Nuclear Energy (Financing) Bill: A further boost for the UK Nuclear Industry

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Anyone who has downloaded the electricyMapp App which shows the carbon intensity of electricity consumption and production across Europe on an hourly basis will immediately see the impact and benefit of nuclear power. 

With the exception of Iceland with its geothermal power and those Scandinavian countries with high levels of hydro power it is the presence or absence of nuclear which determines the level of carbon intensity and the harm being done to the environment.  France, where 60% of electricity generation is from nuclear power consumes a quarter of the carbon intensity of Germany (even when the wind is blowing) following the early decommissioning of the German Konvoi fleet of nuclear reactors. 

The Energy White Paper gave a welcome if general endorsement of the role of nuclear in the quest for net zero.  The key obstacle to the renaissance needed in large scale nuclear power has been the question of finance.  Private entities simply could not raise the necessary finance for the design and construction stage of such expensive projects using the Contracts for Difference mechanism in the United Kingdom given the long gap between investment and return. Funding the risks and costs associated with development, design, planning and construction before any electricity and revenue can be generated proved too much for the proposed British nuclear projects of Toshiba, Hitachi and Kepco, particularly in the aftermath of Brexit.  

The cost of capital is known to add up to 40% to a nuclear project’s build cost.  A finance model which reduces uncertainty over revenue receipts and accelerates return would provide a better credit rating for the project and therefore reduces the cost of finance.  In addition to making the development of nuclear plants more likely, such a mechanism would save money in the long run for consumers.  The nuclear industry has advocated the use of a regulated asset base (RAB) model for some time and have cited the use of such a model on other large infrastructure projects such as Thames Tideway Tunnel and the third runway at Heathrow as precedents. 

Essentially, the RAB financing model includes part of the upfront costs of the nuclear new build plant on to the energy bills of consumers before electricity is generated. 

The Nuclear Energy (Financing) Bill which looks to introduce a RAB model into the nuclear sector received its first reading in Parliament in October 2021.  This was exactly two years following the closing of the consultation on a new RAB model instigated by BEIS.  Whilst the delay in bringing this legislation to Parliament is regrettable the content of the Bill has generally been welcomed. 

There were industry concerns at the time of the consultation that the construction and optimally the development process would be covered by the model and that the Office for Nuclear Regulation (ONR) would not be diverted from their nuclear safety role in regulating the finance model on behalf of consumers.  These two concerns have largely been met. 

The Bill is made up of the following parts: 

What is a RAB financing model?

  • Part 1: Nuclear energy generation projects: regulated asset base model 

    The Secretary of State has the power to designate a nuclear company’s eligibility to benefit from a RAB special licence.  The designation is made following consultation and is essentially premised on the project being advanced enough to merit designation and that it is likely to result in value for money.  A nuclear company’s licence will be modified, if designated, to incorporate the RAB licence conditions. 

    Ofgem, not the ONR, will regulate the nuclear company based on the modified licence. 

  • Part 2: Revenue collection contracts 

    The Secretary of State is empowered to make regulations in relation to revenue collection contracts, which includes the power to designate a revenue collection counterparty. 

    Payments made to the nuclear company are done by reference to allowed revenue based on forecasting which may be made prior to operation. 

    Following commissioning Ofgem is to determine a market revenue.  This market revenue is deducted from the allowed revenue that the nuclear company is to receive over the charging period. 

  • Part 3: Special administration regime 

    The risk of an Ofcom regulated nuclear company becoming insolvent is addressed by the Secretary of State, or Ofgem with the approval of the SoS, being able to apply to court for the appointment of a special or nuclear administrator with the objective of completing construction or operating the plant. 

  • Part 4: Funded decommissioning 

    In a move to facilitate the secured interest funding of projects the provisions of the Energy Act of 2008 are amended in relation to the decommissioning of nuclear plants by clarifying what is meant by being “associated” with a licensed site operator. Holding shares, rights or powers in relation to the enforcement of security interests does not mean the creditor is associated with the site operator for the purpose of decommissioning. 

What’s in the Bill?

COP26 showcased the utility of nuclear in achieving net zero particularly in the way the industry has demonstrated its flexibility in the future co-generation of hydrogen together with generating electricity for the grid.  Additionally, the news of funding for the Rolls Royce small modular reactor (SMR) project has given increased hope to the sector.  The Bill together with the Labour party’s support for it has given a further boost to new build nuclear and hopes for Britain hitting its net zero objectives. 

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Ian has experience in utilities and energy infrastructure, engineering and major construction projects both in senior in-house positions and in private practice.

Ian has advised on a range of energy projects including nuclear new build, nuclear decommissioning, and gasification, advanced gasification, solar, wind and biofuel.

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We’re exceptionally proud of the deep-rooted energy and water specialisms we have here at Shakespeare Martineau. As one of our priority areas for investment and growth, much of our time and resource is focused upon these related (and converging) sectors, ensuring we are at the forefront of industry developments and are best placed to make a positive difference to our clients.

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Can you afford to make a dividend?

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A reminder of what is and isn’t a lawful dividend

Even though we appear to be returning to ‘normal’ thanks to the global pandemic, we are not out of the woods just yet.

Many businesses are currently trying to pick themselves up from the effects of the last 18 months but the very present risk of corporate and personal insolvency is very much something to be kept at the front of people’s minds.

Therefore, it is worth refreshing your memory as to the position in respect of Company Dividends and when it is appropriate for them to be paid out.

There are obvious tax advantages to dividend as they attract a lower rate of income tax when compared to a usual salary. However, in view of the benefit of receiving a dividend there are serious considerations to be made before these are paid out as it can expose the directors and shareholders of the company personally if it is later found that the dividend was paid unlawfully.

Process for Lawful Dividend

Before paying a dividend there are certain legal requirements that have to be met by the company, in particular the directors must be satisfied that the company has sufficient distributable profits to pay the dividends i.e. the company must have profits available for the purpose of paying out dividends (s.830 Companies Act 2006).

In order to ascertain whether or not the company has sufficient distributable profits the directors need to provide the company’s last annual accounts. However, in addition to the company’s current financial position, the directors must also take into consideration the future position of the company i.e. that it will be able to continue trading and meet its current liabilities/debts, if the dividends are paid.

Provided that the accounts show that the company is able to pay the dividends suggested then a board meeting should be held to discuss the level of dividends to be paid out and once agreed, to formally declare the amount to be paid out. These discussions need to be properly set out in the board minutes so they can be relied upon if necessary should the dividends be challenged.

Provided the above steps are followed, then once a dividend voucher is issued by the company, which is essentially a receipt for the payment (for tax purposes), the dividend will be lawful. However, if the process is not followed correctly, then it may be the case that the dividend was paid out unlawfully.

Unlawful Dividend

As above if you have not followed the correct procedure then you run the risk of the dividend being paid illegally, which can have far reaching ramifications for the persons receiving the dividends, as well as the directors who approved payment of it. Furthermore, action can be taken against the guilty parties personally, rather than the corporate entity.

If this is the case then the individual could face the following consequences: -

A shareholder who received the dividend may be ordered to repay it to the company, if it is found that they knew or had reasonable grounds to believe that the dividend procedure was not properly followed; and

A director who authorised the payment of the dividend may also be in breach of their directors duties and could be liable to personally repay the company the value of the dividend, even if they are not a shareholder.

In addition to the above, even if the company becomes insolvent, this will not offer any protection for the guilty party (even if it is the case that the payment of the dividend did not cause the insolvency), as Insolvency Practitioners have powers under the Insolvency Act 1986 to recover the money paid out for the benefit of the creditors of the company.

In view of the above and the serious ramifications, if you get this wrong, it is essential that the proper procedure is carried out before a dividend is paid.

In short, if the company doesn’t have the sufficient distributable profits to pay a dividend, then don’t pay out a dividend. The reward is certainly not worth the risk!

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Preventing and dealing with data loss from your business

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Loss of control of data, or the copying of data, belonging to a company is one of the most serious problems we can face today.

The recent example of the US pipeline operator, who was the victim of a data hack and ransom that led to shortages of petrol in the US and people trying to fill plastic bags with fuel, shows that even in an extreme way, the chaos and cost that can be brought to a business by loss of data.

What are the main data risks for businesses?

There are three fundamental data risks that a business can face;

  1. the external attack;
  2. the disgruntled internal attack, or
  3. the enterprising departing employee looking to use data for their own benefit.

