the parliamentary procedure in relation to those clauses, there are no matters that we think are of sufficient concern to justify the extra Parliamentary and Departmental time and resource associated with the affirmative procedure. We are also of the view that sufficient protection to industry is provided by the negative resolution procedure here.

31. Before laying any regulations made under this power the Secretary of State will be required to consult on its proposals, except where the OGA has carried out its own consultation which meets the statutory requirements.

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Clause 31(5) and Clause 36: Power of the OGA to issue a statutory notice dis-applying the obligation acting upon industry in respect of relevant meetings

Power conferred on: the OGA Power exercisable by: Statutory Notice Parliamentary Procedure: None

Purpose: The Bill makes provision for the OGA to be informed of relevant meetings, to allow persons authorised by the OGA to attend and speak at such meetings (but not to vote on decisions) and for the OGA to be provided with information relating to such meetings. Relevant meetings will be those external meetings including two or more persons listed in section 9A(1)(b) of the Petroleum Act 1998 where issues capable of affecting fulfilment of the principal objective (as specified in section 9(A)(1) of that Act) or where activities carried out under an offshore petroleum licence are under discussion. The OGA will not be resourced to consider or attend all meetings that would fall within the scope of this provision. It should, therefore, be open to the OGA to issue a statutory notice specifying or describing the types of meeting or issues for discussion in respect of which the obligation is dis-applied. It should also be possible for the notice issued by the OGA to make different provision for different cases and for it to be varied or revoked by a further notice given by the OGA. The notice and any variation or revocation of the notice must be published so as to be brought to the attention of persons who are likely to be affected by it.

32. Justification: The ability to attend relevant meetings will be a key process through which the OGA will gain an up-to-date understanding of the major strategic and operational issues affecting the basin. This was one of the central recommendations of Sir Ian Wood’s report. However, the sorts of meetings that industry holds are so varied that they have defied any attempt to clearly define them. In addition, it is important that the OGA has the flexibility to choose which meetings it wishes to attend depending upon a wide range of issues affecting compliance with the MER UK Strategy and compliance with licences (which reflects its core remit), including for example resources, area, issues of concern and work priorities. We have therefore not been able to define the scope of the meetings of which the OGA should be informed on the face of the Bill and have adopted the approach of setting a wide obligation to be shaped by disapplication as the OGA requires.

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33. It is also important to ensure that the provision remains practical, by allowing it to be dis-applied in line with the OGA’s resource capabilities and strategic priorities, as set out above. We have considered whether it would be possible to produce a statutory instrument which specifies the sorts of meetings which fell outside the scope of what the OGA was able to attend, but in light of the non-uniform nature of industry practice across the basin and often-changeable market conditions, we believe this presents a level of formality and complexity that would be difficult to align with the policy intention.

34. Rationale: For the reasons set out above, we are not proposing Parliamentary scrutiny over the statutory notice to be issued by the OGA. We believe that this delegated power is defensible in the circumstances and that this is not without precedent or comparable examples on the statute book. For example, section 71 of the Energy Act 2013 allows the Secretary of State to issue a notice to the Office for Nuclear Regulation setting out that certain information or descriptions of information are to be considered “sensitive nuclear information”. This has the effect of shaping the purposes of the ONR through an administrative instrument and creating a range of obligations, including powers to make secondary legislation (significantly greater than is the case here).

35. In order to provide some protection we have adopted the approach of setting a wide definition of relevant meetings and allowed that to be reduced by notice, so that the effect of the notice is to reduce regulatory burdens on the industry, not increase them. This means that industry members can be certain of the maximum ambit of these powers by looking at the obligations on the Bill, though they might hope that these are reduced by notice. We think it is a significant limitation on the power, that the notice cannot create any new burdens.

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Clause 32(9): Power providing for the OGA to issue a notice specifying the manner in which information about relevant meetings should be provided to it.

Power conferred on: the OGA Power exercisable by: Statutory Notice Parliamentary Procedure: None

Purpose: This clause allows the OGA to issue a statutory notice to companies with a duty to comply with the obligations set out in Chapter 4 relating to meetings. The notice will specify the manner in which the OGA is to be supplied with: notifications that a meeting is taking place and details of how to joint it; explanations as to why it was not possible to comply with the statutory time limit; changes to information provided; and the agenda and other documents relating to the meeting.

36. Justification: The scope of the meetings that the OGA must be notified about under the Bill is very broad, and though there is provision made to disapply this in some or all scenarios, there is still the potential for a large volume of invitations and other information to be provided to the OGA. Standardisation of the processes for notifying the OGA of relevant meetings will assist industry in complying with the obligation and assist the OGA’s efficient use of resources (which are ultimately paid for by industry).

