Consultation outcome: Energy code reform: code manager licensing and secondary legislation

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Ofgem

October 8

09:00 2024

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We have decided to proceed with the proposed broad code manager licence conditions set out in the consultation. Code managers will:

carry out their core regulated activities on a not-for-profit basis
publish and consult on a draft budget, then set their forecast costs ahead of the forthcoming budget period
recover their costs using mechanisms determined by Ofgem, on a code-by-code basis
be required to report publicly on their performance, without being subject to financial incentive mechanisms or revenue at risk
follow measures to ensure their independence and prevent conflicts of interest
be subject to a package of financial and operational controls
be responsible for maintaining and modifying the relevant code

On code manager selection, we have also decided to proceed with the proposals set out in the consultation. Ofgem will:

conduct a conflict-of-interest assessment of prospective code managers
have discretion to choose code managers via a competitive or non-competitive route
set assessment criteria for licensing code managers on a non-competitive basis
be able to create and licence a new Special Purpose Vehicle (SPV) via the non-competitive selection process

Following the publication of the government response we intend to:

lay secondary legislation to formally establish the code manager non-competitive selection regime by the end of 2024
consult on a full draft of standard licence conditions in 2025

Detail of feedback received

We received 27 responses to this consultation from a wide range of interested parties, including:

code panels and code administrators
energy suppliers
energy transmission and distribution companies
other interested parties, such as industry associations and consumer groups

Most respondents agreed with the proposals related to the code manager licence, including the high-level licence content. Our proposals on the code manager selection process and proposed regulation content were also well-received.

Many respondents expressed a desire to engage further on elements of our proposals. Ofgem and the Department will consult further on the areas highlighted in this consultation response.

Original consultation

Consultation description

Update 24 April 2024

We corrected a typographical error in the consultation document. Specifically, we included a question (Q4.2) regarding views on the proposals concerning Chapter 4 - Code Manager Funding and Cost Recovery.

In this joint DESNZ / Ofgem consultation, we set out our initial proposals for code manager standard licence conditions and selection processes.

This follows our previous consultations:

in 2019, we set out our desired outcome for energy code reform - an institutional governance framework that is forward-looking, agile, easy to understand, and able to accommodate a growing number of market participants
our 2021 consultation and response stated our intent to establish a regulatory regime for new code managers as licensed bodies who would undertake current code panel and administrator roles
we also proposed a new strategic role for Ofgem to provide direction for the codes development. The code manager licensing arrangements will be designed to ensure that strategic change can be delivered, effectively and efficiently

We are now developing the secondary legislation and regulatory framework for code managers, which will allow Ofgem to implement the reformed framework and drive strategic changes across the codes in the interest of consumers and competition. This consultation covers:

Code manager licence

We set out the proposed high-level contents of the code manager licence, covering these priority areas:

not-for-profit requirement
setting budgets
cost recovery and funding
incentivisation
conflicts of interest and independence
financial and operational controls
code maintenance and modification

Code manager selection

We set out proposals for the secondary legislation that will underpin Ofgems code manager selection process, including:

who will be eligible for selection
how Ofgem will determine whether to pursue competitive versus non-competitive selection for each code
how any non-competitive selection process would work

We also set out a view that the proposed selection route criteria speed of delivery and value for money may lead Ofgem to pursue non-competitive selection in many cases, such as where a code has not been consolidated and an eligible incumbent body already exists.

Responding to the consultation

The consultation is open to all, but we would specifically like views from:

existing code parties
existing code administrators
wider industry players
consumer groups
academics

If responding via email, please copy your response to both the Department for Energy Security and Net Zero and Ofgem:

Consultation webinar

Following the launch of this consultation, DESNZ and Ofgem held a webinar on Tuesday 26 March 2024.

During the event we summarised our key proposals and answered questions on both this joint consultation and also on Ofgems separate but related energy code reform: implementation consultation.

Documents

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