Faced with any of these scenarios, a business can panic.  However, every one of these risks can be managed and mitigated by:

  • assessing what data is under attack or has been taken;
  • identifying a possible source;
  • collecting the contract for any individual involved (the contracts under which you hold the data); and
  • identifying any particular cause of urgency such as publicity.

Our team of experts can advise you upon and obtain, if necessary, injunctions to stop the use of data, further distributions and mitigate any liabilities from the loss.

What is an external hack?

External hacks fall into the following categories:

  • The ransom hack involving money or threatening publicity; and
  • The so called ethical hack, to demonstrate there is an issue and there is security to be breached and they are clever enough to exploit it.

Although these are similar, they are importantly very different in how they must be dealt with.

Publicity

An ethical hacker is much more likely to want to publicise what they have been clever enough to do, as opposed to a ransom hacker who is only concerned with money or reward.

An ethical hacker is less likely to imprison data, and therefore less likely to disrupt the business’ ongoing operation.

To deal with this successfully, be open and sincere with whoever you have to be. This includes dealing with the Information Commissioner, but also anyone whose data may have been compromised and whose dealings with you may have been affected.

The probability of no-one finding out is extremely limited but, if properly managed and with proper requests, valuable relationships can be saved. Businesses trust other businesses that are open and honest.

Investigate and provide details

If the issue rests with a piece of software that you bought, a bad design, or some other reason, then you need to know the cause. And, more importantly, you need to share the root of the issue both externally and internally.  This is important because you may be able to pass some of the liability onto a third party supplier if it is genuinely their fault.

Legal advisors can be vital in helping you to mitigate the damage, by dealing with the Information Commissioner and other regulators, handling claims and complaints by those whose data has been affected, pursuing those responsible if this is one of the rare cases where it is possible, and recovering any potential losses.  Money spent in mitigation is money well spent.

What is a disgruntled internal attack?

A disgruntled employee, or another individual with access to sensitive data and an axe to grind, can wreak havoc and cause serious damage, as experienced recently by Morrison’s supermarket.   Such an incident may often be foreshadowed either by expressions of discontent; talking about problems or vulnerabilities, or even a straightforward extortion attempt.

However, this can be handled with the following steps:

  1. Stop any further data being stolen or distributed – ideally, you will have a plan in place already but you need to take action to stop your internal systems from being compromised any further.
  2. Contact solicitors and work alongside them to identify who is responsible. You can then stop the employee from doing anything with the data that they have stolen if it has not already been distributed.
  3. Inform the Information Commissioner, and anyone else you must inform, of what has happened.
  4. Deal with the employee and mitigate the damage with the data owners.

In the Morrison’s claim, the Supreme Court gave guidance as to the exposure a business can face. This gives hope to the companies that are victims of such actions and, if their systems are robust enough and the actions sufficiently unpredictable given the employee’s role, that they can escape liability; however, any such issues require careful expert legal management.

Enterprising departing employee

Perhaps the most common issue or concern for data loss is the employee or contractor who is departing and wishes to take data to help them to set up their own new business or take with them into their new role.  Whether it be data they consider pertains to “their clients”, or general theft of data more widely, this scenario requires quick and instant action.

Recent cases of this type of threat demonstrate the importance of careful consideration of how to deal with such an employee. Often data protection law and general principles of confidentiality can be more important and provide a more effective way of protecting a business, than traditional restrictions in contracts. Ultimately preserving clients and protecting the business is the key in this situation.

In 2020 an adviser, who left the firm Quilter taking a number of clients with her, was subject to a claim by Quilter. The High Court’s decision was that the covenants in her contract were an invalid restraint of trade and unenforceable. Link to piece on employment covernants

The scope of these, at first sight, might have appeared reasonable to many businesses. However, the advisor had begun scanning data onto a personal laptop shortly after making an approach to the new employer, and so the timing was more blatant than most. The contract sought to prevent an individual working for a competitor for nine months and dealing or soliciting with their former clients for 12 months. The court would have found an individual in breach of non-solicitation, had the terms been valid, and may even have wanted to find in favour of the company, given the advisor’s behaviour, but was unable to do so.

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If you’re faced with data loss of data, even if you have a contract in place to protect it, it’s important that you seek professional help to minimise damage and protect your data and your business.

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Daniel is a highly regarded experienced specialist commercial litigator and defamation expert

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Women in agriculture event returns to the East Midlands

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More than 115 women attended this year’s Women in Agriculture event in the East Midlands – which was jointly sponsored and organised by law firm Shakespeare Martineau, international real estate advisors Savills, chartered accountants Forrester Boyd and the Lincolnshire Agricultural Society. 

Following its successful launch in 2019, the event – which gives guests the opportunity to meet like-minded women from the rural economy in the East Midlands – returned to the Lincolnshire Showground on Tuesday, 12 October. 

The event brought together women from all aspects of agriculture – from those who work on a small family farm to people in expansive agriculture organisations, as well as women who are new to the industry or who have built a career in farming – to hear from a variety of inspirational and topical speakers, share ideas, and meet others within the sector. 

Amy Cowdell, partner who specialises in agricultural property law at Shakespeare Martineau, helped to set up the Women in Agriculture group alongside Nicola Hunt from Forrester Boyd, Lucie Muddiman and Romina Llorente from Savills, and Sarah Duxbury from the Lincolnshire Agricultural Society. 

She said: “Demand for tickets to the first event in 2019 was overwhelming, which highlighted how much of a need there was for something like this in the region.  

“Due to the coronavirus pandemic, we were unable to host last year’s event, so we’re thrilled it was able to return in October following the implementation of multiple Covid-safe measures to ensure attendees were protected. 

“There are many talented women working across the agricultural sector in the East Midlands and I’m delighted this event has once again giving women in the industry a chance to have their voices heard, share their experiences with their peers and listen to inspirational speakers. 

Adventurer Holly Budge – founder of anti-poaching charity How Many Elephants – delivered this year’s inspirational keynote talk. Molly Biddell, policy analyst for Savills’ rural research team, and Helen Clarke, who, following the sudden death of her father in 2010, took on the management and oversaw the sale of her family’s 3,500-acre Lincolnshire arable farm, were the event’s topical speakers. 

Romina Llorente, associate director in the rural team at Savills Lincoln, said: “Not only did this event provide a platform from which we were able to shine a light on women in agriculture, but it also raised valuable funds for our chosen charity, How Many Elephants. 

“The event raised more than £1,000 and on behalf of all the sponsors, we would like to thank everyone for their fundraising efforts. This follows an initiative only last week where we raised over £1,500 for the same charity by challenging our head of office, Johnny Dudgeon, to tackle some of Alton Towers’ biggest rollercoasters which he duly executed. 

“As we heard from Holly Budge at the event, the plight of these incredible animals is a tragic example of mankind at its worst and it is our hope that the funds raised through these two events will help stem the tide and reverse the decline of Africa’s elephants. 

Due to increased demand, Shakespeare Martineau is continuing to expand its agricultural law team; in the past year, Amy, legal director Jennie Wheildon and solicitor Kimberley Brookes have joined the team – bringing with them more than 30 years combined experience in agricultural law.  

Amy added: “UK farming businesses have a vital role to play in levelling up Britain and as farmers look at ways to protect and enhance the environment while meeting consumer demands, it’s now more important than ever to ensure our sector is as diverse and balanced as possible.” 

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The Energy Supplier Crisis and Special Administration

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COP 26

With COP26 very nearly upon us - we’ve taken the opportunity to republish some of the content we produced earlier this year.

Climate change and the UK, and the world’s response to it, is one of the most pressing issues of our time. Bringing together global powerhouses to agree to collaborate on the four main goals of COP26 has never been more important.

Our content provides food for thought, challenges the government’s rhetoric and provides opportunities for practical action.

Members of our energy team will be at COP26 and we look forward to catching up with clients and contacts who also plan to be there. Drop us a line and let’s see if we can connect.

The Energy Supplier Crisis continues

The ongoing wholesale gas market crisis continues to cripple suppliers. Igloo and Symbio Energy, supplying nearly 250,000 customers across the UK, became the latest casualties to cease trading over the last week, taking the total UK customers needing new suppliers to 2.2 million.   The crisis is fast moving and the outlook changes on a daily basis.  

Over the last couple of weeks the Government and Ofgem seemed content to allow the smaller suppliers to cease trading, pointing to the process in place to deal with this scenario.  That process is the appointment of a Supplier of Last Resort (“SoLR”) to take over supply to the customers of the failed supplier.  This has happened 10 times in the last two months.  However, this process has its limits, particularly due to the strain it places on the SoLR and the potentially adverse effect it will have on its existing customers.   

