Energy code reform: consultation on code manager selection

What this is about

Ofgem is consulting on how it will pick the new Code Managers — the licensed bodies that will run each of the GB energy industry codes under the framework created by the Energy Act 2023. Code Managers replace the existing administrator arrangements (Elexon for the BSC, ESC for the CUSC and Grid Code, RECCo for the REC, and so on), but the substantive change is not the rebrand. Under the old model, codes were run by industry-owned bodies under contractual arrangements between code parties, with Ofgem as approver of last resort. Under the new model, the Code Manager holds a licence, owes statutory duties, and is accountable directly to Ofgem. The licence is the lever.

The consultation matters because selection criteria are where the structural reform actually happens. Ofgem proposes a three-stage process (eligibility, licensing, implementation and assurance) and a framework for deciding which codes are appointed competitively and which are handed to an incumbent without a contest. Ofgem has already moved on two of these: Elexon has been invited to express interest in becoming Code Manager for the BSC, and RECCo for the REC, both subject to eligibility assessment. That sequencing — start the process for the incumbents in parallel with consulting on the criteria — tells you most of what you need to know about the direction of travel.

Options on the table

The consultation does not present a clean menu of structural alternatives. What it presents instead is a proposed assessment architecture, with two embedded choices that are doing the real work.

A three-stage assessment process

Ofgem proposes that any candidate Code Manager passes through eligibility, then licensing, then implementation and assurance. Eligibility is a threshold check: does the candidate meet the statutory criteria in the Code Manager Selection Regulations 2024, and does it have the legal and financial standing to hold a licence. Licensing is the substantive assessment of capability: governance, technical competence, conflict-of-interest management, the proposed operating model. Implementation and assurance covers the transition from the existing administrator arrangement to the licensed regime, including the period before the Code Manager is fully operational.

The losers from this structure are new entrants. Three gated stages, each with its own evidence requirements, are a significant fixed cost. The winners are bodies that already do the job: they can populate the licensing assessment with existing systems, existing staff, and an existing relationship with code parties. The structure does not preclude a competitive process, but it raises the entry cost for anyone who is not already inside the tent.

Competitive versus non-competitive appointment

This is the choice that determines who runs the codes. Ofgem proposes a framework for deciding when to run a competitive selection (multiple candidates, comparative assessment, formal award) and when to appoint a single body without a contest. The triggers for going non-competitive are not yet pinned down in the consultation, but the BSC and REC cases give a strong hint: where there is an established administrator with deep institutional knowledge, where transition risk is high, and where the code is technically complex, Ofgem appears minded to invite the incumbent to apply and skip the contest.

The argument for non-competitive appointment is operational continuity. Running the BSC settlement engine is not a generic procurement exercise; institutional memory matters, and a botched transition would cascade through wholesale market settlement. The argument against is that monopoly licence-holders without a competitive constraint at appointment have weak incentives to improve, especially when the licence is long. If the licence does not include strong ex-post performance levers (revocation, financial penalty, periodic re-tender), non-competitive appointment locks in the incumbent for the life of the regime.

The two routes have different distributional consequences. Competitive selection puts pressure on the incumbent to bid down its margin and improve its proposition. Non-competitive selection transfers that pressure to the licensing assessment itself — which is harder to do well, because the comparator is hypothetical rather than real. Watch how Ofgem defines the threshold for "competitive is not appropriate." If the test is whether the incumbent meets a minimum standard, every incumbent will pass it. If the test is whether a competitive process would deliver materially better outcomes, the threshold is much higher.

What is not on the table

Two options that are notably absent. First, NESO as Code Manager. NESO already runs the Grid Code and the SQSS as administrator, and the obvious move under the new framework would be for NESO to hold the licence. The consultation does not foreclose this but does not actively propose it either; the question of whether the system operator should also hold code governance licences is a structural conflict-of-interest question that this consultation sidesteps. Second, code consolidation. The Energy Act framework treats the existing eleven codes as the unit of governance. There is no proposal here to merge codes, to designate a single Code Manager across multiple codes, or to rationalise the boundary between, say, the BSC and the CUSC. The reform is institutional rather than substantive: same codes, new manager structure.

Questions being asked

The consultation does not publish numbered questions in the page text itself; the questions sit in the consultation PDF and the response form. The themes Ofgem is asking about are clear from the published structure of the consultation.

Eligibility assessment

Questions in this theme cover the threshold criteria for entering the selection process: legal form, financial standing, conflict-of-interest screening, and the evidence required at this stage. (The substantive question is how high to set the bar — too low and the licensing stage does all the work; too high and the eligibility stage filters out everyone who is not already operating in this space.)

Licensing assessment

Questions on the substantive capability assessment: governance arrangements, technical competence, proposed operating model, customer service standards, change management processes, and how Ofgem should weigh these factors. (The real question here is what counts as evidence. Existing operational track record favours the incumbent. Proposed plans favour new entrants. The weighting is the lever.)

Implementation and assurance

Questions on the transition from existing administrator to licensed Code Manager, including the duration of the implementation period, the assurance mechanisms during transition, and what happens if the selected Code Manager fails to meet the implementation milestones. (This is where the incumbency bias is most defensible: a failed transition has real consequences for market operation.)

Competitive versus non-competitive selection

Questions on the criteria for deciding whether a code is appointed competitively or non-competitively, the evidence base for that decision, and the procedural safeguards if Ofgem chooses the non-competitive route. (The key question is whether the decision is appealable, and on what grounds. If Ofgem's competitive-or-not decision is effectively unchallengeable, the consultation criteria do all the work.)

Draft guidance and assessment forms

Questions on the practical documents Ofgem will use to run the process: the draft guidance for candidates, the assessment forms, the evidence templates. (These look like process detail but matter substantively, because the forms define what evidence Ofgem will accept and therefore what answers it can give.)

How to respond

The consultation closed on 31 January 2025. The published closure status is "Closed (with decision)," meaning Ofgem has already published the response and moved to the next stage. For reference, the original response route was:

- Submission deadline: 30 January 2025 (the page also gives 31 January as the formal closed date; the response template asked for submissions by 30 January). - Submission method: response template provided alongside the consultation, returned via the consultation page. - Email route for PDF, Word, or Excel attachments: industrycodes@ofgem.gov.uk.

The decision document — "Energy code reform: decision on code manager selection" — is the live position. Anyone now interested in the selection criteria should read the decision rather than this consultation, and watch the follow-on workstream: the implementation consultation, the implementation decision, and the individual Code Manager designation notices for BSC, REC and subsequent codes.