Government and Ofgem consult on Elexon ownership

The government and Ofgem have launched a consultation on the future ownership of Elexon following their decision in April to create a fully independent publicly-owned Future System Operator (FSO) by 2024.

The FSO will take on the current functions of National Grid Electricity System Operator (ESO) as well as some key roles in the gas system. Elexon, which was established as a not-for-profit entity to administer the Balancing and Settlement Code (BSC) and also performs functions related to electricity market settlement, is currently a wholly-owned subsidiary of the ESO.

The consultation document noted that Elexon is operationally and financially independent from its parent company and is controlled by its own board with input from the BSC panel. It said the two organisations have very different roles, meaning the future ownership of Elexon must be considered independently from that of the FSO.

Although this work is being driven purely by the creation of the FSO, the consultation said it is also important to ensure that Elexon’s future ownership structure does not preclude any of the planned reforms to energy codes and their governance framework.

The government and Ofgem said they have identified two leading options for the future ownership of Elexon: public ownership as a subsidiary of the FSO; and industry ownership by a representative group of stakeholders. They said they have also considered other options, including whether Elexon should be merged into the FSO or whether it should have a single private owner as is currently the case.

Under the public ownership option, Elexon would move into the public sector as a subsidiary of the FSO, which would ultimately be owned by the government. The consultation said it would therefore be important that, as with the FSO itself, Elexon was operationally independent from government, which should not be involved in day-to-day operational decisions.

Under the industry ownership option, Elexon would be collectively owned by all or a subset of BSC parties. The consultation said licenced, funding parties – generators and suppliers – would likely be the most appropriate group of shareholders.

The document said both of these options should require minimal changes to the existing governance structure, funding arrangements, data sharing provisions and mandatory activities of Elexon as outlined within the BSC.

The government and Ofgem said they have seen no clear evidence that private ownership would raise any specific issues, or any specific rationale to think public ownership would be more appropriate. They therefore selected industry ownership as their preferred option.

However, they said implementing industry ownership would require careful coordination across a large number of different parties, creating a risk of delay to the planned establishment of the FSO. They therefore suggested that public ownership should be seen as a temporary fall back position if industry ownership could not be implemented ahead of the FSO coming into being.

The deadline for responses to the consultation is 22 September.