Utility Week

18 | 15TH - 21ST MARCH 2019 | UTILITY WEEK Policy & Regulation Analysis U nderpinning the operation of the energy system is a series of industry codes that suppliers, generators and networks must sign up to as part of their licence conditions. They are hugely impor- tant, establishing a wide variety of crucial arrangements and determining the ow of billions of pounds of revenues and costs each year. They are also "live" documents, meaning they are constantly being reviewed and updated. The governance of these codes varies from case to case. But generally speaking, each one has a corresponding administra- tor and panel. Although Ofgem o• en has the • nal say over which changes are adopted, modi• cations are typically proposed by signatories to the codes. These proposals are then scrutinised by the panels, which either present their recommendations to the regulator or make the decisions themselves. Many of the panel members are appointed to represent the interests of a speci• c group or consumers in general. However, they are typically elected by the signatories to the codes they are overseeing. In theory, this should open up the membership to smaller and newer players. In practice, the panels have tended to be dominated by the employees of large incumbents that have the resources and relationships necessary to win and hold seats. Announcing a major review of the codes in November, the business and energy secretary Greg Clark said this system of "self-regulation" has reduced competi- tion and innovation from new entrants and pushed up prices for consumers. "Incumbents have o• en been able to put their interests ahead of those entrants or consumers," he explained. "We need to • nd a solution that harnesses industry knowl- edge of the system without handing over the keys to insiders." Cracking the codes Ofgem is looking at ways to improve the codes governing the energy system and the procedures for updating them. TomGrimwood speaks to industry fi gures to fi nd out what changes they would like to see – from minor tweaks to major reforms. In an outline of its joint review with gov- ernment released several weeks later, Ofgem said there is a "growing industry consensus" that the current arrangements, designed several decades ago, have become outdated and a barrier to progress. Changes have become slow and reactive, with even simple decisions taking "many years", and the large number of poorly co- ordinated code bodies means systematic reforms are di‡ cult. The codes themselves are also over-complex, running to more than 10,000 pages and weighing in at about 50kg if printed out on A4-size paper. Ofgem said the "comprehensive" review will consider options for improving industry codes and their governance, including the scope for "fundamental reform". But even without a radical transformation, industry • gures tell Utility Week there are numerous smaller changes that could help address the regulator's concerns. Many identify a lack of accessibility as a key issue. Several suggest digitalising the codes to make them easier to understand. Kyle Martin, deputy director for power at Energy UK, says a so• ware app, for example, could be used to create a "bespoke code" for each signatory, saving them from having to read "thousands of pages and annexes you'd never need to know or care about". Grace Smith, senior regulatory analyst at UK Power Reserve, agrees that accessibil- ity is a big problem. It can sometimes even be unclear which parts of the industry fall under what code. "You're trying to set down in legally robust terms the workings of an entire indus- try. It's never going to be a small document," she explains. "The important thing is that new entrants in particular should be able, maybe with the help of the code administrators, to • nd the parts that are applicable to them quickly and easily, without having to invest a lot of their own resources simply understanding the rules of the game." Smith cites Elexon's practice of appoint- ing an account manager to each signatory to the Balancing and Settlement Code (BSC) as an example that fellow code administrators should follow. With others, she says: "You • nd yourself explaining the same idea repeatedly, which can be quite frustrating." As a result, compa- nies with innovative ideas can • nd it "hard to get the ball rolling". Smith says many of the projects applying to take part in Ofgem's "regulatory sandbox" don't really require a derogation from the codes, but rather a better understanding of the existing rules. The chief executive of Elexon, Mark Bygraves, says this helps explain why it came top in Ofgem's most recent satisfaction survey for code administrators. He says other practices trialled by Elexon include holding webinars and conference Minor tweaks UtilityWeek Interview: Felix Lerch, chairman, Uniper UK p6 SHOULD GOVERNMENT TAKE A BIGGER STAKE IN NEW NUCLEAR PLANTS? p11 24TH FEBRUARY - 2ND MARCH 2017 THE BUSINESS OF UTILITIES HOW BLOCKCHAIN HELPS ENABLE DECENTRALISED ENERGY SYSTEMS p20 February 2017 Utility Week in which Tim Emrich, then chief executive of UK Power Reserve, described the CUSC panel as 'mafi a-like'

• Cover