Ofgem: Review of Code Governance

1. Ofgem: Review of Code Governance Peter Bolitho Trading Arrangements Manager, E.ON UK

2. Recap from Feb 2007 Potentially Conflicting Objectives Large distributional effects Here be dragons – relevant objectives must help here and Ofgem role critical Special pleading – throw out Small improvement in market efficiency Large improvement in market efficiency No brainer – get on with it (no need for Ofgem involvement) Waste of time – throw out Small distributional effects Thema Datum Bereich

3. Perspectives on change

4. Good Governance is about checks and balances Ofgem Typical ‘centre of gravity’ for Code development1’ Customer Network Operator User 1. UNC, CUSC & BSC

5. Proposed role for Ofgem in the modification process Originator Work flow Manager Prosecutor Judge + + + Thema Datum Bereich

6. Fundamental issues with proposed new framework An Appeal required here! Through network operator licence Ceases to be merits based Co-opting Industry proposals No CC Appeal Thema Datum Bereich

7. Issues with implementing the outcome of the policy reviews An Appeal needed here Ceases to be Merits based At least the Modification provenance is known! Thema Datum Bereich

8. Ofgem origination of proposals is more open and transparent . On its own self governance could be a major improvement. Application of “legally binding conclusions” is likely to mean a full CC merits based appeal is not possible. It is not appropriate to mandate changes through network operator’s licence(s) as users do not have statutory rights to object. If “binding conclusions” were set out in licences of all parties to a particular code with such parties having full statutory rights to object that might be acceptable. Co-opting of industry proposals to Path 1, or a moratorium would limit opportunities for industry to propose changes. Filtering process allows Ofgem much scope to internalise or externalise costs to suit their internal objectives and budgeting constraints. Assessment of Ofgem’s suggested reforms

9. Current E.ON UK position   Standard CC merits appeal Thema Datum Bereich

10. Where might “Legally Binding Conclusions” Lead? MA(L)C 2 Auctions for Electricity Access Dynamic Emergency cash-out in gas Regular electricity cash-out changes Shorter gas balancing periods Entry & exit Flexibility capacity Thema Datum Bereich

11. How these proposals may change drivers for change Ofgem Typical ‘centre of gravity’ for Code development1’ Customer Network Operator User 1. UNC, CUSC & BSC

12. Suggested Major Policy Review process New powers Thema Datum Bereich

13. Any new powers require new checks and balances Checks & Balances New Powers Thema Datum Bereich

14. Competition Commission findings on UNC116V & UNC116A “However, it is less clear that the system of checks and balances established in the code modification procedures works if GEMA is, to use GEMA’s words, the ‘effective progenitor’ of a proposal (or at least if it is perceived as such). The existing system envisages that GEMA will express a firm view as to what (if any) reform ought to take place at the conclusion of the process, rather than at the start of the process. If GEMA is the effective progenitor of a proposal, there may be a perception that it cannot fulfil its intended role under the UNC modification procedures without having prejudged, or at least appeared to prejudge, the matter.” [Para. 6.192] Thema Datum Bereich