Official Report: Minutes of Evidence

The Chairperson (Mr Brett): You are both welcome. We have Ms Anne-Maire McConn, director of energy strategy and Paul Skillen, head of energy legislation in DFE. I will hand over to you.

Ms Anne-Maire McConn (Department for the Economy): Good morning, and thank you for the opportunity to brief the Committee on the proposed Utility Regulator (Support for Decarbonisation Preparation) Bill and to get your advice and views. We are pleased to be here to tell you about the work that the Department is doing to put in place this part of the legislative framework to deliver the energy strategy in the context of the Climate Change Act (Northern Ireland) 2022.

We are delivering the strategy through the co-design of a wide range of policies that will help to deliver the Minister's economic vision and the wider Executive priorities in the Programme for Government. I will give you a brief overview of the background to the Bill, after which we will look forward to hearing your views and taking your questions.

On 16 December 2021, the Department for the Economy published the Executive's energy strategy, 'The Path to Net Zero Energy'. That document set out the long-term vision of net zero carbon and affordable energy for all. The aim of the strategy is to end the price volatility associated with imported fossil fuels and to protect the most vulnerable, meaning that the money that we spend on energy stays in the local economy and creates jobs and wealth.

The enactment of the Climate Change Act (Northern Ireland) 2022 provided an additional statutory framework for our work, and its objective of a just transition to decarbonisation fully aligns with the energy strategy's objective of a just energy transition to net zero. The Department is working at pace to put in place the energy policies, enabling legislation and required economic regulation that will provide direction and certainty for business investment and will deliver net zero energy.

The Utility Regulator (UR) is an independent non-ministerial government body, which is governed by a board of directors and is accountable to the Northern Ireland Assembly. It is responsible for the economic regulation of the electricity and natural gas industries and, in doing so, for promoting the short- and long-term interests of electricity and natural gas consumers in respect of price and quality of service. As the economic regulator, it has an important role in providing evidence and advice to the Department on energy policy development.

There has been significant engagement between the Department, the Utility Regulator and the Departmental Solicitor's Office (DSO) to analyse the current legislative framework, which provides the UR's roles and statutory duties. The conclusion of that analysis was that, to enable the UR to contribute evidence and advice on regulatory issues now to the Department's policy development in other energy areas in the energy strategy, we need interim legislation. A draft Bill was produced by the Office of the Legislative Counsel (OLC) and was designed to ensure that the UR can do that.

On 23 May 2024, the Executive agreed that the draft Bill should be subject to public consultation. We received 50 responses to the consultation, and you have received a written summary of the main issues identified. Overall, 76% of respondents expressed support for the Bill, although the consultation raised a wide range of issues, and conflicting views were expressed, as well as some confusion about what the Bill was intended to achieve.

Some common themes emerged, the first of which was that the Utility Regulator is one of several parts of the energy system and that a holistic view needs to be taken. Consultees made specific reference to the importance of the statutory role of other bodies in consumer protection. Some consultees were of the opinion that there is no need for the Bill, because articles 12(5)(c) and 12(7) of the Energy (Northern Ireland) Order 2003 provide the UR with fully adequate cover to provide advice to the Department on fulfilling its energy-related obligations under the Climate Change Act (Northern Ireland) 2022. Then again, contrary to that view, it was suggested that the UR should be given wider powers: for example, in relation to home heating oil. There were comments that an independent regulator is important and that there is a potential conflict of interest if the UR becomes involved in policymaking.

Finally, on the Bill's financial costs, the views expressed included that strong justification would be needed, should the Bill result in increased energy tariffs; that the costs resulting from the Bill should be paid not by licence fee holders but from the Executive's Budget, although others said that costs should be paid by licence fee holders; and that an increase in advice, information and assistance requests from the Department should not automatically result in additional staffing for the Utility Regulator. That was the range of views expressed.

We are planning to introduce significant legislation that will require the Utility Regulator to regulate policies aimed at net zero while protecting domestic and non-domestic energy consumers' interests. The Department is focused on urgently introducing a legislative timetable for the remainder of the mandate. The purpose of this Bill is to allow the Utility Regulator to engage with the Department and provide it with legal clarity that the duties under the Climate Change Act also cover the long-term interests of consumers. In parallel with that, we are taking forward the mid-term review of the energy strategy, which will be reported to the Executive next year. There may well be additional legislative requirements as a result of that review.

