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Written Statements

Volume 570: debated on Thursday 7 November 2013

Written Statements

Thursday 7 November 2013

Energy and Climate Change

Electricity Market Reform (Contingencies Fund)

The Department of Energy and Climate Change requires a cash advance of £4,069,000 from the Contingencies Fund to support urgent preparatory work to fund external advisers in relation to transitional arrangements for early investors and to fund an interim panel of technical experts before parliamentary approval of both the specific enabling legislation and the necessary estimate.

Contracts for difference (CfDs) are designed to ensure sufficient investment comes forward in time to replace old generating plant due to close from 2016 onwards with new low-carbon plant, thus ensuring continued security of supply for the UK and contributing significantly towards achievement of our legally binding EU renewable energy target.

The Energy Bill will, subject to Royal Assent, make provision for transitional arrangements to enable developers to take investment decisions, where required, ahead of full implementation of electricity market reform. The Department needs to engage external advisers before the Bill receives Royal Assent to support the negotiation of any such arrangements to ensure they represent value for money for consumers. Accordingly, parliamentary approval for additional resources of £4,069,000 for this new service will be sought in a supplementary estimate for the Department of Energy and Climate Change. Pending that approval, urgent expenditure estimated at £4,069,000 will be met by repayable cash advances from the Contingencies Fund.

Gas Market Update

Almost a year ago I informed Parliament that my Department and the Treasury had just been notified about allegations of manipulation of the UK gas market. As I said at that time, I take these allegations extremely seriously. Market abuse is always wrong, and where it exists it must be identified and the full force of the law applied.

The specific allegations were that there had been manipulation of the gas market in Great Britain on 28 September 2012. These allegations concerned trading on that day in the period leading up to 4.30 pm, when price reporting agencies produce a benchmark price for the day. Such benchmark prices are often used in a range of other contracts. It was alleged that gas was sold at a lower price than necessary, in order to manipulate downwards the benchmark price produced by price reporting agencies.

As is right and proper, these allegations were scrutinised by the independent regulators for the affected sectors. Ofgem has the lead responsibility for the physical energy markets, with the FCA leading on financial markets. The reviews entailed detailed analysis of relevant information in order to understand the market conditions and the trading positions of relevant market participants, including contracts priced by reference to price reporting agencies closing prices. Both reviews have now concluded.

Both regulators concluded that they could find no evidence in this instance of market manipulation, and Ofgem considers that the interests of energy consumers were therefore not harmed. They consider that the explanations provided by the sellers for the relevant trades are credible, and they have not found evidence which disputes the explanations provided. In light of this, they conclude that no further action is required in connection with these allegations.

Regardless of the outcome of these particular allegations I am fully committed to ensuring we have a transparent energy market where the risk of abuse is reduced. If any abuse does take place, it must be identified and robustly dealt with. The Government have a strong record of providing regulators with the powers they need to tackle market abuse, and we will continue to take further action where necessary.

We took a leading role in developing the EU regulation on wholesale energy market integrity and transparency—known as REMIT. REMIT prohibits insider trading and market manipulation in wholesale energy markets across the EU and has been in force since 28 December 2011. The UK was one of the first countries to implement REMIT in full, when we put in place civil powers to allow the regulator to tackle manipulation of the energy markets, in June 2013. In view of the importance of the energy markets set out in the annual energy statement I now plan to consult on the introduction of criminal sanctions for energy market manipulation activities.

Ofgem continues to monitor wholesale energy markets, and has an established whistleblower policy to encourage people to bring any examples of market abuse to its attention. REMIT already requires those organising transactions in wholesale markets to report suspicious trades to Ofgem. Ofgem is also working with European colleagues to further develop our cross-border REMIT market monitoring systems.

