ELEXON and the introduction of BETTA: Initial Consultation
on a Modification to NGC’s Licence
1. ScottishPower welcomes the opportunity to comment on the OFGEM Initial
Consultation document on ELEXON and the introduction of BETTA and the
proposal to modify NGC’s Transmission Licence to that end. The document
recognises that at present ELEXON is unable to carry out facilitative work on
BETTA due to constraints in both its Memorandum and Articles of Association as
well as in the Balancing and Settlement Code. In seeking to address that situation
through the proposed licence changes, however, the document raises a number of
issues in respect of governance, vires and cost recovery about which
ScottishPower has a number of reservations which are discussed below.
General Comments
2. Before highlighting some more specific points at issue, ScottishPower would wish
to register a general concern that there appears to be a thread running through the
consultation document implying that only ELEXON’s current background in
E&W trading arrangements can be applied to the design of BETTA. It must be
remembered that BETTA will involve the development of robust GB-wide trading
arrangements. This will require a GB perspective which ELEXON alone is
currently not best able to provide, although it may be in a better position to deliver
certain aspects.
3. It is also disappointing to note that OFGEM has not yet produced a clear change
programme which would set out realistic timescales for the implementation of
BETTA and allow the industry adequate opportunity to consider how to undertake
the necessary preparations in an efficient manner. An early delivery from OFGEM
of that programme would have helped in formulating this response.
ELEXON’S status and role arising out of the proposed licence changes
4. While ScottishPower takes no issue with the specific wording of the proposed
draft changes to the NGC licence, there are some substantive points of concern
about the appropriateness of these changes at this time which are outlined below.
5. It is immediately worthy of note, for instance, that these changes are being
proposed without the necessary legislation to enable BETTA. In the absence of
that legislation, OFGEM will need to be mindful of the risk that nugatory work
may be undertaken as a result of these proposed changes. This would give rise to
both resource and cost implications, both of which concerns are highlighted later
on in this response.
6. It is not clear from the document whether it is anticipated that ELEXON, by dint
of its role in preparing for BETTA, would automatically assume the status of GB
BSCCo. ScottishPower has a clear preference for the enduring GB BSCCo to be
appointed by way of a competitive tender process and would have expected that
any preparatory work for BETTA would be undertaken by the same body. The
justification for ELEXON to do so needs to be spelt out in more detail.
7. There are, undoubtedly, a number of contractual issues arising out of the
implementation of NETA which will need to be dealt with in the context of
BETTA. As ELEXON took over these contracts with current BSC Agents at
NETA Go Live, it might be in a strong position to carry forward any practical
considerations of how these contracts would translate to a BETTA environment.
However, there is no visibility for the industry as to the nature of these contracts
and how they might apply to BETTA. It would be helpful to all BSC Parties if the
contractual relationships between ELEXON and the BSC Agents were to be made
transparent so that a proper assessment can be made of whether a tender process is
required at this time.
8. A related point in this respect is whether ELEXON should be expected to assign
any intellectual property rights resulting from the proposed preparatory work to
the enduring GB BSCCo. Until it is made clear how the proposed licence changes
impact upon ELEXON’s current status, this question also remains outstanding.
Implementation of the preparatory work
9. In terms of the description in the document regarding how the proposed work
would be carried out, ScottishPower has some specific comments about possible
improvements to the approach suggested.
10. There is a clear need, in the context of conceptual thinking about the design of GB
trading arrangements, that as wide a degree of expertise as possible is deployed.
To ensure that a proper GB perspective is maintained, it would, therefore, be
helpful to include some expertise from SESL when developing BETTA. The
omission of any reference to the involvement of SESL in this Consultation, and
how SESL may usefully contribute to BETTA development, appears at odds with
the views of OFGEM/DTI expressed in the May 2002 paper (Appendix 2, A5.25).
This approach would ensure that BETTA is developed from the outset as a GB
project and with GB-wide expertise and involvement in the design phase.
