Brexit Blog 5: Energy
The consequences of Brexit for the regulation of energy between the Netherlands and the UK
Whereas Theresa May is trying to convince Brussels to adjust the current Brexit agreement, the Dutch government has been preparing a ‘no deal scenario’ for quite some time. By proposing a new 'emergency act', the government hopes to overcome the (unforeseen) consequences of the renouncement of the United Kingdom from the European Union on 29 March 2019. This concerns the so-called 'Verzamelwet Brexit' (the “Bill”) which aims to amend several governmental acts, including the Electricity Act 1998 (the “E-Act”) and the Gas Act (the “G-Act”). This Bill has been adopted by the House of Representatives on 29 January 2019 and is now pending at the Dutch Senate. In our fifth Brexit Blog we will address relevant aspects for companies in the energy industry in the context of these two acts.
After the Brexit, the Netherlands are no longer solely surrounded by other EU countries, but will directly connect to the exclusive economic zone of a 'third country', since the UK will qualify as a third country after the Brexit. The UK will then no longer be part of the EU's integrated energy market. As a consequence, EU regulations regarding the operation and utilization of the electricity and gas networks between the Netherlands and the UK – such as the BritNed (a high voltage electricity connection of 1000 MegaWatt between the British Isle of Grain and the Dutch Maasvlakte) and the BBL (a 235 km high-pressure gas pipeline that connects the British Bacton with the Dutch “Balgzand”) – will no longer apply. The Dutch government aims to overcome this legislative gap by creating transitional arrangements in the E-Act and the G-Act. According to the Explanatory Memorandum to the legislative Bill, these transitional arrangements apply to both a scenario in which a withdrawal agreement is entered into between the UK and the EU and a 'hard' Brexit (i.e. a Brexit without such agreement) and apply regardless of whether the Brexit date of 29 March 2019 (23:00h GMT) is postponed or not (this follows from the Explanatory Memorandum). Below a detailed discussion of this transitional arrangement is provided, and also its latest political status.
Changes in E-Act and G-Act
The E-Act and the G-Act currently do not provide for any rules on energy networks between the Netherlands and a third country. The Bill does also not provide for such rules, but it does however create a broad basis of authority for the Dutch government to create new regulations regarding the operation and utilization of energy networks between the Netherlands and a third country and to the functioning of the administrator of those nets by governmental decree (‘Algemene maatregel van bestuur’). This is further elaborated in sections III and IV of the legislative Bill for the amendments of the E-Act and the G-Act. If the government has the authority to establish such regulations by decree, it can respond relatively quickly to the consequences of Brexit in regard to such interconnectors. Unlike a formal act, a governmental decree can be established solely by the government, since the approval of the Dutch Parliament is not required.
According to the Explanatory Memorandum, the Bill covers a wide range of subjects, such as the access to the transport capacity, the distribution methods of transport capacity, the methods for determining the price of transport, the governance of the administrator of the cross-border networks, and the connection to the national networks. Please note that these rules have not yet been adopted by the Dutch government, since the legislative Bill has not yet been through the entire legislative process (it is currently pending at the Dutch Senate). Hence, the Bill did not enter into force and there are currently no specific new regulations applicable on the networks between the Netherlands and the UK.
Anything new under the sun?
It is expected that the Bill will bring little change to the current legal situation in regard to interconnectors between the Netherlands and the UK. For example, in response to a number of parliamentary questions, the government has already indicated that it expects a 'smooth transition' after the Brexit with regard to the regulation of these interconnectors, because it intends to calibrate the new regulations as far as possible on the existing energy regulations. Moreover, the Dutch government states in the legislative history that it will coordinate with the current stakeholders (such as the ACM) as much as possible.
As far as international energy cooperation is concerned, an important part of the rules remains unchanged by definition, since the EU, the Netherlands and the UK are also parties to the so-called Energy Charter. Besides, with regard to international gas connections, the Netherlands and the UK already have agreed upon a treaty regulating the transport of natural gas between the UK, Northern Ireland and the Netherlands. The Brexit has no direct consequences for the binding nature of these treaties.
Legislative Bill receipt in the House of Representatives
With regard to the proposed amendment of the E-Act and the G-Act, the legislative Bill has been fairly well received in the House of Representatives. Only a few questions were posed, and during the discussion with experts on 5 December 2018 the changes were not discussed at all. Upon this date, the legislative Bill has been amended, but not as regards the intended changes in the E-Act and the G-Act.
Currently, the legislative Bill is still subject to the approval of the Dutch Senate. With regard to the to the G-Act and the E-Act, it is however not expected that the Dutch Senate will add any material changes to the Bill.