Utility Week

20 | 15TH - 21ST MARCH 2019 | UTILITY WEEK Policy & Regulation Analysis All of the solutions discussed so far repre- sent relatively minor tweaks to the current way of doing things. But many are hungry for more radical changes. One of the more drastic reforms being considered by Ofgem is a consolidation of the codes to make them shorter and less numerous. The regulator already has firm plans to create a new Retail Energy Code that would replace several existing ones, including the Master Registration Agreement and the SPAA. Among those Utility Week spoke to, there was universal support for extending this approach to other codes. Three codes At a working group held by Ofgem in Feb- ruary, Elexon presented proposals to create a total of three codes, all of which would cover both gas and electricity. The Retail Energy Code would be expanded to include the Smart Energy Code. The BSC would be combined with the Uniform Network Code (UNC) to create a wholesale and settlement code. And a combined network code would be formed by merging the CUSC, the Dis- tribution Connection and Use of System Agreement, the Grid Code, the Distribution Code and the System Operator Transmission Owner Code. "What we are proposing is we could move to a three-code model, but then either have one code manager over those three codes, or have three different managers, one across each of the codes," explains Elexon's Love. "If there's different ones, we maybe need an overarching panel to co-ordinate change." Citizens Advice's Horne believes having fewer codes, with the associated panels and administrators, would make it easier to engage with the change process: "We are a charity. As a statutory advocate, we're able to resource quite a few of the codes. "But we have to pick our battles and pri- oritise. And actually a bit of consolidation of the codes would go a long way in terms of us being able to cover more bases and make consumers' voice louder." John Twomey, senior market development manager at National Grid Electricity System Operator, says: "There is definitely a case to look at consolidation of the codes. And cer- tainly, if you look at what's happened in the market, there's a real relationship that exists between transmission and distribution, and generators and demand customers. And therefore you very much could see the logic in a world where you bring some of those codes together." At the same time, Twomey says having fewer codes will be of limited value unless something is done to make them shorter and less complex: "You also need to condense the level of detail that sits in those codes. From my perspective, bringing two codes together which are 1,000 pages each into a 2,000-page code isn't going to solve the issue. "But what could solve the issue is consoli- dating two 1,000-page codes into something which is 1,000 pages in its entirety." According to Electralink's Leedham, one way of doing this would be to move towards principles-based regulation rather than set- ting exact dos and don'ts. He says the overly prescriptive nature of the codes is demon- strated by the inclusion of clauses to pre- vent signatories committing offences such as fraud that are already covered by general law. Energy UK's Martin says leaving some ambiguity in the codes would put the onus back on industry to "behave itself " or face reprimand by Ofgem. However, Twomey cautions that there is likely to be division on this issue: "Some see these codes as being their contract with industry and they want them to be detailed and they want them to be very transparent in what they need to do, and others want them to be very agile and for change to happen quicker." Standardisation call As well as consolidation, Leedham would like to see more standardisation across the codes: "We run three codes and each one has a different process, and all 11 have some- thing different. Could we not have one single change process?" He says this proposition unfortunately met opposition at the work groups held by Ofgem recently, not because people are against the idea in principle, but because "everybody believes their own process is the best". While Leedham is focused on the code change process, Elexon's Love says there is also an argument for standardising the funding models for the code administrators: "At the one end you've got the Data and Com- munications Company, which is fully price controlled and licensed. You then have the electricity system operator, which is under licence under National Grid's price control. Then you have Electralink and Gemserv, which are commercial operators within the market. And then you have the Elexon not- for-profit model. "Somewhere along that line is the most efficient and economical way of delivering these arrangements and we need to under- stand where it is and what the ideal model is for us to use going forward." Catherine Mitchell, professor of energy p0licy at the University of Exeter, welcomes many of the aforementioned suggestions, including the consolidation of the codes, which she believes should be combined into a single all-encompassing document. But she says they all fail to address the main problem plaguing the code change process – the industry "self-regulation" highlighted in Greg Clark's speech. "I think it is very important that we move away from signatories, in effect, being in charge of code changes," she argues. When the codes were put in place as part of the privatisation of the gas and electri city sectors in the late 1980s and early 1990s, "it was felt that competition would be the answer and the signatories would know best what was needed and we should therefore let them take charge of those codes. "And that was an ideological and naive approach to competition. Obviously, if you're a code signatory, you're not going to change a code which undermines your private interests." Mitchell continues: "In other countries when the energy system was privatised or liberalised, they did not put in place that regulation of codes. Codes were just part of normal regulation. It was nothing that the companies could get involved in." She says adopting arrangements that more closely resemble those in other Euro- pean countries will be essential if Britain is to achieve its goal of developing a "sustain- able, equitable and secure energy system in time to meet the carbon budgets. And I think it absolutely is one of those situations where a mid-way fudge doesn't do it." Code managers Under her suggested model, all code admin- istrators would be transformed into code managers. However, this would mean more than just taking a more proactive role in sup- porting the code change process, as Elexon says it already does. While Ofgem would remain the final arbiter in many instances, the code manag- ers would absorb the functions of the code panels, which would be abolished entirely. As such, they would be responsible for pro- posing and developing modifications in consultation with stakeholders and based on guidance from the government and Ofgem. Major reforms

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