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AN ANALYSIS OF THE CONSULTATION ON AN ENVIRONMENTAL PRINCIPLES AND GOVERNANCE BILL: PART I

Perhaps unnoticed, as people head to the beach in August, Defra’s consultation on ‘Environmental Principles and Governance after the United Kingdom leaves the European Union, which closed on 2 August 2018, is probably the most important consultation affecting environmental laws to be introduced for at least the last ten years. It goes right to the heart of how environmental laws will, or should, or may not be, enforced, after the UK leaves the EU.

It proposes a new Bill, to set up a new body with the essential task of holding government and public bodies to account for environmental law enforcement, in place of enforcement of EU law by the European Commission and Court of Justice of the European Union.

The Bill will also address how the key environmental principles which underpin EU environmental laws should be reflected in UK laws after Brexit. The new Bill will only apply to England, as responsibility for the environment is a devolved matter, but similar issues will arise for each devolved administration. Debates continue over the workability of having four separate enforcement bodies, or a single body for the UK applying consistent standards but (and this is now a pressing need) taking real and full account of the concerns in each of the UK’s constituent parts.

In this article, the author argues that given the current failures of enforcement under existing legal structures, there now needs to be a legal duty upon all levels of government“ to secure the effective enforcement of environmental laws” for which they are responsible. He also argues that government and public bodies must, as a minimum, have regard to environmental principles when discharging their functions, and must commit not to dilute the existing application of those environmental principles where already reflected in EU law; and that it is time to introduce the principle of environmental justice to UK law.

Issues of non enforcement of existing EU environmental laws

The consultation does not address the really serious issue of non-enforcement of existing EU laws under existing structures. Examples of this are as follows.

Volkswagen and ‘defeat devices’

Volkswagen placed 590,000 vehicles containing defeat devices to mislead emissions tests on the US market. After investigations by Congress, State Attorneys General, the FBI, the Department of Justice, the State of California, Volkswagen in 2017 agreed to plead guilty and to pay $4.3 billion in criminal and civil penalties, ($2.8 billion criminal and $1.5 billion civil penalties). Six executives and employees were named and indicted.

Volkswagen placed 1.2 million cars fitted with similar devices on the UK market. Initially, the then Transport Secretary wrote to the European Commission saying that he hoped they would “investigate this matter thoroughly and take appropriate action to avoid a recurrence”. On 8 December 2016, the European Commission opened infringement proceedings against 7 states, including the UK and Germany “for failing to set up penalties systems to deter car manufacturers from violating car emissions legislation, or not applying such sanctions where a breach of law has occurred.” Since that time, it does not appear that any UK enforcement authority has taken any enforcement action of any description against Volkswagen for this matter.

Air quality and the ClientEarth cases

The UK’s non- compliance with EU air quality legislation, and the ClientEarth series of cases in different jurisdictions to try to enforce it, are a matter of record. Successive UK governments must know quite well what EU laws require on air quality; but ClientEarth has been obliged to go back and back to court to obtain one ruling after another that the UK government is in breach.

Illegal waste sites

It is becoming clear that in parts of the UK there may be hundreds of illegal waste sites that are not yet being tackled by the environmental regulators, who are somewhat given to complaining that they simply lack the resources to do more to enforce existing laws in the area. This gives rise to two questions. First, is there the will to enforce existing law? Secondly, if the issue is really about resources, what can and should be done, for example, to share more of the proceeds of crime recovered in waste cases with the regulatory agencies, instead of with the Treasury?

Enforcement of river pollution incidents

The current referral to the European Commission by Afonydd Cymru of the inactions by the NRW in enforcing existing river and nitrate legislation underlines both the availability at present of a European remedy to breaches of EU environmental law, and the importance of oversight of environmental regulators as a practical issue for environmental law enforcement.

Failure to enforce existing environmental laws, at a time when the UK is, on Brexit, removing many of the most effective powers and means for their enforcement, risks sending a signal that pollution pays, that compliance with environmental laws is for the little people, not large companies, and that regardless of public concern, there isn’t the political will to make enforcement effective. Again, if environmental laws are not going to be effectively enforced, it doesn’t greatly matter what they say.

What is needed to make enforcement of environmental laws effective is –

(i)        clearly drafted laws;

(ii)       a strong political message, from the top, that environmental laws are there to do an important job, and will be enforced, against individuals, and companies of all sizes;

(iii)      a proper statement of enforcement policy by regulators;

(iv)      properly resourced, adequately informed and skilled, independent and robust regulators; and

(v)        a legal duty on all levels of government “to secure the effective enforcement of environmental laws” – something which the new environmental regulator can focus on, and support.

The follow-up to this article will address losses the UK may suffer in terms of environmental law enforcement once it leaves the EU, as well as the likely aims of bodies set up under the Environmental Principles and Governance Bill and environmental justice concepts  in operation in  the USA.

About the Author

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm, as well as running his own environmental policy consultancies. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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BIGGER BILLS WILL DRIVE BATTERY INVESTMENTS BEHIND THE METER

Rising non-commodity costs and resilience concerns make batteries more attractive for big users.

Increased Charges

Energy is pure expenditure. There is no investment or “hidden benefit” to be had, and even for companies that can damp down usage, there are bill increases to come. Prometheus Energy, a demand side response and reserve battery provider, reported in 2017 that more than one UK business in 20 incurred financial losses due to at least one brown or black-out last year.

The wholesale market aside, business prices will rise because of increases in network capacity charges and higher levies. As of this April there are seven separate taxes, on top of commodity and capacity costs. My research suggests that capacity and tax rises will have increased a typical commercial user’s bill by 35% between October 2017 and September 2020, even with no increase in wholesale prices.

Even if wholesale prices stay fixed for three years, many bills will rise 32% because of network capacity and government surcharges. By 2020, the commodity cost will make up just a quarter of the bill.

Seeking a favourable energy quote will still help. However, competitive tendering alone will not protect businesses from the changes ahead. However, there are measures users can take, some quite easy, to reduce these charges or avoid them altogether.

Mitigating Increased Charges                                                                                                                                                                                                   

Top of the list is responding to Triad warnings. High usage during a Triad period (declared by National Grid months after the event) can increase transmission charges substantially, with the user effectively “recategorised” and positioned in a higher pricing charging band that may apply to all future consumption.

