IN Brief:
- Phase one of energy code reform covers the Balancing and Settlement Code and Retail Energy Code.
- Proposed licence changes address budgets, appeals, cost recovery, delivery plans, and continued development of the code-manager performance framework.
- Special conditions will support the transfer of specified governance responsibilities to the future BSC and REC code managers.
Ofgem has opened a statutory consultation on licence conditions for the first phase of Britain’s energy code governance reforms, setting out how the future managers of the Balancing and Settlement Code and Retail Energy Code will be funded, assessed, and given responsibility for specified governance functions.
The consultation proposes amendments to the standard code-manager licences alongside special conditions for the BSC and REC. Responses are due by 1 October 2026.
The reforms stem from the Energy Act 2023 and are intended to replace parts of the existing governance model with licensed code managers carrying clearer responsibility for maintaining and developing the rules underpinning energy markets.
Energy codes rarely attract the attention given to power stations or transmission projects, but they define a considerable amount of the machinery required for those physical systems to interact commercially.
The BSC governs electricity balancing and settlement arrangements, while the REC covers significant elements of the retail market. Changes to those frameworks can affect metering, data, settlement, supplier processes, market participation, and the systems required to implement new commercial arrangements.
That makes governance increasingly relevant to engineering investment. Storage, flexible demand, distributed generation, smart metering, new settlement methods, and digital market services all depend on rules and data processes that can accommodate their operating characteristics.
Ofgem’s phase-one reforms are intended to place clearer responsibility for code development with licensed managers. The regulator aims to designate the first phase codes and appoint managers for the BSC and REC as part of the transition to the new governance framework.
The 2 September consultation deals largely with the practical conditions required to make those licences work. Proposed amendments cover budgets, appeals against those budgets, cost recovery, delivery plans, and further development of the framework used to assess code-manager performance.
Special licence conditions are also intended to support transfer of specific governance responsibilities into the new structure. That is more substantive than changing the organisation that performs administrative work because decision-making responsibilities have to move without interrupting live market processes.
Budget arrangements matter because code management requires specialist legal, technical, data, and market expertise. The organisations need enough resources to assess modifications, operate governance processes, maintain systems, and support strategic changes without creating an open-ended cost base.
The appeal process provides a corresponding check for market participants that ultimately fund much of the work. Code managers need operational independence, but the licence framework also has to establish how spending decisions can be challenged where parties consider them excessive or poorly justified.
Delivery plans are intended to connect expenditure with the work being performed. A code manager must balance routine maintenance, strategic reform, participant-led changes, systems development, and regulatory requirements rather than simply responding to modification proposals as they arrive.
Performance assessment creates another difficult balance. Processing modifications quickly is useful only if the resulting changes are technically sound, while meticulous governance that takes years to reach routine decisions can itself obstruct market development.
The performance framework therefore has to reflect quality, delivery, stakeholder handling, and strategic progress rather than relying on one-dimensional measures such as the number of modifications completed.
Ofgem has already completed earlier stages of the transition work. An April consultation examined transitional measures and code changes for the BSC and REC, while separate work has been developing the standard licence architecture and data requirements for future code managers.
The September package sits further down that implementation chain. The broad policy decision to introduce licensed code managers has already been taken; the current work is about making the first two licences operate in practice.
Transition itself carries operational risk because the markets governed by the BSC and REC cannot be paused while responsibilities move. Settlement, switching, metering, registration, and supplier activity continue every day, so governance functions and systems must transfer without creating gaps in accountability.
The longer-term test will be whether the new arrangements make code development more responsive to a changing electricity system. New technology often moves faster than the commercial and regulatory rules needed to accommodate it, and delays can leave technically capable assets waiting for market structures to catch up.
Licensing code managers gives Ofgem a more direct framework for accountability, but it does not automatically simplify the underlying rules or eliminate difficult industry disagreements. Success will depend on whether the managers have enough technical capability, authority, and discipline to turn strategic direction into workable code changes.
The proposed budget, performance, cost-recovery, and delivery conditions are therefore more than administrative detail. They will determine whether the first phase of code reform produces a functioning governance model or simply relocates familiar procedural problems behind a new licence.
