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.
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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Andrew is a specialist energy regulatory and contracts lawyer, who works with a range of utility and developer clients and funders to help them manage regulatory and legal risk in a fast-moving and complex environment.