Reforms to the retail market

1. Reforms to the retail market Anthony Pygram 27 June 2019

2. Contents • Ofgem’s involvement in major retail reform projects • Price cap • Licensing review • Smart meter rollout • Faster switching • Electricity settlement reform • Retail market reform • Code governance reform • Not covering all our projects (egMidata, consumer engagement, microbusiness review, consumer vulnerability strategy) • How they fit together • Ofgem’s compliance and enforcement role

3. Retail energy market reforms – a timeline Possible lifting of cap Price cap Final proposals and impact assessment Protections against financial instability Cap must be lifted Licensing review BEIS consult on post-2020 situation All reasonable steps obligation deadline Smart rollout Retail Energy Code consultation Further REC and switching details consultation Faster switching New arrangements supporting next-day switching Half-hourly settlement Information request to inform IA Electricity settlement reform Discussion paper Retail market reform Consultation paper Code governance reform Clear accessible rules with timely change mechanism 2019 2020 2021 2022 2023

4. Price cap • PPM price cap in place since April 2017, SVT cap since January 2019. • PPM cap due to expire 2020. • SVT cap annual reviews from 2020 on whether it remains needed. Must end 2023. • Specific reviews of the allowances related to smart metering and capacity market during 2019. • Updated every six months – next levels announced early August for entry into force 1 October 2019.

5. Licensing review Final proposals and a finalised impact assessment by the end of the year. We are reviewing our approach to supplier licensing, to ensure that appropriate protections are in place against poor customer service and financial instability. We have considered the arrangements for market entry, exit and ongoing operation and monitoring.

6. Smart metering • Government has overall responsibility for the rollout of smart meters, but Ofgem shares their ambition to see smart meters rolled out as a key foundation for a more flexible and efficient future energy system. • Ofgem’s role is to: • Support the Government’s policy and provide expert regulatory advice • Hold suppliers and the DCC to account for the successful implementation of the Government’s policy on the rollout of smart meters, both in relation to progress and consumer experience. • Including approving supplier rollout plans and holding to account for delivery. • Control the monopoly revenues of the DCC through the annual price control process (set ex post – for reg year 2017/18 in February 2019). Consultation in October 2019 on draft determination for RY18/19 • Respond to industry code modifications and making decisions that improve the operation of retail market “back-office” systems, i.e. those which consumers do not directly experience, but influence the quality of service they receive from the retail market

7. Faster, more reliable switching • Introduction in 2021 of new dual-fuel reliable switching arrangements, capable of supporting next working day switching and with flexibility to adapt to a changing energy market and support innovation. • Full industry mobilization is expected in Summer 2019 to stand-up teams to ensure participants are ready for go-live. Will be consulted on the detailed technical specification of the switching service during July and August and then be expected to design, build and test changes to their own systems to interact with the new switching service from September 2019 to around Sept 2020, after which they will need to take part in testing. • Introduction in 2019 of a second phase of Guaranteed Standards for Switching, requiring suppliers to offer automatic compensation where switches are delayed • Consolidation in 2021 of existing retail market industry codes into the best-in-class Retail Energy Code which will provide a streamlined and easy-to-engage with industry code. Current consultation on the Retail Energy Code (REC) closes on 9 September.  There will be two more in near future: • Autumn 2019 – final versions of REC governance, final versions of technical provisions for all switching related provision, policy on all remaining code consolidation; Spring 2020 – final versions of all remaining code consolidation (and any remaining technical provisions).

8. Electricity Settlement Reform • Introduction of reformed electricity settlement arrangements for domestic and smaller non-domestic properties, using half-hourly data. • Will create strong incentives to value flexibility and innovate with new products and services which help consumers to shift load and support a more efficient energy system for all users. Combined with smart meters, this is one of the key foundations for a future, more flexible and efficient energy system. • Consultation on information request within month prior to sending out in summer, to inform Impact Assessment, which will be carried out during 2019

9. Future Energy Retail Market Review • Our vision for a future energy retail market is one where: • Innovation brings greater choice to consumers, allowing them to take advantage of the increased flexibility and lower costs of the smart, low-carbon energy system. • A combination of healthy competition and appropriate safeguards ensure that all consumers pay a fair price for their energy and vulnerable consumers in particular are properly protected. • Timescales: • Any reforms implemented via the review will take a phased approach. As we’re considering legislative reforms, implementation of any significant changes would likely not be before 2022/23. • This includes nearer-term reforms post price-cap and potentially more fundamental longer-term reforms (eg making it easier to adapt the regulatory framework to respond to market developments). • Upcoming milestones: • Summer 2019 discussion paper alongside Energy White paper • Government will legislate in a subsequent session of this Parliament if it is necessary.

10. Energy Code Governance Review • BEIS and Ofgem are conducting a joint review of energy codes and their governance. We want to deliver a regulatory framework capable of delivering strategic, whole-system solutions in the interests of consumers. Following stakeholder workshops in February, we expect to launch a consultation on options in the summer.

11. How the reforms fit together Near term Longer term Have price protection Are protected against supplier financial instability Can change supplier quickly and easily Protecting consumers Know energy usage in real time Pay for real cost of energy based on time of use Variety of energy offers to best meet needs Fairer market for suppliers to compete in New switching systems are flexible and support innovative propositions Enabling competition and innovation Know energy usage in real time Charge for real cost of energy Create new products for consumers Technical rules to be clear and can be changed efficiently Know energy usage in real time Decarbonising at lowest cost Ability to pay for energy as used by time of day New tariffs to make more efficient use of energy resources by sending price signals by time of day

12. Enforcement • Important that companies comply with their obligations. Obligations are to protect consumers, and ensure a level playing field for suppliers. • We ask for data and we check for compliance – and act where necessary • Eg on projects discussed here, this year: • Compliance action: • Shell Energy Retail paid £390k after overcharging some default tariff cap customers • SSE paid £700k after missing its smart gas meter rollout target • Enforcement action: • Avro Energy received a Final Order to take the steps needed to become a DCC user (which it has now complied with). • But most of what we do unreported – for every enforcement case we probably complete 10 compliance cases, most of which are not reported publicly.