37. However, the different types of meetings that fall within the concept is also extremely variable as there is no standard industry approach to meetings of this nature. It is therefore not possible to set out with the certainty necessary for legislation (either primary or secondary) what those standardised procedures are to be. As has been set out above, the OGA will likely change its focus on meetings on different topics over time and consequently the notification requirements of the OGA will also change. A large degree of flexibility is therefore required. We believe that such procedures will be best defined by the OGA and therefore do not propose that Parliamentary scrutiny over the notices specified in this clause is necessary

38. Rationale: For the reasons set out above, we are not proposing Parliamentary scrutiny over the statutory notice to be issued by the OGA. In order to provide some clarity to industry, these notices (and any variations or amendments) must be published in such

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manner as the OGA considers appropriate for bringing them to the attention of persons likely to be affected by them.

Clause 40(2): Requirement on the OGA to issue guidance setting out the matters to which it will have regard when determining the amount of a financial penalty

Power conferred on: the OGA Power exercisable by: Guidance Parliamentary Procedure: None

Purpose: The Bill imposes a duty on the OGA to publish guidance setting out the matters to which it will have regard when determining the amount of financial penalties generally - the OGA may set the amount of a financial penalty up to a statutory maximum of £1 million. The OGA will be under a duty to have regard to the published guidance when determining the amount of a penalty in a particular case. The First-tier Tribunal is also under a duty to have regard to the guidance when determining any appeal.

39. Justification: The OGA’s enforcement powers will cover the broad range of offshore licence conditions, as well as compliance with the MER UK Strategy and requirements imposed by the Bill. The circumstances relevant to any particular sanction will, therefore, be fairly wide ranging and the OGA (as licensing authority, regulator and steward) will be best placed to define the criteria upon which a financial penalty will be calculated. It is desirable that the amounts of the financial penalty that may be imposed should be transparent and consistent, and the publication of guidance will assist this. It is not desirable to attempt to define these criteria within primary legislation, as the criteria may change from time to time, depending on the OGA’s experience as a regulator and the amount of the statutory cap on the maximum financial penalty that may be imposed per breach. The approach is also followed by a number of other regulators – see, for example, Section 38 of the Competition Act 1998 which requires the Competition and Markets Authority to prepare and publish guidance as to the appropriate amount of any penalty that it issues.

40. Rationale: Because the guidance takes the place of matters that the OGA could determine by policy, albeit that the OGA and the First-tier Tribunal are required to have regard to it, we are not proposing Parliamentary scrutiny over the guidance to be issued by the

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OGA. However, the Bill will require the OGA to consult with such persons as it sees fit before issuing the guidance.

Clause 40(6): Power of the Secretary of State to amend the cap on the maximum amount of a financial penalty from £1m to an amount not exceeding £5m

Power conferred on: Secretary of State Power exercisable by: Regulations made by statutory instrument Parliamentary Procedure: Affirmative resolution

Purpose: The clause will provide the Secretary of State with the power to amend the OGA’s sanctions regime by changing the cap on the maximum financial penalty that the OGA may impose per breach of a relevant duty from £1 million to an amount not exceeding £5 million by subordinate legislation.

41. Justification: The OGA’s nascent enforcement framework is as yet untested and will be implemented at a time of uncertainty across the UK Continental Shelf. The optimum level of a cap on financial penalties (i.e. one that will enable effective deterrence, without affecting investor confidence) may, therefore, change over time. It is necessary to provide certainty for industry by providing a cap on financial penalties, which the Bill sets at £1 million per breach. However, it is possible that, in the light of experience, the OGA may need to impose larger financial penalties to ensure compliance with key duties in the future. The Bill provides some flexibility, by giving the Secretary of State the power to amend the maximum fine per breach to an amount not exceeding £5 million, subject to Parliamentary oversight, which will enable the OGA to impose increased fines. This power may also be used to reduce the maximum financial penalty from £1 million. However, we do not envisage the power to be used in this way.

42. Rationale: For the reasons set out above we are proposing that Parliamentary scrutiny through the Affirmative Resolution procedure will ensure sufficient Parliamentary oversight (whilst ensuring necessary flexibility) in respect of the OGA’s sanctions framework.