According to The Guardian newspaper, a leading supplier could be the next victim of the crisis [1].  If this were to occur, the appointment of a SoLR is unlikely to be appropriate.  The Guardian has reported that Ofgem is in talks with a leading firm of accountants to act as a special administrator as part of an emergency contingency measure where appointing a SoLR is not possible.  This would be an unprecedented step but one that may be necessary in the current crisis. 

So what is a special administration, and what prospects does this regime offer to ensure compliance with suppliers’ duties to treat consumers fairly?

The process of the appointment of a SoLR is the tried and tested method that has worked in the past.  It results in all of the customers of the supplier being transferred to the SoLR.  Historically it has been seen as an opportunity for a SoLR to increase their market share of customers.  While this is still the case now, it is not as attractive where these customers are loss making due to the imposition of the price cap, which is lower than the wholesale cost of gas.   

On the other hand, the objective of an energy administration is either to rescue the business as a going concern or to transfer different parts of the business to other companies.  This means, unlike a SoLR, the business can be broken up and transferred to different entities, which is more appropriate for larger suppliers and can be done in a timely manner without the pressure of the SoLR appointment.    

The role and duties of a special energy administrator differ from those of the usual company administrator appointed under Schedule B1 Insolvency Act 1986. Unlike an administrator appointed under the Insolvency Act - whose role is to act in the interest of the creditors as a collective - a special administrator over an energy supplier has an obligation to consider customers’ interests, as well as creditors.   

The collapse of so many suppliers and the appointment of the SoLRs in such a short period of time has put a strain on the market, has adversely affected the employees of these businesses and has raised questions as to Ofgem’s handling of this crisis.  

Following the numerous SoLR appointments this year, it is  expected there to be numerous claims over the next year by SoLRs on the industry levy, and while this will be covered by the industry, ultimately it will be the customer that pays.   

If a large supplier is next then the appointment of a special administrator seems likely.  With the benefit of hindsight, could Ofgem and the Government looked to have appointed a special administrator earlier on in the crisis?  Arguably, this may have resulted in a more orderly transfer of customers and less of a perceived panic within the market.  However, we will never know. 

What we do know is that this crisis is far from over and the effects of so many SoLRs being appointed will be felt for some time yet. 

If you are an energy supplier or are advising an energy supplier, get in touch to discuss available options. Contact Tim Speed or Joseph Beat or a member of the energy team in your local office.
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COP26 and The UK’s Drive to Net Zero Transportation

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COP26: Net Zero Transportation

The UK hosts the UN Climate change conference this November in Glasgow. The decarbonisation of transport is key if the UK wishes to achieve the net carbon target date of 2050. The roadmap in regard to transportation has two key dates of 2030 and 2035. New petrol and diesel vehicles cannot be sold after 2030 and after 2035 all new vehicles must be net zero. Hence one of the key points for discussion and scrutiny in November will be the Government’s plan for the decarbonisation of transport. Published in July following months of delays, the Transport Decarbonisation Plan outlines the Government’s approach, in terms of timings and technologies, to decarbonising the UK’s highest-emitting sector. It covers all domestic forms of transport including road, rail, shipping and flights. 

The plan has been met with encouragement by many within the green economy, meaning those involved with the manufacture, sale and leasing of cars, light commercial and heavy goods vehicles.  Added to this is the new and emerging support network, such as charging networks and battery factories, known as Gigafactories such as BritishVolt. With COP26 on the horizon and the recent IPCC climate report detailing the effect of greenhouse cases on the world’s temperatures, this plan could not come soon enough in many peoples’ view. 

UK citizens are demanding that their cities towns and transportation systems create a cleaner, safer and indeed quieter environment to live in. Hence the plan seeks to deliver a rapid improvement in terms of the reduction of air and noise pollution. 

In essence the weighty plan fleshes out the high level ‘White Paper’ published in 2020.  Transport Secretary Grant Shapps has heralded the new Plan as “just the start”, and each mode of transportation can be expected to decarbonise in different way. 

What needs to happen?

Government has a vital role to play in setting the regulatory and governance frameworks needed to ensure the country meets its targets and obligations but it is up to the markets to innovate and drive technology to meet those. 

In terms of transportation 55% of emissions are caused by cars, 16% by light commercial vehicles such as delivery vans and 16% by heavy goods vehicles 

Plans not bans! 

The Society of Motor Manufacturers and Traders (SMMT) has repeatedly called for increased consultation and dialogue with government. They have a valid point, consultation around charging structures, access to the grid and most importantly, which the paper does not address is the ability of power stations to supply the electricity needed. 

With the electrification of buses we can see that one bus can reduce up to 75 cars accessing the city and now bus fleets are also being powered by low carbon hydrogen which is an excellent source of clean energy helping combat climate change and poor air quality. Fleets of hydrogen buses have been running on lengthy trials in many of the UK busiest cities.   Other technologies are being developed too, at great speed such as reengineering internal combustion engines to run on biofuels.  The Tees Valley Hydrogen Transport team, for example, is making great advances in regard to the expanded use of hydrogen. 

However the SMMT believes that 46% of all UK vehicles will in any event, be net zero by 2035 without the need for bans.   

The three steps envisaged in the plan are;  

  • A modal shift to public transport that will be net zero in our towns and cities.  
  • The decarbonisation of road transport as a priority and the changes in the delivery of goods, with more use of rail powered by electricity and hydrogen.  
  • An increase in EV vehicle and last mile delivery methods. 

Now, more than ever, is the time for active collaboration between transport, green technologies and energy professionals to drive the decarbonisation of our transport systems which account for 27% of all UK emissions. 

What are the legal requirements?

There are a raft of legal considerations that require immediate attention from planning, policy changes, construction and use regulations, protection and training of employees in a high voltage environment, consumer protection, sufficient and appropriate research and development, safeguarding of consumers in relation to the sale of imported goods, fair contract terms and our legal relationships with the EU and the rest of the world. 

Our teams are working with some of the most innovative players in the market and the future narrative is in the development of a greener environment – contact Eddie Flanagan or Mark Bartholomew in our green transport team.   

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Soaring gas prices hit struggling energy suppliers

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Energy supplier contracts

Ofgem has this month warned of very high gas prices and have said that this “will feed into all customer energy bills in the UK”.  According to the BBC[1], Ofgem has also at the same time said that they “have put tough rules in place to ensure energy suppliers treat customers who are struggling with bills fairly”.

So what support and options are there for struggling energy suppliers who have to purchase energy and gas at high wholesale prices and are supplying it to their customers at very low margins?

The failure of energy suppliers in recent years has been well documented.  Many of these failures have resulted in Ofgem appointing a Supplier of Last Resort (SoLR).  A SoLR is a supplier appointed by Ofgem to take all the customers of the failed supplier in order to ensure there is a continuity of supply.

However, despite the number of SoLRs appointed over the last four years, this is not the only option.

From a purely commercial point of view, the main assets of an energy supplier are its customer contracts.  The appointment of a SoLR will result in these assets being taken away for free.  There is no reason, if the supplier receives the correct advice, has sufficient time and capital and Ofgem is on board, for the supplier not to be able to sell these assets for value prior to entering into an insolvency process.

There is a fine line to be taken in managing directors’ duties to the creditors and the company’s duties to their customers and to Ofgem.  The situation is complicated further in that the Insolvency Act 1986 and the Energy Act 2004 are not compatible in relation to the appointment of an administrator or a liquidator, effectively ruling out the option of an out of court appointment.

Last year we acted for Robin Hood Energy (RHE) who earlier this year entered into administration.  Prior to that we worked with the management team of RHE, their major stakeholders and energy specialist accountants to devise and implement a strategy to sell the assets of RHE to Centrica and to avoid the appointment of a SoLR.  A fundamental part of the strategy was the early engagement of Ofgem and ensuring their continual awareness of the process.

Whilst the terms of the sale are confidential, it can be seen from the statement of affairs which has recently been filed by the joint administrators that the strategy resulted in payments of over £7 million being made to RHE.  This will benefit the creditors and is a sum that RHE would not have been received if it had simply handed the reins over to Ofgem to appoint a SoLR.

Whilst the insolvency of any company is unfortunate, this approach has resulted in a significant benefit to all involved.  Not only was it consistent with the duties of the directors of distressed companies and will result in a better result for creditors, but it also ensured compliance with RHE’s duties to treat customers fairly.

