Ofgem Review of Code Governance Peter Bolitho Trading

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

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

Perspectives on change Ofgem E. ON UK Frustrated by inability to progress important modifications Actively support necessary change e. g. Transmission Access Reform (TAR) Ofgem actively seek to promote competition wherever possible We support change that benefits our customers Sceptical about industry intentions especially the “Big Six” We oppose change for changes sake because it increases cost to our customers Keen to remove regulatory burdens for small players/new entrants Constant change and complexity are a major barrier to entry 30 October 2021, E. ON

Good Governance is about checks and balances Typical ‘centre of gravity’ for Code development 1’ Ofgem Customer Network Operator User 1. UNC, CUSC & BSC 30 October 2021, E. ON

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

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 Seite 6

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

Assessment of Ofgem’s suggested reforms • 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. 30 October 2021, E. ON

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

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

How these proposals may change drivers for change Typical ‘centre of gravity’ for Code development 1’ Ofgem Customer Network Operator User 1. UNC, CUSC & BSC 30 October 2021, E. ON

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

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

Competition Commission findings on UNC 116 V & UNC 116 A “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 Seite 14