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What will the introduction of the Retail Energy Code mean for metering companies?

Rowan  Hazell Rowan Hazell Senior Analyst
25th November 2020

Ofgem has proposed that certain metering companies will need to become full parties to the new dual fuel Retail Energy Code (REC). What will this mean in practice?

Metering Equipment Managers (MEMs) is a term introduced for the REC, encompassing electricity Meter Operator Agents (commonly termed MOPs) and gas Meter Asset Managers (MAMs). These parties are responsible for providing, installing, and maintaining metering equipment on behalf of suppliers. Some suppliers undertake such activity in house, but there is also a competitive market of independent companies offering the services. Currently MOPs and MAMs are not subject to direct regulation under licence, with arrangements based on the supplier hub principle meaning that suppliers need to ensure that the agents they work with are accredited as being compliant with certain codes of practice (as shown in Figure 1), which set out detailed requirements for how activities should be carried out. Ofgem has said that this “arms length” approach is generally seen as being inefficient and ineffective, and concerns have been raised by industry parties (for example though BSC modification P332 Revisions to the Supplier Hub Principle) that it can be difficult to manage agent activities without the companies themselves facing consequences for underperformance.

Under Ofgem’s Code Consolidation Significant Code Review, the codes of practice (note that these are different to the metering system codes of practice found in the BSC) will be brought under the governance of the REC. Currently each code has its own governance arrangements, but Ofgem has said that by utilising the REC framework, the burdens placed on agents of assuring compliance will be reduced. It also said that making metering agents part of the same assurance regime as suppliers should have benefits for effective competition in the metering market, with the regime having the scope to oversee activities that have a direct relevance to achieving positive consumer outcomes. Ofgem suggested that this could allow changes to be made to better support the adoption of assets and tackle the unnecessary replacement of meters. The regulator has stressed that it is not intending to amend any of the technical standards in the code.

With the metering codes of practice moving under the REC, Ofgem’s said it is likely that accession to the code will become mandatory for those wishing to perform MEM roles once Version 2 of the REC is introduced. It said that it does not see this as the introduction of extra regulatory requirements, but more a continuation given the existing mandatory requirements under the supplier hub approach. MEMs would also be able to join the REC from version 1.1 on a voluntary basis, with the aim of enabling a role for a metering representative on the REC Performance Assurance Board.

Changes to the requirements in the codes of practice are not precluded, and the REC has been designed in a way that anyone, even non-parties, will be able to raise proposals to change the arrangements. Ofgem’s latest view is that a dedicated technical group made up primarily of metering agents will be responsible for determining whether changes to the metering elements of the REC should be made. The regulator said that this should address concerns that agents could be disenfranchised by including the metering codes of practice within a wider governance framework.

Another area that Ofgem is considering is whether the settlement assurance requirements for metering agents in the BSC could be brought under the REC performance assurance regime. It has recognised that this would be a significant change, and that care would need to be taken to ensure that there would be no detrimental impacts on electricity settlement. The REC metering provisions will continue to be developed by Ofgem with the possibility of BSC integration in mind, and it said that it would consult on any specific proposals in due course.

Requiring metering companies to join one of the energy codes that directly stems from the energy licences does appear to be a major departure from existing arrangements. However, as the technical requirements of the metering codes of practice will initially be unchanged, agents shouldn’t need to make drastic changes to their processes. The inclusion of MEMs under the REC performance regime should place more of a direct onus on agents to be meeting the requirements of the codes of practice though, but this should bring benefits to suppliers and customers. Although metering arrangements will potentially garner more industry attention as part of wider REC framework, MEMs are likely to be given a key role in determining whether changes should be made, ensuring they are fully involved in the governance of the requirements.

We provide regular coverage of the development of the Retail Energy Code through our Faster Switching Service. For more details please contact e.bill@cornwall-insight.com.