If you are an energy supplier or are advising an energy supplier we would be more than happy to talk to you in order to discuss available options.

[1] Ofgem warns soaring gas prices will feed into customer bills - BBC News

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REMIT and 6th Edition ACER Guidance

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ACER guidance

The Agency for the Cooperation of Energy Regulators (ACER) released the 6th edition of its REMIT Guidance on 22 July 2021, covering the application in the EU of EU Regulation No 1227/2011 on wholesale market integrity and transparency (REMIT). 

By virtue of the European Union (Withdrawal Agreement) Act 2020, the provisions of REMIT (and its accompanying implementing regulation) became part of EU retained law at the end of the Brexit implementation period, with a few amendments to ensure its operability in GB and with the suspension of trade and fundamental data reporting obligations pending establishment by Ofgem of a GB reporting system. 

This latest guidance update from ACER is important however to those actively involved in the GB wholesale energy markets, because the key definitions in REMIT – “inside information”, “market manipulation” and “attempt to manipulate the market” - remain the same in both the GB and EU REMIT regimes, and Ofgem has stated that in carrying out its GB monitoring and enforcement responsibilities it intends to continue to interpret REMIT having regard to ACER’s guidance.

Who is affected by this latest ACER Guidance?

It follows that this latest guidance from ACER will be of interest to any company trading in wholesale energy products, whether for delivery in the EU or in the UK, including electricity generators, trading companies, gas shippers, transmission system operators, and operators of gas storage and LNG import terminals. But the REMIT prohibitions and obligations extend beyond those termed “market participants”, and can apply to any person coming into possession of inside information, or engaging in market manipulation (which can include disseminating false or misleading information). 

What are the changes in the 6th edition?

This latest 6th edition of the guidance differs from the previous updates, in that it incorporates a restructuring of the guidance document, with the aim of making the guidance more intuitive. 

As such, there are sections which are moved around but have not changed in substance, notably the sections dealing with registration (Article 9 REMIT), the obligation to disclose inside information (Article 4 REMIT) and PPATs (persons professionally arranging transactions) (Article 15 REMIT). 

In other areas, ACER has taken the opportunity to add new content, to take account of expected market developments resulting from implementation of the European Green Deal as well as the experience gained to date, including feedback from national regulators and market participants and other stakeholders. 

The key areas which have changed are outlined below. 

Scope of REMIT 

There is a new chapter entitled “Scope of REMIT”, which is a merger of the previous chapters two and three.   

Now included is more detail on the scope of wholesale energy products, including clarification that biogas will be treated as natural gas and hence contracts for supply/transportation of biogas, if the biogas can technically and safely be injected into, and transported through, the natural gas transportation system.  And it is made explicit that redispatching and countertrading mechanisms, and local flexibility markets, will be treated as wholesale energy markets insofar as wholesale energy products are traded there.   

There is also text describing the geographical scope of REMIT, which obviously has some relevance to GB market participants, who whilst governed by the GB REMIT regime will also be caught by the EU regime insofar as involved in wholesale energy products which are produced, traded, delivered, consumed or related to transportation in the EU. 

Also new is clearer analysis of the interaction between REMIT and the financial services legislation. 

Prohibition on insider trading 

This is a new section, dealing with the key market abuse prohibitions in Article 3 REMIT – using inside information to trade, disclosing inside information, and recommending/inducing a third party to trade based on inside information.  Whilst some content is taken from the previous guidance, there is a lot of new content including examples, and some useful explanation of several of the underlying concepts.  For example, in relation to the inside information disclosure prohibition, ACER makes clear that the carve out for disclosure made “in the normal course of the exercise of employment relationship, profession or duties” should be interpreted strictly, with a suggestion that national regulators should look for disclosures which follow a pre-defined workflow based on the “need to know” principles, or disclosures which are included in the contract governing the person’s duties. 

There is also detailed analysis of the categories of natural and legal persons possessing inside information who will be treated as “insiders” for REMIT purposes, which provides some insight on how, for example, “members of the administrative, management or supervisory bodies of an undertaking” will be construed.    

Prohibition on market manipulation  

Similarly, there is a new section of the market manipulation prohibition in Article 5 REMIT, which builds on and replaces content from the previous guidance.  As with the section on insider trading, the notion of “on-market” and “off-market” activities is introduced, and there is substantial new content, including useful examples, covering the key underlying concepts of giving false/misleading signals, securing an artificial price, using fictitious devices/deception/contrivance and disseminating false or misleading information.  

Again, there is also analysis of the scope of the market manipulation prohibition, which like the insider trading prohibition is not limited to market participants, and this is particularly relevant to the “off-market” activity of disseminating false or misleading information which can apply to a wide range of persons operating through media and internet channels for example. 

In conclusion

This latest 6th edition is certainly an improvement on previous editions, and the new examples and case studies in particular are welcome.  Companies affected by REMIT should review their compliance policies and training materials in light of this new guidance. 

It is worth noting the guidance does not touch on enforcement since that is a matter which REMIT devolves to member states and national regulators.  In Great Britain, REMIT enforcement is the responsibility of Ofgem, which derives its enforcement powers from the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc) Regulations 2013, and pursuant to which it publishes REMIT Procedural Guidelines and the REMIT Penalties Statement. 

Ofgem is currently consulting on changes to those documents, which is summarised here.

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REMIT Ofgem consultation

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Ofgem REMIT guidance

In June 2021 energy regulator Ofgem consulted on changes to its principal documents underpinning the enforcement framework, these being the Enforcement Guidelines and Sectoral Statement of Policy with respect to Financial Penalties and Consumer Redress. That consultation closed on 4 August 2021. Ofgem carried out the consultation in order to update these documents in response to changes in the energy market and the enforcement landscape.  

On 17 August 2021 Ofgem published a separate consultation on its two REMIT enforcement documents namely REMIT Procedural Guidelines and the REMIT Penalties Statement which are not part of the general enforcement framework described above. Ofgem’s three objectives for undertaking this consultation are to maintain alignment with its proposed updated general enforcement framework, to reflect the fact that the United Kingdom has left the European Union and to make REMIT processes clearer and more efficient. 

The two documents updated for the proposed changes have been provided in Annex One and Annex Two to the main consultation document. This latest consultation closes on 28 September 2021.  

Background to REMIT

REMIT is the energy sector market abuse regime.  REMIT in fact derives from EU law - EU Regulation No 1227/2011 on wholesale market integrity and transparency – which by virtue of the European Union (Withdrawal Agreement) Act 2020 is now (alongside its accompanying implementing regulation) a part of EU retained law in Great Britain.    

Ofgem is tasked with enforcing REMIT, and its REMIT enforcement powers derive from the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013 (2013 Regulations). The Procedural Guidelines set out how Ofgem will use these powers, whilst the Penalties Statement discharges Ofgem’s obligation in the 2013 Regulations to publish a statement of its policy on imposing penalties and determining their amount. 

REMIT Procedural Guidelines Changes

Recent enforcement case

This REMIT consultation is timely as Ofgem announced on 24 August 2021 that it had taken an action against ESB Independent Generation Trading Limited (IGT) and Carrington Power Limited (Carrington) for breaching REMITBetween March 2019 and September 2020, IGT and Carrington submitted misleading data to National Grid Electricity System Operator (NGESO) about the minimum amount of energy the Carrington gas power plant could supply. This caused NGESO to purchase more energy from the plant than needed when the plant was called on to generate in the Balancing Mechanism. 

As result, Ofgem found IGT and Carrington to be in breach of Article 5 of REMIT which prohibits market participants from engaging in or attempting to engage in market manipulationIGT and Carrington have agreed to make a collective payment of £6m to Ofgem’s voluntary redress fund. 

The proposed changes are: 

  • consistent with the wider enforcement regime changes, to reduce the three settlement windows to one, giving a 30% discount; 
  • consistent with the wider enforcement regime changes, power for the settlement decision to be made by Ofgem’s Director of Enforcement rather than a full settlement committee, in “appropriate” cases, which Ofgem says will be “less complex and serious” cases; and 
  • structural and clarificatory changes to the document, for example making the settlement process more efficient by giving flexibility for Ofgem to seek an indication in writing from the person under investigation that they are interested in settlement before Ofgem goes down that route.  Also, incorporation of reference to “alternative action”, which has been used but not currently mentioned. 

