Leader: System operator role had to be fudged

When idealism conflicts with the reality on the ground, a pragmatic fudge is often the best solution. So a hearty welcome, then, to the proposals put forward by Ofgem last week to create a new, legally separate entity within National Grid to act as system operator.

Ofgem is tackling the tricky problem whereby various politicians and interested parties feel National Grid is getting too big and too powerful, and that its commercial interests conflict with its growing statutory role. This has become a particular issue in recent years as the company’s government-mandated functions have grown, giving it the potential ability to manipulate its role in such a way as to make more money from its ancillary service businesses – though it must be stressed, there is no suggestion that it has ever acted on this potentiality. See Nigel Hawkins’ analysis, p15.

Critics argued for an independent system operator to oversee the day-to-day operation of the system, while National Grid retained ownership of the transmission system and other businesses. On paper, this is hard to argue with. In practice, it would be complex, time-consuming and distracting to implement, at a time when Grid faces big engineering challenges arising from the transformation of the power system. It would also split the country’s top power engineering talent.

Ofgem’s solution? The old trick of Chinese walls, effectively setting up a new body within Grid that would have a separate licence, physical separation and information ring-fencing. This is a workaround that chimes with the recommendations of the National Infrastructure Commission last year. It also gives Ofgem, and its masters at BEIS, the opportunity to set a new focus for the system operator, with an emphasis on overseeing whole-system integration and ushering in competition in networks.

So far, so good. But like any fudge, it can only hold for so long. Ofgem’s consultation acknowledges that “in the longer term… the system operator may need to evolve further and there may be a need to consider moving to a fully independent system operator”. Watch this space.

•     Has anyone else noticed that the government has gone quiet on domestic water competition since the change at the top? Granted, Theresa May’s administration has its hands full, but given how closely ex-Chancellor George Osborne was linked with the ­proposal to bring forward domestic competition, his demise may well see it kicked back into the long grass. With non-domestic water competition looming large, this will be a relief to the industry. The ­customers, frankly, don’t seem to care much either way.