Explanatory Notes on sections 173 to 177 and Schedule 22 of the Energy Act

Energy Act 2004 sections 173 to 177

Section 173: Appeals to the Competition Commission

429. This section sets out on what grounds a permission for an appeal may be granted, and by whom, and gives the Secretary of State powers to designate by order what codes come within the scope of the appeals procedure and what sort of decisions are excluded.

430. Subsection (2) restricts appeals to decisions on modifications to those codes designated by the Secretary of State, which do not match the description of decisions that are excluded by the Secretary of State under subsection (2)(d). It enables the Secretary of State to make an order by negative resolution designating the codes where modification decisions are to be appealable. The Government will consult on the codes to be designated, but its initial view is that the appeals mechanism is to be applicable to modifications to the Transco Network Code for gas, and the Balancing and Settlement Code ("BSC") and the Connection and Use of System Code ("CUSC") for electricity.

431. Subsection (3) restricts the right of appeal to people "materially affected" by the decision or bodies representing people so "materially affected". Those "materially affected" are likely to include but may not be restricted to: parties to the framework agreement applicable to the code which is the subject of the appeal; persons holding licences granted under section 6 of the Electricity Act 1989 (c.29) and sections 7 and 7A of the Gas Act 1986 (c.44) who are obliged by licence condition to comply with the relevant code; Energywatch and other interested groups representing consumer, licensee or other trading party interests. All applicants for appeal will have to meet the "materially affected" test in the circumstances of the particular appeal.

432. Subsections (4) and (5) provide that the Competition Commission may refuse permission to appeal if the appeal is trivial or vexatious or has no reasonable prospect of success.

433. Subsection (6) requires the Secretary of State, when making an order under subsection (2) which designates a code or excludes certain types of decision from the appeals process, to consult with GEMA and other appropriate persons. Subsection (8) provides that such an order is to be subject to the negative resolution procedure. The Government will consult on the terms of the order, but its initial view is that decisions should be excluded which are urgent or where the delay occasioned by an appeal could impact on security of supply or where GEMA's decision agrees with the recommendation of the panel in the case of the BSC, or with a certain proportion of code participants in the case of the CUSC and the Transco Network Code.

Section 174 and Schedule 22: Procedure on appeals

434. The effect of section 174 and Schedule 22 is to set out an appeals procedure whereby applicants have 15 working days (counting from the day after the day on which GEMA's decision is published) to submit an appeal against a GEMA decision on a code modification to the Competition Commission. An application for permission to appeal must be accompanied by all such information as the Competition Commission may require under its appeal rules. The Competition Commission has 10 working days from the submission of the application to decide whether to grant or refuse the application for permission to appeal. GEMA has 15 working days after the submission of the application for permission to appeal to submit its representations or observations, should it choose to do so. The Competition Commission will then carry out a review to a tight timetable of whether GEMA discharged its duties correctly; this may include a hearing at which the parties can make representations and answer questions, and a further hearing to determine the appeal. It must normally reach its decision within 30 working days following the last day for the making of representations or observations by GEMA but it can extend this period by a maximum of 10 working days if necessary. The Competition Commission will be able to confirm or quash the original decision, or remit it to GEMA with directions to reconsider taking into account certain factors. This time line is presented below:

435. Further information can be found in the notes to Schedule 22.

Section 175: Determination of appeals

436. This section sets out how the Competition Commission is to reach its decisions on appeals and what it must do on reaching a decision.

437. Subsection (2) provides that in determining the appeal the Competition Commission must have regard, to the same extent as GEMA, to the statutory duties which are placed on GEMA. Subsection (3) provides that the Competition Commission must not have regard to any matter which GEMA was not entitled to have regard to when making its decision, though it may consider fresh evidence if GEMA would have been entitled to have regard to it had it had the opportunity to do so. Subsection (4) provides that the Competition Commission may allow the appeal only if it is satisfied: that GEMA failed to have proper regard to the applicable code objectives, or to the regulator's statutory obligations, or failed to give the proper weight to one or more of the above; that the decision was based on an error of fact and/or that the decision was wrong in law.

438. Subsection (6) provides that if the appeal is successful then the Competition Commission must do one or more of the following: (i) quash the decision, (ii) remit it to GEMA with directions for reconsideration and determination or, (iii) if it is quashing a refusal of consent, give appropriate directions for securing that the relevant condition has effect as if the consent had been given.

439. Subsection (9) sets out the way in which the Competition Commission is required to publish its decision, including the reasons for the decision.

440. Subsection (10) allows the Commission to exclude certain information from the reasons for its decision on the grounds of confidentiality when publishing its decision for the attention of persons beyond the parties under subsection (9).

Section 176: Specialist members of Competition Commission

441. This section provides that the Competition Commission's functions with respect to appeals are to be treated as functions of the Competition Commission under section 104 of the Utilities Act 2000 (c.27).