We welcome the opportunity to engage with the Committee and hear your views on the responses to the consultation. They will help to inform our position and the draft Bill. We are happy to answer any questions that you may have.

The Chairperson (Mr Brett): Thank you very much for that. Following the consultation, has the Department or the Minister indicated any changes to the draft Bill at this stage?

Ms McConn: We are looking at the range of opinions. We may want to have further discussions on some things with the Utility Regulator and other bodies involved in these areas. We aim to address some of the areas through the Department's response, because we can provide clarification of those areas. At this stage, we have no indication that any changes will be needed. If there are any, they will be taken forward with OLC and then come back for scrutiny.

The Chairperson (Mr Brett): You described this as an interim Bill and said that it is not the whole piece but something to get over the current gap in the legislation. What time frame has the Department set for it, given that it is only an interim Bill?

Ms McConn: I will ask Paul to give you more detail on specific responses.

Mr Paul Skillen (Department for the Economy): As Anne-Maire said, there is a process whereby we will consider the responses and decide whether they require any tweaks to be made to the Bill. Those would need to be agreed with the Minister and then go to the Executive. We do not see that as a significant exercise. That is intended to start in early 2025, with the intention that the Bill will pass through the Assembly before summer recess, but, obviously, that is outside our control.

The Chairperson (Mr Brett): One of the representations that the Committee received indicated that, yes, it is important that the UR can give advice to the Department, but it should have a wider remit and be able to give advice to all Departments, given the important role that they all have in meeting the legislative requirements imposed in the previous mandate. How do you respond to the view that confining the UR's advice simply to the Department for the Economy limits the collective ability of the Assembly and the Executive to work together to meet their targets?

Ms McConn: The Utility Regulator provides advice on energy policy, and the Department for the Economy and the Economy Minister lead on energy policy. We have a wide range of cross-departmental working groups. Where there are issues that span Departments, such as the fuel poverty strategy, we work closely on them with the officials in each Department. Therefore, we will make sure that, if advice or evidence is required on energy, the UR will be at the table and able to provide it.

The Chairperson (Mr Brett): What was the feedback from other Departments on the proposal? Was it any Department's view that it should also have access to the UR's information or advice?

Ms McConn: Other Departments are keen to have access to that advice. We have reassured them that they will have such access. If an issue is related to energy, we will be involved in it, and we will make sure that advice is available and that we are part of the conversation. Where we have had those conversations, we will ensure that the advice is made available.

As more detailed legislation is introduced, there will obviously be much more specific regulatory arrangements, and those will take into account a lot of the issues raised in the consultation. Going by the consultation responses, I would say that some people think that more powers are being given to the Utility Regulator than is the case at this point. That will be the case, potentially, down the line, but evidence will be gathered on such powers, they will be consulted on and scrutinised, and we will be able to answer all the questions.

The Chairperson (Mr Brett): In the consultation, was there a direct ask from any Department to be included in receiving advice directly from the UR?

Ms McConn: Yes. Several Departments contacted us. The Department for Communities, as I said, has responsibility for the fuel poverty strategy, which is clearly relevant, and for issues such as energy efficiency. DAERA is keen, but we had discussions with it and explained that our aim in being involved in conversations at working level is to ensure that information is available to everybody.

We worked closely with the Utility Regulator in a working group on developing the Bill, and we agreed the legislation. We very much value the Utility Regulator's input on energy issues, and the aim of the Bill is to enable us to get that information. The whole purpose of it has been agreed with the UR, and we are working closely with it. We value its advice, as do the other Departments, and the intention is that that advice will be available to people.

Mr Middleton: Thank you for the presentation. When we discuss the transition to net zero and dealing with all those matters, first and foremost in my mind is always the consumer and what it will mean for energy prices and energy bills: what people will pay.

A common theme of the consultation is, clearly, what the Bill will mean for licence holders, but it is ultimately about the cost to consumers. That is a genuine concern. I want to see a fair and just transition, as they say, but that should not penalise consumers. We have a summary of the issues, but will you talk us through some of the responses and the strength of feeling in them about the impact on consumers?

