ELEXON’s Annual BSC Meeting: What makes a Code model work?
Posted: 31 July 2017
On 13 July 2017, external parties, a selection of ELEXON staff and a couple of industry energy heavy weights attended ELEXON’s Annual BSC Meeting and Seminar. On the surface, this may seem normal enough; but there is a bit more to it than that.
Back in 2013, the BSCCo Board and BSC Panel commissioned an independent review of Balancing and Settlement Code (BSC) governance. The former Council of Lloyd’s deputy Chairman, Bill Knight, was appointed and produced a report on the governance of ELEXON. Based on his findings, a number of recommendations were made to build a more autonomous governance of BSCCo, in alignment with the best practice of the UK Corporate Governance Code.
What followed was the implementation of a Modification to the BSC (P324), which in effect, made the BSCCo Board accountable to BSC Parties by allowing them to vote to approve or remove Directors. Several ELEXON directors, who had been appointed since the introduction of that Modification, were therefore subject to a vote, including Mark Bygraves, CEO and Michael Gibbons, Chairman. All votes were overwhelmingly in favour of re-appointment of the Directors.
This year’s Annual BSC Meeting was the first under this new arrangement. Held at a time when the regulatory climate is assiduously focused on accountability and governance in the energy sector.
After a warm welcome from Michael Gibbons where he reiterated ‘that the make-up of the BSC Panel, with a broad and independent membership across the stakeholder community, ensures that there is no basis for such criticism in the BSC. Indeed that our structure is a template for Panel constitution’, Mark Bygraves reflected on ELEXON’s achievements over the last year. View Mark’s slides.
Mark also highlighted that Ofgem’s cross-code survey showed ELEXON to be very well-regarded by the industry, with a net satisfaction rating of 82% which was higher than any of the other Code Administrators. He also stressed how ELEXON has consistently implemented systems to quality and budget and ahead of time (both for BSC and its separate EMR settlement systems) and maintained high standards of operational performance and reliability in ELEXON’s end to end service of code administrator, system operation and policy support. ELEXON successfully navigated the Supplier of Last Resort process following the collapse of GB Energy, to ensure that ~160,000 customers did not have their supply interrupted. Attention was also paid to ELEXON’s quality of performance on BSC obligations, through end-to-end service provision, which services 392 market participants. ELEXON also facilitated greater competition in supporting 65 new market participants, in entering into the market and helped shape various regulatory and government initiatives from faster switching to half hourly settlement.
Nigel Smith, ELEXON’s Chief Financial Officer, provided additional impetus to the cost efficiency of ELEXON’s business as usual operations, highlighting to the crowded room that ELEXON’s non-BSC activities such as EMR settlement, had contributed £700k to BSC Parties by defraying existing BSC overheads.
The review of the year closed with Mark Bygraves posing the question to the room and its guest speakers; ‘what makes a Code model work?’
In their guest speeches, Lawrence Slade and Dermot Nolan, CEOs for Energy UK and Ofgem respectively, both touched on the themes of code reform and a transitioning energy sector. Slade observed that the industry is changing in front of us. In the coming years, there will be the delivery of Mandatory Half Hourly Settlement, Smart roll out, charging reviews and a move towards principles-based regulation. These changes will shape the way customers interact with the industry. With this comes the need to build trust to ensure that the energy industry moves ‘from the front page to the back page’. Slade emphasised that Code Administrators and Ofgem will be essential in bringing about the changes the industry need to meet the changes of the future. This will require strong leadership, and the industry needs to clearly consider what can be delivered.
Dermot Nolan echoed Lawrence’s views, going further to suggest that as the industry transforms, there will be changes that cannot be anticipated. One example of this, that the industry is currently experiencing, is the rapid uptake of new technologies, like Photo Voltaic (PV) and lithium battery storage. Nolan acknowledged while no one will know what the energy system of the future will look like, we can speculate. It may be decentralised, with increased storage, in a more diverse generation environment. Boundaries between market roles may become blurred, as the system becomes more modernised and digitalised. Suppliers may become more removed from the customer, with price comparison websites, offering a range of services, potentially interfacing with customers instead. Nolan noted that through this transition, Ofgem wants to ensure that different forms of innovation can serve different parts of society.
As part of his closing remarks, Michael Gibbons stressed that improvements to central arrangements should not have to wait for licensing of code bodies, and that ELEXON has been pioneering a more collaborative approach from all administrators for the wider benefit of stakeholders and has proposed to Ofgem various improvements that could be made now without waiting for primary legislation.