REMIT Penalties Statement Changes

The proposed changes are: 

  • consistent with the wider enforcement regime changes, a significant reduction in the number of the stated factors that Ofgem may consider when determining the seriousness of a breach (and clarification that this is a non-exhaustive list); 
  • consistent with the wider enforcement regime changes, Ofgem will calculate detriment and gain only where proportionate, reasonable and practicable to do so, so that it does not need to engage in resource intensive analysis where, for example, a breach was only attempted or financial impact was not material;
  • and changes in approach to calculating financial gain. 
Conclusion

These proposed changes to the REMIT enforcement regime will bring it into alignment with Ofgem’s broader regulatory enforcement framework. 

As for REMIT compliance more generally, we can expect to see Ofgem maintain its focus on monitoring and enforcement. Those caught by the REMIT prohibitions and obligations should ensure they are familiar with the most recent guidance published by the Agency for the Cooperation of Energy Regulators (ACER) in July, which is summarised here. (link) 

Notwithstanding Brexit, ACER guidance remains useful and relevant compliance material for those involved in the Great Britain whole energy markets.  The key definitions in REMIT – “inside information”, “market manipulation” and “attempt to manipulate the market” - are the same in both Great Britain and EU REMIT regimes, and Ofgem has stated that in carrying out its monitoring and enforcement responsibilities it intends to continue to interpret REMIT having regard to ACER’s guidance. 

For further information on changes to Ofgem’s enforcement framework, contact Andrew Whitehead or another member of the energy team. 

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A round up of the AEEC spring conference

Shakespeare Martineau recently hosted an AEEC (Association of European Energy Consultants) conference, a biannual event held in alternating capital cities across Europe.

However as with most events at the current time, it was held virtually but this didn’t distract from an impressive, extremely knowledgeable and highly engaging line up of speakers and panellists.

The theme of the conference was decarbonisation of heat and transport, with a nod to the upcoming COP26 climate talks and the recent flurry of target setting.

If you missed the conference you can catch up on all the sessions below 

Tip: If you select the play icon in the top right hand corner you can see a complete list of all the sessions

Our key note speaker Laura Sandys CBE gave a provocative call to arms, for government to move from target-setting and get down to delivery.  And Laura highlighted the challenge of moving rapidly from our legacy energy system to something quite different which is going to need to be much more consumer focussed with a redesigned and integrated governance structure. And to illustrate that, she pointed out that, for GB, this will mean a transition from around 400 key players to a complex and interacting set of 100 million actions and assets.

A panel session on heat networks followed, discussing the multiple options for replacing natural and gas (and oil) for heating, and the role of networks in integrating these.   This is where the UK has much to learn from some of our continental neighbours, and we heard about regulatory options ranging from light touch regulation on tariffs through to carbon-based reference prices and fully regulated tariffs.   Challenges here clearly include the need to encourage innovation and investment, whilst managing the interaction and competition between different heat sources, and addressing the existing cost differential to create incentives for customers to switch.

Discussions then turned to the importance of addressing the fabric of our buildings and the huge challenge of delivering the new future homes standard – ie all new homes net zero carbon ready by 2025.  The vast majority of existing new homes are not meeting this standard, and there is evidently a lack of planning for retrofit of the UK’s existing housing stock.  Combined with the government’s plans for ramping up heat pump installations to 600,000 per annum by 2028 (from 30,000 last year), and the scale of what’s needed and how far away we are at the moment becomes clear.

Moving to transport, it’s clear there is progress being made on freight, and the investment in freight trials outlined in the Energy White Paper is welcome.  But more generally, greater support is needed for consumers in making what is currently an expensive transition if we are going to accelerate the shift, and of course investment in the charge point infrastructure is crucial.   It is also premature to call the death of the internal combustion engine, with innovation in sustainable fuels; policy makers should remain focussed on outcomes and remain technology neutral.

All of this requires private sector investment, of course, and that in turns requires an attractive investment climate.  We heard just how “hot” the clean energy sector is presently, with a large pool of capital available for green infrastructure, and a feeling that the legal and regulatory frameworks are generally in place across Europe, albeit institutional support is still needed for larger projects such as hydrogen development and interconnectors, and permitting can remain a tricky area.

Finally, we talked about Brexit, and the operation of the interconnectors between the UK and the EU, as well as the implications for the UK nuclear industry.   The role of the new framework, committees and joint bodies, to implement the Trade and Cooperation Agreement, was also discussed.  It’s hard to avoid the conclusion that, now we have a “deal”, or at least the framework for one, we should embrace the relative certainty and move forward in seeking to deliver what are effectively shared objectives for the UK and the EU.

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Government needs to make better decisions for universities and their students

UPDATED - On 13 April 2021 the government announced that students on all university courses in England will return "no earlier than 17 May", despite ONS research finding there is minimal evidence of COVID-19 being spread in face-to-face teaching settings such as classrooms and lecture theatres.

Universities UK's letter to the Prime Minister on student returns on 6 April raised some important questions about the government’s decision-making during the coronavirus crisis. The letter challenged the government’s failure to publish its plans for the return of the remaining students to campus, even as shops, spas and swimming pools were allowed to reopen, and in contrast to schools and FE colleges where the government has emphasised the importance to the individual and the social utility of encouraging a return to study as normal.

The government’s subsequent announcement that the return date will be “no earlier than 17 May” has done little to answer these questions.

Why are university students being treated differently?

The original justification for treating university students differently to other learners was “to reduce transmission by minimising the number of students who return to university and who access university facilities” - Students returning to, and starting, higher education in Spring Term 2021 (publishing.service.gov.uk). However, the latest ONS survey (published 7 April) shows three-quarters of students (76%) are already living at the same address as they were at the start of the autumn term 2020.

As the UUK letter makes clear, universities have invested significant time and resource in ensuring that university facilities can be used safely in accordance with all recommended public health measures. Further, the ONS has found “minimal evidence of transmission happening in face-to-face learning environments, such as lecture theatres.”  So sanctioning a return to studies now would (a) no longer involve mass migration; (b) take place in the context of an environment where every recommended safety measure has been implemented; and (c) involve activities where there is minimal evidence of transmission.

The government may of course be relying on some other, hitherto undisclosed, justification for continuing the restriction, but if so, it should set it out so that those affected can understand it.

What legal principles should government decision-making during a pandemic comply with?

As many have commented, the coronavirus crisis has permitted the government to impose almost unprecedented levels of restriction on the ability of citizens to go about their daily lives. From a legal perspective, the decision to impose these restrictions must satisfy certain criteria even in a public health emergency.

The expectations are, broadly, as follows:

  • Proportionality: the restrictions need to go no further than is necessary to achieve a satisfactory response to the threat to public health.
  • Timeliness: restrictions need to be lifted as soon as the circumstances that necessitated their introduction have passed.
  • Transparency: the rationale for the restrictions should be comprehensible and/or capable of explanation to those affected by them, and should reflect the prevailing and relevant circumstances of the specific case.
  • Fairness: the restrictions should not disproportionately adversely affect particular groups without good cause.
Has the government met these standards?

For the reasons set out above, when judged against these expectations the government has failed to make the case in relation to its continued refusal to allow a return to study. It has thus left universities and their students bearing a disproportionate and unjustified brunt of disruption in the fight against the virus. Even within the student population, there has been inequitable impact: some students have been allowed access to facilities and face-to-face learning opportunities, whilst others may now reach the end of the academic year without any further access.

There may have been a justification for this differential treatment at one stage, but as the roadmap to ending lockdown has been rolled out, that justification becomes harder and harder to articulate. The government has recognised the impact that the pandemic has had on the mental health of students (see e.g. Letter to students from Michelle Donelan MP, Minister of State for Universities) and therefore should also recognise the need to support the return to campus study as soon as possible.

Universities and the vast majority of students have willingly and diligently respected government requirements and restrictions because they were necessary to tackle the pandemic. The failure to respect the basic legal principles of good decision-making and to lift these restrictions in a timely way could, unfortunately, lead to some of this support being withdrawn.  It’s time for government to fulfil its side of the bargain.

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New legislation

Procurement rules are changing and this is why utilities should take note

For too long, modern and innovative approaches to public procurement have been bogged down in bureaucratic, process-driven procedures. We need to abandon these complicated and stifling rules and unleash the potential of public procurement so that commercial teams can tailor their procedure to meet the needs of the market. The UK is ready.

The government’s Green Paper on transforming public procurement frames its search for the Holy Grail of fast, fair and effective procurement rules that also deliver value for money. The current UK rules implement EU Directives and are guided by EU case-law. Now that the UK has left the EU and is out of the Brexit transition period, the government is eager to flex its newfound independence.

