Schedule 9: Independent System Operator and Planner: transfers Schedule 16: Mergers of energy network enterprises Part 1: Further duties of Competition and Markets Authority to make references Paragraph 2: Insertions following section 68 of the Enterprise Act 2002
Paragraph 2 inserts sections 68A to 68F into Part 3 of the Enterprise Act 2002.
	Section 68A defines what amounts to an energy network merger for the purposes of the regime for mergers of energy network enterprises (referred to in these Explanatory Notes as the energy networks special merger regime). Relevant energy network mergers will be considered by the CMA under the energy networks special merger regime.
	An energy network merger is a merger between energy network enterprises that hold the same type of licence. Energy network enterprises within scope of the energy networks special merger regime are defined by virtue of the licence they hold under the licensing regime in Great Britain. For example, a merger between two Distribution Network Operators (DNOs), who both hold a licence under section 6(1)(c) of the Electricity Act 1989 would qualify as a relevant merger situation.
	This section includes a power for the Secretary of State to amend the type of enterprise that is considered as an energy network enterprise by reference to the type of licence it holds. If the Secretary of State relies on this power, they must consult with the CMA and GEMA. The Government expects Ofgem to carry out the duties bestowed on GEMA.
	The Enterprise Act 2002, which will be amended to include the energy networks special merger regime, has UK wide extent and thus the energy networks special merger regime will form part of the law of the UK. The energy networks special merger regime will only apply in England, Wales and Scotland because under section 68A, the only enterprises that will be in scope of the regime are energy network enterprises holding certain licences under s.7 of the Gas Act 1986 or s.6 of the Electricity Act 1989. The relevant provisions of both the Gas Act 1986 and the Electricity Act 1989 extend to and apply in Great Britain.
	Section 68B confers a duty on the CMA to refer a completed energy network merger to a full investigation by a CMA group if they think that a certain type of substantial prejudice has occurred or may occur.
	The CMA will consider, whether the merger has substantially prejudiced, or may substantially prejudice, the independent energy regulator, GEMA, in its ability to carry out its functions to make comparisons between energy network enterprises of the type involved in the merger. If the CMA concludes that it has, or may, result in substantial prejudice, then the CMA comes under the duty to refer unless the CMA believes that there is a customer benefit that outweighs the prejudice.
	This section provides that the CMA must not make a reference in certain circumstances (set out in section 22(3) Enterprise Act 2002). The CMA must not make a reference for full investigation where:
it has failed to make a decision on referral within 40 working days (subject to an extension of 20 working days in certain circumstances) from the date it notified the merging enterprises of its initial investigation,
an undertaking in lieu of referral for full investigation has been accepted,
the CMA is considering whether to accept an undertaking in lieu, and
the Secretary of State has served an intervention notice under section 42(2) of the Enterprise Act 2002, because the energy network merger raises a public interest consideration that needs to be taken into account, and this intervention notice is in force or has been determined. This is provided the Secretary of State has not asked the CMA to deal with the merger under section 68B.
	Section 68B also provides that the referral to full investigation must specify the enactment under which it is made, and the date on which it is made.
	Section 68C confers a duty on the CMA to refer an anticipated energy network merger (a merger which is in progress or contemplation but not completed) to a full investigation by a CMA group if they think that a substantial prejudice may occur.
	Everything listed in the explanatory note for section 68B (on when the CMA must refer, may refer and must not refer a merger to full investigation) also applies to anticipated mergers under section 68C, save that, if an intervention notice is served then the CMA must not refer the merger for a full investigation unless the Secretary of State has asked the CMA to deal with the merger under section 68C.
	Section 68C also provides, in respect of an anticipated merger, that the CMA is not obliged to refer the merger for full investigation where it is not sufficiently advanced or sufficiently likely to go ahead as to justify being investigated at this stage.
	Section 68D requires the CMA to consider the opinion of GEMA when forming a view on whether to refer the energy network merger for full investigation by a CMA group. The Government expects Ofgem to carry out the duties bestowed on GEMA.
	Subsection (2) provides that GEMA must give its opinion on whether and to what extent the merger has or may be expected to prejudice its ability to make comparisons between energy network enterprises of the type involved in the merger and whether any prejudice is outweighed by any relevant consumer benefits the merger may result in.
	GEMA must prepare and publish a ‘statement of methods’ which explains how it will form its opinion.
	GEMA must consult on the ‘statement of methods’ before preparing or altering it. Subsection (5) includes a list of statutory consultees. There is no obligation on the consultees to respond to the consultation.
	The statement of methods must include the criteria that GEMA will use to assess prejudice and the relative weight of the criteria.
	GEMA must from time to time review the statement of methods and where appropriate, update it.
	Section 68E makes provision for where a merger falls within scope of both the energy networks special merger regime, and the substantial lessening of competition regime. In this situation, the CMA may make a reference under both regimes, described as a "combined reference".
	This section sets out that combined references (i.e., investigations) may be dealt with and considered by the same group in the CMA.
	The group(s) investigating the merger is/are empowered to prepare and provide a joint report which sets out its/their findings on both the referrals. They do not have to issue a joint report if they deem it more appropriate to issue single reports.
	Section 68F sets out that in relation to references made under the provisions in sections 68B and 68C (with related provisions in sections 68A to E), Chapter 1 of Part 3 of the Enterprise Act 2002 applies in conjunction with the modifications set out in Schedule 5A to the Enterprise Act 2002.