DCC to adopt not-for-profit model

Ofgem has confirmed that the Data Communications Company (DCC) will operate on a not-for-profit basis in future, with it board to be dominated by independent members and customer representatives.

The regulator’s decision, which also covers the requirement for it to approve “stable costs” for the DCC in advance, marks a shift away from the current shareholder-controlled, for-profit model.

The DCC operates the network underpinning smart meters in Great Britain under the Smart Meter Communication Licence, awarded by the government in 2013 for an initial 12-year period.

Ofgem is currently reviewing the regulatory arrangements to be put in place for DCC following the expiry of the current licence, due in 2025.

The regulator previously consulted on two broad options for the DCC’s future regulatory framework.

The first consisted of a continuation of the current shareholder-controlled, for-profit model with changes to governance, price control and incentives, while the second proposed a more radical shift to operation by an industry-led or owned not-for-profit organisation.

In its decision document, Ofgem said while the majority of respondents expressed preference for the second option, there was a wide range of comments on the trade-offs associated with implementing either approach.

“Overall, we found strong cross-cutting support for certain underlying principles and features,” it added.

As such, the regulator is opting for three key features which mark a shift away from the current framework.

These include:

• The company board should be majority stakeholder or independent controlled and include consumer representation
• The core mandatory business should be conducted on a not-for-profit basis
• Costs of activities deemed to be sufficiently stable should be subject to an upfront approval by Ofgem via an ex-ante price control or a budget-setting process

It has also decided to retain two features of the current model:

• The operational model will remain primarily outsourced with key contracts procured competitively on the market
• DCC’s core mandatory business will remain funded by charges on users

Elsewhere Ofgem has confirmed it is extending the DCC’s current licence by 12-36 months to facilitate the design and implementation of the new regulatory model. The regulator will consult with DCC on the timelines and provide a formal notice by next summer to confirm the exact term of the extension.

Explaining its rationale, Ofgem said: “Now that the DCC service has been set up, stabilised and is operating at scale, a shift towards a not-for-profit, purpose-driven organisation with stakeholder-led or independent board will better align DCC’s incentives for the next licence period with the needs of its customers and, by extension, consumers.

“Consumers will benefit from an increased focus on cost-efficient service delivery and continuous improvement. The new governance will improve focus on delivering the core service and addressing priority issues important to customers and consumers. A consumer representative on the DCC board will help ensure that impacts on consumers and issues of equity are considered in decision-making.

“Coming into effect before the expiry of the current licence, our planned changes to the cost control will help provide earlier certainty of costs, improve cost transparency and drive quality of service by increasing the focus of resources on core business.”

A spokesperson for Capita, which is DCC’s parent company, said: “Capita and the Data Communications Company are incredibly proud to have delivered a complex, national technology infrastructure project that is helping shift Britain to a more flexible, greener energy system.

“More than half of British homes are now connected to the secure smart meter system, enabling households to better monitor their usage, get on the best tariffs and support efforts to make our country more energy secure.

“We will review Ofgem’s proposals and will continue to engage with Ofgem, industry and our customers as this transformation project evolves.”