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Clause 55: Requirement for OGA to determine procedure in relation to enforcement decisions

Power conferred on: the OGA Power exercisable by: Notice Parliamentary Procedure: None

Purpose: The clause will require the OGA to establish and publish a statement of the procedure that it will follow when making a decision on whether or not to impose a sanction. The main requirement in this process will be for the OGA to ensure that a person deciding on whether or not to issue a sanction notice has not been directly involved in establishing the evidence on which the enforcement decision was based. This is predominately intended to avoid the potential for conflicts of interest which could arise if a person who is acquiring information from companies, and gathering evidence associated with an alleged breach of a petroleum-related duty, is also the person who is deciding on whether or not to issue a sanction.

43. Justification: the ability of the OGA to define its own procedure in respect of this clause provides it with important flexibility to define its own organisational structure and procedures. The OGA's enforcement framework is entirely new. Therefore, although the key powers and duties relating to the framework are set out within primary legislation, the OGA may need to refine its own internal enforcement practices over time, in line with factors such as operational and resourcing requirements. There is therefore a need for some flexibility over the way in which this clause will be implemented.

44. Rationale: For the reasons set out above, we are not proposing Parliamentary scrutiny over the notice to be issued by the OGA.

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Part 3

Clause 57(1): Power of the Secretary of State to provide for the charging of fees (functions under Part 4A of the Energy Act 2008) through regulations.

Power conferred on: Secretary of State Power exercisable by: Regulations made by statutory instrument Parliamentary Procedure: Negative Procedure

Purpose: The clause will provide the Secretary of State with a power to make secondary legislation, subject to the negative procedure, to provide for the charging of fees in connection with carrying out functions under Part 4A of the Energy Act 2008.

45. Justification: Where industry receives services which are a function of the Government there is public interest in ensuring that, in line with the ‘polluter pays’ principle, the cost to Government of carrying out those functions is borne by the businesses which have benefited, rather than being a burden on the public purse. It is already commonplace for Government to charge industry for the services it provides in this area and those charges are in accordance with regulations made by the Secretary of State. This is a reflection of existing practice in this area. It is not possible to set out on the face of the Bill the charges that may be raised against industry for these services because a degree of flexibility is required as to how the charges are made. For example, on the basis of an hourly rate or on the basis of a “per permit” cost. Even if it was possible to stipulate which approach was to be taken, it would not be possible (or desirable) to stipulate the amount of the cost on the face of the Bill as this will change over time.

46. Rationale: It is commonplace that where fees are charged in accordance with regulations in this area, those regulations are subject to the negative resolution procedure. See for example regulations made under section 56 of the Finance Act 1973, section 2(7) of the Pollution Prevention and Control Act 1999 (though note that this is subject to section 2(8), which applies in the circumstances described in section 2(9)) and section 188(6) of the Energy Act 2004. We do not think there is a clear need to depart from this well established precedent here.

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Clause 57(2): Power of the Secretary of State to provide for the charging of fees (functions under Part 4 of the Marine and Coastal Access Act 2009) through regulations

Power conferred on: Secretary of State Power exercisable by: Regulations made by statutory instrument Parliamentary Procedure: Negative Procedure

Purpose: The clause will provide the Secretary of State with a power by secondary legislation to provide for the charging of fees in connection with carrying out Secretary of State functions related to oil and gas under Part 4 of the Marine and Coastal Access Act 2009 (marine licences).

47. Justification: Where industry receives services which are a function of the Government there is public interest in ensuring that, in line with the ‘polluter pays’ principle, the cost to Government of carrying out those functions is borne by the businesses which have benefited, rather than being a burden on the public purse. It is already commonplace for Government to charge industry for the services it provides in this area and those charges are in accordance with regulations made by the Secretary of State. This is a reflection of existing practice in this area. It is not possible to set out on the face of the Bill the charges that may be raised against industry for these services because a degree of flexibility is required as to how the charges are made. For example, on the basis of an hourly rate or on the basis of a “per permit” cost. Even if it was possible to stipulate which approach was to be taken, it would not be possible (or desirable) to stipulate the amount of the cost on the face of the Bill as this will change over time.

48. Rationale: It is usual for Government to make charging arrangements to recover the costs of the services it provides to industries, and for such schemes to be made by regulation. The majority of fees related powers relating to environmental protection are negative, even on first usage. Industry expects to be charged for these functions.

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Part 4

Clause 60 (2): Power of the Secretary of State to make further provision for the closure of the Renewables Obligation to onshore wind through regulations

Power conferred on: Secretary of State Power exercisable by: Regulations made by statutory instrument Parliamentary Procedure: Affirmative Procedure

Purpose: The clause will provide the Secretary of State with the power to make regulations, subject to the affirmative procedure, which make further provision to give effect to the closure of the Renewables Obligation (RO) to new onshore wind generating stations on 31st March 2016.