The Green Paper is consulting on changes to the procurement rules to make them less burdensome.

By way of a recap, the UK’s procurement rules regulate contracts awarded by public sector bodies, quasi-public sector bodies and utilities so as to ensure fair competition; are set out in secondary legislation, specifically the Utilities Contracts Regulations 2016 (“UCR”). These Regulations which affect a large number of private companies, from network operators and water and sewerage companies through to ports and postal services, are in some respects, less onerous than their equivalents for public bodies.

 

How will procurement rules affect utilities?

The Green Paper proposes four big changes, which could have huge implications for utilities:

  1. Simplifying and modernising the multiple procurement regulations into a single set of rules

The public sector procurement rules set out in the Public Contracts Regulations 2015 (“PCR”) regulate almost £300bn per year of public spending and are extremely detailed and prescriptive – whereas the UCR is less prescriptive, thus providing utilities with a greater amount of flexibility.

The Green Paper acknowledges that consolidating both sets of rules will be a major and complex legislative exercise.  The key concern here is that the consolidated code (which must substantively cover the same things in the PCR) will overlook and do away with distinct characteristics of the utilities procurement regime – e.g. its greater flexibility.

So, should utilities contracts be regulated by detailed and onerous procurement rules? One argument is that current regulatory regime for utilities (i.e. the existing licences and codes etc. policed by independent regulators) ensures utilities deliver value for money by employing good procurement practices.

It is also worth noting that whilst the international Government Procurement Agreement (“GPA”) (within the framework of the World Trade Organisation), establishes rules requiring, open, fair, and transparent conditions of competition be ensured in government procurement, it does not require WTO members to implement procurement rules for the utilities sector.  Furthermore, the UK is no longer obliged under EU law to implement procurement rules for the utilities sector.  Indeed, the UK utilities sector is very different to those of its European counterparts, and therefore using solutions originally designed for European markets may not be appropriate for the UK.

A consolidated code for public sector procurement and the utilities sector may do away with niche procurement rule exceptions (e.g. some contracts for the purchase of energy by some utilities are exempt from the UCR) ) which could mean that procurement rules will apply where they currently do not  - thus increasing bureaucracy instead of speeding up procurement processes.

  1. Three simpler award procedures

The procurement rules currently provide for seven different procedures:

  • open procedure;
  • restricted procedure;
  • competitive dialogue procedure;
  • competitive procedure with negotiation;
  • negotiated procedure without prior publication;
  • innovation partnerships procedure, and
  • design contests.

 The proposals are for:

Retaining the open procedure which buyers can use for simpler, ‘off the shelf’ competitions;

A new competitive, flexible procedure - This new procedure replaces the current restricted, competitive dialogue, competitive procedure with negotiation, innovation partnerships and design contests procedures. This is similar to the existing “Light Touch Regime” (for social and other services under the PCR; and the negotiated procedure with advertisement under the UCR) and is designed to give “maximum flexibility to design a procurement process that meets their needs and the needs of the market”. This will mean that the detailed and prescriptive rules which apply would be reduced in order to give more flexibility to procurement teams; and

Retaining the negotiated procedure without prior publication but renaming it as the “limited tendering” procedure, and modifying it to include a ground for procuring in a “crisis” and including option to publish a voluntary transparency notice and apply a ten day standstill period before entering into the contract (except in cases of extreme urgency / crisis).

  1. New award criteria

There is a suggestion that the assessment of tenders should be based on which are the most advantageous overall, as opposed to which will deliver the cheapest price or costs.  This is not a change, so much as a shift in emphasis as these social concerns could already be taken into account.

  1. The procurement regulator

The most eye-catching structural change, set out in the Green Paper is the establishment of a new unit to oversee public procurement with new powers to review and, if necessary, intervene to improve the commercial capability of contracting authorities.

However, this new regulatory unit is not designed to assist commercial parties in seeking redress for unfair procurement competitions - but will have two functions: monitoring and intervention. The powers of intervention include what local authority lawyers would recognise as improvement notices. This raises a number of issues, not least whether the proposed powers of intervention are appropriate for any sectors outside of central government.

There does not appear to be any substantive change to the current system of the procurement review: many procurement specialists have argued for a cheaper, specialist review tribunal, as exists in many EU jurisdictions; and there is no similar (non-legal) investigatory role, similar to the EU Commission, within an independent body, such as the Competition & Markets Authority.

 

Have your say by 10 March 2021

The Green Paper is intended to spark discussion, and there is certainly plenty to consider! The value of modernising and simplifying procurement processes is clear, but procurement law is complicated because it regulates a range of complicated markets.

The consultation on the Green Paper: Transforming public procurement closes on 10 March 2021.

We are working with market participants and utilities companies who would like to give their input into this discussion before the consultation deadline. If you would like to take part in this once in a generation opportunity to influence utility procurement, please get in touch with Uddalak Datta or Sushma Maharaj in our energy team.

If you would like to read more of our energy blogs and guides sign up to our mailing list to join our quarterly energy mailer.

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The Office for Students' consultation on reportable events

The Office for Students (OfS) completed a consultation on reportable events Consultation on reportable events on 15 February 2020.

A revised approach to this issue is to be welcomed because, as the consultation itself recognises, there are significant problems with the current approach. The OfS identifies the following as key issues, but we are aware of more general and widespread dissatisfaction with the bureaucratic burden of the process to date:

• Providers failing to report serious matters or reporting them in an opaque way that downplays their significance
• Providers over-reporting trivial matters
• Providers not understanding how to assess materiality

 

What has the OfS proposed regarding reportable events?

The OfS is proposing a new definition for a reportable event, and new guidance to assist providers in deciding whether to make a report.

The proposed new definition is as follows:

“A reportable event is any event or matter that, in the reasonable judgement of the OfS, negatively affects or could negatively affect:

1. The provider’s eligibility for registration with the OfS.

2. The provider's ability to comply with its conditions of registration.

3. The provider's eligibility for degree-awarding powers or university title, or its ability to comply with the criteria for degree awarding powers.

In interpreting ‘the reasonable judgement of the OfS', the OfS will, as a matter of policy, consider whether a reasonable provider intent on complying with all of its conditions of registration and acting in the interests of students and taxpayers (rather than in its own commercial, reputational or other interests), would consider the event or matter to be material.”

 

Interpreting the new OfS definition of a reportable event

In our view, this definition represents a significant improvement on the current one in terms of clarifying both what needs to be reported and how to judge materiality. It links the requirement to report more closely to the three key strands of OfS regulatory activity: registration; ongoing compliance with conditions; and its gatekeeping role in terms of degree-awarding powers and university title. The reference to the interests of students and taxpayers above the provider’s own commercial, reputational or other interests is also more in keeping with the principles-based regulation that the OfS professes to espouse.

 

What does the OfS view as a reportable event?

The accompanying guidance sets out a non-exhaustive list of matters that must be reported in all circumstances, and others that may need to be reported only if they meet the test set out above, taking into account the particular circumstances of the case. For example, a low-value fraud involving a junior employee may not be material, but the same fraud involving the accountable officer would be. The consultation recognises that there may be circumstances where the OfS and a provider take a different view on whether or not a particular matter is reportable. The OfS states that it will not take regulatory action for failing to report where it is satisfied that the provider has properly considered the issue, and recommends that providers should keep a record of their deliberations.

There are additional details in the revised guidance about the OfS’s expectations on the timing of reports, distinguishing between events that have yet to happen and those that have already occurred.

 

How will the OfS respond to a report?

The guidance also sets out more clearly what the OfS will do when it receives a report. It will decide one of the following:

1. The information contained in the report should be recorded but no further action is required.

2. A more extensive assessment is required because “the information contained in the report is likely to affect the provider’s eligibility for registration, its compliance with its conditions of registration, or its eligibility for degree awarding powers and university title, or its ability to comply with the criteria for degree-awarding powers”.

3. A more extensive assessment is required because the information adds new information to a known issue or to a pattern of events or issues.

If an extensive assessment is carried out, it could result in a change in the OfS’s risk assessment of the provider and that in turn could lead to enforcement action or specific conditions of registration.

 

What are the implications for providers? 

