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Topic Title: "Contracts for Difference" in the Explanatory Notes to the Energy Bill
Topic Summary: The Explanatory Notes describe Henry VIII style "Regulations" which haven't been published yet
Created On: 21 May 2013 06:58 PM
Status: Read Only
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 21 May 2013 06:58 PM
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jarathoon

Posts: 1040
Joined: 05 September 2004

I am finding that the actual Energy Bill and the Explanatory Notes do not match up, because most of what they describe will be contrained in regulations that have not yet been published.

"Chapter 2: Contracts for difference

9.The contract for difference (CFD) aims to tackle the lack of investment in low carbon electricity generation allowing the Government to achieve its objectives under the Electricity Market Reform to:
ensure the future security of electricity supplies;
drive the decarbonisation of our electricity generation, and
minimise costs to the consumer.

10.The CFD provides developers of eligible low carbon electricity generation with a long term contract that provides for a stable revenue stream enabling investment in low carbon. Most contracts will be allocated by the operator of the national electricity transmission system (currently National Grid Electricity Transmission PLC) who will determine the eligibility and issue a direction in line with the regulations to the CFD counterparty to offer a contract to the eligible generator CFDs in line with agreed objectives set by Government and with the terms upon which the contracts must be offered (including price) set out in regulations. In the longer term allocation and price will be determined by a competitive process. In exceptional cases the Secretary of State will allocate CFDs to individual projects to which the generic terms might not be suited and will have to be individually negotiated. The Secretary of State will then instruct the CFD counterparty to offer such contracts. Thereafter the CFD counterparty will be in a commercial relationship with the generators, governed by the terms of a generator's contract.

11.In most cases the mechanism will work by setting a "strike price" (a price per unit of electricity generated) which will be at the level determined to be necessary to support the particular technologies supported by the scheme. The contracts will also refer to a "reference price" which is a price which attempts to reflect the wholesale electricity price at a particular time. Generators will sell their generation into the market (as normal) and, where the strike price exceeds the reference price, the counterparty will pay the generators the difference between the strike price and the reference price. The combination of the payment from the CFD counterparty, and the revenue from the sale of electricity, should ensure that a generator broadly receives the strike price.

12.When the reference price is above an agreed strike price, payments will be made by the generator to the CFD counterparty. This clawback is aimed at ensuring that generators only receive the revenue necessary to support them. This loss of opportunity to benefit from high wholesale prices for electricity reflects the advantage of receiving payments such that revenue at the level of the strike price is broadly ensured. There may be variations on this "two-way" CFD model in order to support different types of generation whilst still retaining sensible incentives to generate.

13.The cost of the contracts to the CFD counterparty will be met by licensed electricity suppliers (both those licensed in Great Britain and those licensed in Northern Ireland) and it is anticipated that the costs of the CFD counterparty itself will be met from the same source. Suppliers in turn are likely to pass such costs onto consumers. Where the CFD counterparty receives payments back from generators under the contracts these will be passed on to suppliers.

14.Aspects of the operation of the CFD counterparty will be regulated by the Secretary of State. This is designed to ensure the protection of suppliers and ultimately consumers."

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James Arathoon
 22 May 2013 08:41 AM
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ectophile

Posts: 539
Joined: 17 September 2001

Originally posted by: jarathoon

I am finding that the actual Energy Bill and the Explanatory Notes do not match up, because most of what they describe will be contrained in regulations that have not yet been published.



I thought that was the whole point of enabling legislation - parliament passes an Act that then allows ministers to create Regulations.

If the Regulations had to be ready before the bill was passed, then they might as well be added to the bill.

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S P Barker BSc PhD MIET
 22 May 2013 09:41 AM
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jarathoon

Posts: 1040
Joined: 05 September 2004

Did you see that I put "most" in italics. "Contract for Difference" in the actual 'Energy Bill has no meaning except as a container for regulations.

The Energy Bill as written allows the Sectretary of State to do pretty much as he pleases in regards to the meaning of "Contracts for Difference"

To save ink. and to save everyones time, the they might have well as written the Bill.

Using the 'CFD counterparty', 'System Operator', 'Energy Generators' and 'Energy Suppliers' as puppets, the Sectretary of state can draft regulations to control the energy system of the UK in whichever way he sees fit by the simple device of redefining the words "Contract for Difference".

If this bill is passed I have asked to go to parliament to put my views on the public record.

James Arathoon


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James Arathoon
 22 May 2013 09:46 AM
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jarathoon

Posts: 1040
Joined: 05 September 2004

Passed meaning, passed at third reading in the Commons on the 4th June

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James Arathoon
 22 May 2013 01:17 PM
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ectophile

Posts: 539
Joined: 17 September 2001

When it comes down to it, the Explanatory Notes are just that - they are for information only and are not binding on anybody.

The only official definition of a CfD will be what's in the Act. If the draft bill I'm looking at is remotely up-to-date, then that's Part 1 Chapter 1.

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S P Barker BSc PhD MIET
 22 May 2013 02:02 PM
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jarathoon

Posts: 1040
Joined: 05 September 2004

Originally posted by: ectophile

When it comes down to it, the Explanatory Notes are just that - they are for information only and are not binding on anybody.

The only official definition of a CfD will be what's in the Act. If the draft bill I'm looking at is remotely up-to-date, then that's Part 1 Chapter 1.




I totally agree, so don't bother reading the draft Energy Bill that isn't relevant anymore, read the latest energy bill going to report stage and 3rd reading instead...

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

James Arathoon

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James Arathoon
 23 May 2013 08:29 AM
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ectophile

Posts: 539
Joined: 17 September 2001

It looks like they've changed it, and it's now Part 2 Chapter 2.

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S P Barker BSc PhD MIET
 30 May 2013 05:43 PM
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jarathoon

Posts: 1040
Joined: 05 September 2004

An email sent to the House of Commons Information Team today:




Dear House of Commons Information Team,

My query is in regards to the way the term "Contract for Difference" is defined in the new Energy Bill coming up to 3rd reading early next week.


Chapter 2 Section 6(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"."

When you trace how his definition works into Section 9 and Section 10 it becomes clear that "Contract for Difference" is a flexible legal container for Henry VIII clauses (Regulations and Regulatory Provisions).


I think that the word "contract" as used here is inconsistent with the existing legal meaning used elsewhere in our legal code. I must admit the meaning of the word "contract" here completely mystifies me. Would not the words "A contract for difference is a subsidy mechanism paid through a new compulsory system of taxation or levies" be better?

Whether or not I am correct in my interpretation of the Bill my questions relate to how parliament is organised to spot and pass judgement on such matters:

1. Are there any legal specialists within parliament that can review the language in new bills to make sure that important and legally significant words (like "contract") are used consistently and clearly throughout our complex legal framework?

If there are not, does it even matter if "Contract for Difference" is defined in law as a "contract" when it is perhaps something much more complex?

Will the meaning applied to the word "contract" in the Energy Bill, be completely independent of how the law applies and is interpreted in other areas of law?

2. Can a member of the public or an MP, ask for a legal opinion to be published publicly on legal consistency and intelligibility, especially where words such as "contract" are used, that have extremely important and long standing legal meanings developed over centuries?


Best Regards,


James Arathoon


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James Arathoon
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