49. Justification: The Bill is intended to deliver the Government’s manifesto commitment to end new subsidies for onshore wind, specifically in relation to the RO, by closing the RO to new onshore wind generating stations on 31st March 2016 (a year earlier than currently planned). To provide certainty, the closure date has been set out on the face of the Bill, however the implementation of the policy has the potential to be technical and complex – for example, in relation to the proposed application of a grace period – and therefore we consider it appropriate to take a power to set out the detailed policy in regulations.

50. Rationale: We are proposing that the affirmative resolution procedure should apply to the exercise of this power to ensure sufficient Parliamentary oversight.

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Delegated powers that will be transferred to another party (the OGA)

Schedule 1, paragraphs 1 to 7

Transfer of functions to the OGA in respect of producing a strategy to maximise the economic recovery of UK petroleum

Power conferred on: OGA Power exercisable by: Strategy Parliamentary Procedure: Process akin to draft negative procedure (the strategy is to be laid by the Secretary of State)

Purpose: Part 1A of the Petroleum Act 1998, which was inserted by section 41 of the Infrastructure Act 2015, provides for a principal objective of maximising the economic recovery of UK petroleum. The provisions currently require the Secretary of State to produce a strategy for enabling the principal objective to be met. There is then a duty on the Secretary of State to carry out relevant functions in accordance with the strategy. Duties are also imposed on the following to carry out certain identified activities in accordance with the strategy: (1) holders of petroleum licences, (2) operators appointed under those licences, (3) owners of upstream petroleum infrastructure and (4) those planning and carrying out the commissioning of upstream petroleum infrastructure.

The OGA will, amongst other things, be charged with the asset stewardship and regulation of oil and gas recovery. Since it will be responsible for maximising the economic recovery of UK petroleum, and the MER UK Strategy is the means of achieving this, the intention is that functions concerning the production of the strategy (except for those involving Parliament) will be transferred to the OGA. The relevant textual amendments are set out in the Schedule.

51. Justification / Rationale: We do not view the strategy as delegated legislation, although its purpose will be to set out how relevant persons will be able to meet the principal objective. Because of the continually changing nature of regulation, the developing needs of exploration and production in the UK territorial sea and Continental Shelf and the level of detail that will be required to be included in this document we do not consider that setting out the meaning of “maximising economic recovery” in primary legislation is possible. We think that this is better achieved through a strategy which can adapt to new challenges and the evolving needs of oil and gas regulation in the UK territorial sea and Continental Shelf.

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52. We also take the view that documents of the nature of a strategy are not best set out in secondary legislation and as such have not made provision for the making of the strategy through delegated legislation.

53. However, we do think that because of the significance of the potential obligations imposed on relevant persons it is nonetheless appropriate to make provision for some Parliamentary scrutiny of the strategy. We take the view that if the strategy were to be implemented through secondary legislation the negative resolution procedure would be appropriate. The procedure for producing and revising the strategy will be subject to a process akin to the negative resolution procedure and will thereby ensure that there are sufficient parliamentary protections in place. In transferring the relevant functions to the OGA, the Secretary of State will retain the obligation to lay the strategy before Parliament.

Schedule 1 paragraph 16

Transfer to the OGA of the Secretary of State’s power to extend, beyond three years, the period within which works must be complete under a works authorisation.

Power conferred on: OGA Power exercisable by: Notice Parliamentary Procedure: None

Purpose: Provision transferring to the OGA the Secretary of State’s existing power under Section 18(3)(b) of the Petroleum Act 1998 to extend, beyond the statutory three year period, the period within which works, under a works authorisation, are to be undertaken.

54. Justification: This is an existing delegated power belonging to the Secretary of State. It is the intention that this Bill will enable the transfer of the existing relevant oil and gas regulatory functions of the Secretary of State to the OGA to allow it to be an effective regulator with all necessary powers to fulfil this role. The existence of this power remains necessary as it provides the OGA with the flexibility to extend the period within which holders of works authorisations are able to execute works, beyond the statutory three year period set by section 18(3)(a) of the Petroleum Act 1998. In accordance with

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section 18(2) of the same Act, if works have not begun within the statutory period, or within a period extended by the OGA by notice, the OGA shall serve a notice on the authorisation holder stating that the authorisation ceases to have effect, preventing them from starting work. Therefore this power is necessary to ensure that authorisation holders are able to extend the period within which they can commence works where circumstances have meant that they were unable to meet the statutory deadline, thus preventing the need for a further application for authorisation.

