LONDON, July 3 /PRNewswire/ --
An independent review commissioned by Ofgem and prepared by economists at The Brattle Group, with legal input from Simmons & Simmons, has recommended radical reforms to the industry code governance arrangements that set the technical and commercial rules for participation in Great Britain's gas and electricity sectors.
The Brattle Group has identified a fundamental flaw in the current arrangements: although the system works well under many circumstances, it was designed to cope with incremental changes to existing rules and is not well-suited to managing major changes with significant public policy implications, such as new rules to facilitate adding renewable generation to the system. At the same time, they found that the current system requires Ofgem to spend too much time considering relatively minor issues that could safely be left to self-determination by the industry.
Based on these findings, Brattle has recommended a radical shake-up of the current system, with more Ofgem control over the most important decisions and more deregulation for less important decisions. The recommendations involve two key reforms. First, Ofgem would take the lead in dealing with the most important decisions about major rule changes that have considerable policy implications. To do so, it would initiate and lead policy reviews that allow for an overall view on high-level decisions. The industry would be required to implement the conclusions of the review. Second, other less critical decisions would devolve to the industry for self-determination.
The conclusions of this report were based on extensive evidence-gathering and analysis. As part of the review, The Brattle Group solicited views on code governance from market participants via a questionnaire and from the code secretariats; carried out a number of case studies of modification proposals put forward for the three most prominent commercial codes (BSC, UNC and CUSC); and surveyed practices in other liberalised power markets (Scandinavia, Australia, the United States and Northern Ireland) and in other UK regulated industries (post, rail and telecommunications).
Brattle principal Serena Hesmondhalgh, a co-author of the report, noted that, "Our analysis has identified major problems with the current system. The industry often fails in its job of providing careful, objective analysis and the process of having first the industry and then the regulator consider every proposal is inherently too bureaucratic." She went on to point out that excessive fragmentation and diversity of arrangements across different codes creates an unnecessary burden for participants, including small players.
"Our proposals are designed to strike a careful balance. Where possible we have aimed to reduce the regulatory burden through devolving decisions to the industry. But where there is a major public interest at issue, it is both right and efficient to have the regulator take charge of the process, within a framework that provides the necessary safeguards and an enhanced right of appeal," commented Boaz Moselle, a Brattle principal and co-author of the report.
To download the full report, Critique of the Industry Codes Governance Arrangements, please visit www.brattle.com.
The Brattle Group provides consulting services and expert testimony in economics and finance to corporations, law firms, and public agencies worldwide. Areas of expertise include antitrust and competition, valuation and damages, and regulation and planning in network industries. For more information, please visit www.brattle.com.
Web site: http://www.brattle.com
Laura A. Waters of The Brattle Group, +1-617-864-7900, firstname.lastname@example.org