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Topic Title: The Energy Bill and What is a Contract for Difference?
Topic Summary: The Energy Bill will reach 3rd Reading in the Commons on 4 June
Created On: 21 May 2013 01:25 PM
Status: Read Only
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 21 May 2013 01:25 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

The Energy Bill is due to reach 3rd Reading on the 4th June 2013 so that it may pass to the Lords.

DECC want the Energy Bill to get Royal Ascent by the end of this year.

The supporting documentation to the energy bill can be found on

www.gov.uk

Just search for 'Energy Bill'

The Energy Bill (as ammened) is here:

http://services.parliament.uk/...s/2013-14/energy.html

I am (in the next few posts) going to read the Energy Bill to find out what a Contract for Difference (CfD) is.

I am doing this to encourage wider analysis of the the Henry VIII clauses in the Energy Bill, i.e. clauses which allow the Secretary of State for Energy and Climate undue flexibility to change the meaning and scope of the primary legislation by using future secondary legislation instruments and regulations.

http://www.parliament.uk/site-...y/henry-viii-clauses/

James Arathoon

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James Arathoon
 21 May 2013 02:40 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

This is the current definition for Contract for Difference in the Energy Bill as published on the 9th May 2013. "Investment Instruments" defined later in the bill build upon this definition.

"(2) A contract for difference is a contract -

(a) certain payments under which are to be funded by electricity suppliers(see further section 9), and

(b) which a CFD counterparty is required to enter into by virtue of section 10;

and such a contract is referred to in this Chapter as a "CFD"."

So a "Contract for Difference" is now defined explicitly as a "contract", instead of being defined as an instrument as it was in the Draft Energy bill.

What does the word "contract" mean in legal terms. Let's look at a legal web site for help...

http://www.a-n.co.uk/knowledge...k/article/92627/77173

"A contract is an agreement between two or more people that is legally binding. It can be verbal or written."

"Essential ingredients

Offer

There must be an offer made, that is a proposal to enter into a contract.

Acceptance

The offer must be accepted and must always be communicated to the person who has made the offer.

Consideration

Consideration must have been given, for example there must be a price paid, or promise made in return or something else that proves that both parties give some value to each other. Gifts are not legally enforceable, since the recipient of a gift gives nothing in return.

Legal relationship

The parties must have intended to create a legal relationship."


So are CfD's contracts like normal contracts we meet every day or are they somehow different...

The Contracts for Difference (CfD) definition depends on the meaning of:

1) "certain payments" - does this mean a particular category of payments, if so which category?
2) "funded" - which is a term not further defined in the Energy Bill
3) "electricity suppliers" - which is a term not further defined in the Energy Bill.
4) the detailed content of Section 9 and what it in turn makes reference to
5) CFD counterparty
6) the detailed content of Section 10 and what it in turn makes reference to
7) [CFD counterparty] "required to enter into" by virtue of [section 10]. Is the term "required to enter into" compatible with the usual accepted legal definition of the word "contract"?

James Arathoon




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James Arathoon
 21 May 2013 03:37 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

3) "electricity suppliers"

To be clear this term is further defined in Section 9(8), it is just that it is defined in a way that allows for open ended redefinition by future provisions in regulations issued by the secretary of state at DECC.


"9(8) In this section "electricity supplier", subject to any provision made by
regulations, means a person who is a holder of a licence to supply electricity under -
(a) section 6(1)(d) of EA 1989, or
(b) Article 10(1)(c) of the Electricity (Northern Ireland) Order 1992 (S.I.
1992/231 (N.I.1))."



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James Arathoon
 21 May 2013 03:42 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

Section 9 (Supplier Obligation) is just a container for Henry VIII clauses...

9(1) Regulations...
9(2) Regulations...
9(3) Regulations...
9(4) Regulations...
9(5) Provision...
9(6) Provision...
9(7) Provision...
9(8) Definition of "electricity suppliers" + Provision to change the definition

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James Arathoon
 21 May 2013 03:57 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

5) "CFD counterparty" is to be construed in accordance with section 7(2)

to be a CFD counterparty you have to be an eligible person, which is basically a limited company or a public body.

See also section 8 Duties of a CFD counterparty

"8(1) A CFD counterparty must act in accordance with -
(a) any direction given by the Secretary of State or the national system
operator by virtue of this Chapter;
(b) any provision included in regulations."

So there we are a CFD counterparty is really a direct tool or slave of the Secretary of State, just like Henry VIII might have created.

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James Arathoon
 21 May 2013 04:01 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

6) Section 10 Direction to offer to contract

This is a container for Henry VIII clauses as well.

I like

"10(6) Regulations may make provision about appeals against a decision of the Secretary of State or the national system operator not to issue a direction by virtue of this section."

This just says it all.

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James Arathoon
 21 May 2013 04:28 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

Notice we were just trying to find the definition for "Contract for Difference".

The fact is that "Contract for Difference" has no simple definition and seems to be mainly container or label for Henry VIII clauses.

Note there is not even the slightest mention so far of strike prices, reference prices, and difference between the strike price and reference price etc.

These words only emerge in the bill when it comes to defining the term "investment contract" in Schedule 2.

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James Arathoon
 21 May 2013 05:15 PM
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jarathoon

Posts: 1043
Joined: 05 September 2004

Some thoughts and questions before I move on to look at the "investment contract" end of the bill, which involves Electricity Generators (some of whom are electricity suppliers), a CFD Counterparty and the secretary of State

1) Will "electricity Suppliers" be compelled by regulation to sign up to CfD's?

If both electricity suppliers and the CfD Counterparty become slaves of the state in this regard, then CfD can hardly be described correctly as a "contract".

2) What is the maximum period of time that CfD's will remain in force?

Are there terms the electricity suppliers can negociate to escape from the clutches of state control, especially if they are given the choice about whether or not to sign up for this in the first place?

3) Since there are so many Henry VIII clauses in this and other bill's shouldn't we now call them Elisabeth II clauses.



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James Arathoon
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