55. The OGA may only issue a notice under section 18(3)(b) of the Petroleum Act 1998 following an application by the authorisation holder for an extension. Section 18(5) of the same Act also requires that before issuing a notice the OGA must be satisfied that (a) the application has been served upon the persons on whom the original notice of application for authorisation was served upon, or those of them that the OGA considers appropriate in the circumstances and (b) that the OGA must also consider any written representations made in relation to the application for the extension, that are received within a period it considers to be reasonable.

56. Rationale: As set out above it is necessary to transfer this power to the OGA to ensure it retains the flexibility to extend, at the request of an authorisation holder, the period within which they are able to undertake works. The existing delegated power, when exercised, applies only to the individual authorisation holder and can only be exercised on an application by them. Additionally, the power is subject to further safeguards as provided for by section 18(5) of the Petroleum Act 1998. Therefore, we are not proposing to introduce any parliamentary procedure for the exercise of the power to issue a notice.

Schedule 1, paragraph 36

Amendment of the power of the Secretary of State to make regulations prescribing model clauses for licenses.

Power conferred on: OGA Power exercisable by: Licence Parliamentary Procedure: None

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Purpose: Provision amending the power under Section 7(3) of the Energy Act 2008, which enables the Secretary of State to decide to exclude or modify the model clauses when granting a licence for the importation and storage of gas.

57. Justification: Section 7(2) of this Act requires that the model clauses set out in Regulations made by the Secretary of State are to be incorporated into licences granted under this Chapter. However, section 7(3) confers on the Secretary of State a discretion to either exclude or modify certain model clauses. This power is transferred to the OGA by these provisions. The power is necessary to ensure that the terms upon which licences are granted can be tailored appropriately to the needs of those carrying out the functions. This is an existing power which would not be effectively exercised by the Secretary of State once the OGA has been established.

58. Rationale: Licences for the activities under this Chapter must be capable of being flexible and adapting to the changing (and to some degree, unforeseeable) needs of industry. This power is necessary to ensure that particular issues, for example with the geology of a site, do not prevent a licence from being granted because the clauses established under a set of regulations do not quite work in the circumstances in which the site exists.

Schedule 1, paragraph 44

Transfer to the OGA of the Secretary of State’s power to give a direction in respect of a controlled place in or any part of it, relating to a licence for the recovery of gas stored in a controlled place.

Power conferred on: OGA Power exercisable by: Direction Parliamentary Procedure: None

Purpose: Provision transferring to the OGA the Secretary of State’s existing power under section 15(2) of the Petroleum Act 1998 to give a direction in respect of the controlled place or any part of it, relating to a licence for the recovery of gas stored in a controlled place.

59. Justification: The OGA will be responsible for licences relating to the importation and storage of combustible gas. It must therefore hold the power to direct in respect of this as

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the body will have the necessary knowledge and skills to make decisions in this area. The effect of the direction is that any operations under the licence to recover gas from the place subject to the direction are not to be regarded as resulting in the boring for or getting of petroleum for the purposes of Part 1 of the Petroleum Act 1998. In some instances the controlled place, or part of it, in which gas is to be stored, also contains indigenous petroleum and as a result would require a petroleum licence under the Part 1 of the Petroleum Act 1998. A direction under section 15(2) of the Energy Act 2008 would exempt the parties from also be licenced under Part 1 of the Petroleum Act 1998. This is a positive direction for licence holders as it reduces unnecessary dual licences and the resulting costs from securing a petroleum licence.

60. Section 15 of the Energy Act 2008 restricts the issuance of the direction, in that the OGA will only be able to give a direction if it is satisfied that the amount of petroleum in the controlled place, or any part of it, subject to the direction is so small it ought to be disregarded for the purposes of petroleum licencing. However, where after a notice is issued the OGA ceases to be satisfied as noted above, it must give notice to the licence holder revoking the direction. Therefore, the existing legislation allows the OGA to retract a direction where circumstances change and it would be appropriate for the area to be subject to the petroleum licencing regime.

61. Rationale: As set out above it is necessary to transfer this power to the OGA to ensure it retains the flexibility to restrict the application of the petroleum licensing regime from places where there are insufficient amounts of petroleum to justify the need for a petroleum licence. The existing delegated power, when exercised, applies only to a single gas storage licence and can be revoked when circumstances justify it. Therefore, we are not proposing to introduce any parliamentary procedure for the exercise of the power to issue a notice. For the reasons set out above, we are not proposing Parliamentary scrutiny over the direction to be issued by the OGA.

Department of Energy and Climate Change 09 July 2015