BSC panel backs private ownership of Elexon

The Balancing and Settlement Code (BSC) panel has backed proposals by the government and Ofgem for Elexon to remain in private ownership following the creation of the new publicly owned Future System Operator.

Elexon, the code administrator for the BSC, is currently owned by National Grid Electricity System Operator (ESO), which is in turn part of the National Grid Group.

However, the government and Ofgem confirmed plans in April to establish a fully independent Future System Operator (FSO) as a public-owned corporation by 2024. The FSO will take on all of the main roles of the ESO as well as the planning, long-term forecasting and market strategy functions currently fulfilled by the system operator for gas.

They subsequently launched a consultation in July on the future ownership of Elexon, proposing two main options: public ownership as a subsidiary of the FSO and industry ownership by a representative group of stakeholders.

Under the latter option, which the consultation identified as their initial preference, Elexon would be collectively owned by all or a subset of BSC parties.

Responding the consultation in an open letter, the chair and deputy chair of the BSC panel, Michael Gibbons and Dr Phil Hare, said a strong majority of the panel expressed a preference for industry ownership over public ownership.

Despite the “unusual structure”, they said the current arrangements have worked well and “much of the panel’s thinking is about how to preserve the positive aspects of them while recognising the importance of supporting the transition to the FSO.”

They said private ownership by the ESO has enabled the not-for-profit company to “operate highly effectively in a fast-changing business environment, pointing out that it has “consistently achieved very high rankings in customer surveys of the code administrators.”

The letter said industry ownership would allow Elexon to attract and retain the people it needs in a competitive labour market. It said the company has a highly skilled workforce whose experience is desired by industry and other code bodies and that “any constraints from public sector ownership would inevitably be detrimental”.

Furthermore, the letter said Elexon also needs to procure services in a “fast and flexible fashion” and it will “almost certainly be required to adhere to public sector procedures and policies” if it is transferred to the public sector. It also noted the need to make independent decisions and appointments, free from any political intervention.

The consultation from the Department for Business, Energy and Industrial Strategy (BEIS) and Ofgem said they do not believe it is viable for all BSC parties to own Elexon as this group is very large and contains a diverse range of organisations.

It therefore suggested three possible subsets of BSC parties: licenced parties, comprising generators, suppliers, system operators, distribution network operators (DNOs) and interconnectors; licenced funding parties, comprising generators and suppliers; and voting parties, comprising all licenced parties plus some non-physical traders.

The consultation said their initial preference is licenced funding parties on the basis that implementation will be easier if all of the new owners are licenced and other licenced parties outside this group are excluded. Out of the three, the BSC panel also expressed a moderate preference for this option for the same reasons.

However, the panel also suggested that ownership by National Grid Electricity Transmission (NGET) would be a “pragmatic alternative” for keeping Elexon in private ownership. The letter noted that the company has been owned by NGET in the past and said the BSC panel sees “various merits” in this setup.

This option was initially considered by BEIS and Ofgem but dismissed on the ground that transmission owners are not currently listed as entities that can become BSC parties. They said ownership by NGET would therefore require a “complex and unnecessary” change to the BSC that could slow progress and interrupt Elexon’s usual work.

But the response letter said the BSC already contains provisions for Ofgem to make such a direction. It said ownership by NGET would represent minimal change when compared to the current arrangements and would avoid complications and potential objections from a wider group of parties taking shares in the company.

The consultation said if BEIS and Ofgem decided to transfer ownership of Elexon to BSC parties but this process cannot be completed in time for the creation of the FSO, then their preferred fallback position is to temporarily transfer the company into public ownership as a subsidiary of the FSO.

The response letter said the BSC panel are “not at all” supportive of this proposal as it would be inefficient, ultimately requiring two transfers of ownership and therefore adding to costs. It said there is also the risk that Elexon gets “stuck” in public ownership as other policy priorities intervene or political appetite to transfer the company back into private ownership wanes.

It said panel is “greatly concerned” over this risk and said it would therefore be better to move Elexon directly to NGET to avoid the risk of public ownership.

The letter additionally emphasised the importance of minimising the disruption caused by any transfer of ownership, warning that “the current economic pressures on the GB electricity system are likely to put even more stresses on the code and its efficient working may be vital to keeping the market functioning.”

It likewise said the mandatory half-hourly settlement programme, in which Elexon is playing a central role, “must not be undermined at this delicate stage.”