Speeding up changes to the energy industry rule books
Blog
Laura Nell
Publication date
Industry sector
Supply and Retail Market
Anyone who has been to an energy conference over the past year will have probably heard speakers talking about a new vision for a smarter energy market. In a smarter energy market better technology will allow us to take control of how we use and produce energy. Smart meters, the need for a more flexible electricity system and faster switching are just some of the major developments that will need rule changes.
To get to where we want to be, energy companies will have to adapt quickly. Industry codes and central IT systems and processes underpin the day-to-day running of the energy industry. They will need to go through big changes if consumers are going to get the full benefits from a smarter market.
Infographic guide: What does a smarter energy market look like?
Last year we launched a major programme, in partnership with industry, to overhaul the switching arrangements and deliver faster, more reliable switching for energy consumers. We took on this work because the current industry arrangements are not designed to bring about change of this magnitude quickly.
The slow pace of change for codes generally was one of the problems we highlighted to the Competition and Markets Authority when we asked them to investigate the energy market back in 2014. Accountability for making changes is a big problem. Ofgem can veto major rule changes, but the proposals themselves are nearly always initiated, developed and evaluated by industry. As a result, large energy companies can significantly influence the speed with which change happens – or whether it happens at all – depending on their commercial positions. We think this is a structural problem that needs to be overcome.
Today we have published our consultation on streamlining the way codes are governed, so that the big strategic rule changes that benefit consumers most can be delivered quickly and smoothly. 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.
One of the main changes we are planning is that management of the codes and the central IT systems that they govern should be a licensable activity. In layman’s terms this means that code managers will be appointed to govern each code and deliver changes in line with Ofgem’s strategic objectives, as well as continuing to service the industry. These managers will be responsible for making rule changes, similar to how energy suppliers are responsible for customer service. We are considering how best to appoint code managers, including an option for Ofgem to run tenders.
We also want to set up a consultative board bringing together the industry, consumer groups and stakeholders to drive forward major changes that affect multiple codes. The board would be industry-led, overseen by Ofgem. Its job would be to agree joint plans to deliver these changes, with each code manager developing the proposals to update codes when needed. The board would help cut through the complexity to make sure the changes happen as efficiently as possible.
We want to have some of these changes in place by late 2017, but appointing the new code managers will likely take several years. This may seem a long way off, but it’s not – considering what we must achieve first with revamping code governance. Ofgem, the industry, and stakeholders have a shared responsibility to make this work, so I’m calling on any interested party get in touch at CodeGovRemedies@ofgem.gov.uk to register for our workshop in January and to respond to our consultation.