Commentary on Sections Section 44 and Schedule 2: Offshore electricity transmission and property schemes
188.This section and Schedule amend Part 1 of the Electricity Act 1989 so as to confer on the Authority:
	power to recover costs related to competitive tenders for determining to whom offshore electricity transmission licences will be granted, and
	power to make property schemes to transfer property, rights and liabilities from the existing owner to the successful bidder for an offshore transmission licence.
189.Subsection (2) inserts a new section 6D into the Electricity Act 1989. It supplements section 6C which (as mentioned in the summary and background above) gives the Authority the power to make regulations to enable it to run competitive tender processes and determine the successful bidders. These regulations can include provisions about the process the Authority will follow in making such determinations.
190.New section 6D of the Electricity Act 1989 gives the Authority the ability, in making regulations under section 6C, to create new mechanisms to recover its costs in carrying out and administering tender exercises, including the ability to:
	seek payments from the participants in a tender exercise to cover its tender costs for a particular tender exercise (this is set out in section 6D(1)(a)). The participants are identified in sections 6D(2) to (4), being:a person who made a connection request to a transmission system or, if a project connects to shore at 132kV, a distribution system; this may  include the generator-developer; andapplicants for the offshore transmission licence.
	require the person who made a connection request to pay a deposit of an amount set by the Authority or require that person to provide other such security in respect of the Authority’s tender costs (such as a letter of credit or bond) as the Authority agrees (set out in section 6D(1)(b)). The Authority will also accept payment of the deposit or other such security by an approved party, for example a parent company. This power could be used to obtain a financial commitment from a generator-developer to the tender process. For example, the Authority could use this power on the basis that such security would only be realised if the generator-developer withdrew from the tender exercise before the process was complete.
	require costs incurred by the Authority, in assessing the expenditure which has been incurred – or which in the Authority’s view ought to have been incurred if done in an economic and efficient manner – on certain assets, to be met by the owner of the assets – see section 6D(1)(c). The Authority will need to undertake such assessments in cases where transmission assets need to be transferred to the offshore transmission licence holder from, for example, the generator-developer. The assessment will enable the Authority to determine the appropriate transfer value of assets for the purpose of arrangements between the parties for the transfer itself, and also for the purpose of calculating the offshore transmission licence holder’s regulated revenue stream. This power applies to projects which are eligible for a property transfer scheme under the new Schedule 2A for the Electricity Act 1989. More details on how this property transfer scheme will operate and the specific circumstances in which interested parties can apply are given below;
	set out the timing of payments under these provisions;
	provide mechanisms for refunding payments to, or withholding payments (or deposits or other security) from, the persons providing the payments; and
	specify the consequences for the tender exercise or any participant in it should that participant fail to make a specified payment, or provide deposits or security, as required in new subsection (1) (a) or (b).
191.The Authority’s tender costs will include the costs which are incurred in relation to a specific tender exercise and an appropriate proportion of costs incurred in relation to tender exercises generally (and which are not specific to that tender exercise). The detail of how amounts will be determined will be set out in the regulations but they would reflect the direct and indirect costs of running tender exercises.
192.New section 6D(5) prevents the Authority from recovering costs that are greater than those that it has incurred in carrying out each specific tendering exercise (with the proviso that it can also still recover in each case an appropriate proportion of costs incurred in relation to tender exercises generally). At any particular time during a tender exercise the Authority may hold amounts which exceed the amount of its tender costs. However, at the end of the exercise, it must ensure (for example, by making refunds) that it retains no more than its tender costs. In other words, the Authority’s powers to recover costs are cost-reflective.
193.New section 6D(6) and (7) would enable the Authority to charge for an assessment of whether someone wishing to participate in a tender exercise would be able to meet specified requirements (which might include, for example, general technical competence to undertake the activity of offshore transmission) before a tender exercise takes place.
194.New section 6D(9) provides for all payments received by the Authority in respect of the tender exercises to be paid into the Consolidated Fund
195.Subsection (3) clarifies the scope of the regulatory regime for offshore transmission as set out in the Electricity Act 1989. It aims to make clear that the regime encompasses all offshore lines of 132 kilovolts or more which are:
	built wholly or mainly for the purpose of conveying electricity generated by an offshore generating station, and
	wholly or partly in an area of GB internal waters, an area of the territorial sea adjacent to the United Kingdom or an area designated under section 1(7) of the Continental Shelf Act 1964.
196.The definition of “relevant offshore line” is set out in section 180(2) of the Energy Act 2004 (which has not yet been commenced). Once commenced, the definition will be inserted into section 64 of the Electricity Act 1989. Section 64 of the Electricity Act contains the definition of “high voltage line” which is used to determine which electricity lines are considered, and regulated, as transmission lines.
197.Subsection (3) amends the definition of “relevant offshore line” so that any line built for the purpose of transmitting electricity from an offshore generating station is a “relevant offshore line”, even if only a small proportion of the line is situated offshore. The definition in section 180(2) of the Energy Act 2004 is being repealed.
198.Without such an amendment through the Act, the definition of "high voltage line" in section 64 of the Electricity Act 1989 (once amended by the Energy Act 2004) would not cover a line of 132 kilovolts connecting an offshore generating station to the onshore grid in England and Wales, if the majority of the electric line was onshore. This is because such lines would not fall within the definition of “relevant offshore line” as set out in the Energy Act 2004. Such a line would therefore not be regulated as transmission.
199.Subsection (3) also extends the definition of “relevant offshore line” so as to include electric lines which are located within GB internal waters (in addition to lines located in the territorial sea adjacent to the United Kingdom and an area designated under section 1(7) of the Continental Shelf Act 1964 (which currently covers the Renewable Energy Zone)). As a result of this amendment, electric lines which are located in internal waters and which convey electricity from an offshore generating station will be categorised as “high voltage lines”, i.e. transmission, if they are 132 kilovolts or more. Without this amendment, any such lines located in England and Wales would only be “high voltage lines” if they had a nominal voltage of more than 132 kilovolts. This amendment will not affect the treatment of lines in internal waters which do not convey electricity from an offshore generating station, for example a line which forms part of an onshore system and which crosses internal waters to connect one side of a river estuary to another.