BDC

Code governance licensing ‘not cost-effective’, warns Northern Powergrid

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Improving existing governance for industry codes without resorting to licensing would be a more cost-effective solution to code governance, Northern Powergrid has said.

In its response to the Competition and Markets Authority (CMA) energy market inquiry, the distribution network operator said it was “uncomfortable” with licensing of code administration on the grounds that “the benefits from this solution may not outweigh the additional costs”.

Northern Powergrid added that further work on “applying best practice” across the 11 industry codes could be more cost effective than licensing, pointing out that different codes have different arrangements for forming recommendations to Ofgem on whether a change should be accepted or rejected.

“Some codes use party voting to establish the recommendation and some use a panel of experts,” the firm said.

National Grid agreed, suggesting it is “difficult to see” how the pace of change could be accelerated by changing the status and remit of the administrator.

The company said code administrators would be unlikely to be able to effectively identify and implement efficiencies within change processes without “significant change” to governance procedures, and the level of authority given to the them.

In its provisional remedies document, the CMA said it had found that the conflicting interests of parties and their limited incentives to promote and deliver policy changes, along with Ofgem’s inability to influence the code modification process, had stifled innovation.

The Authority argued that, by making the roles of code administration and delivery of code changes a licensable activity, this remedy would give Ofgem the power to efficiently monitor performance, leading to more consistency between governance and modification arrangements across codes.

“As a result, we would expect the process of developing changes to the codes to be accelerated, and modification proposals to be initiated and developed more efficiently, improving outcomes for consumers,” it added.

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BDC 299 December 2022