Ms McConn: OK. Before I ask Paul to give more detail on that, I note that the Department absolutely concurs with that view. Our energy strategy specifies that we put the consumer at the heart of it, and cost to the consumer is one of the major issues that we look at. There are cost protections and non-financial protections. We aim to ensure that those are built into all policies. Energy advice, wherever it comes from, will have to be paid for by the consumer eventually. We are keen to ensure that we keep a feel for what happens with that advice, because it inevitably adds to the cost for consumers. We do not want duplication of requests or anything like that. That is one of the key aims of working with the Utility Regulator and, indeed, the Consumer Council and other consumer protection bodies. I will ask Paul to give you more detail on the specific responses.

Mr Skillen: As Anne-Maire said, we were clear about the potential impact in that area. Question 3 specifically targeted that. We asked for the views of electricity and gas licence holders, and, because we were talking about costs, we assumed that other organisations in that area would come forward. Some 62% of people who responded to the consultation provided us with information on question 3. Of the 31 respondents that provided views, 24 were larger organisations, such as companies and public-sector or umbrella organisations. The main themes were about strong justification being needed, should the Bill result in increased energy tariffs. There was a range of views: for example, costs resulting from the Bill should not be paid by licence fee holders. Rather, as that relates to a broader climate agenda, it is something that government should consider. Other respondents felt that taxpayers' funds should not be used. However, there was, I suppose, a view that, if that came from licence fee holders, we had to remember that the requests associated with that would, potentially, have operational constraints on them. If there was a need for additional resources for the Utility Regulator to furnish those requests, the licence holders might need to put in place additional resources, so it is difficult to buffer that from the consumer.

A view was expressed that additional advice and information requests should not be considered to lead automatically to additional staffing. Anne-Maire spoke about article 12 (5)(c) of the Energy Order and how the Utility Regulator already provides support to the Department in that area, which was one of the views expressed. Another theme was that, because net zero is a large, strategic aim, we need to consider the long-term direction and what the Bill means for the economy and the environment, so there was a view that long-term versus immediate costs needed to be considered.

Mr Middleton: Thanks for that. I take heart from the fact that the Department is mindful that consumers are key in all this.

Another issue raised was about taking a holistic view. The Bill is limited in scope, in that it does not take account of the issue of the Utility Regulator not having a remit for home heating oil. You highlighted the mid-term review of the energy strategy and the potential requirement for other legislation. You have not done the review, but is there any early view from those in the sector who see gaps? The home heating oil issue is one of them, but are there other emerging gaps at this stage for which you can see legislation coming down the road?

Ms McConn: The Department has looked at the home heating oil issue. One thing that has to be understood is that the majority of the cost of home heating oil is the global price of the oil. Therefore, if regulation were to be introduced, the cost of funding the legislation would be more likely to increase the cost. Consumer protection bodies exist. The Competition and Markets Authority (CMA) has jurisdiction to investigate and take action against anti-competitive practice. With the move of the strategy being away from fossil fuels, our approach tends to be to encourage the augmentation and implementation of existing protections rather than adding a whole new layer of protection in that area.

As you say, we have not started the review. We have started the preparation for the review, and we have a range of reports from other organisations on where they see the gaps, the interests of their members or their particular approach. Work will start with a review of all those to ensure that we take account of them. We are engaging with all those stakeholders, but we will engage specifically on all those issues, pull them together and address what seem to be potential barriers for industry, for example.

The review is not intended to be and will not be a new strategy. The strategy is approved until 2030, but we are at a stage now, five years on, where we know so much more about what the evidence says, what other people are doing and what we are trying to achieve. We want to put in place more clarity on the direction and, maybe, more milestones so that people can plan their investments and direction of travel. The review is intended to fill in the gaps, and that is precisely what we will set out to do. Where things have come up previously and there is now more information on them, we want to provide information on the way forward.

Mr Middleton: Thank you. I take your point about the mid-term review and the importance of addressing the gaps, but it is also important for the Committee to get that at the earliest opportunity, as there is limited time left in the mandate.

