BSC codes reform ‘more profound’ than CMA tariff plans, Ofgem warns

Ofgem has warned that the changes to industry codes and systems which the Competition and Market Authority (CMA) may recommend could have a more “profound” and “long-lasting” effect on industry than the proposed safeguard tariff would.

The regulator said it welcomed the CMA’s provisional findings that Balancing and Settlement Codes (BSC) and industry systems are having an adverse effect on competition, saying it has already seen “tensions rise” due to the process.

Ofgem senior partner for markets Rachel Fletcher said at a conference this week: “It could be that remedies that they introduce in this area are more profound, more important for consumers, and have a more long lasting effect on the industry than the safeguard tariff, which is currently gaining so much attention.”

The safeguard tariff has emerged as the most controversial remedy proposed by the CMA, with the big six suppliers slamming it as being “disproportionate” to the level of customer disengagement in the market.

Currently industry bodies initiate, develop and evaluate changes to industry processes and codes. But Fletcher said the level of significant change required for consumers to receive the full benefit of new technologies and business models “calls the current model into question”.

“Smart metering itself will not bring about the accuracy and speed of switching that people will increasingly expect in a digital world without changes to central systems and process.

“They will also be of limited value for bringing about more load shifting unless there are code and system changes to allow more half-hourly settlement and time of use tariffs.”

Fletcher said the current arrangement is not designed to bring change of such magnitude in a “timely manner”, with decisions on whether change happens, and the speed at which it happens, being largely decided by industry.

She said changes are already being delayed by “difficulties in co-ordinating” the various parties involved across multiple codes.

Fletcher said: “The approach makes a lot of sense when only small changes are needed, and when the composition of the industry is homogenous and interests are aligned.

“But we are seeing tensions rise already, not least between new and established market players.”

But she also said Ofgem had sympathy with complaints from industry that policy changes from both European and UK governments are creating too much change to the systems and understood calls for clarity.