Second is responding to distribution charges, which are influenced by consumption in Red Zone periods. Unlike Triads, Red Zones occur at known times. These have generally been weekdays from     4pm to 7pm, but it varies between networks and by location, and the timing of those zones may change.

Over-the-Counter Trade Registration

Larger consumers may consider a managed OTR service (over-the-counter trade registration). This offers a combined trade sleeve and clearing service, and can streamline trading through one channel.

It can also cut energy costs, firstly because it gives a company direct access to the OTC (over-the-counter) market, which removes various visible commissions, transaction costs and hidden commissions, premiums and bid-offer spreads. Secondly, it means access to the entire wholesale market, because an OTR vehicle can simultaneously access every player in the power market, access all bid-offer pairs that have been posted and thus buy or sell at the most favourable price available.

Finally, a managed OTR service can spare the expense of signing up to the Balancing and Settlements Code (BSC) or other legal-intensive agreements, with every BSC-accredited player that the client wishes to trade with. The managed OTR service can be a low-cost way to start trading on the wholesale market directly, and can mitigate many operational costs and risks associated with trading with Elexon (National Grid) as principal and also with GTMA players directly.

Battery Hosting

With those bases covered, energy buyers will be looking at a combination of competitive tendering and more active demand-side management, including the possible application of demand-side response (DSR) hardware and DSR-related battery storage. It may be cost-effective to install on-site generation and a battery in unison. As with energy service contracts, battery hosting contracts are likely to become more familiar. Hosting a battery would mean a battery service specialist will supply, operate and maintain the battery system in exchange for a share of the annual saving from the “host” company.

A battery has side benefits as well. It offers some emergency power, automatic brown-out protection and limited blackout protection. It will also automatically improve power quality – valuable for businesses that can be disrupted by voltage surges, harmonic distortions and other network issues. Broader benefits and lower energy bills are likely to combine to ensure battery installation remains the flavour of the month for many months to come.

About the Author

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory. 

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

 Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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WHOLESALE ENERGY PRICES: MAY – JUNE 2018

In this article, Dominic Whittome covers recent changes to wholesale energy prices.

Oil

Despite reports of US influence, and of OPEC agreeing a relaxation in quota to offset supply problems from Venezuela and sanctions on Iran, crude prices extended their gains to end the period 11% higher.

This output increase is essentially a token gesture anyway, given that most OPEC and non-OPEC countries are already producing at or close to capacity whilst the global supply cushion stands below 4%, the lowest it’s been for 30 years. Consequently, Vienna’s meeting of minsters has done little to reverse the price trend. However, the recent levels also raise questions about the authenticity of the ‘shale oil’ argument.

It was barely two years ago when investment banks were issuing research papers declaring ‘$30 – $40 /bbl – the new norm’ amid expectations of fracked oil and gas keeping the world over supplied. As things turned out, oil prices doubled and many forecasts were promptly re-written. Perhaps a reasonable question to ask is that if there is (or ever was) close to this amount of surplus shale, then why are prices this high now, despite the actions or inactions of OPEC producers?

Prices might soften over the coming months but they are very unlikely indeed to return to anywhere close to the levels discussed in the market barely two years ago. Meanwhile, rising world inflation, which will add to transport, production costs and enhanced recovery budgets, could also drive oil prices higher, whilst the talk of US fiscal tightening and the strong petro-dollar have taken some of the sting out of oil price rises in nominal/dollar terms. Any relapse though, or renewed money printing that sees the dollar fall, could repeat the surge in oil prices last seen in the aftermath of the First Financial Crisis, which witnessed a flight into safe assets, hard commodities, including oil, that then dragged the market above $80/bl when demand was actually weaker than now. The forward outlook therefore appears stable and the current ‘high prices’ environment may be with us for a while.

Gas

Forward gas prices climbed a further 15% amid an unreasonably strong prompt market, with even spot prices trading over 50 p /th and sharply rising petroleum product prices. Oil prices themselves last fell below $40/bbl in April 2016, although their main assent (from $ 45 to $ 75) took place within the past 15 months. This timing may be significant and it may partly explain why wholesale gas prices are rising as fast as they are now.  The ‘low’ gas prices in 2016/17 are due to fall completely out of most long-term contract price escalation formulae soon, if not already. There will therefore be a contractual readjustment for gas via key take-or-pay Russian, Norwegian and LNG gas contracts, most of which account for marginal supply and will dictate forward prices as we move into the next buying round or into the next Gas Year on 1st October.

The OTC market has also seen carbon prices soaring. Today the EUA is trading above € 15/ tonne CO2 versus € 5/tonne CO2 exactly a year ago. While a sharply higher carbon price might be expected to depress gas demand, its overall (and certainly more immediate) effect will be to increase the principal feedstock price for gas generators. Events in the EU ETS will therefore be doing nothing to support any renaissance in new-build gas-fired generators, which may well be needed before long as the national generation margin shrinks further.

Electricity

Forward power prices surged 13% over the period. However, with the medium-term outlook for gas and most other indigenous power generation looking fairly soft, the grid will be relying increasingly on new interconnector imports from the Continent, Norway and potentially Iceland further down the line.

As previous articles have commented, this energy strategy may be unsound, not so much for ‘import/export’ reasons per se but basic reliability. Leaving to one side the question of plant reliability and ability or willingness of European suppliers to offer peak power when needed, the reliability of sub-sea cables needs to be considered as such systems are themselves prone to outages, even the newest cables with the latest electrical technology.

However, with the Hinkley Point power station (which when ready will barely supply 5% of the market) unlikely to produce at capacity before 2025, and other nuclear plants also delayed and unlikely to come online until ca. 2030, the short-term and medium-term generation outlooks are tight. However, rather than higher wholesale prices, the impact will be expressed in sharp rises in premiums and the cost of shape in end-users’ commodity prices, i.e. on top of capacity price increases and increasing eco levies and taxes (now seven in total).

The recent changes discussed above suggest that, if anything, the average businesses will now see power bills rising by 40 – 45% (the top end of the range estimate) within just three years. This prospect should spur end-users to look at energy reduction, demand-side management, on-site generation and profile-correcting batteries.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts. 

