DD1416 Licence Lite – the GLA’s licence application to Ofgem

1.1 The GLA application for a junior (licence lite) electricity supply licence was authorised in DD897, so that the GLA could buy the electricity produced by London boroughs and other public sector decentralised energy generators in London and sell it at proper market rates. The decision noted that the request for a decision has gone to IPB and will come back to IPB at the point at which a decision is needed on accepting the grant of the licence and entering into the contracts necessary to purchase and supply electricity in the manner described in DD897.

1.2 Since the licence application to Ofgem was made in March 2013, the outstanding regulatory issues in respect of the licence application have been resolved, a detailed financial model delivered to Ofgem and a third party fully licensed electricity supplier appointed to provide market interface services to the GLA, as required under the terms of the grant of the licence to the GLA.

1.3 Some statements made by the GLA in its lite licence application now require revision, to comply with the conclusions reached in discussions with Ofgem.

1.4 The revisions are concerned with two matters. The first is that the premises to which the GLA may supply electricity under the licence be differently defined. The licence application currently defines premises to which the GLA may supply electricity as- .

• London boroughs and non domestic premises owned or managed by them;
• Transport for London, the London Fire and Emergency Planning Authority, the Metropolitan Police and non domestic premises owned or managed by them;
• other governmental bodies and public authorities in London and non domestic premises owned or managed by them.

1.5 This DD requests authorisation to change the definition of premises which the GLA may supply to
any non domestic premises, not distinguished by ownership or location within Great Britain.

1.6 The reason for the change is technical, in that specifying narrow classes of premises that can be supplied would be complex and time consuming to administer, since the premises would need to be individually identified so that Ofgem can monitor that the scope of the licence is being complied with and the premises supplied would be constantly subject to change.

1.7 The GLA may still keep the scope of its supply activities to within the GLA area, since the GLA is at liberty to manage its licence lite business within that scope. It is suggested that the practical scope adopted be the GLA area and also consumers proximate to it, to provide a small amount of flexibility.

1.8 This change of scope would not cause the GLA to be exposed to any additional risks or liabilities under its licence. At the operational level, the change would improve the flexibility available to the GLA regarding whom it may supply and increase potential demand for the GLA’s electricity supply. That would be advantageous to its licence lite business and consistent with its licence lite objectives because it increases potential demand.

1.9 Second, that the source of the electricity that the GLA purchases from generators for the purposes of its licence lite supply be changed from its current description in the licence application as –

‘electricity generated by or on behalf of the London boroughs and other public sector bodies in London;’
to -
‘electricity generated from any source’.

1.10 The reason for the change is to allow the GLA to evaluate potential sources of supply on a number of criteria including price and to be able to select the most economically advantageous sources not solely by reference to geographical location or ownership.

1.11 Decentralised small scale electricity generating capacity is likely to find meeting the GLA’s needs for power for its licence lite business attractive because of the enhanced financial margins. This has already been demonstrated in the responses received from small scale electricity generating interest to the GLA’s Pre-qualification Questionnaire, received in June 2015.

2.1 The objective is to conform to Ofgem’s guidance and legal requirements through the alterations to the licence application terms described above; but to do so without causing the GLA to be exposed to any additional risk or liabilities under the terms of its licence.

2.2 The outcome of changing the relevant terms in the licence application is expected to be positive, in that –

a) it will facilitate the grant of the licence upon which the GLA’s licence lite operations are dependent;
b) adopting the changes to the licence application terms should not adversely affect the feasibility of the licence lite business, including the opportunity to realise the full economic advantages available to smaller scale decentralised electricity generators and the GLA as the supplier, through the matching of generation with electricity consumption requirements which is central to the licence lite business model.

3.1 The changes in respect of which this decision is being made will have no impact, either positive or negative, on those with protected characteristics.

4.1 That there are no additional risks or liabilities in relation to the licence involved in extending the permitted scope for electricity supply under the licence.

5.1 There are no direct financial implications to the GLA arising from this proposal. However, the purchase and associated sale of the electricity must still be in line with the conditions set out in DD897 and the Authority’s financial and statutory obligations.

6.1 The GLA has powers under the Greater London Authority Act 1999 (section 30) to promote the improvement of the environment in Greater London, in doing which it is to have regard to the achievement of sustainable development in the UK, and to climate change, and the consequences of climate change. Further, the GLA has an obligation (under section 361A) to address climate change, so far as relating to Greater London. Under section 34 of the GLA Act, the GLA may do anything calculated to facilitate, or conducive or incidental to, its functions.

6.2 Provided that implementation of these proposals will help to improve the environment in Greater London, having regard to the achievement of sustainable development in the UK, and/or to address climate change in Greater London, and/or will facilitate, conduce or be incidental to, such matters, the proposals are within the GLA’s powers. Notwithstanding the power under the prospective licence to supply premises throughout Great Britain, the GLA will need to bear in mind the geographical constraints on its powers.

6.3 It is understood that at present what is proposed is purely a pilot scheme. In piloting this scheme, the GLA does not appear to be exercising its powers for a commercial purpose.

6.4 Should the pilot scheme be successful, and should it be contemplated that the scheme will move towards a full scale, enduring, operational scheme, with a view to profit, then the further legal considerations set out in the following paragraphs (which are not exhaustive) will apply.

6.5 It is noted above that the GLA plans to sell electricity at market rates. Under section 95 of the Local Government Act 2003, and the Local Government (Best Value Authorities) (Power to Trade) (England) Order 2009, the GLA has power to do for a commercial purpose anything which it is authorised to do for the purpose of carrying on any of its ordinary functions. Under s95(4)of the 2003 Act the GLA must exercise its powers to do so through a company.

6.6 Further, under article 2(2) of the 2009 Order, the GLA must prepare and approve a business case, defined as “a comprehensive statement as to—
(a) the objectives of the business,
(b) the investment and other resources required to achieve those objectives,
(c) any risks the business might face and how significant these risks are, and
(d) the expected financial results of the business, together with any other relevant outcomes that the business is expected to achieve.”

6.7. Any proposals should be reviewed generally on preparation of a business case.