Tony Thornton, head of transformation at Gemserv, says a single Retail Energy Code could help support a simplified consumer-centric code governance model, but it must be implemented around a complex reform programme already under way. Aligning codes to function is a good way to start reform

 

Fundamentally, codes exist to ensure that market processes and systems can talk to each other. They support a wide range of market actors that need to collaborate, providing rights and obligations for those participating within competitive markets. Code bodies work independently of market participants; they become trusted critical friends and advocates for the greater good of competition and consumers.

Codes have enabled many forms of change, but now they need reform. Already they have, on occasion, struggled to cope with some of the more significant strategic reforms required of them.

HOW SHOULD CODES CHANGE?

In a first step, we need a strategic code governance framework. Setting governance boundaries by function would allow for a better understanding of where governance responsibilities by function could be reformed. Functional definitions also help focus on outcomes to avoid the compromises that arise where different interests and priorities are at play.

We could keep separate the ‘network’ functions (pipes and wires) from ‘smart metering’. Both are monopolies and operate under price controls. As consumers become prosumers, and the grid becomes smart, it could be that the two functions eventually merge.

‘Wholesale’ and ‘settlement’ functions help frame the significant commercial risks at play. Potential synergies and harmonisation opportunities will emerge, especially as gas and electricity settlement converges.

‘Retail’ and ‘customer’ functions are where consumers interact directly with service providers like energy suppliers, such as in switching, or meeting vulnerability requirements. This is where codes have proliferated, and should come together.

A Retail Energy Code (REC) is a good place to start, reducing governance costs and bringing consistency, simplification, improved accessibility and coordination.

FRAMING A RETAIL ENERGY CODE

Market participants do not have a holistic view across all codes. This weakness of the current code-centric governance framework can make it difficult and expensive for industry members to engage.

A REC could, under a single code entity under one code manager, bring together the MRA, GDAA, SPAA and some parts of DCUSA, plus the retail elements within other codes. It might include other non-CACoP codes, such as the SMICoP. The REC would house the functions that are pertinent to the interoperability, rights, duties and obligations for those market actors, such as change of supplier, retail market entry assurance, energy theft, objections, some meter reading and retail market reporting.

At this stage, we do not definitively set out the REC specification.  We believe that this would be better done by an industry-wide, cross-code working group, which would define a target scope from which the specification can be built. This would take time, effort and resources to develop. Nonetheless, we would expect its development to embrace a Standard Code Model approach.

Rewriting the code governance landscape should not introduce additional market risks at a time when there is already extensive and complex change under way. Code changes must be managed in a way that is consistent with the direction of travel for a strategic code governance framework. Transition timing should take account of the significant energy reform agenda already under way, and delivering the CMA’s remedies.

Ofgem’s Faster and Reliable Switching Programme is already in progress, with a target of date of 2019 for full delivery. It must have a governance home until the REC is fully developed and in place – one under an existing dual fuel code that will make transition simpler.

WHERE TO START

The energy market is shifting to align with its reform agenda.  It would be unwise to drive the REC without regard for that shift; and particularly, without a better understanding of how the proposed new Consultative Board and the new proposed licensing regime for code administration will work. Nor should a REC disrupt the 2019 delivery of the Faster and Reliable Switching Programme. But finding a governance home that is already dual-fuel would be a distinct advantage.

We believe that the faster and reliable switching rules and processes could be composed as a schedule to an existing dual-fuel code that can be ‘lifted and shifted’ to a new REC. The legal work could be undertaken under the terms of reference of the faster switching programme, with sunset clauses. It could be completed during 2018, noting that the governance regime must be in place in advance of the programme delivery.

Energy markets are becoming more complex, but it does not follow that industry codes cannot be simplified and made more accessible for all.

This article was first published in the May 2017 issue of New Power.  Subscribers login to download the May issue now.

Further reading: Code adminstrators facing major industry change call on Ofgem for leadership

More debate on energy industry codes: Electralink wants ‘simplified and competitive approach’

Upload New Power’s guide to code admnistrators: Code bodies – a summary