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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WHOLESALE ENERGY PRICES: MARCH – MAY 2018

In this article, Dominic Whittome covers recent changes to wholesale energy prices.

Oil

Crude prices crept up a further 4% up amid renewed concern over OPEC exports, the possibility of new US oil sanctions on Iran and reports Houthi rebels starting to target Saudi exports of crude – a possible long-term campaign with the insurgency in Yemen showing no sign of abating.  Exports from OPEC’s second largest producer, Venezuela, were hit by a wave of national strikes and the market was buoyed further by the prospect that OPEC and non-OPEC countries agreeing to prolong their Accord and roll forward their production cuts well into next year. There are perhaps sound, if nefarious, incentives for Russia to take a lead in oil production sacrifices, possibly to ‘rattle the inflation cage’ of certain Western economies. Saudi Arabia will also be keen to keep oil prices as high as possible, in preparation for the partial sale of Aramco, whose stock market float is still believed to be on the cards. All in all, there have been few reasons to short crude over the past two months and oil prices could well strengthen further as we move into summer.

Gas

With oil prices re-visiting highs not seen in four years and heading for $70/bl, the effect of lagged oil price indexation in Trans-European take-or-pay gas contracts will be growing as the new gas year approaches on 1st October. Significantly, there are several major long-term contracts coming up for renewal. The starting Base Price in such deals will also be up rated and a ‘ratchet effect’ may be reflected to some degree in the Forward Market itself. Annual NBP gas prices rose a further 5% during the two month period. Despite the relative abundance of physical gas and the prospect of spot LNG cargoes being released by South East Asian buyers, gas prices could rise further if petroleum markets continue to climb as they have been.

Electricity

Prices rose 13% following the oil and gas higher (both more liquid and actively traded) although the market was spooked by the shutdown of the Hunterston B reactor. Although the plant was soon back online, the episode served as a reminder of the state of Britain’s aging fleet of Advanced Gas-cooled Reactors. All AGRs are set to operate well beyond their original design lives and this design accounts for all still-functioning reactors bar Sellafield. EDF was confirmed in one report to have said “the findings [at Hunterston] will probably limit the lifetime for the current generation of AGRs” so some nuclear output may come off line sooner than expected and before new-build reactors can replenish it. This long-term outlook was dimmed further by reports of defects identified in rivets forged for the EDF’s two European Pressurised-water Reactors (EFRs) under construction in France and Finland. The concern being that such design faults may extend delays at its third EPR under construction at Hinkley Point.

Wholesale market aside, business prices are set to rise anyway due to legislated increases in network capacity charges and higher tax levies. As of this April there are now seven separate taxes, on top of commodity and capacity costs. My research suggests that capacity and tax rises will have increased a typical commercial user’s bill by 35% over the period Oct 2017 to Sept 2020, i.e. assuming as a baseline we see no rise in the wholesale prices (in Oct 2017 £45/MWh or 4½p/kWh, so already up 14% since) . Energy buyers will possibly be looking at a combination of competitive tendering and more active demand-side management, including the possible application of Demand Side Response hardware and DSR-related Battery Storage, a topic to feature in Energy Focus soon.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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IRAN NUCLEAR DEAL – HAS TRUMP GOT IT RIGHT?

Is President Donald Trump alone in his criticism of the “Iran nuclear deal”? And was his decision to withdraw from it a wise one, based on facts rather than conjecture? This “deal”, officially known as the Joint Comprehensive Plan of Action (JCPOA) was signed in July 2015 by Iran, the five permanent members of the Security Council (China, France, Russia, UK and US), Germany and the European Union. Of course, the US signed it under the Obama administration and President Trump made no secret of his opposition to it during his election campaign; as with “Obamacare”, was his main reason for withdrawing from the deal because it was implemented under the previous administration?

HISTORY

What do people say is wrong with the deal? Ironically, Iran’s civil nuclear development programme started in the 1970’s with assistance from the US under the Atoms for Peace programme. Under this, the US deployed many nuclear research reactors around the world and supplied the associated nuclear fuel.

Since those early days, Iran’s nuclear programme has gone through many changes, but to many, in recent years, it was pursuing what appeared to be its own nuclear weapons development programme. Like any country signed up to the Non-Proliferation Treaty (NPT), which Iran became party to in 1970, it has a right to undertake research into the production of nuclear energy for peaceful purposes. Iran protests that its research was purely related to power generation was not helped when the existence of previously unknown uranium conversion and enrichment facilities, which could be related to nuclear weapons research, were revealed in the early 2000’s. For a chronology of key events in Iran’s nuclear history see here.

Attempts to curb Iran’s nuclear research through diplomatic means, various international agreements and the imposition of sanctions through UN resolutions seemed to be having some effect, but there were indications that weapons research had not stopped – In 2006, Iran was found to have a heavy water production plant but had not notified the International Atomic Energy Agency (IAEA). Heavy water can have a “dual use” purpose in either nuclear weapons production or for power production. To make matters worse, Iran did not permit full inspection of its facilities by the IAEA, something which all countries signed up to the NPT must allow.

Iran’s stance towards the international community changed somewhat in 2013 with the election of president Rouhani, thought to be more moderate than his predecessor Ahmadinejad. He requested the start of new negotiations with the international community, and even had direct talks with President Obama.

THE JCPOA

These new negotiations laid the foundation for the JCPOA and an interim agreement came into effect at the start of 2014 which allowed for increased inspections by the IAEA and the suspension of certain parts of its programme in return for relief from some sanctions. The IAEA issued a statement that Iran had complied with terms of the interim agreement which was reinforced by a statement on 5 March 2018 from the IAEA’s Director General, Yukio Amana, to the IAEA’s Board of Governors: “As of today, I can state that Iran is implementing its nuclear-related commitments …”; a conclusion supported by the Agency’s inspectors who spend some 3000 calendar days per year on the ground in Iran.

The JCPOA is quite a complex agreement, under which Iran has to reduce its stockpile of enriched uranium, limit any future enrichment to values not capable of producing nuclear weapons, limit uranium enrichment to one site, not build any new heavy water reactors, and adapt its existing one for peaceful purposes. Iran will also sign up to the Additional Protocol and submit to a comprehensive inspections regime by the IAEA which will involve some 150 inspectors. So long as Iran complies with the terms of the JCPOA, then various sanctions will be eased or lifted altogether.

