Decoding the Energy Act: Implications for code reform

On the 26th of October, the Energy Act officially became law in the UK. Our Policy and Regulations Manager, Andy Mower, discusses what this means for energy code reform and RECCo below.

The Energy Act is certainly wide-ranging, implementing measures intended to meet three key objectives: leveraging private investment in green technologies, ensuring the safety, security and resilience of the energy system, and reforming the system to protect consumers from unfair pricing.

In striving towards the latter objective, the Government is introducing some significant reforms to the governance of the energy codes. These are driven by a concern that, at present, the processes by which those codes are modified serve the industry’s interests to the detriment of consumers and the Government’s strategic priorities for the sector. The increasing complexity and fragmentation of the codes have been a further cause for concern, as the Government thinks this is acting as a barrier to innovation.

Under the new arrangements, responsibility for code governance will be passed to Code Managers that are directly accountable to Ofgem. This is so that the regulator can deliver strategic change to the benefit of consumers and competition. Ofgem will be obliged to publish an annual statement outlining its vision for the evolution of the codes over the following year, taking into account Government policy and wider developments in the energy sector.

Ofgem can also direct changes to the codes under a limited set of circumstances. These include, for example, if it believes a change is urgently needed or if it thinks that following the normal modification process would result in a delay that would adversely affect consumers or parties with rights and obligations under the code. It can also direct changes if it is concerned that the Code Manager has interests that might inhibit the modification process or if the change is necessary to implement the annual statement on the codes’ strategic direction. Only the Secretary of State could direct Ofgem not to modify.

The new Code Managers, which Ofgem can appoint on a competitive or non-competitive basis, will be licensed and take responsibility for the code change process. In delivering the strategic direction set by Ofgem, these bodies will be required to consult with industry and other parties through new Stakeholder Advisory Forums. The Code Managers will manage the modification process, with the capacity to propose code changes of their own and make decisions on those put forward by other parties.

The appointment of the Code Managers will follow the code consolidation process being undertaken by Ofgem. While the regulator has, through the legislation, been given up to seven years to complete the reforms, it is anticipated that many of them should be concluded well within that timeframe; the seven-year window has been set to provide Ofgem with flexibility and so that it can avoid disruption to existing industry initiatives.

The legislation also provides Ofgem with “transitional” powers to facilitate the transition to the new arrangements. These powers allow the regulator to modify the existing codes or industry licences and to create transfer schemes that will enable information and assets to be passed from the code administration parties to the newly-appointed Code Managers.

We anticipate that RECCo will become a licensee under these arrangements, and we will soon begin the formal process of working towards that.

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