Energy code reform: decision on code manager selection

What changed

Ofgem has set the operative process by which Code Managers will be selected and licensed under the new Energy Code Reform framework established by the Energy Act 2023 and the Code Manager Selection Regulations 2024. The decision, published 16 May 2025, follows the November 2024 consultation and finalises updated guidance that takes effect immediately, applying to both ongoing and new selections.

The guidance sets out who can apply to be a Code Manager, how Ofgem will evaluate competing applicants where competitive selection applies, and the procedural rails for each selection round. Several changes were made to the consulted proposals in response to stakeholder feedback; the rationale for those changes is set out in Appendix 2 of the decision document. The decision sits alongside the March 2025 basis-of-selection determinations for the Balancing and Settlement Code (BSC) and Retail Energy Code (REC), and the August 2025 licence-grant proposals for Elexon and RECCo. Together these establish that the BSC and REC will not go to open competition in this first round, with Elexon and RECCo proposed as incumbent Code Managers, while the wider framework that governs how future selections run, including any that are competitive, is now fixed.

What this means in practice

The decision affects every party that participates in the eleven GB industry codes (BSC, CUSC, Grid Code, SQSS, STC, Distribution Code, DCUSA, SEC, REC, UNC, iGT UNC), and any organisation that might bid to administer one of them. Three groups bear direct consequences.

Prospective Code Managers now have a fixed rulebook. The guidance defines the eligibility criteria, the information they must submit, the assessment dimensions Ofgem will weigh, and the procedural steps from invitation to licence grant. Bidders can no longer treat the selection process as an open question; they bid against a published methodology. This lowers the transaction cost of bidding for new entrants who previously faced uncertainty over what was being evaluated, but it also locks in whatever weighting Ofgem has chosen between cost, capability, governance independence, and incumbency.

Incumbent code administrators (Elexon, RECCo, ElectraLink, Gemserv, Xoserve, MRASCo, Joint Office of Gas Transporters, Energy Networks Association) face different prospects depending on which code they currently run. For BSC and REC, the March 2025 basis-of-selection decisions ruled out open competition in this round; the August 2025 licence-grant proposals named Elexon and RECCo as the proposed Code Managers and the May 2025 guidance now governs how their formal licence grants proceed. For other codes, the guidance is the procedural baseline against which Ofgem will assess whether to run a competitive selection, a basis-of-selection determination ruling out competition, or a direct designation.

Code parties (network operators, suppliers, generators, large consumers, traders) pay the cost. The Code Manager licence is funded by code parties through code charges. A more demanding licence regime, with stronger governance obligations and Ofgem oversight, means higher administrative cost recovered from licensees. The principle that costs should sit with those who cause them holds here only weakly: code reform is a public-good change to industry governance, but the levy structure recovers the running cost from code parties whether or not they wanted reform.

The selection guidance does not itself change any code's substantive rules. Modifications still flow through each code's existing change process. What changes is who administers the process, under what licence conditions, and against what performance regime, once the new Code Managers are in place.

What happens next

Three workstreams now run in parallel. First, the BSC and REC licence grants for Elexon and RECCo, which were out for consultation in August 2025, move to final decision and licence issue. The May 2025 guidance is the procedural framework against which any objections to those grants are assessed.

Second, for the remaining codes (CUSC, Grid Code, SQSS, STC, Distribution Code, DCUSA, SEC, UNC, iGT UNC), Ofgem will work through basis-of-selection determinations to decide whether to run competitive selection, designate an incumbent, or direct-appoint. Each determination is a separate consultation. The order and timing have not been published in a single roadmap, but the gas codes (UNC, iGT UNC) and the smart code (SEC) are the most contested candidates for change of administrator. CUSC sits inside a particular complication because the System Operator function transferred to NESO on 1 October 2024 and CUSC governance has been part of the licence reshuffle.

Third, the performance regime for licensed Code Managers, including the cost-recovery methodology and the incentive arrangements, develops alongside the selections. The licence conditions consulted on for Elexon and RECCo set the template for what later Code Manager licences will look like.

For code parties, the next 12 to 18 months will see a sequence of consultations, basis-of-selection decisions, and licence grants. The substantive reform of any individual code remains a separate process that runs through the new Code Manager once it is in place; the May 2025 decision is about the plumbing, not the water.