The signing of the JCPOA was welcomed by virtually every country and international institution, although Israel remained critical. Iran’s fellow Middle East states saw it as bringing stability to the region. So what does President Trump have to be concerned about?

PRESIDENT TRUMP’S VIEW

Under US law the JCPOA is a non-binding agreement and has to have the approval of Congress following certification by the President. In his statement of 8th May 2018, President Trump said “It is clear to me that we cannot prevent an Iranian nuclear bomb under the decaying and rotten structure of the current agreement” and the deal is “defective at its core”. He further believes that Iran is a “sponsor of terror” and that there is a “very real threat of Iran’s nuclear breakout”; moreover, he linked Iran’s missile and other defence activities to the deal, something it was not designed to do. He is particularly concerned that much of the agreement is time-limited – around a decade or so for many of its provisions, but he wants it to be permanent.

INTERNATIONAL REACTION

Ahead of the 8th May statement, the position of the JCPOA’s counter signatories was that they remained committed to the deal, but their powers of persuasion were obviously non-existent. The UK Foreign Secretary, Boris Johnson said President Trump would be “throwing the baby out with the bathwater” if he went ahead with his decision; French President Macron Tweeted after the statement “France, Germany and the United Kingdom regret the US decision to get out of the Iranian nuclear deal …the international regime against nuclear proliferation is at stake.” UN Secretary General Antonio Guterres says he is “deeply concerned by the US decision to withdraw from Iran nuclear deal”, and calls on all other parties to fully abide by deal’s commitments.

THE US SCIENTISTS’ VIEWS

More criticism of the President’s position came from 90 American scientists in a letter published in October 2017 asking Congress to remain party to the agreement. They noted also that non-nuclear activities, not covered by the JCPOA, could be addressed separately and acknowledged Iran’s willingness to hold separate talks on its ballistic missile program. They point out that the IAEA’s system of safeguards under the Additional Protocol is the “strongest set … implemented by the IAEA”. They go on to say that additional “real-time” verification measures would be beneficial, not only in Iran, but in all non-nuclear weapon states where there is doubt about product use and that multinational control of enrichment plants would provide an extra level of security, citing the arrangements that URENCO, the European enrichment company.

FORMER GOVERNMENT OFFICIALS AND EXPERTS’ COUNTER VIEWS

A counter statement by the Foundation for Defense of Democracies (FDD) was also given in October 2017 which supported President Trump’s stance. It was signed by some 20 “former Government officials and experts” and included former IAEA Deputy Director General Olli Heinonen. It described the JCPOA “as one of the most highly deficient arms control accords in the history of American arms control diplomacy”. It went on to say that “We hope that the White House and Congress can come together to fix a fundamentally flawed agreement, curb Iran’s illicit activities, and end the nuclear blackmail imposed by the current JCPOA”.

WHAT NEXT?

Some observers believe that the US withdrawing from the JCPOA will mean Iran will continue to develop a nuclear weapons’ programme, however, technically, the JCPOA remains in force. Will it trigger a nuclear arms race in the Middle East? Although not officially recognised, it is well believed that Israel possesses over 40 nuclear warheads, on a par with India and Pakistan. Netanyahu fully supports President Trump’s decision, of course, giving his own assessment of Iran’s nuclear programme, saying “Iran lied”.

In March 2018 on a visit to the US Saudi Arabia’s Crown Prince Mohammed bin Salman said “… if Iran developed a nuclear bomb, we will follow suit as soon as possible”.

There will be plenty of commentary over the coming days and month. Decisions such as this have a tendency to implement the “law of unintended consequences”. We will monitor the situation and post further blogs on the issue.

For a PDF of this blog click here

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.
This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.
This article is not intended to constitute legal or other professional advice and it should not be relied on in any way. For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk

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OIL & GAS: VOLATILITY – ATTENTION TO DETAIL – THE KEY TO SUSTAINABILITY, PART II

In the following series of articles Alex Bakhshov will examine the challenges that come with negotiating key legal and contractual terms and managing legal risks across infrastructure operations comprising major oil and gas projects (Projects) in developing oil and gas markets and in turn a means through which to mitigate the impact of inflated barrel production costs (Barrel Price) by Independent Oil Companies (IOC), Oil Field Service Providers (OFP) and other market participants seeking to make strategic decisions relating to foreign direct investment (FDI).

Introduction:

In the first part of this series Alex Bakhshov considered the common determinants and barriers for Independent Oil Companies (IOC), Oil Field Service Providers (OFP) and other market participants seeking to make strategic decisions relating to Foreign Direct Investment (FDI) in developing markets. In this second article Alex will focus on the barriers faced by IOC’s in sub – Saharan Africa (SSA), which presents its own unique set of challenges amongst developing markets. Alex will hope to demonstrate that by collaborating with domestic policy makers (Regulators), barriers to FDI can be overcome and sustainable business can be built through periods of oil price volatility.

Unfavourable Fiscal Terms

A frequent source of frustration for oil executives seeking to invest in developing markets and in particular in SSA are the unfavorable fiscal terms frequently encountered during periods of low oil prices; this coupled with inflated barrel production costs (Barrel Price) is often the primary barrier to FDI. Paul McDade, chief executive of Africa focused Tullow oil told the Africa Oil Week Conference in Cape Town (2017) that exploration license terms must be competitive to attract new investors to the region’s upstream.

This means governments and regulators being bold and flexible and allowing companies to make final investment decisions more quickly by improving fiscal terms that were in many cases initially agreed at greater than $100 per barrel,” he said. “At the end of the day capital goes where it’s welcome and that’s especially the case at $50 oil. If we like the play and we like the basin, but the terms don’t work, then we won’t be investing.

