Ofgem: Review of Code
Governance
Peter Bolitho
Trading Arrangements Manager, E.ON UK
Recap from Feb 2007 Potentially Conflicting Objectives
Large distributional effects
Special pleading –
throw out
Here be dragons –
relevant objectives
must help here and
Ofgem role critical
Small improvement
in market efficiency
Large improvement in
market efficiency
Waste of time –
throw out
No brainer – get on
with it (no need for
Ofgem
involvement)
Small distributional effects
Thema Datum Bereich
Seite 2
Perspectives on change
Ofgem
E.ON UK
Frustrated by inability to progress
important modifications
Actively support necessary change
e.g. Transmission Access Reform
(TAR)
Ofgem actively seek to promote
competition wherever possible
We support change that benefits our
customers
Sceptical about industry intentions
especially the “Big Six”
We oppose change for changes sake
because it increases cost to our
customers
Keen to remove regulatory burdens for Constant change and complexity are a
small players/new entrants
major barrier to entry
July 13,
2017, E.ON
Good Governance is about checks and balances
Typical ‘centre
of gravity’ for
Code
development1’
Ofgem
Customer
Network
Operator
User
1. UNC, CUSC &
BSC
July 13,
2017, E.ON
Proposed role for Ofgem in the modification process
Originator
Work flow
Manager
+
Prosecut
or
+
Judge
+
Thema Datum Bereich
Seite 5
Fundamental issues with proposed new framework
An Appeal required here!
Through network
operator licence
Ceases
to be
merits
based
Co-opting
Industry proposals
No CC
Appeal
Thema Datum Bereich
Seite 6
Issues with implementing the outcome of the policy reviews
An Appeal
needed here
At least the
Modification
provenance
is known!
Ceases to be
Merits based
Seite 7
Thema Datum Bereich
Assessment of Ofgem’s suggested reforms
•Ofgem origination of proposals is more open and transparent .
•On its own self governance could be a major improvement.
• Application of “legally binding conclusions” is likely to mean a full CC merits based appeal is not
possible.
•It is not appropriate to mandate changes through network operator’s licence(s) as users do not have
statutory rights to object.
•If “binding conclusions” were set out in licences of all parties to a particular code with such parties having
full statutory rights to object that might be acceptable.
•Co-opting of industry proposals to Path 1, or a moratorium would limit opportunities for industry to
propose changes.
•Filtering process allows Ofgem much scope to internalise or externalise costs to suit their internal
objectives and budgeting constraints.
July 13, 2017, E.ON
UK, Page 8
Current E.ON UK position
Standard
CC merits
appeal
Thema Datum Bereich
Seite 9
Where might “Legally Binding Conclusions” Lead?
Auctions for
Electricity
Access
MA(L)C 2
Dynamic
Emergency
cash-out in
gas
Regular
electricity
cash-out
changes
Entry & exit
Flexibility
capacity
Shorter
gas balancing
periods
Thema Datum Bereich Seite 10
How these proposals may change drivers for change
Typical ‘centre
of gravity’ for
Code
development1’
Ofgem
Customer
Network
Operator
User
1. UNC, CUSC &
BSC
July 13,
2017, E.ON
Suggested Major Policy Review process
New powers
Thema Datum Bereich
Seite 12
Any new powers require new checks and balances
New Powers
Checks &
Balances
Thema Datum Bereich
Seite 13
Competition Commission findings on UNC116V &
UNC116A
“However,
it is less clear that the system of checks and
balances established in the code modification procedures
works if GEMA is, to use GEMA’s words, the ‘effective
progenitor’ of a proposal (or at least if it is perceived as
such). The existing system envisages that GEMA will
express a firm view as to what (if any) reform ought to
take place at the conclusion of the process, rather than at
the start of the process. If GEMA is the effective
progenitor of a proposal, there may be a perception that it
cannot fulfil its intended role under the UNC modification
procedures without having prejudged, or at least
appeared to prejudge, the matter.” [Para. 6.192]
Thema Datum Bereich Seite 14