Ofgem Open Letter – Further Code Governance Review
Published On: 8th September 2015
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Gemserv is a specialist energy, environment, water, and information security consultancy. We have over 15 years’ experience as a code administrator, placing us at the forefront of major policy developments and industry initiatives in the energy sector. Our role as code administrator includes the Master Registration Agreement (MRA), the Smart Energy Code (SEC), and the independent Gas Transporters’ (iGT) Uniform Network Code (UNC).
Energy markets by their nature are complex and this complexity is reflected in the nature of the supporting multiparty codes and agreements (“codes”). Without this approach, it is our experience that effective market interoperability and fair market practices would be at risk. We believe that codes have performed remarkably well, contending with significant volumes of change and market reform initiatives. Market changes are necessary to ensure energy market participants are able to continue to work effectively together whilst, at the same time, enabling those important Government driven, consumer focused, transformational initiatives to be implemented.
Codes have had to evolve to accommodate changes in energy policy, strategic priorities and the regulatory landscape. The MRA for example, has accommodated the Government’s Green Deal policy initiative and has assumed responsibility for the Green Deal Central Charge database, delivering this to time, quality and budget. The MRA was also the first code to implement changes in support of Smart Metering, made possible because code participants have worked collaboratively and effectively together to deliver strategic change.
However, it is becoming increasingly difficult for market participants to fully engage in code governance procedures, to be able to navigate codes and to be able to deal with the unprecedented levels of industry change taking place. Gemserv’s independent supplier day (held on 4th June 2015) highlighted how change was impacting upon these organisations and the difficulty of engagement with limited resources. The overwhelming feedback from the day was that there is too much change and market participants have to choose very carefully which priorities to engage with. This aspect has become ever more evident as seen in many of the submissions made to the CMA Energy Markets Investigation1. Overall, we are aware many market participants are already feeling overwhelmed by the degree of change and the number of industry code modifications they must review to support that change.
It is against this backdrop of transformational market reform that Gemserv believes it is the right time to consider how codes and their governance should evolve. There is an opportunity to set the blueprint for codes and their strategic governance.
We therefore make three recommendations:
Require that all codes meet four core objectives: consistency, simplification, accessibility and coordination;
Develop a Standard Code Model (SCM) to house the above objectives, and to provide the governance and blueprint for codes to follow; and
Establish a Strategic Body to administer the SCM with a remit to oversee strategic change and provide greater change coordination across the energy market.
However, we caution that this must be managed with appropriate sensitivity to the challenges faced by market participants already wrestling with the level of market transformation underway. It must be well managed.
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