Commentary on Sections Part 2: Electricity Market Reform Chapter 5: Conflict of interest and contingency arrangements Section 45: Modifications of transmission and other licences: business separation
237.Subsections (1) to (5) of this section provide that the Secretary of State may modify the conditions of existing electricity licences and codes for the purposes of imposing business separation measures between “system operation functions” (or one or more individual system operation functions), and other functions. But he or she can only do this where it is necessary or desirable as a result of new functions being given to the national system operator in respect of electricity market reform.
238.Subsection (3) defines “system operation functions” so as to include system operation functions authorised under a transmission licence and “EMR functions”. Subsection (10) subsequently defines “EMR functions” as functions conferred by or by virtue of Chapter 2, Chapter 3 or Chapter 4 – being the delivery functions conferred on the national system operator in relation to contracts for difference, the capacity market and investment contracts.
239.Subsection (5) requires the Secretary of State, in exercising this power, to consider the possible impacts it would have on the efficient and effective operation of the electricity system.
240.Subsection (6) provides a list of the types of measures this could include, for example:
	legal separation: requiring a separate subsidiary to carry out EMR functions;
	limiting the control or influence which a parent company or other subsidiary can exercise over the body which carries out EMR functions;
	requiring functions to be carried out in separate locations, on separate IT systems or by separate employees;
	requiring separate accounts to be produced, and
	requiring information separation between EMR and/or system operation functions, and other parts of the national system operator’s business.
241.Subsection (7) gives the Secretary of State power to require the national system operator to produce annual compliance reports concerning the separation measures.