Universities, colleges and independent providers will need to review whether they have the optimal internal processes to identify reportable events in a timely way. These will include:

  • An awareness and understanding at governing body level of the obligation to report, and then delegation of the duty to report to the accountable officer;
  • A process by which reports of potentially reportable events can be considered at an appropriately senior level to determine whether assessed against the criteria discussed above, they should in fact be reported;
  • A system to record the reasons for deciding not to report in cases where a fine judgment is made; and
  • A feedback loop so that the governing body receives reports about reports made and events not reported periodically monitors the appropriateness of these decisions, and requires changes to the process where necessary.
Contact us

If you would like further information or advice on this topic Smita Jamdar in our specialist education team can help.

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Guides & Advice

2021 - What to expect in FE and HE this coming year

If there was any genuine hope that 2021 would be calmer than 2020, that hope was quickly extinguished in the first week of January with the further lockdown announced by the Government. There is, however, plenty to look forward to this year and for the FE and HE sectors to be aware of.
The long awaited FE White Paper

From an FE perspective, the sector awaits with bated breath the much delayed FE White Paper. The embattled Secretary of State for Education, Gavin Williamson, has described an "exciting and bold" proposal to "put employers at the heart of the system", reflecting the "changing need" of employers and "rebalancing academic and technical education". Williamson also used his speech at the AoC FE summit in November 2020 to say that he "wants the sector to reach its potential". Whilst we can all agree these are all fine sentiments, the devil will be in the detail and we await to see how Williamson and the Government intend to achieve all of this.

In particular, one wonders to what extent the White Paper will reflect the Commission on the College of the Future, which recommended in its report last autumn that networks of colleges be set up with strategies to meet each geographical area’s skills priorities, based on employer need, with input from local Government. It also recommended a single post-16 education oversight and funding body, merging the Education and Skills Funding Agency and the Office for Students’ responsibilities in this area.

Funding for adult education

One thing that will be happening in FE this year is that, from April 2021, the Government will be funding technical courses for adults, at the equivalent of A-level, where individuals have not already got equivalent qualifications. The "Lifetime Skills Guarantee" can be seen as part of the Government's "levelling up" agenda and it will be plenty more of this and other ideas that those in the FE sector will be looking out for from the White Paper when it eventually arrives.

Financial challenges

Inevitably the pandemic has brought a raft of challenges for both the FE and HE sectors, not least from a financial perspective. These challenges are unlikely to ease in 2021. In particular, the cost of the pandemic will continue to be felt by institutions, either directly or indirectly, in responding to the pandemic and the impact on income.

Whilst it is unlikely that the pandemic will, of itself, make many institutions unviable, for those institutions that had existing financial challenges it is certainly not going to help them. We have already seen institutions needing to make cost savings and/or undertake staffing restructures, either through voluntary redundancies or, in a worst case scenario, compulsory redundancies. There may ultimately be institutions looking for a rescue through a merger, or some other means of continuing their provision through an alternative structure.

HR challenges

The pandemic also brought plenty of challenges for institutions' HR teams. Who, for example, could have told you what "furlough" was in February 2020? This year new legislation can be anticipated, with an Employment Bill expected to be published in the spring. That is expected to pull together a variety of recent announcements on carers' leave, enhanced redundancy protection for pregnant employees and the possibility of a single labour market enforcement body. The most contentious new provision may be the right for zero hours employees to request a "stable" contract after 26 weeks' service. This was subject to consultation back in 2019 and no response has yet been published by the Government. However, given the number of institutions across the sector that use some form of zero hours contract, for either teaching or support staff, whether this is enacted and how it is intended to work in practice will be of real interest in due course.

Brexit and beyond

No forward look in recent years has been complete without the mention of the word “Brexit”, and even though the UK formally left the EU at the end of January 2020, and the transition period ended on 31 December 2020, the effects are likely still to be felt across the economy for months and years to come. For those institutions undergoing, or about to undergo construction projects, the impact of changes to the immigration regime (possibly creating labour shortages) and increased bureaucracy in the supply chain (resulting in price rises) is likely to be felt sooner or later. The construction sector will also be looking towards a greener future, as the UK aims for a net zero carbon target in 2050. How quickly contractors adapt will depend on the incentives Government – or other project commissioners - are prepared to offer.

Whilst we’re locked down (again) at the beginning of 2021 it can be difficult to look too far ahead, but FE and HE institutions will want to keep preparing for better days. They will arrive soon.

Contact us

If you would like further information or advice on this topic Tom Long in our specialist education team can help.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

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Too many students, not enough spaces

Too many students, not enough spaces

What the Government’s latest U-turn may mean for HE admissions.

The Government’s U-turn on A-level grades has created several headaches for universities and other higher education providers, one of which is the prospect of significantly more students than had been previously anticipated meeting the conditions of their offer, and thus becoming entitled to a place on a course.

Why is there a potential problem this year?

As a matter of law, a contract is formed at the point at which the student accepts the offer of a place. Most student contracts are conditional on the student performing to a certain level in their A-levels or other equivalent qualifications. Universities routinely make more offers than they have places, because there is natural attrition in the process (students who don’t make the required grades, students who choose to go elsewhere etc), and so they usually have or can make available roughly the right number of places at the start of each academic year, even taking into account processes such as adjustment and clearing which occur very late in the process.  This year, that might not prove to be the case, especially as some institutions have already had additional offers accepted through clearing which they made based on the grades announced last week.

What happens if the institution finds that it does not have sufficient places available for all those eligible for a place? 

Unless the institution has specified in its offer letter or its terms and conditions that it may not be able to fulfil the offer if there are excessive numbers of successful candidates (and we are not aware that this is common practice in the sector), students will say that they are entitled to be enrolled. We do not think that the A-level grade fiasco would be regarded as a force majeure event as an excess number of successful applicants does not make the service difficult or impossible to perform per se, but only in relation to the “excess” successful applicants. Similarly, we do not think that it could be argued that the contracts have been frustrated, the legal doctrine that treats contracts as null and void where some supervening event renders them impossible to perform.  Certainly, where a university is able to provide its services to some students, the chance of a court concluding that the contract was frustrated in relation to the other students is low.

Therefore there is a real risk that universities will simply be in breach of contract. We do not think that the specific Consumer Rights Act remedies of a repeat performance or a right to a price reduction will be appropriate here, so for most students the available remedy would be some form of damages. However, such claims are very difficult to calculate at the best of times, and this definitely isn’t the best of times; sometimes students can argue that a delayed start meant that they are delayed entering the job market and/or the opportunity for further study, but these claims are inherently speculative and even more so against the backdrop of a global recession and economic disruption.

Mitigation is key

Wherever there is a potential claim for damages, both sides need to think about ways to mitigate the amount; in this case, students because they are under a legal duty to do so, and universities because it makes financial, as well as moral and reputational sense, to keep any claim they might face to a minimum. This may involve considering alternative courses, alternative institutions, deferred starts, or modified curricula. Could the intake be expanded if there was, for example, more done remotely and online, and less done on campus? What would this mean for the student experience and indeed the contractual rights of those students who have secured a place to get what they were promised (which is probably already quite different to what they originally thought they would get because of COVID-19 related modifications). Oversubscribed institutions could also consider whether partnership working with other institutions who may have more space available is an option, although time may be the enemy here. In all cases, care needs to be taken that mitigations do not deliver sub-standard experiences that lead to increased dissatisfaction and complaints further down the line.

Access and participation

There is a risk in this scenario that the applicants who shout loudest and assert their rights most vociferously get in ahead of those less confident in navigating the process. Therefore, institutions need to consider the process by which they select who gets in and who doesn’t. For example, should it be first come, first served or should vulnerable or disadvantaged groups be prioritised or given additional support on the basis of the institution’s commitment to widening access and participation?

What about courses with capped student numbers?

Institutions will be particularly constrained in those subjects where spaces are controlled by an external cap, such as medicine. Here, the ability of institutions to mitigate by expanding the intake or modifying the curriculum will be limited, and there may be no alternative to deferral. Mitigation in this context may need to be more creative, for example, some opportunity to develop relevant skills through the period of deferral through short and introductory courses so that delayed applicants can spend the time in a way that is ultimately useful to them.

Universities are currently being challenged at every level due to the effects of COVID-19 - from a prospective massive drop in income due to the reduction in overseas students, to the reality and practicalities of ensuring their campuses are COVID safe and switching large portions of their teaching to an online environment.  The additional crisis over A-level grades and resulting university places and every challenge that this might bring with it, is adding further stress to a sector already in difficulty.