The allegations in this case were that prices used by price reporting agencies were manipulated. We need confidence that there is a rigorous price assessment process, providing a fair assessment of the market. Ofgem therefore ran a call for evidence on benchmarks in gas and electricity sectors on: potential risks; whether the current processes are fit for purpose; and whether further action is necessary. Ofgem is currently analysing the responses received. It will be for Ofgem to set out its approach, but if action is warranted its responses could range from facilitating effective self-regulation by PRAs, to more significant regulatory interventions. Whatever approach is adopted must take account of international initiatives in this area. PRAs are already implementing principles for oil benchmarks developed by the International Organisation of Securities Commissions (IOSCO) at the G20’s request. We are working within the EU to ensure that any new regulation of PRAs under their proposed benchmarks regulation enhances the robustness of energy benchmarks

Transparency in the energy market is another important element of our overall approach to deterring market abuse. That is why I have asked Ofgem to carry out a detailed assessment of energy suppliers’ financial reporting practices and set out the necessary steps to improve transparency. This assessment will be delivered by spring 2014. In addition, the Prime Minister has announced that Ofgem, OFT and the new Competition Markets Authority will lead a new annual review into the state of the competition of the market.

Ofgem and FCA work independently of Government to ensure that regulations are not being breached. In this case, they have concluded that they could find no evidence of manipulation and Ofgem considers the interests of consumers have therefore not been harmed. But it is right and proper that they continue to be vigilant and we will continue to support them by ensuring the right regulatory framework is in place and that there are appropriate deterrents.


Transforming Management of Young Adults in Custody

I am today announcing the publication of the Government’s consultation “Transforming Management of Young Adults in Custody”.

This Government feel that current provision for young adults in custody, who are 18 to 20, does not adequately meet their needs and does not make the best use of available resources for this age group.

With that in mind, this consultation document outlines the Government’s proposed fresh approach to managing young adults in custody, which moves the focus from age-specific institutions to looking at how we can better meet their rehabilitation and resettlement needs.

We have already taken substantial steps towards reforming how we manage adults in custody, particularly in terms of ensuring that prisoners are better aligned towards release into their home communities. We want to ensure that young adults can fully benefit from our proposals around transforming rehabilitation, including resettlement prisons and through the gate provision. We want to make sure that young adults who are on longer-term sentences are allocated to the most suitable institutions to meet their rehabilitation needs.

The Government accept that some young adults have complex needs, and we want to target our resources more effectively to meet these. We strongly welcome the views of those with an interest in young adult offenders, which will inform this work as it moves forward.

The consultation period will last for six weeks during which time the MOJ will actively engage with stakeholders.

Copies of this Government consultation will be available in the Vote Office and the Printed Paper Office.

An online version of the consultation will be available at:

Work and Pensions

Workplace Pensions

Today I am publishing the Command Paper “Reshaping Workplace Pensions for Future Generations”. This sets out proposals to enable new forms of risk sharing in pension schemes. It builds on our strategy “Reinvigorating workplace pensions”, published in November 2012.

The current defined benefit and defined contribution pension arrangements place risk at polar extremes. In defined benefit schemes the risks are home by the employer who sponsors the scheme, whereas in defined contribution schemes the risks lie with the individual scheme member.

The shift away from traditional defined benefit is a long-term trend which, given the very different social and economic environment we are now in, is not going to change, unless we act now.

Automatic enrolment and the single-tier state pension will provide a firm foundation for saving for retirement. But if the current forms of defined contribution pension saving become the default alternative to traditional defined benefit pensions, scheme members will face uncertainty over the level of income they can expect in retirement.

Over the last year we have worked closely with employers and with representatives from across the pension industry to explore options for creating a new defined ambition pension category where risks (including inflation, investment and longevity) can be shared between a number of parties.

The consultation sets out our proposals for defined ambition pensions. These include:

Creating a new pensions regulatory framework that would allow for greater risk-sharing between parties, which could include employers, members, and insurers and investment managers.

Deregulating to allow a new flexible form of defined benefit pensions, that will enable employers to continue to offer pensions to members with a high level of certainty, but with much greater flexibility over the nature of benefits provided.

Enabling the development of new forms of defined contribution schemes that could provide more certainty for members without adding to employer liabilities.

Enabling new models of collective defined contribution schemes that could provide for risk sharing between members.

The Command Paper will also be available on the website and the consultation closes on 19 December 2013. Subject to the outcome of the consultation, we aim to consult on draft legislation in the new year.