Draft Strategy and Headline Budget 2021 - 2022
RECCo Draft Strategy and Headline Budget 2021 - 2022
2021 - 2022
Retail Energy Code Company
19 January 2021
A message from the Chairman
Dr Chris Anastasi
I am delighted to be writing to you at the start of what may be a pivotal year for retail energy governance and potentially for the wider industry.
Whilst 2020 will be remembered for the economic and societal impacts of the Coronavirus, in many ways our collective response to the virus also brought into sharp focus some of the challenges that the energy industry has been facing for years and hastened our need to be adaptive and flexible in meeting those challenges. Working patterns and other aspects of our daily lives have undergone a fundamental change in a matter of months, boosting new economy companies but imposing challenging economic conditions on others, including consumers. Whilst it remains to be seen how much of this ‘new normal’ will endure once the worst of the pandemic is behind us, there will be many lessons that we can take forward.
The impact of Covid-19 upon normal human activities and in turn our energy use and carbon emissions are providing some valuable insights into the extent of change that may be required for the UK to meet its target of net-zero greenhouse gas emissions by 2050. It is against this backdrop that the Government recently published its energy white paper: Powering our Net-Zero Future, and the summary of responses to its earlier consultation on reforming the energy industry codes. In delivering the Retail Energy Code (REC) and the future industry changes that it will facilitate, RECCo hopes to play its own small part in meeting these challenges.
We welcome the recent publication of Ofgem’s Forward Work Programme and will look to identify opportunities for collaborative work with Ofgem to identify areas where the ongoing development of the REC will facilitate that programme.
The RECCo Board is committed to the efficient and effective running of the retail energy market, including its systems and processes.
It took an innovative approach to the procurement of the Code Manager services, determining that it would be able to secure both market-leading competencies and value for money by disaggregating the core functions and procuring them as separate lots, with certain strategic and corporate services being retained in-house. Following a highly competitive process, we are now delighted to be working with three established and experienced service providers that are aligned with our vision and will strive to promote innovation, competition and positive customer outcomes.
Has been appointed to the role of REC Professional Services provider (RPS). Gemserv will be responsible for delivering the REC Portal, which parties and stakeholders will use to communicate with all Code Manager services irrespective of provider. In addition, they will offer support to parties through Operational Account Managers, manage the change process, provide the front-line service desk and the REC knowledge repository.
Will undertake the role of REC Technical Service provider (RTS). CapGemini will be responsible for delivering and implementing the REC Digitalisation Strategy, development, and maintenance of the Energy Market Architecture Repository (EMAR) and undertaking the role of Technical Design Authority. The EMAR will contain the digital twin of the code and will include all industry code data items, messages, processes, services and business rules.
Has been appointed as REC Performance Assurance provider (RPA). In this role, Deloitte will monitor market participant and service provider performance, using dynamic risk assessments, digital technologies, and analytics to help drive market and code improvements. Deloitte will be responsible for administering the REC Party entry and exit process on behalf of the Performance Assurance Board (PAB) and will develop and implement the REC Performance Assurance Framework (PAF) to identify, assess and mitigate retail market risks, working collaboratively with the other code manager functions and other REC service providers.
The three Code Manager service providers will collaborate to deliver a seamless ‘one Code Manager’ function for the industry. Whilst their, and our, initial focus will be on mobilising the code management function and other services in readiness for the substantive implementation of the REC on 1 September 2021, we very much hope that this collaborative approach will extend beyond the boundaries of the REC. Our aim is to provide customer journeys that are, as far as practicable, joined up across codes on relevant processes such as market entry, change management and performance assurance.
We have been encouraged by, and grateful for, the early support we have received from the other code bodies and their service providers and look forward to making further progress in the coming months. The ongoing mobilisation and enduring full operational readiness of these Code Management services together with the effective transition of existing services, that will in future provided through and/or governed by the REC, will be our main priority for the first half of 2021-2022. The activities associated with mobilisation and transition make up much of our forward work programme for the coming year. This paper highlights some of those activities. We will issue further communications shortly, including details of how and when stakeholders can get involved.
