DCC Review Phase 2: Governance arrangements - conclusions

What changed

Ofgem has concluded the Governance strand of Phase 2 of the DCC Review, setting out the structure that will govern the Data Communications Company after its current Licence expires in September 2027. The decision, published 17 January 2025, fixes four things: DCC Board composition, the board appointment process and qualifying requirements, the incentive arrangements applying to the board, executive leadership and staff, and an interim set of governance changes to bridge the period before the successor Licence goes live.

This is one of three core Phase 2 strands. It sits alongside the Centralised Registration Service decision (December 2024) and the Allowed Revenue process consultation (also December 2024, with conclusions following in May 2025). Together these strands define what DCC2 actually is: who runs it, how its revenue is set, and what new functions it absorbs. Governance is the strand that determines whether the "purpose-driven, not-for-profit" framing Ofgem has used since Phase 1 has any operational force, or whether it is a label sitting on top of an organisation that still behaves like a Capita-era contracted monopoly.

What this means in practice

DCC is the regulated monopoly that runs the smart metering communications backbone. Every smart meter installed in Britain depends on it. Energy suppliers pay DCC's costs through charges that flow through to consumer bills, currently running at over £400 million per year. The governance question is therefore not a corporate housekeeping matter. It determines how a large, captive, consumer-funded cost base is controlled.

The board composition rules tighten the link between DCC's governing body and the interests of the parties paying for it. The appointment requirements set who can sit on the board and who signs them off, which matters because the previous arrangement (a DCC operated as a subsidiary of Capita under contractual incentives) produced an organisation that delivered to its parent's commercial interests rather than to its users. The incentive arrangements covering board, executives and staff are the operational counterpart to the Allowed Revenue framework: revenue caps without aligned remuneration do not constrain behaviour, and aligned remuneration without revenue caps just rewards growth in the cost base.

For energy suppliers, the direct effect is on the customer engagement and accountability mechanisms by which they hold DCC to account for service quality, cost discipline and delivery against the smart metering rollout. The interim changes are the more immediate operational item: they take effect before September 2027 and require Capita-era DCC to start behaving more like its successor before the licence transition.

For consumers, the test is whether the governance and revenue arrangements together produce sustained downward pressure on DCC's cost base. Smart metering has been a high-cost, slow-delivery programme. The Phase 2 architecture is meant to bend that curve. Governance is the strand that determines whether the board has the standing, independence and incentives to push back on costs that previously flowed through unchallenged.

What this decision does not resolve is the scope question. DCC's future role, objectives and operating model are the subject of a separate, third Phase 2 consultation due by the end of Q1 2025. Governance arrangements designed for a narrowly-scoped smart metering communications provider may not be adequate if DCC absorbs the Centralised Registration Service and any further functions (market-wide half-hourly settlement data flows, for instance) attached to it.

What happens next

The third Phase 2 policy consultation, covering DCC's future role, objectives and operating model, is expected by the end of Q1 2025. That consultation will determine the scope that the governance framework set out here has to cover. If scope expands materially, the governance arrangements will need revisiting before licence drafting.

The Allowed Revenue determination process moves in parallel. Ofgem consulted on the methodology in December 2024 and concluded in May 2025. The June 2025 DCC Review Phase 2 publication consolidates these strands.

Licence drafting follows. The successor Licence has to be in place sufficiently ahead of September 2027 to allow incumbent or new entrant bidders to prepare, and to give the existing DCC time to transition. Ofgem has not published a firm date for draft Licence consultation, but on standard timelines this would be late 2025 or 2026, with award decision by 2026 and operational handover through the first half of 2027.

Suppliers and other DCC users should treat the interim governance changes as the live item. The 2027 transition is the structural change; the interim changes are what they have to operate under for the next two and a half years. The other immediate item is the Q1 2025 scope consultation, which is where the substantive argument about what DCC2 should and should not do will play out.