Ofgem guidance on preparing for EU exit

Posted in Energy

Whilst Ofgem is not directly engaged in Brexit negotiations, as the UK’s energy regulator its role is to work with government and industry stakeholders to ensure that its regulatory framework is fit for purpose in a range of potential EU exit scenarios. On 8 March 2019, Ofgem published an update outlining its preparations for the UK’s exit from the EU. The update builds on the government’s advice notices to industry, which provide guidance as to what the electricity and gas sectors would need to do in a ‘no deal’ scenario (for more information, see our blog post: The UK Government’s ‘no deal’ Brexit papers: the impact on energy). 

Key points from the update are as follows:

  • licences and industry codes – if the proposed Withdrawal Agreement is agreed, changes to licences and industry codes will not be required during the transition period, which is set to end on 31 December 2020. However, if the UK leaves the EU without a deal in place, the majority of licenses and industry codes will need to be amended to reflect legislative changes to the extent these reflect EU legislation.

In a ‘no deal’ scenario, Ofgem has confirmed it intends to make the necessary changes to licenses as close to exit day as possible. Details of Ofgem’s intended modifications can be found in their consultation published on 14 January 2019. With regards to industry codes, in an effort to minimise uncertainty for market participants, Ofgem have advised that modifications to the codes and the regulatory framework be made in a timely manner, and stressed the importance of ensuring that consequential changes (or ‘day 1’ changes) are prioritised; and

  • REMIT: registration and data collection – regardless of the outcome of the draft Withdrawal Agreement, the EU-wide Regulation on Energy Market Integrity and Transparency (REMIT) will still be enforced by Ofgem post-Brexit, insofar as it relates to insider trading and market manipulation. The status of the Withdrawal Agreement will affect registration and data reporting channels – if the Withdrawal Agreement is implemented, it is to be assumed that these channels will remain unchanged throughout the transition period, however should the UK and EU fail to reach an agreement, changes to these requirements will take effect post-Brexit. For this reason, Ofgem published an update on contingency arrangements detailing how REMIT will apply in the event of no deal.

With regards to REMIT registration, Ofgem has confirmed that there is no need for those market participants who are already registered to take further action. New participants, or those hoping to amend their Ofgem registration however, must contact Ofgem directly. Again, if the Withdrawal Agreement is implemented, there is no immediate concern for data reporting requirements, as these will remain in place until the end of the transition period. In a no deal scenario, Ofgem has confirmed it will take over ACER’s role in monitoring the British market. However, market participants currently registered with Ofgem who wish to enter into transactions in wholesale energy products where delivery is in the EU, will be required to re-register with a national regulatory authority of an EU Member State now; and

  • interconnectors and cross-border trading – Ofgem is working with national regulatory authorities in relevant interconnected Member States to determine what changes will be made to access rules in the event of a no deal Brexit. Changes will be required to access rules for electricity interconnectors if these cannot participate in market coupling. Once access rule changes are in place, continental interconnectors will be able to continue operating. Ofgem notes that (at the date of publication) no consultation on access rule changes had been received in relation to Irish interconnectors. Changes have not been identified as being required prior to exit day to ensure continued operation of gas interconnectors.

It remains to be seen whether the UK will leave the EU with or without a deal, and so the regulator and industry are now preparing for every eventuality.

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