The reality is that resource rich dependent and developing economies are impacted negatively during low oil prices, triggering aggressive fiscal terms for investors; however this should serve as an impetus and incentive for collaboration for diversification of the economy and liberalization of the legal framework to allow full ownership of enterprises by foreigners and the proper protection of their property rights – which would have the added benefit of encouraging expatriates to save and invest locally. SSA remains behind the GCC states in diversification of economic initiatives (see further “Could low oil prices be an opportunity for the Middle East?”, World Economic Forum). So even where fiscal terms are unfavourable, there are opportunities for IOC’s to include the meaningful transfer of knowledge and technology as part of FDI by, amongst other initiatives, engaging with Local Content Requirements (LCR’s).

As was shown in Part 1 of this series, in considering FDI, frequently overlooked by the investment community and oil executives are the inherent legal risks in the misalignment between international contracts and those mandated under LCR’s; especially where the initial fiscal terms look attractive. Often these risks do not materialize until a contractual dispute, political upheaval including policy and legislative change or environmental crisis arises, which will often be long after significant capital has already been committed, further inflating Barrel Prices. Whilst developing markets are prone to these risks, these factors are rarely factored into the Barrel Price and therefore proactive procurement, contracting, governance and project management strategies must be implemented early on and revisited throughout the lifetime of the oil and gas project (Project), to minimize the impact on business disruption, health and safety or financial loss.

Varying Production Costs:

Investment in high oil and gas dependent developing countries, as has been indicated in relation to SSA, does not consistently attract FDI, as the components of Barrel Price can be inflated through higher capital costs, taxes, transportation costs, infrastructure unreliability and security costs. Risks of expropriation during periods of political instability and the imposition by some countries of a requirement of majority domestic ownership can be a significant deterrent to FDI (see further ‘On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?’ World Development Vol. 30, No. 1, pp. 107 to 119, 2002).

Oil and gas barrel production Cost, March 2016
Country Gross
taxes
Capital
spending
Production
costs
Admin
transport
Total
UK $0 $22.67 $17.36 $4.30 $44.33
Brazil $6.66 $16.09 $9.45 $2.80 $34.99
Nigeria $4.11 $13.10 $8.81 $2.97 $28.99
Venezuela $10.48 $6.66 $7.94 $2.54 $27.62
Canada $2.48 $9.69 $11.56 $2.92 $26.64
U.S. Shale $6.42 $7.56 $5.85 $3.52 $23.35
Norway $0.19 $13.76 $4.24 $3.12 $21.31
U.S. non-shale $5.03 $7.70 $5.15 $3.11 $20.99
Indonesia $1.55 $7.65 $6.87 $3.63 $19.71
Russia $8.44 $5.10 $2.98 $2.69 $19.21
Iraq $0.91 $5.03 $2.16 $2.47 $10.57
Iran $0 $4.48 $1.94 $2.67 $9.08
Saudi Arabia $0 $3.50 $3.00 $2.49 $8.98

Source: “Barrel Breakdown” Wall Street Journal, April 15, 2016.

Increased Costs: Nigeria & Angola

It is evident that in Nigeria, the total Barrel Price is significantly higher than most of the emerging markets largely due to higher capital and production costs. In times of low oil prices, Nigeria therefore does not attract FDI. These increased costs are due in part to lack of confidence in infrastructure and security concerns – most of the exploration activities now occur offshore, which attracts significant capital spending. Indeed, as indicated above the trend is that SSA countries attract less FDI than MENA or indeed other developing regions. This is troubling not only because of the significant oil reserves (Nigeria and Angola have amongst the highest proven reserves in the world) but because FDI is crucial to the region to help accelerate growth through technology, knowledge transfers, employment and infrastructure.

Pade Durotoye, chief executive of Nigerian independent Oando Energy Resources, has expressed frustration at the delay the company faced in exploration and production on its acreage because of unattractive terms.

One of the things we are trying to make the government understand and appreciate is that a higher government take of nothing is nothing,” he said at the Africa Oil Week conference in Cape Town (2017).

Future Reform:

These messages come at a critical time for the industry in the region, as governments rethink their hydrocarbons strategies at $50-60 oil. The continent’s two largest oil producers, Nigeria and Angola, are revamping their investment and legal frameworks for the oil and gas sector, and a plethora of other African states are keen to emulate the recent success of Senegal, Mauritania and Mozambique in kick-starting exploration and converting successful finds into concrete development plans.

Cote d’Ivoire, having just settled a protracted maritime border dispute with Ghana, has re-launched its efforts to encourage new exploration, offering redrawn blocks through direct negotiation with oil companies. Elsewhere on the continent, Namibia, Sierra Leone, Liberia and the Gambia are also promoting frontier offshore acreage. Onshore, Mali is also offering up blocks, hoping that investors will overlook the security risks posed by Islamist terrorism.

They will be keen to emulate countries such as Ghana, Mozambique and Senegal, which have managed to maintain exploration momentum during the industry downturn since Brent crude futures began to tumble in mid-2014.

In Part 3 of this series Alex Bakhshov will take a closer look at Mozambique, which has consistently attracted FDI, thus bucking the trend amongst SSA countries. Alex will take a close look at Mozambican Regulators’ approach to working in collaboration with IOC’s to develop its infrastructure and implement legal and social reform by working towards an innovative legal framework and diversification of its markets.

Alex Bakhshov is a commercial lawyer specialising in project and infrastructure work, having attained experience of major projects in Africa, Asia, the North Sea, South America and Australia. Alex has advised on mergers and acquisitions, joint ventures, construction, regulatory, contracting and procurement strategies, and possesses significant experience in construction, the marine sector, shipyard disputes, shipping (both wet and dry) and offshore Oil & Gas projects in the North Sea, West Africa and Brazil.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information or assistance with a particular query please in the first instance contact the department paralegal Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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WHOLESALE ENERGY PRICES: JANUARY – MARCH 2018:

In this article, Dominic Whittome covers recent changes to wholesale energy prices.

Crude Oil

Crude prices paused for a breather amid confirmation of a surge in North American exports of shale.

US oil production broke through the symbolic 10 m/bd, the first double-digit figure since the early 1990s.  However, this headline event did little to knock the crude market, with prices remaining flat over the period. Its impact was tempered by a rise in compliance levels across other oil producing countries in respect of Wider OPEC’s November 2016 Accord with OPEC itself, exporting 32.25 mb/d which is a ten-month low. The oil market is also being underpinned by heightened geopolitical concerns which are now, if anything, more heightened then they were last year. The final success of the ‘anti-dissident’ crackdown and purge in Saudi Arabia remains far from clear. There seems to be no consensus among analysts and observers as to when or how the ‘end game’ (which is not clear either) will play out or how robust any favourable  outcome will be.

