CASE STUDY: PUBLIC SECTOR - COMMERCIAL
Indemnity Agreements in Electricity Connections New Supply to Upgrade Electricity at Ministry of Justice Estates as part of the £500m, prison expansion programme. SITUATION
After signing the Connection Agreement, the Client was advised that an additional Indemnity Agreement was required due to the changes to the Connections Regime where the DNO is responsible for the majority of reinforcement costs for the connection, but feels exposed to regulatory requirements that require them to
only invest network capacity where there is an immediate requirement. Perception was that if the connection request is cancelled by the MoJ, the DNO would have invested in stranded assets & unable to cover the cost through ill payer fees.
TASK
To understand why the DNO requested an Indemnity
Agreement prior to commencing design and delivery work on the Connection.
To look at whether there is a requirement for an Indemnity Agreement and Connection Agreement for
AT A GLANCE Challenges Delivering Prison Expansion Electricity Upgrade
Infrastructure Reinforcement Connection Regime Review
Outcomes Removal of need for Indemnity Agreement Indemnity Agreement Governance with HM Treasury Review by Regulator Removal of all Indemnity
Agreements recommended Article published by Infrastructure & Projects Authority
electricity capacity upgrades,
ACTION
Review Connection Agreement & Indemnity Agreement to understand their relevance and cross reference with the Connections Regime published by the Regulator.
Research the Government procedures for Indemnity Agreements. Direct experience of working on legislative governance for the Public Sector & knowing the HM
Treasury protection and procedures for use of Taxpayers
money. Main drive being that the Indemnity Agreement could be seen as a ‘blank cheque’.
Discussion with representatives from DESNZ & IPA, then meeting with DNO. Escalated discussions with the DNO Group Board & review by their General Counsel.
RESULT
Confirmation that the Indemnity Agreement was not required, and that design and delivery phase could be initiated by the DNO. MoJ advised on the process for Indemnity Agreements to be signed by Lord Chancellor, with permission from HM Treasury. Action to remove any Indemnity Agreements issued to DNOs by the MoJ. Ofgem to review guidance to ensure there can be no misinterpretation of the Connection Regime change.
Significant Achievement
Removal of the need for Distribution Network Operators to require Connection & Indemnity Agreements for new connections to the electricity network, means that confidence to the public sector is achieved in knowing that the Connection Agreement is robust enough as a contract for works,
This success safeguards the public purse.