Code Governance Seminar 11 February 2008 Philip Davies Director of Regulatory Affairs

2 Centrica supports the objectives of this review: customers need improved arrangements Well-functioning governance arrangements are a critical part of a stable regulatory framework that promotes confidence in the market With sustainability and 2020 targets driving government energy policy, the industry needs arrangements that can deliver well- managed, coherent reform Necessary coordination to deliver major industry change (e.g. introduction of smart metering) likely to be difficult to deliver with current rules An improved process, with greater Ofgem engagement, will reduce frustration and wasted time and effort

3 The three path process would bring some prioritisation to customer and industry issues The absence of a process for Ofgem and industry to propose coordinated reform and direct changes to industry codes: –discourages holistic consideration of major issues; and –is ill-suited to an era when stakeholders are demanding change Right to appeal to the Competition Commission is essential given greater Ofgem power to direct the process –scope for discussion on how appeals work under different paths Moratorium on subsequent modifications following conclusion of a policy review could be problematic – but Ofgem could provide guidance on criteria to accept new modifications

4 But the new hierarchy must be complemented by more central direction and leadership of code work Market participants also need Paths 2 and 3 to operate more effectively –eg. more Ofgem/code administrator leadership when change across multiple codes is required Ofgem’s active involvement, together with code administrators taking more responsibility for overseeing a good process, is essential to get Path 2 operating efficiently All – not only small – market participants need a better managed governance process to encourage their participation in it

5 Code administrators, as a group, must share best practice and meet clear performance standards We need definition and classification of functions, as a basis for more consistency and transparency in performance across codes Code administrators should develop a Code of Practice to establish common standards for modifications upon which participants can rely Code administrators should act like a critical friend and devil’s advocate, demanding facts and analysis to support assertions Where parties cannot bilaterally resolve performance issues, administrators should have active role to facilitate solutions

6 Modernisation and reform is essential This project needs to deliver results – while details need to be discussed, the overall direction is right Competitive market must be able to adapt effectively to changing external demands i.e. government energy policies. Customers and market participants need consistent Ofgem engagement to make all Paths work, not just Path 1 Code administrators, individually and as a group, must encourage and enable a higher quality industry change process