Code Administrators Working Group Introduction

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Code Administrators Working Group Introduction

• 28 August 2008

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Introduction and welcome

• Welcome to the group
• Background and purpose of the group
• Todays Agenda

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The Code Administrators Working Group

• One of six Governance Review work-strands
• Strategic policy reform/self governance package
• Charging methodologies
• Code objectives
• Performance of Code administrators
• Small participant initiatives
• Code administrators working group
• Purpose of group

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Scope of review
Major policy reform and self governance

• Ofgem initiated high level strategic policy
  reviews with legally binding conclusionsplus
• Self governance for low customer impact
  modifications
• Self governance with protections (eg appeal
  route, panel representation for customers)
• A combined package of proposals
• Consultation autumn 2008

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Does Ofgem need to be involved in all mods?

• Decisions largely follow panel recommendations

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POSSIBLE PROCESS - THREE PATHS FOR CODE CHANGE
Most material key public policy issue
PATH 1 OFGEM POLICY REVIEW
Ofgem runs review process legally binding
conclusions
Panel develop mod to comply with conclusions
Ofgem issues decision
Standard merits CC appeal
Ofgem initiates review
Material but no major review necessary
PATH 2 - BUSINESS AS USUAL
Ofgem categorises
Consultation and Panel recommendation
Ofgem decision
Standard CC merits appeal
Third party raises mod proposal
Low customer impact
Merits appeal to Ofgem
Ofgem decision accept or reject mod
Panel decision accept or reject
Standard CC merits appeal
PATH 3 SELF GOVERNANCE
Industry led
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Scope of review
Charging methodologies

• Methodologies impact on
• infrastructure investment
• operational behaviour
• GHG emissions
• distributional effects
• Allow market participants to propose changes?
• Benefits - more accessibility, accountability of
  networks
• Downsides - frequency of change, reduced
  certainty, revenue risk for networks

• Possible options for consultation
• Status quo no change
• Transfer into codes
• Retain in licence but allow more accessibility
• Consultation August 2008

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Scope of review
Code objectives

• Alignment of code objectives with Authority
  duties?
• Propose to issue open letter consultation in
  September 08
• Will consider environment, but not other
  statutory duties
• Final guidance on treatment of GHG costs/benefits
  under existing code objectives published June
  08
• Possible options for consultation
• Expand scope of existing objectives
• New code objective on environment
• Requirement on panels to consult on environment

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Scope of review
Role of code administrators and panels

• Quality of analysis - concerns remain,
  significant issues for smaller players and new
  entrants, and Ofgem!
• Scope for Ofgem to engage and advise prevent
  blind alleys
• Proposals to enable Authority to send back
  reports and call in panels and administrators
• Governance of code administrators and panels
• Sufficiently accountable board structures and
  benchmarking?
• Independent panel chairs?
• Alignment of customer representation across
  codes?
• Consultation Autumn 2008

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Scope of review
Addressing fragmentation and complexity

• Complexity and fragmentation barrier to new
  entrants and smaller players
• Ofgem to set up working group to explore best
  practice and convergence across codes.
• No proposals at this stage to pursue code mergers
  but open to industry to take initiative.

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Scope of review
Small participant initiatives

• Explore requirements on code administrators or
  panels to consider the needs of smaller
  participants
• Assistance or funding for smaller participants in
  engaging in the codes modification process?
• Consultation autumn 2008

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Our aspirations for code governance
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The Brattle report - conclusions

• Governance ineffective in delivery strategic
  policy reform
• Effective in managing incremental change
• Administrator analysis - poor quality/lack of
  incentives
• Ofgem involvement disproportionate
• Code fragmentation/heavy layer of complexity
• Differences in code objectives lead to
  inefficiencies
• Sceptical over charging methodology changes

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Quality of analysis respondents views

• Several market participants indicated that
  quality of analysis was not problem or issue
• Improvement requires more engagement from Ofgem
• earlier participation in process
• terms of Ofgem engagement should be clearly set
  out
• Some smaller market participants took a different
  view
• reports incomprehensible or lack critical
  assessment
• participant views reported but not
  assessed/analysed
• this hinders engagement
• Some support for additional Ofgem power to
• call in proposals that are not being properly
  assessed
• send modification reports back to panel
• call for more analysis

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Moving charging methodologies into codes

• Mixed views received from market participants
• Some supportive welcome consideration of the
  issue, potential transparency benefits
• Some opposing views potential for increased
  uncertainty
• Some support for independent administration of
  methodologies

• Network businesses generally unsupportive of move
• Potential for proliferation of proposals /
  additional resource requirements / greater
  uncertainty
• ENA agrees issue is within scope but with
  caveats

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Fragmentation, complexity and other issues

• Concerns expressed that existing arrangements are
  complex
• harmonisation and convergence of mod rules
  necessary
• consider code/administrator convergence
• Arrangements do not effectively address cross
  code strategic issues
• Prioritisation of mod proposals desirable links
  to self governance
• Mixed views for move to increased self governance
• impact on smaller players? Less
  inclusive/accessible regime? Costly process?
• Or, reduce Ofgem role where unanimous support for
  code mod
• Several respondents argued that
• no fundamental change is necessary only
  incremental change is warranted
• Change should be accompanied by cost benefit
  analysis
• Feedback received on other issues - e.g.
  transparency of Authority decisions

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Alignment of code objectives

• Strong support from renewables sector
• Support from other market participants for
  considering the issue - although many signal a
  cautious approach
• Important to consider interactions with statutory
  and licence objectives of network business
• Clarity needed on interpretation of objectives
  and the need for weightings if new objectives are
  added
• Risk of increased complexity
• Energywatch agrees that it is timely to consider
  alignment issue
• Lack of alignment means Authority does not
  receive all necessary information

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