Government and Ofgem launch energy codes review

Many rules and practices governing the electricity and gas wholesale and retail markets were designed several decades ago

Big Zero Report 2022

A review into the rules that govern the energy system has been launched by the government and Ofgem.

They aim to develop options for improving the energy codes and their governance and look at how these changes can be made, including through legislation if necessary.

Ofgem says while the energy sector is experiencing a period of unprecedented change, many rules and practices governing it and underpinning the electricity and gas wholesale and retail markets were designed several decades ago.

Many in the industry are critical of the existing system of codes and code governance, saying it is slow to take decisions, reactive to existing problems rather than forward-looking, overly complex – with the entirety of the codes estimated to run to more than 10,000 pages and weighing 50kg – and lacking co-ordination between the different code bodies.

The review will work closely with ongoing policy work on the future of the retail market and a new approach to data.

Ofgem and the government aim to consult on the changes by summer 2019.

Additional Information

The review will consider the entirety of the rules underpinning the electricity and gas networks and the wholesale and retail markets.

The questions to be addressed by the review include:

Purpose of Codes: Ofgem and the government will consider whether a code system is still appropriate for all the areas of rules in the energy system and whether there is scope to handle some elements of codes differently – for example, in code guidance, commercial contracts or consumer protection legislation. They will explore how a more risk-based approach seen in other regulated industries may apply to energy.

Content of Codes: They will seek stakeholders’ views on whether the content of codes is up-to-date, relevant and applicable and whether and how it may be improved. The role of digital technology will also be explored.

Governance of Codes: The review will assess the effectiveness of the current industry governance arrangements. It will consider alternative models of governance and whether these may be more effective than the status quo.

Process of changing codes: A key aim of the review is to develop a regulatory framework capable of delivering strategic, whole-system solutions in the interests of consumers. This means considering how any new arrangements could be made more forward-looking, rather than reactive.

Transition: The review will carefully consider the process of moving from the current code environment to the desired end state. It will need to develop a transition model which will ensure smooth running of markets and minimise any transition costs.

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