Matthew Lockwood, IGov Team, 26 July 2017
One important element of IGov’s research has been on the governance of the industry codes and regulations that set the detailed commercial and technical rules for the gas and electricity systems in Britain. We have argued that the codes governance arrangements are prone to capture by the large incumbent vertically-integrated generator-supplier companies, as well as the large monopoly network companies, leading not only to the detriment of consumers but also to the slowing of a sustainable energy transition. Our most recent paper on codes governance appears in the journal Utilities Policy.
The core issue with code governance is that changes, or modifications to codes are in normal circumstances instigated and drafted by industry itself, with recommendations only signed off by Ofgem at the end of the process. In our work we refer to this process as ‘self-authored regulation’. Each code (there are 10 main codes in the GB system) has a body (in most cases called a ‘panel’) that oversees this process.
Now UK Power Reserve (UKPR), a small company specialising in distributed generation and storage, has put forward a bold proposal for the reform of the governance process for the Connection and Use of System Code (CUSC), which determines issues such as how to get a transmission connection and the structure and level of transmission charging in electricity.
UKPR has put forward a modification (CMP285) to change the rules for the elections of Panel members for the CUSC. All CUSC signatories are allowed to vote, and there are around 500 of them. However, in elections to the Panel in 2015, only 104 of them actually voted, i.e. around 20% of all those eligible. At the same time, UKPR’s research suggests that amongst the Big Six suppliers and their subsidiary companies there are 103 signatories. This implies that with low turnout, it is easy for this bloc of incumbents to dominate elections to the Panel.
The modification proposal also points out that the Panel has a group of individuals who have been in place for more than 8 years. In our own research we found that a common complaint was that a handful of code ‘insiders’ really run the process, since the complexity of codes makes it hard for others to engage meaningfully, especially smaller companies with limited resources to attend the many meetings involved.
Overall, UKPR argue that:
‘It is unacceptable for any part of the industry to have a greater ability to select these independent members relative to other industry parties. Failure to reform the CUSC governance process could lead to reduced Panel independence, particularly if some parties can use their large number of CUSC signatory subordinate companies to repeatedly secure a CUSC place for one of their employees. Without reform, smaller companies will not be able to have any meaningful influence over the CUSC.’
The company then puts forward a number of reforms to address the issue. These include:
- Parent companies must declare all CUSC signatories under their direct or indirect control
- A limit of 5 votes per ultimate parent company
- A database of all CUSC elections and votes to be made public
- A requirement that a CUSC Panel election requires a 60% participation rate amongst signatories to be valid
- A ban on more than one term on the CUSC panel
- At least 3 CUSC panel members have to be independent
- At least 2 Panel positions to be reserved for those with knowledge and experience of working in distributed generation
- An independent review of CUSC Panel governance be commissioned.
It will now be fascinating to see what happens to CMP285. On the one hand, since this involves asking the existing incumbent-dominated CUSC panel to vote for major governance change, it can be seen as effectively asking turkeys to vote for Christmas. On the other hand, code governance is an issue that had has increasingly been brought out into public debate, and it may be that the big suppliers see that it is better to acknowledge the inevitability of change and open up the process. Watch this space…