What I tend to hear from the sector is that there was momentum at the beginning but there is almost a loss of momentum at times, particularly given some of the frustrations around getting approval for various renewables. You said that there had been a lot of strong engagement with the Utility Regulator. Has the Utility Regulator, effectively, expressed its satisfaction with the Bill or given its OK? Are there any concerns about the Utility Regulator's independence?

Ms McConn: No. That is where I mentioned there being some confusion. We will address that in our departmental response to the consultation. We absolutely do not intend to encroach on the independence of the Utility Regulator, and the Utility Regulator would not agree to our encroaching on its independence. We rely on the independent and objective provision of advice and evidence that we can trust and that is not affected by any vested interests. That is what we need in order to make evidence-based policy.

The Bill will not change the relationship between the Department and the regulator in any way but will provide legal clarity on the Utility Regulator's role in protecting the short-term and long-term interests of consumers and cover the work that needs to be done on climate change. It is about giving it that role and the clarity that will allow it to have those initial conversations about other energy sources with us. It is in no way intended that the regulator will move into policymaking or decision-making; that role is completely for the Department and the Minister, and it is the role of the Assembly and the Committee to scrutinise that. We formed the working group to ensure that we were both happy with that. We have complete agreement and are now looking to repurpose the working group as a regular working group. We are looking at future regulation through that lens to make sure that everyone is content with the roles assigned to them in legislation.

Mr Middleton: Thank you for that clarity.

The Chairperson (Mr Brett): I will pick up on a point that Gary raised. There are colleagues on the Committee who represent much more rural constituencies than I do. I understand that the Department does not want to be seen to promote the use of fossil fuels for home heating oil, but that is the only option for the vast majority of people who live outside greater Belfast. We are five years into the energy strategy, and the Department has made no move to facilitate or encourage people who currently can access only oil to move to a different form of heating. It is all well and good the Department saying that it is trying to move away from the use of fossil fuels, but, if no support or other options are available to the consumer, that is the only show in town. If the Department wants to tell people to move away from fossil fuels, it will have to move quite quickly to put in place a support mechanism for people to transfer to other forms of heating.

Mr McGuigan: Following on from your conversation with Gary, I think that it is important that the independence of the Utility Regulator be maintained and strengthened. I think that we would all agree that its role is vital in protecting consumers.

Views were expressed through the consultation that the Bill should go a bit further, and other Departments are also of the view that the Bill should go further. I am trying to work my way through that. Is it the Department's assessment that the Bill should go further but there is not enough time in the mandate, or do you think that there is no need for the Bill to go further?

Ms McConn: There are two separate issues. The Bill is intended to give the Utility Regulator legal cover to engage with the Department and spend time and resources on providing us with the evidence, analysis and advice that we need to develop new renewable technologies. The issue of giving the Utility Regulator more specific powers is being taken forward through individual policy development. A range of issues is out to consultation, and work is being done to work up schemes etc to do that. The legislation that results from that will be much more specific in those areas.

I would not like anyone to think that this Bill is the entirety of the request from the Utility Regulator, because it is not. There is a range of stuff coming forward. The Bill has a specific remit, which is to allow the Utility Regulator to engage with us at this early stage. We do not want to wait until we have something worked up, legislate for it and then engage with the Utility Regulator; we need to engage the Utility Regulator during co-design when we are working things up to ensure that they are the lowest cost, that they will protect consumers and that they are easy and simple to implement.

Mr McGuigan: Will the other policy issues that are being worked up require legislation, and will legislation covering those policies come during this mandate?

Ms McConn: Yes, they will require legislation. Some will require primary legislation, and we are engaging with DSO on the most efficient way to bring all that forward. We have a timetable for legislation that we are taking forward in the mandate. If you want more detail of the specifics, Paul can give you a list.

Mr McGuigan: That would be useful.

Mr Skillen: Offshore is obviously a key element of delivering 80% by 2030. It is in the Climate Change Act, and there is a duty on the Department to deliver. We are looking to bring forward two Bills in that area. One is in and around a support scheme that will incentivise investment in that area, and the other is, essentially, in and around the mechanics of how this will work out in the sea. It is like looking at decommissioning and the safety regime in and around offshore. There are two Bills.

