Code Governance Seminar 11 February 2008

1. Code Governance Seminar11 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