Consultation on the preliminary Strategic Direction Statement and governance arrangements for industry codes

What this is about

Ofgem is consulting on the preliminary Strategic Direction Statement (SDS), the new instrument created by the Energy Act 2023 through which the regulator directs the development of designated electricity and gas industry codes. Alongside the SDS itself, Ofgem is consulting on two governance changes: a harmonised modification prioritisation process across codes, and a new licence obligation requiring parties to cooperate with the modification process where it supports SDS alignment.

The SDS is the operational core of code governance reform. Until now, industry codes have evolved bottom-up: any code party can raise a modification, panels assess it against code objectives, and Ofgem decides. The SDS inverts this. Ofgem publishes a forward strategy, codes are expected to align with it, and code managers can compel cooperation where alignment is at stake. The statutory obligation does not take effect until the Secretary of State formally designates the codes, but Ofgem is publishing the first SDS in 2025 anyway, having decided in August 2024 to proceed under existing powers. The consultation runs from a 2019 starting point through the 2021 design consultation, the 2022 call for input, the January 2024 implementation consultation, and the August 2024 policy decisions. This is the implementation phase of a six-year reform.

Options on the table

The consultation does not present discrete options in the conventional sense. It presents a package: a preliminary SDS, a prioritisation process, and a cooperation obligation. The variables sit within each.

Scope and time horizon of the SDS

The preliminary SDS covers all codes within the scope of governance reform and looks five years ahead with a focus on the next one to two years. Policy priorities are grouped by implementation timeframe. The choice respondents face is whether this horizon is right. A longer horizon gives code managers more room to sequence work but makes the strategy abstract; a shorter horizon makes it actionable but turns the SDS into a rolling workplan that needs frequent refresh. The one-to-two year focus suggests Ofgem has chosen actionability, which means the SDS will need to be revised often and the modification pipeline will move with it.

Prioritisation: harmonised process across codes

The proposed harmonised prioritisation process is set out in Annex A (legal drafting) and Annex B (definitions). At present each code panel prioritises differently, which means a developer working across electricity and gas faces different rules about which modifications get attention. Harmonisation reduces transaction costs for cross-code participants. The losers are codes whose existing prioritisation logic favoured their particular community: harmonisation strips local discretion and replaces it with Ofgem-set criteria. The substantive question is how much weight the harmonised criteria give to SDS alignment versus other factors (urgency, consumer impact, deliverability). If SDS alignment dominates, Ofgem effectively sets the modification pipeline by writing the strategy.

Cooperation: a new licence obligation

The cooperation standard condition (Annex C) would require licensees to cooperate with the modification process at a code manager's reasonable request, where cooperation supports SDS alignment. This is the enforcement teeth. Without it, code managers can ask for cooperation but cannot compel it; with it, refusal becomes a licence breach. The winners are code managers and Ofgem (more leverage over slow-moving modifications). The losers are licensees who would have used delay as a negotiating tactic, and smaller parties who lack the resources to respond to every cooperation request. The substantive question is what "reasonable request" means in practice and how Ofgem will police it.

Transitional governance under existing powers

Because designation has not happened, Ofgem proposes to progress SDS-related code changes under existing governance. In practice this means panels and code administrators are asked to behave as if the new framework were in force. This is the soft launch. Respondents can argue that running a directed framework through bottom-up machinery creates ambiguity (panels formally retain discretion but face strong steers from a published strategy), or that it is the only practical bridge to designation.

Questions being asked

The consultation document and response template (DOCX) contain the formal questions. They are not reproduced in the published web summary, so the themes below are inferred from the proposals and the supporting annexes. Respondents should work from the response template directly; the structure below indicates where Ofgem is likely to want input.

Preliminary Strategic Direction Statement

Questions on the content and structure of the preliminary SDS itself. These cover whether the policy priorities identified are the right ones, whether the five-year horizon with one-to-two year focus is appropriate, and whether the grouping of priorities by implementation timeframe is workable. (What Ofgem is really asking: have we set the strategy at the right level of prescription, and have we picked the right priorities for the first iteration?)

Questions on the roles and responsibilities for contributing to and implementing the SDS. These cover what code administrators, panels, parties, and central delivery bodies should do to translate the SDS into modifications. (What Ofgem is really asking: who owns the work of turning the SDS into actual code changes, and is the proposed division of labour realistic?)

Code modification prioritisation

Questions on the proposed harmonised prioritisation process set out in Annex A and the supporting definitions in Annex B. These cover the criteria for prioritising modifications, the weight given to SDS alignment, and how the process interacts with existing panel discretion. (What Ofgem is really asking: how much should SDS alignment dominate prioritisation, and where should panels retain local judgement?)

Questions on the practical operation of prioritisation across codes with different volumes, complexities, and panel structures. (What Ofgem is really asking: can one process actually run across BSC, CUSC, Grid Code, UNC and the rest without breaking the codes that work differently?)

Cooperation obligation

Questions on the proposed new licence standard condition in Annex C. These cover the scope of the obligation, what constitutes a "reasonable request" from a code manager, and the enforcement mechanism. (What Ofgem is really asking: how much teeth should this have, and what protections do licensees need against unreasonable requests?)

Questions on the proportionality of the obligation for smaller parties and on how it interacts with existing licence obligations. (What Ofgem is really asking: will this crush small participants or duplicate things licensees already have to do?)

Transitional arrangements

Questions on progressing SDS-related modifications under existing governance ahead of formal designation. These cover the legal basis for the transitional approach, the role of code panels during transition, and the sequencing of changes. (What Ofgem is really asking: can we run the new framework informally before designation without creating legal challenge risk?)

How to respond

The consultation closed on 29 March 2025 (the published "closed date" listed on the Ofgem page; the consultation page also references a 28 March 2025 deadline for the response form). The decision has since been published, so this consultation is now closed with decision. The response form was to be sent by email to industrycodes@ofgem.gov.uk.

The full documentation comprises the main consultation (340 KB PDF), Subsidiary Document 1 (the preliminary SDS itself, 603 KB PDF), Subsidiary Document 2 (the SDS spreadsheet, 30 KB XLSX), Annex A (legal drafting of the prioritisation procedure, 460 KB PDF), Annex B (definitions for future guidance, 86 KB PDF), Annex C (legal drafting of the cooperation condition, 67 KB PDF), and the response template (93 KB DOCX). Published responses are available as a single 13 MB ZIP file. The second part of Ofgem's Modification Process Workgroup report was published alongside this consultation and provides background on how the prioritisation proposals were developed.

For anyone tracking how prescriptive the final SDS turned out to be, the decision document is the next stop; the preliminary SDS is the input, not the output.