There is also a Bill being brought forward in and around introducing a moratorium on onshore petroleum licensing, and that is quite far along the process. We are also looking at what is almost a wider energy Bill. For example, it is important to get the Utility Regulator to talk to us about hydrogen because, at the moment, we have a modern gas network, and hydrogen can be a key part in decarbonising the sector. We will need regulations on that, so there are conversations going on with that policy team on what that might look like.

One of the other things that the Bill is allowing us to do is to talk to the Utility Regulator about what we are calling "new technologies", such as demand response solutions and aggregated generators. Potentially, there is legislation that might be in a larger Bill that would be brought forward in this mandate. That is the plan. A lot of this stuff is about how far down the road we get on that and how settled policies are, because you have to remember that we need to provide regulatory certainty. Do you know what I mean? We need to be clear in what we do. We do not want legislation that is not —.

Ms McConn: Yes, it has to be specific, has to be subject to scrutiny and has to stand up so that, when people look at it, they can see whether it causes concern or addresses their concerns. It has to be specific in that. It has to be good legislation, so, as we work through each of the policies, the intention is to identify with stakeholders the legislative gaps and identify with the Utility Regulator where we want to put in regulatory certainty. We will also talk to the likes of the Consumer Council about where we need to support consumers as we bring this all through. The intention of the legislation is to address those things once we get through that scrutiny process. That is why this legislation was needed as a short piece of interim legislation to enable the Utility Regulator to talk to us about the issues and to make sure that we get the legislation that we need.

The Chairperson (Mr Brett): What is the Department's current position on or plans for trying to transition domestic customers from home heating oil to a new source?

Ms McConn: For domestic customers, we are looking at bringing more renewable electricity on to the electricity grid and strengthening the grid to be able to take and use that electricity. There are microgeneration schemes. We have Great British Energy coming on stream. We are talking to the Department for Energy Security and Net Zero (DESNZ) about the support that it can offer, and it is aimed at local and community energy. The community energy aspect is getting more attention, and we are looking to make sure that local communities have ownership of the way in which they take things forward. We already have some pilots running in the area. They are self-generated pilots that are not generated by the Department at this stage, but we are involved where they want us to be. We are looking at bringing forward some kind of departmental policy on the support that we can give them. We are also working with the Consumer Council on a campaign of information, support and advice to enable domestic consumers, in particular, to at least know what the routes are and what they might cost.

The Chairperson (Mr Brett): Do you envisage a departmental support scheme for domestic customers to transition from their current fossil fuel usage to a form of renewable energy for their electricity or heating?

Ms McConn: It is too early for me to answer that, and it is not my specific policy area. However, a consultation on encouraging people to use heat pumps etc is out at the moment. The direction in which the policy is going is to examine that and see what is needed to help people to transition. At this stage, I could not say definitively that there will be a scheme or what it would look like.

Ms D Armstrong: Thank you for coming in this morning. It is very interesting.

As a new member of the Committee, I want to ask about the Utility Regulator. I see that 67% of its operating costs are for staff wages. Is it adequately resourced? From where does the resource come to enable the Utility Regulator to take on extra responsibilities in order to meet the climate change obligations in the Climate Change Act?

Ms McConn: The Utility Regulator is completely independent and not accountable to the Department. We do not oversee its budget in any way. It gets a small amount of funding from the Department of Finance, but the majority of its funding comes from licence fees from consumers. I know that it comes to talk to the Committee and would be happy to talk through that with you. We do not have oversight of its budget. It is completely independent in that respect.

Ms D Armstrong: You would expect it to come from licences for the new sources of energy that it would regulate.

Ms McConn: Potentially. As we develop policies on any new energy sources, the intention is to ensure that there is a fair and just distribution of the costs and that account is taken of specific groups of people who might be particularly impacted on by any of those policies. The consumer protection angle is a huge part of all policy development that we do. It is considered throughout.

Ms D Armstrong: Thank you.

The Chairperson (Mr Brett): OK. Thank you very much; we appreciate that. The Committee will have some discussions and will correspond with you about any views on the Bill. Thank you very much for coming today.