Section 177: Modifications of standard conditions for funding appeals and references

442. This section gives the Secretary of State power, after consulting licence holders, to make an order amending gas and electricity licences to change the licence charges in order to fund the appeals mechanism provided for in sections 173 to 176, and the existing arrangements for licence modification references. It is intended to use this power in respect of appeals to allow GEMA to raise the funds it needs to pay the costs of an appeal as ordered by the Commission. Where an appeal is upheld this will consist of its own costs, possibly the costs of the appellant and the costs of the Competition Commission. It is intended to use this power in respect of licence condition references to give the Competition Commission, rather than GEMA, the discretion to allocate the Competition Commission's costs in licence modification references. These costs will then be recovered by GEMA, after the Competition Commission has indicated the proportions that individual licensees should pay of the Competition Commission's costs.

Schedule 22: Procedure for appeals under section 173

Application for permission to bring an appeal

587. Paragraph 1 sets out the procedure for making an application for permission to appeal to the Competition Commission within 15 working days of GEMA's decision being published and gives the Commission power to grant permission subject to conditions.

Addition of persons to application

588. Paragraph 2 allows an additional person to become party to an appeal (an "intervener"), for the purpose of supporting the appeal or opposing it, if they apply to do so within 20 working days of the initial application for permission to appeal or within a longer period if the Competition Commission allow, and are materially affected by the decision or represent persons who are so materially affected. An intervener may not rely on grounds of appeal which are not contained in the appellant's application for permission to bring an appeal. The Competition Commission cannot give a direction that the person become party to the appeal if it will prevent determination of the appeal within the prescribed time limits. The Competition Commission, in giving its direction that a person is to be a party to an appeal, may impose conditions on its direction. These conditions could include conditions which limit the matters to be considered on an appeal, and conditions for the purpose of expediting the determination of the appeal.

Suspension of decision

589. Paragraph 3 allows the Commission to "stop the clock" on the implementation of a decision once permission to appeal has been granted. This will only be an option where an application has been made for this to happen, the applicant will incur significant costs by the decision taking effect before determination of the appeal and the balance of convenience has been considered. An application may be made by the appellant or another person with interests or functions that entitles him, or would have entitled him, to appeal against GEMA's decision.

Time limit for representations and observations by GEMA

590. In paragraph 4 GEMA is given a period of fifteen working days from the original application or last joined application for an appeal within which to make its representations to the Competition Commission on an appeal.

Consideration and determination of appeal by group

591. Paragraph 5 provides for a group of three Commission members, with one appointed as chairman, to consider and determine an appeal with decisions effective only if all three are present and two members of the group are in favour of the decision.

Timetable for determination of appeal

592. Paragraph 6 requires the Commission to reach its decision within 30 working days following the last day on which GEMA could have made its representations on an appeal though it is enabled to extend this period by a maximum of 10 working days if it is satisfied there are good reasons for doing so. Where the Commission extends the deadline it must notify every party to the appeal.

Matters to be considered on appeal

593. Paragraph 7 gives the group discretion to disregard matters raised by parties which were not included in their initial application for appeal or, in the case of GEMA, its representations.

Production of documents

594. Paragraph 8 gives the Commission power to require the production of documents or types of documents and take copies of those documents.

Oral hearings

595. Paragraph 9 gives the Commission power to hold an oral hearing and to require oral evidence under oath, in respect of (i) an application for permission to appeal, (ii) a person seeking to intervene in an appeal, (iii) a direction to suspend GEMA's decision and (iv) for the purpose of determining the appeal. The Commission may also require a person to attend an oral hearing for the purpose of giving evidence. A person who attends an oral hearing may be cross-examined by or on behalf of any party to the appeal.

Written Statements

596. Paragraph 10 gives the Commission power to require a person to produce a written statement at a specified time and place to the person considering suspending GEMA's decision or a group determining an appeal, and for that statement to be verified by a statement of truth.

Defaults in relation to evidence

597. Paragraph 11 provides an enforcement power for paragraphs 8, 9 and 10. A person can be held in contempt of court by the High Court or Court of Session for failing to comply with a notice requiring production of documents, failing to comply with a notice requiring attendance at an oral hearing or failing to comply with a notice requiring production of a written statement. A person may also be held in contempt of court if he makes a statement which is false in any material sense in a written statement, or if he provides information which is materially false in the course of providing information which is otherwise verified by a statement of truth. It also provides for altering, suppressing or destroying a document requested by the Commission to be a criminal offence.

Procedural Rules

598. Paragraph 12 allows the Competition Commission to make and publish rules for the conduct and disposal of appeals.

Costs

599. Paragraph 13 gives the group power to make an order in respect of costs incurred in connection with the appeal. Sub-paragraphs (2) and (3) of paragraph 13 require that the costs incurred by the Competition Commission in connection with the appeal shall be paid by the losing party to an appeal, allocated as the group see fit where an appeal brought by two or more appellants is dismissed. Sub-paragraph (5) of paragraph 13 allows the group to require one party to an appeal to make a payment to another in respect of the costs borne by the other party. Sub-paragraphs (6) and (7) of paragraph 13 provide that sums required to be paid by an order must be paid within 5 days and sums which are outstanding after this period shall bear interest at a rate determined in the order.

The Secretary of State's power to modify time limits

600. Paragraph 14 gives the Secretary of State power to amend the time limits set in Schedule 22 by order. It is envisaged this may be necessary if on review it is judged that the current time limits have proved inappropriate.