Ofgem and BEIS set out new governance models for energy codes

The government and Ofgem have proposed two new models for the future governance of energy codes.

Under the first, the code administrator function would be replaced by the more proactive role of code manager. Code managers would be overseen by a separate “strategic body” tasked with implementing government policy.

Under the second, these two roles would be combined within an “integrated rule-making body”.

Ofgem and the Department for Business, Energy and Industrial Strategy (BEIS) are currently conducting a joint review of energy codes and their governance.

The review, which kicked off in November 2018, was prompted by concerns that the current arrangements are fragmented and lacking in co-ordination; that the influence of industry incumbents over the code change process has resulted in regulatory inertia; and that the codes themselves are overly complex and difficult to understand.

In a new consultation, BEIS and Ofgem say their proposed reforms will seek to deliver:

• Strategic direction – The code change process should be driven by the government’s vision for the future of the energy system, ensuring coordination between codes.
• Empowered and accountable code management – Code changes should be progressed in a clear logical manner. The proposed new bodies should have the right expertise, resources and powers to properly oversee the code change process, monitor compliance with code obligation and take action when they are breached.  
• Independent decision-making – Decision-making should be wrested away from industry control to ensure the code change process is agile, responsive and works in the interests of consumers.
• Code simplification and consolidation – Unnecessary content should be removed from the codes, to make them clearer, more transparent and more accessible.

Code managers, whether separate or integrated, would have enhanced responsibilities above those of code administrators. These would include, identifying, proposing and developing changes; making decisions on some changes; and prioritising which changes are progressed.

Many of these responsibilities are currently held by code panels, which would be abolished entirely. The report says the proposed reforms would reduce the reliance on industry to drive forward code changes.  

Whilst the issue is still open to debate, Ofgem and BEIS say their current view is that industry parties should nevertheless retain the ability to propose code modifications.

They also argue there would be benefits in allowing code managers to delegate some decisions to industry when they are particularly technical in nature: “This would help ensure timely decision making and industry input but allow the code manager to retain oversight and accountability for the decisions.”

The strategic body would be responsible for steering changes to codes, ensuring the codes and their governance remain up to date, and working with code managers to unlock innovation. It would publish regular reports explaining how it plans to deliver the government’s policy goals, in particular the net-zero target and the intervening carbon budgets.

The report identifies three different organisations which could potentially fulfil the role of strategic body: Ofgem, the electricity system operator within National Grid, or a new independent organisation.

It also lists three options for the consolidation of energy codes: create a single unified code; consolidate codes according to industry activity – dual fuel, retail, wholesale and network – building upon the precedent of the new Retail Energy Code; or consolidate codes partly on the basis of industry activity and partly on the basis of fuel type.

There could be one manager for all of the codes or one manager for each. The report says the codes should be digitalised and perhaps accessible through a single online portal.

The deadline for responses to the consultation is 16 September. BEIS and Ofgem plan to publish revised proposals in late 2019 or early 2020.