Any flare-up or renewed uncertainty in this respect will immediately rekindle prices. Although, the medium-term oil supply outlook remains comparatively stable otherwise, at least for the time being.

Natural Gas

The gas market saw the curve rising just 1%. Although, spot  prices charged above one pound a therm at one point amid a conflagration of adverse factors all coming together at once. These included import problems at the Nyhamna Gas Terminal Plant serving Langerled pipeline to the UK;  technical issues with Dutch export Balgzand Bacton pipeline itself; a spike in energy demand throughout the North West European corridor amid freezing weather conditions and some market nerves heightened perhaps by enforced N Grid gas curtailments (if only temporary) and an appreciation that the UK finds itself in its first winter without any long-duration gas reserve facility of its own to fall back on.

This follows the closure of Centrica’s Rough offshore storage platform, as discussed in January’s edition of Energy Highlights. Overall, however, the forward gas market looks well-supplied in the medium-term, notably in respect of LNG supplies. That said, the UK’s own long-term import dependency is set to rise, past 90% by 2040 according to the latest National Grid research. Forward gas demand may well be curbed by government legislation restricting domestic gas and space heating use into the next decade.  Moreover, an early demand-call from the power generation sector also looks unlikely. Carbon prices meanwhile rose by over 80% over the past nine months, breaking €10/tonne CO2 at one point.

The unfavourable regulatory outlook for new-build gas-fired power stations could keep a lid on prices. Although government policy could always change; indeed the treatment of specific gas-fired generation is known to be under review in Whitehall circles, even if the question is seldom aired very publicly.

Electricity

Despite the cold snap, the electricity market slipped back. The annual base-load power contract fell by 7%  on the back of improving plant availability and very few reported outages during a critical demand period.

That said, the current state of the wholesale electricity market perhaps belies the impacts pending on prices downstream. In particular, on smaller industrial and commercial customers who have no exemption from the new (somewhat paradoxically-named) ‘Energy Intensive Industries Exemption Surcharge (or EII) that comes into effect in Q2.

The EII will not be introduced as a tax in name, although that is precisely what it is. The EII will instead be introduced as an ‘uplift’ to existing surcharges, namely the Renewables Obligation, absorbing circa 60% of the new levy; the Feed-in-Tariff and the Contract for Difference surcharges, absorbing circa ca. 20% a piece. Most of the energy intensive users’ exemption surcharge will fall on the non-energy intensive users  with no exemption from this (once conceived) ‘carbon tax’. This, combined with other increases in transmission and distribution network charges, as already penned and indexed to inflation, will cause the median commercial electricity bill to rise by circa 25% in just three years from now, according to provisional calculations (my own – happy to compare notes with any reader on that question).

This expected rise in bills also assumes no rise at all in wholesale power prices between now and 2022, which is far from a given. Enhanced efficiency, optimised energy management, embedded generation and possibly electric storage may become more commercial as a consequence, as end users look for ways to side-step potentially significant future price rises.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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WHOLESALE ENERGY PRICES: NOVEMBER – DECEMBER 2017:

In this article, Dominic Whittome covers recent changes to wholesale energy prices.

Oil

The petroleum market continued to charge upwards. Dated Brent prices closed the two month period 19% higher. In the last two years, since the January 2016 Edition of Energy Highlights, world oil prices have risen over 80%. Whilst the so-far successful accord between OPEC and non-OPEC producers has certainly had an impact, shale has yet to have the dampening effect which some in the market had asserted it would.

No one knows how far oil prices may have to run before marginal supplies (i.e. not covered by the Accord, US shale being just one option available) arrive en masse. Whilst prices will not necessarily reach this level, E&P studies suggest that only once oil prices are sustained over $75/bl will significant new developments come online.

The Brent market spiked higher in December amid outages at Statoil’s Troll platform and Forties pipeline, which shut-in over 70 North Sea platforms in total at one stage, including the ETAP, Armada and Buzzard fields along with Forties itself, removing 45% of UK winter supply. While the pipeline is back online now, attention at the turn of the New Year turned towards troubles in Iran, which buoyed Dated Brent cargoes above $65 /bl into the New Year.

Natural Gas

Natural gas prices, on the other hand, took most of last month’s events in their stride, despite much of the upheaval relating to the gas market itself. Day-ahead spot leapt to a 4 year high of 80 p/th at one point amid concern over supply, as the UK entered its first winter with no principal (long duration) gas storage facility following the closure of Rough combined with a major explosion at the sensitive Russian import thoroughfare at Baumgarten in Austria. Yet, this barely affected the forward curve in the end. The Annual Contract rose just 2% over the two periods and gas prices actually fell 4% over the year. This relaxed market might symbolize the abundance of global gas supplies relative to oil, and also national aversion to building new gas power stations, efficiency and de-carbonisation globally.

However, gas prices, through oil-indexed contracts and (to an extent still) fuel substitution, will at some point respond to rising energy commodity prices if that trend continues, even if the indexation-lag is pronged (which it often can be). It remains to be seen whether gas prices will remain so calm, even though the forward supply picture remains robust.

Electricity

Forward power prices rose 5% between November and January to finish the year unchanged at roughly £48/MWh. The spark spread has been rising, although whether this will trigger some of the stalled UK gas generation projects remains unclear, with government policy the most likely determinate there. As regards the wholesale market, the outlook for significant price rises in base-load electricity looks muted still. However, for commercial & industrial markets, the outlook is significantly more bullish, with a cocktail of transmission, distribution tariff, existing surcharge and new energy tax rises in the pipeline. These could increase the annual bills for commercial customers by 30% inside three years, notwithstanding changes to wholesale prices.

