Source · Select Committees · Environmental Audit Committee
Recommendation 23
23
Accepted
Paragraph: 97
Ofgem's current electricity network regulation model unresponsive to rapid energy system flux.
Conclusion
We consider that the current model of Ofgem electricity network regulation, based around lengthy multi-year business plans, risks not being responsive enough to an energy system which is in rapid flux. The present regulatory model locks in market controls over many years: in the current climate, this risks slowing down innovation and restricting network development.
Government Response Summary
The government agrees with the underlying concern and outlines robust governance and regulatory arrangements for the National Energy System Operator (NESO), including Ofgem's ongoing performance monitoring, biennial reviews, oversight of remuneration, and strict criteria for board appointments, alongside a clear framework document and new independent Chair.
Paragraph Reference:
97
Government Response
Accepted
HM Government
Accepted
The Government agrees with this recommendation and is committed to ensuring appropriate governance and regulatory arrangements to ensure that NESO delivers the benefits expected to the GB energy system. NESO’s licenses include obligations to implement and maintain robust systems, processes, and governance arrangements to uphold impartiality. Ofgem will be delivering effective regulation of NESO and ensuring that NESO delivers for the GB energy system. Ofgem will undertake ongoing monitoring of NESO’s performance as well as biennial holistic performance reviews with a panel of industry stakeholders. Ofgem is also planning to apply appropriate oversight of the policy for senior staff remuneration, and, at the board level, there will be strict criteria on non-executive director appointments, with at least half of NESO’s non-executive directors meeting the standard of ‘Sufficiently Independent Directors’ under licence. The Government has put in robust governance arrangements, including a clear framework document outlining the roles and responsibilities of the parties involved in the relationship. A new, independent Chair, Dr Paul Golby, has been appointed to lead NESO’s Board and UK Government Investments (UKGI) have been commissioned as the Secretary of State’s Shareholder Representative, a role which includes providing a Shareholder Representative Non-Executive Director to NESO’s Board. These arrangements will be continually monitored and, if appropriate, revised to ensure they remain fit for purpose.