Letter from Dermot Nolan on Derogation from Article 55 of the Electricity Balancing Guideline

The following is the text of a letter sent from Dermot Nolan, Chief Executive of Ofgem, to Michael Gibbons, Elexon Board and BSC Panel Chairman, on Derogation from Article 55 of the Electricity Balancing Guideline.

Text of letter

Michael Gibbons CBE FEI
BSC Panel Chair
350 Euston Road
NW1 3AW

12 September 2017

Dear Michael

Derogation from Article 55 of the Electricity Balancing Guideline
I am writing in response to your letter dated 23 August 2017 setting out the BSC Panel’s concern that there is uncertainty around the potential granting of a derogation from the implementation of the requirements of Article 55 of the Electricity Balancing Guideline (EBGL). We also discussed this briefly in our recent meeting.

As explained by my team, Article 62 of the EBGL sets the process for the granting of any derogation. Once it is in force, a TSO or assigned party can raise a derogation request to the Authority. Upon receipt of an application, the Authority would make a decision on whether to grant such a derogation.

In your letter you explain that a code modification proposal is now being progressed to change the calculation of the imbalance price, in the event that any future derogation application is unsuccessful. You raise concern that this may not be the most efficient and economic route to resolve this issue. It is not for Ofgem to decide whether an industry party should raise a code modification. However, we do expect that the cost and impact on industry to be considered by the BSC Panel when deciding whether to initiate a workgroup on any modification proposal raised.

The best contact for you or your team for further engagement on this matter is Leonardo Costa at [email protected].

We also touched on code governance reform when we met. As we discussed, although we see licensing as an important component to deliver our objectives m this area, until Government brings forward legislation, we will be prioritising the other work streams. Your offer to support our work to deliver the consultative board and strategic direction is therefore welcome. We agree there is an important strategic role for Ofgem when it comes to driving code change in consumers’ interests. However, we do not agree on the nature of this strategic role. We see Ofgem’s leadership role as identifying outcomes – the ‘what’ rather than the ‘how’. Our next steps to put this role into action will be to consider what can be achieved in the near term, without new legislation.

Separately, we discussed how to drive standards of service levels of code bodies to their users. We feel strongly that this is something on which industry, not Ofgem, can and should be leading.

Yours Sincerely

Dermot Nolan
Chief Executive

Image of letter

A scanned image of the letter is also available.