11. The lack of transparency in respect of the contractual arrangements put in place at
NETA Go Live, and referred to earlier in this response, has created a number of
concerns for all industry participants, particularly in respect of the performance of
BSC Agents. It will be important to all BSC Parties and potential BETTA
participants that they are satisfied that the contractual obligations of the Service
Providers under GB trading arrangements are robust and managed effectively.
While ELEXON’s current involvement in terms of its ability to “enter into,
manage and enforce” such contracts as an agent for NETA participants is not in
dispute, it should not be regarded as a given that ELEXON should automatically
adopt that role for potential BETTA participants. Nor should it be automatically
assumed that the current Service Providers are necessarily suitable candidates to
operate the requisite central systems and processes for GB trading arrangements.
There are areas, including for example system audit, where different agents are
used in the current trading systems North and South of the border. Specifically in
this respect, therefore, it would be more effective for direct industry input to be
provided during the design phase. This might involve liaison between the design
team and an industry contact group for significant areas of system and process
change impacting upon participants. This too would add transparency to the
process.
12. The document is explicit in terms of the degree of involvement expected from the
E&W BSC Panel in respect of BETTA design. ScottishPower does not dispute
that the E&W Panel has no direct role to play, and that this intention may well be
appropriate given that the electoral college from which the Panel is drawn is not
designed to represent the views of the GB market. However, it was made clear in
the May 2002 paper (clause 5.23) that the E&W Panel would need to be aware of
the impact of E&W BSC modifications on the BETTA design and would be able
to comment on this aspect when making recommendations to the Authority.
Without this knowledge there will be a risk of nugatory work in one of the arenas.
13. The implication of the proposed approach, however, is that there will be no direct
industry input to BETTA design aspects, which may have already been developed
by ELEXON, other than through the consultation process. OFGEM approval of
work areas does not represent a satisfactory governance process in this regard. It
would provide necessary comfort to the industry if a transparent approach was
adopted and more direct industry input to the process was made available. The
proposed approach contrasts with the position during NETA development when
there was direct industry involvement through expert groups. Such an approach
would also appear to be contrary to the stated recognition by OFGEM/DTI of “the
need to involve industry members to the fullest extent possible in the further
development of the BETTA project” (May 2002 paper, Appendix 2, A9.8). The
use of expertise to derive a BETTA design with which the industry feels
comfortable would add considerably both to the robustness and effectiveness of
future GB trading arrangements.
14. According to the document, ELEXON will be expected to progress both
preparatory work for BETTA and continue with its role in E&W arrangements in
parallel. This creates obvious resource implications for ELEXON which have not
been spelt out in the document. Will ELEXON’s contribution in either area be
constrained by its current resources? If additional resources became available to
ELEXON, how would it propose to use these, what are the cost implications for
industry participants, and would there be any diminution in the quality of
ELEXON’s current work on the E&W arrangements? Would the involvement of
SESL not help to reduce some of those resource burdens? Additionally, it would
be of particular interest to the E&W Panel that these resource issues are resolved
prior to ELEXON embarking on any preparatory work so that realistic timescales
can be imposed on ELEXON for Panel related work and ELEXON could reassure
the E&W Panel that its Business Strategy was being effectively implemented.
Costs and Cost Recovery
15. The consultation document indicates that this will be the subject of further
consultation with the industry but only in respect of the mechanism to be adopted
for recovery. In the meantime, however, costs will be incurred on behalf of BSC
Parties and potential BETTA participants without any direct industry input. More
information is required about an effective control mechanism for these costs.
Without more transparent arrangements, with information being made visible to
the industry through some form of regular cost reporting, regarding the costs
being incurred during design and implementation of BETTA, potential BETTA
participants will not know whether best value is being obtained during the run-up
to BETTA Go-Live. The proposed model is thin on detail and provides no
information about the risks of carrying out unnecessary work and whether
industry participants would have any rights of recovery or relief against the
authorising body in such an instance. This risk may in large measure be mitigated
if direct industry scrutiny of both the work packages to be adopted for BETTA
preparation, and the related costs, were to be made transparent to BSC Parties and
potential BETTA participants prior to any such work being undertaken.