Despite rising commodity prices elsewhere, forward curve and prompt market prices were also subdued by sentiment on wind generation. A ‘£57.50/kWh’ headline figure made the news in October (although it doesn’t imply many new wind projects will be commercial at such a price) and high winds across Europe in late December also suppressed the day-ahead market. That said, the take-up of renewables combined with certainly lower costs have surpassed expectations, serving to soften forward prices. A cursory look at the ‘speedometers’ on www.gridwatch.templar.co.uk in recent weeks demonstrates just how significant wind output was, amid several Triad warnings in December itself, frequently testing the 9 GW level. This, together with robust nuclear output, compensated for the sudden and unexpected closure of Drax, the UK’s largest power station, despite the outage continuing into the New Year.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues. 

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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LIABILITY FOR CONTAMINATED FORMER LOCAL AUTHORITY SITES

Environmental Protection Act 1990

Part 2A of the Environmental Protection Act 1990 imposes a duty on enforcing authorities to require those responsible to remediate contaminated land, i.e. land designated as such which due to substances in it is causing or threatening significant harm or significant water pollution. Whether the ‘significant’ threshold has been reached falls to be determined in accordance with the Statutory Guidance issued under Part 2A (http://www.legislation.gov.uk/ukpga/1990/43/part/IIA).

The persons primarily responsible for remediating contaminated land under Part 2A are ‘Class A’ persons, i.e. those who caused or knowingly permitted the relevant substances to be present.  If no Class A persons remain in existence, liability falls on ‘Class B’ persons, i.e. those who are owners or occupiers at the time when the land is determined to be contaminated for the purposes of Part 2A.  If there is more than one Class A or Class B person, the Statutory Guidance sets out a number of tests designed to exclude from liability those considered less responsible.  If more than one liable person remains after the application of those tests, liability is apportioned in accordance with the Statutory Guidance.

A question has arisen in relation to the liability of a Class A entity which is dissolved by statute and replaced by another statutory body.  Does the successor take on the liability of its predecessor?  There are two issues.

  • First, should the successor be considered as a causer or knowing permitter simply because it has taken over the functions or business of its predecessor?
  • Secondly, does the predecessor have liability under Part 2A which passes to its successor under legislation abolishing the former and creating the latter?

The first question was answered with a resounding negative by the House of Lords (now replaced by the Supreme Court) in R  (National Grid Gas plc) v Environment Agency  [2007] (https://publications.parliament.uk/pa/ld200607/ldjudgmt/jd070627/grid-1.htm). National Grid Gas, the privatised successor company, did not cause or knowingly permit the presence of the contaminants. The land had been sold by its predecessors before the company was formed at the time of privatisation of the gas industry in 1986.  There was nothing in Part 2A which extended the categories of causers and knowing permitters to their successors.

Powys County Council v Price and Hardwick [2017] EWCA Civ 1113

The same issue arose in Powys County Council v Price and Hardwick [2017].  (http://www.bailii.org/ew/cases/EWCA/Civ/2017/1133.html)

A Welsh local authority had operated a landfill over a culverted watercourse which eventually resulted in river pollution. The land had been sold after landfilling stopped and was subsequently designated as contaminated land under Part 2A.  Following statutory reorganisation of the Welsh local authorities, it was widely assumed that the new authorities would simply step into the shoes of their predecessors and assume their liability as causers of the contamination.  The Court of Appeal followed the National Grid decision and held that was not the case.  The emphasis in Part 2A is on the actual polluter: the person who caused or knowingly permitted the pollution.

The second question was whether Part 2A liability passed from the predecessor to the successor body under the provisions of the relevant institutional restructuring legislation. Under the Gas Act 1986 and earlier Gas Acts considered in the National Grid case, liabilities to which the predecessor was subject “immediately before” the statutory transfer date passed to the successor.  The statutory transfer date was 24 August 1986, whereas Part 2A was inserted into the Environmental Protection Act 1990 by the Environment Act 1995 (https://www.legislation.gov.uk/ukpga/1995/25/contents) and only came into force on 1 April 2000 in England and 15 September 2001 in Wales.

In National Grid the House of Lords held that liabilities created by statute in 1995 did not exist immediately before the transfer date in 1986 and therefore could not have been transferred to National Grid Gas as the successor body.

Distinguishing Powys from National Grid:

The position in the Powys case was different in two respects.  First, Article 4 of the Local Government Re-organisation (Wales) (Property etc) Order 1996 (http://www.legislation.gov.uk/cy/uksi/1996/532/body/made/data.xht?wrap=true) simply stated that the ‘liabilities of the old authority shall …. vest in [the]  successor authority’.  However, the Court of Appeal considered that the omission of words such as ‘immediately before’ made no difference.  Following the reasoning of the House of Lords in National Grid, Lord Justice Lloyd Jones held that ‘liabilities’ refers to those to which the predecessor was subject prior to the transfer.  The words ‘immediately before’ merely emphasise that conclusion.  If Parliament intended to transfer liabilities arising subsequently, clear words would be required to achieve that result.  For example, under transfer of liability schemes made under the Water Act 1989 (https://www.legislation.gov.uk/ukpga/1989/15/contents) a body to which liabilities are transferred is to be treated as the same person in law as the authority from which they are  transferred.  That wording has the effect of transferring to the successor liabilities not yet in existence at the time of the transfer.

Secondly, the statutory transfer date under the Welsh local government reorganisation legislation fell after the insertion of Part 2A into the Environmental Protection Act in 1995 but before it came into force in Wales in 2001.  The distinction was unimportant to the decision in National Grid and so, perhaps unsurprisingly, the House of Lords focused on the earlier date.  However, in Powys it was held that the date when the Part 2A  legislation came into force was the relevant time.  The Court of Appeal stated that if Part 2A had been in force on the statutory transfer date, the predecessor authority would have been subject to a contingent liability which passed to the successor authority on that date.  As Part 2A was not then in force, there was no liability under that legislation, contingent or otherwise, which was capable of being passed to the successor.                                                                                                                     

