Industry self-governance must ‘end completely’

Self-governance of the UK’s energy system must “end completely”

The modification of the codes which govern the use of the energy system should be taken “out of the hands of companies” and transferred to a public body, according to a researcher from the University of Exeter's Energy Policy Group.

Senior research fellow Matthew Lockwood said that the UK's code modification process, which he described as “self-authored regulation”, is dominated by incumbents and must "end completely".

Lockwood's comments come on top of recent criticism of the industry panel which scrutinises changes to the Connection and Use of System Code (CUSC) governing the use of the transmission network.

UK Power Reserve described the panel as “mafia-like”. The company believes it is effectively controlled by the staff of large established energy companies who use it to “ensure their grip” over the energy system at the expense of newer, smaller rivals. Ofgem and the independent chair of the CUSC panel have denied this.

Lockwood’s concerns are not just limited to just the CUSC panel. If you include networks, as of October 2015, employees of incumbents made up at least half of the membership of all but two of the UK’s code governance panels.

On three panels, employees of incumbents made up more than three quarters of the membership.

Many panel members are appointed through elections, with the candidates put forward by the parties which are subject to the relevant code. Lockwood said this appears to give a level playing field, but in practice “if you’ve got vastly different resources within companies then effectively you get incumbency domination by default”.

He added that the code system is “incredibly complex” and so the disparity in resources also makes it hard for newcomers to engage with the process. “Some complex code changes do require a lot of modelling and that costs money… so a lot of smaller actors don’t even bother.”

Code panel members are obliged to act impartially, but Lockwood said there is a lack of accountability. “If you think about this as a governance system; does Ofgem which is really the responsible overseer; does it really know, does it have the capacity to know, whether or not that is the case?”

He continued: “How is that [impartiality] actually enforced and what is the compliance mechanism? I don’t think there actually is one.”

Lockwood advocates handing over responsibility for code governance to a public body; possibly one which is separate from Ofgem and more specialised to the task.

A spokesperson for Ofgem said the regulator has been consulting on ways of “streamlining” code governance: “Under these new arrangements, there will be a coherent vision for strategic change led by Ofgem and clearer lines of accountability in the industry for delivering it. This will also make better use of industry’s time and resources in the change process."

They added: “In general, the industry self-governance processes are effective in managing changes that do not have material impacts on consumers and competition. Where changes are likely to have a major impact, we make the final decision, considering what is in the best interests of consumers.”

Author: Tom Grimwood,
Channel: Policy & Regulation

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