Contact us

If you would like further information or advice in relational to handling subject access requests, or how best to deal with student complaints, then speak to Smita Jamdar in our specialist education team.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Higher education | No more force majeure? A comment on the OIA’s latest update

Higher education | No more force majeure? A comment on the OIA’s latest update

On 22 June 2020 the Office of the Independent Adjudicator (OIA) published an updated briefing note on its approach to student complaints arising from providers’ responses to COIVD-19, including reliance on “force majeure” clauses.

Its view is that even if a provider was justified in invoking that type of clause during the initial crisis period, it is unlikely to be reasonable to rely on it in relation to students who are starting or continuing with their studies in the autumn.

The OIA further states that providers have had time to prepare and plan for the longer-term effects of the pandemic, and those effects are unlikely to be considered an extraordinary event outside of the control of providers that is preventing them from delivering the service they have promised.

What are force majeure clauses?

Readers will recall from previous bulletins that force majeure clauses are contractual clauses that alter parties' obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations. Because they are contractual, the scope for deviating from what was promised without committing a breach of contract will depend on how the clauses are specifically drafted, and provided that they are fair.

Force majeure clauses usually set out the impact on providers that the extraordinary event or circumstance must have to enable the clause to be invoked e.g. the provider is “prevented” or “unable” to deliver the service as promised. In those circumstances, providers could not rely on the clause where delivery became too expensive or difficult; they would have to show that it was physically or legally impossible.   The burden of proof is on the provider who relies on the clause to show that there is a causal relationship between the event and its inability to provide the service as promised.  The provider also needs to show that that there were no reasonable steps that it could have taken to mitigate the effects of the event.

Current challenges

While all providers have been planning and making strenuous efforts to deliver programmes in the wake of the pandemic, the OIA’s view presupposes that they can simply now return to the status quo ante in September, any deviation from provision as originally promised being a matter of expedience or discretion for the provider and therefore subject to students’ consent.

Students who will enrol for the first time in September 2020 will have been made offers which reflected the delivery models of a pre-COVID world, and they will have accepted their offers on those terms. The pandemic nevertheless continues, the threat of transmission subsists, the spectre of a second peak looms larger with each easing of the lockdown, and there is no clear guidance on whether and how providers can resume delivery as promised and safely. Pubs and restaurants, which are permitted to re-open from July, are doing so but in a way that is significantly different from the services we all enjoyed consuming until March.  Why are HE providers different?

The OIA clearly believes that, given the passage of time since the outbreak, providers have had time to mitigate its effects.  That may well be the case, though some providers would argue otherwise.  Mitigating effects now for September enrolments, however, does not mean that providers can fulfil promises made pre-COVID without any changes from offers originally made and acepted.  The OIA’s dismissal of force majeure reliance is therefore hard to understand and unhelpful to providers facing an increase in student complaints.

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For further information please contact Geraldine Swanton or another member of the education team.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Opinion

The theory of eternal recurrence and the OIA’s Annual Report 2019

The theory of eternal recurrence and the OIA’s Annual Report 2019

Reading the OIA’s recently published annual report for 2019 reminded me of my days as a philosophy student exploring the theory of eternal recurrence - that theory proposes a universe in which all existence and energy have been recurring and will continue to recur in a self-similar form an infinite number of times across infinite time and space. 

My wistfulness was induced by the cases studies the OIA sought to highlight, which indicate that basic, but serious, errors in dealing with students continue to be made.  Anyone who deals with student complaints knows only too well that they are incredibly time-consuming, particularly if referred to the OIA.   By highlighting the recurring themes, perhaps we can subvert the haunting sense of predeterminism that the OIA’s case studies create.

Unfair procedures 

The right of the student to know the case against them is one of the axioms of fairness.  While the right must be discharged in any disciplinary decision-making process, it is particularly important in fitness-to-practise (FTP) proceedings where an adverse finding could deprive a student of their right to practise their chosen profession, itself a right recognised under Article 8 of the European Convention on Human Rights.

In one case adduced by the OIA, it concluded that it was reasonable for a provider to suspend a student’s placement while concerns were being investigated.  There was however no proper FTP process by which to investigate those concerns. No advance notice was provided to the student regarding the case against them, they were not afforded a reasonable opportunity to respond and there was no right of appeal.  In addition, the provider did not maintain a proper record of meetings with the student nor of the reasons for its decisions.

Another case cited involved a nursing student, who was the subject of FTP proceedings as a result of concerns raised by the placement provider, where14 different parts of the NMC Code were referred to, but no specific details of how and when the student had breached them were provided. Furthermore, the provider prevented the student from contacting potential witnesses the student had identified, but had not itself sought to contact those witnesses before the hearing took place, clearly at variance with duty to conduct an impartial investigation. The FTP panel included a member of the placement provider’s staff, giving rise to an appearance of bias, and no reasons were provided to explain why termination of the student’s registration was an appropriate sanction or why a lesser sanction would not have been appropriate.

Sexual harassment and misconduct

Unsurprisingly, there has been an increase in OIA complaints relating to sexual misconduct, though the actual numbers remain relatively low.  The partly-justified case adduced by the OIA relates to an allegation of serious sexual assault which was investigated by the police, during which the responding student was suspended from his studies.  The decision to suspend was made notwithstanding the fact that:

  • the reporting and responding students did not study at the same campus;
  • the responding student’s bail conditions did not impose any conditions on his movement;
  • the responding student needed to be on campus only one day per week; and
  • he agreed to any restrictions on his movement that the provider would seek to impose.

Furthermore, the suspension continued when the reporting student decided to interrupt their studies for the remainder of the academic year. The OIA concluded that the provider should have reconsidered the suspension, taking into consideration all of those factors.

A failure to take into account relevant facts/considerations when making decisions is a classic ground of judicial review and this case provides a good illustration of a flawed decision-making process.

Students with a disability

The Equality Act 2010, which is now ten years old, expressly provides that there is no discrimination if a student with a disability is treated more favourably than a student who does not have that disability. It is surprising therefore, that students with disabilities are being denied otherwise reasonable adjustments on the ground of unfairness to others, warranting complaints to the OIA, as a case study reveals.  It also resonates with cases on which we are asked to advise.

Another case relates to a student with autism and impaired motor and language skills, for whom the standard 25% additional time in examinations was not sufficient. The provider rejected the student’s complaint and did not consider whether the student continued to be at a disadvantage and hence whether any further steps were necessary.

A third case cited continues a familiar theme of providers failing to comply with their own procedures and failing to apply their mind to relevant evidence when making a decision. The case concerned a student with mental ill-health and a low attendance rate, whose appeal was heard by a single individual, rather than by a panel as provided under the provider’s relevant procedure, There was no record of the decision-maker taking into account the medical evidence provided. The OIA recommended a fresh appeal.

All three disability-related complaints included in the case summaries were deemed fully justified. Some of these issues are highlighted in one of our previous blogs – reflections on disability.

Consumer protection

Informed choice is a hallowed principle enshrined in consumer protection law.  Students rely on the material information provided to them in prospectuses and on websites to inform their choice of course and institution, often so they can maximise their comparative advantage or conversely to avoid their comparative disadvantage. Consider the poor student with a low aptitude for maths, who enrolled on a Masters in a business-related course, only to discover that several modules contained challenging mathematical content. The information provided did not inform potential applicants that the course required A-level maths or a degree in a mathematical subject. The student’s complaint was deemed fully justified.

What are the lessons to learn from last year?

Fairness

Ensure your disciplinary procedures are fair, not only in the drafting, but also in the implementation, and comply with them.  They should provide for:

  • an impartial investigation;
  • ample opportunity for the student to know the case against them and to defend themselves. That should in practice include properly-drafted charges briefly setting out the alleged facts in chronological order, with a cross-reference to the specific parts of the relevant code that is alleged to have been breached;
  • an impartial decision-maker i.e. ensure not only the absence of bias but also of the appearance of bias;
  • reasoned decisions; and
  • records to show that all relevant facts were taken into account in making decisions e.g. suspension, guilt/innocence, penalty.

In relevant misconduct cases, particularly alleged sexual misconduct, both reporting and responding students should be kept informed of the progress of the process and informed of the outcome.

Disability

Notwithstanding standard adjustments for classes of disability, individual circumstances should be taken into account that may warrant deviating from those standard arrangements.

You need to demonstrate that all medical evidence was considered when making decisions regarding adjustments.

Consumer protection

Ensure that you inform applicants’ choices and ensure material information contains a clear indication of the entry requirements for each course.

Contact us
For further information please contact Geraldine Swanton or another member of the education team.

For legal support in relation to the coronavirus or any other matter, get in touch with your team today.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

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