Points to Note

  1. Since there was no Class A person in existence (the predecessor local authority having been dissolved under the local government re-organisation legislation) liability fell on Class B persons, the current owners and occupiers of the land, Mr Price and Mrs Hardwick.  From the perspective of owners of contaminated former local authority land the effect of such legislation may be to eliminate the only other party who may be solely or partly liable for the costs of remediation.  If, unlike Mr Price and Mrs Hardwick, the current owner is a Class A  knowing permitter (e.g. due to failure to remediate when it should have been clear that remediation was necessary) that owner could be made to shoulder the full liability, whereas Part 2A liability may have been shared with the predecessor local authority (if it were still in existence)  under the apportionment provisions of the Statutory Guidance unless that predecessor authority had been excluded from liability under the exclusion tests.
  2. Although not mentioned by the Court of Appeal in Powys, the Part 2A Statutory Guidance enables the enforcing authorities to waive or reduce the liability of both Class A and Class B persons in certain circumstances such as hardship or unfairness to the liable party.  That discretion is exercised in suitable cases.
  3. In cases of statutory reorganisation the precise statutory wording is critical in determining whether Part 2A liability has passed to the successor.  If liabilities are merely expressed to be passed to the successor, Part 2A liability only passes if Part2A came into force before the statutory transfer date.  On the other hand, if the liability transfer legislation states that the successor body is to be treated as the same person as the predecessor, the successor would assume the predecessor’s Part2A liability even if Part 2A came into force after the statutory transfer date.
  4. The Court of Appeal noted that contingent liabilities of the predecessor under existing law (e.g. breaches of a duty of care which had not yet resulted in damage) would have passed to the successor at the statutory transfer date.  It follows that in the Powys case if neighbouring landowners claimed compensation because pollution from the former landfill had migrated to their land, the predecessor local authority’s contingent liability would pass to the successor.  The latter would therefore be liable when the neighbours suffered damage even if that occurred many years after the landfill operation had ceased.
  5. Owners of contaminated former local authority sites are well advised to check their potential liabilities and whether they have been affected  by local government reorganisation legislation. The provisions of the sale contract should also be considered as these may be worded to trigger a transfer of Part 2A liability to the buyer under the exclusion tests in the Statutory Guidance, thereby excluding the seller authority from liability. The issues involved in transferring Part 2A liability and other contaminated land liabilities are complex and require detailed advice.

3rd January 2018, Prospect Law Ltd

Andrew Waite is a solicitor and specialist in environmental, health and safety and public law, advising on regulatory and liability issues for a broad range of industries.  He defends prosecutions for breaches of environmental and health and safety legislation, deals with regulatory appeals, judicial reviews and civil litigation and advises on environmental issues relating to projects and transactions.  He deals with all the main areas of environmental law including waste, energy, nuclear, contaminated land, pollution controls, environmental permitting, water rights, flooding, climate change and nature conservation.

Prospect Law and Prospect Advisory provide legal and business consultancy services for clients involved in the infrastructure, energy and financial sectors.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.     

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WHOLESALE ENERGY PRICES: SEPTEMBER – OCTOBER 2017:

In this article, Dominic Whittome covers recent changes to wholesale energy prices.

Oil

Crude prices rallied as OPEC and non-OPEC countries continued to show strong quota compliance, with just two cartel producers, Libya and Nigeria, bucking the trend. However, 0in oil trading circles, OPEC’s 1.2 million barrel per day curtailment in export volumes is still remaining on track. Refining inventories have been reported healthy amid a warm start to winter which has suppressed demand for heating oil and related petroleum products. Over the two month period, the Dated Brent contract price closed up by 20%. This spot price has almost doubled in the last two years although it is still just below half the peak it reached barely two years before that.

Traders will be looking for evidence that the ongoing ‘shuttle diplomacy’ in the run up to the cartel’s key 30th November meeting in Vienna is paying off. Given high compliance rates, notably amongst non OPEC countries, there is no reason to expect oil prices to soften with the wind now in the market’s sales.

Natural Gas

The forward calendar year NBP contact finished the period 6% up, with good supply availability and subdued demand both outweighing the effect of steadily strengthening oil prices over the year.

The UK gas market is now into its first winter without any high space (long-duration) storage cover to fall back on. This follows the closure of the Rough gas facility in the Southern Gas Basin. A sustained cold snap could put the market to the test if the UK then has to import (effectively accessing surplus storage overseas) through inter-connectors with Scandinavia and the Continent. Although such pipeline capacity may usually (though not always) be guaranteed on the day, the gas itself is not. Even if so, it will possibly be supplied at higher distress clearing prices than before.

Centrica’s application to withdraw 0.9 billion cubic meters from the 3.2 bcm Rough facility – for site integrity and pressure reduction reasons – has been approved by the UK Oil and Gas Authority and this could keep the market well supplied in the interim. However, the volume is still quite modest and the withdrawals will be phased over time. The impact on the market will be limited, if not discounted already.

With crude prices back above $50/bl for some six months now, the oil markets could soon be nudging gas prices up through long-term contract indexation, especially with increasing reliance on inter-connector supplies given contractual indexation to petroleum product prices is generally more dominant on the Continent than it is in the UK.

Electricity

The annual base-load power price headed back up towards £45/MWh, rising 4% over the period. Although, electricity trading is increasingly becoming ‘a tale of two markets’. Whilst wholesale prices are increasing and may perhaps continue to increase gradually, industrial and commercial tariffs are continuing to climb quite steeply, amid higher transmission, distribution and balancing charges, as well as higher taxes and subsidy-related surcharges applied to industrial and commercial users.

Transit costs and taxes aside, a third factor driving industrial and commercial prices is the increase in renewables generation.

Transmission and distribution networks are known to be struggling to offset the intermittent export supply, current-harmonic and voltage-stability problems which renewable exports onto the system induce. The significant infrastructure investment needed to manage this will be passed on to the end user and increases in producer price inflation will also be an influencing factor. The consensus of recent market research suggests that in less than three year’s time, commodity electricity will account for less than 30% of a typical I&C user’s bill. Five taxes and subsidy surcharges and three grid-system fees will make up the remainder, bar a trace profit for the supplier. Therefore, the rising cost of mains electricity alone could well incentivise more end users to self generate where this is feasible. Fundamental changes to the power market and its subsidy framework to facilitate this trend have been tabled and concrete proposals may be available to report on in the New Year.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Prices quoted are indicative and may be based on approximate or readjusted prices, indices or mean levels discussed in the market. No warranty is given to the accuracy of any view, statement or price information made here which readers must verify.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and private entities on a range of energy origination, strategy and trading issues.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

For a PDF of this blog click here