Whilst the mobilisation of Code Management is our priority, we are also cognisant of external developments and that expectation that REC will have a role in, if not shape them. From its establishment in February 2019, RECCo has provided support to the Switching Programme and to Retail Code Consolidation, both of which are being progressed through Ofgem-led Significant Code Reviews. This support has been in the form of direct provision of Subject Matter Expertise, and more indirectly through the provision of funding for the Switching Programme Coordinator, and Licensed Party Assurance, both of which procured and continue to be contract managed by Ofgem. These programme funding requirements will continue to make up a significant proportion of the RECCo budget until the Switching Programme is complete, at which point RECCo is likely to take on operation responsibility for the funding and oversight of the Central Switching Service, as governed through the REC. RECCo and the REC Code Manager will therefore play an increasingly active role in the Switching Programme, and other aspects of Ofgem’s Forward Work Programme, which have an impact upon retail arrangements.
To support this evolving role, we look forward to strengthening the RECCo team and Board.
We will shortly appoint Non-Executive Directors with backgrounds in digital transformation and consumer affairs, adding important elements of independence and external perspective to a Board that has a deep collective knowledge of and expertise in the energy industry. We also look forward to appointing a CEO to lead the RECCo team as we gear up towards the implementation of REC v2.0, giving effect to the Retail Code Consolidation, and beyond.
We believe that this strategy and work programme will both ensure the successful delivery of the REC and facilitate improvements and efficiencies to the services provided in support of the REC arrangements. However, that is ultimately for you as REC Parties and/or stakeholders to judge. We invite and look forward to receiving your comments on this paper, which will help inform the Board’s decisions on both its strategy and associated budget.
Dr Chris Anastasi
The Retail Energy Code Company (RECCo) is the corporate vehicle for ensuring the proper, effective, and efficient implementation and ongoing management of the Retail Energy Code (the REC).
Ofgem has determined that the mission statement of the REC, and therefore of RECCo is to:
"Facilitate the efficient and effective running of the retail energy market, including its systems and processes. It will promote innovation, competition and positive customer outcomes."
Our Strategic aims are therefore to:
Consolidate, simplify and maintain Retail Governance arrangements;
Develop and/or maintain effective and innovative consumer-facing solutions;
- Ensure that all services provided and/or funded by RECCo are cost-efficient and effective;
- Be Thought Leaders on retail energy issues.
Whilst much of our Forward Work Programme and objectives will be determined by the requirements set out in the Retail Energy Code, the way we deliver those objectives will be guided by our core values:
Consumer focus – everything we do will be working towards the ultimate aim of delivering consumer benefit;
Collaboration – we will ensure seamless and complementary provision of services managed by RECCo, and that we and our service providers look for opportunities to provide added value to our stakeholder through effective partnerships with external organisations;
Digitalisation – develop services and/or address emerging issues on the basis that solutions will be digital wherever and to the fullest extent possible;
Innovation – proactively seek and/or facilitate both incremental and transformational innovations in the way we deliver services and/or discharge the REC requirements;
Efficiency - ensure that REC services and as far as practicable, wider retail energy arrangements, offer value for money.
Our Forward Work Programme
On 15 January 2021, Ofgem confirmed the acceptance of REC v1.1, in line with its 15 December 2020 decision document.
Our Forward Work Programme for 2021-2022 is in large part focused on the activities required to give operational effect to the REC, as laid out in the Ofgem decision document and its earlier consultation document, and therefore not repeated exhaustively in this document. Instead, we focus on the general themes of the work programme and how those requirements are being delivered as part of our mobilisation and transition programme.
Further details will be made available on the RECCo website and will be communicated through future stakeholder events and publications in due course. However, it is hoped that this summary will provide context for and help inform views on the draft RECCo Budget for 2021-2022, which is also set out in this document.
One of the aims behind the Retail Code Consolidation is to simplify the retail governance arrangements, making them more accessible to all stakeholders.
The sheer volume of market rules will be reduced with the replacement of several separate codes with the single dual fuel REC, but that would only go so far to address the problem. From its beginnings, the REC was conceived as a fully digital code, enabling all stakeholders including those unfamiliar with industry arrangements to navigate and resolve queries, and eventually be tailored to focus on those aspects of the code that are relevant to the individual user and their business model.
Our digitalisation strategy will initially focus on the delivery of two key platforms, being the Energy Market Architecture Repository (EMAR) and the REC portal.
The EMAR is effectively a digital twin of the REC, storing a digital representation of all code components in a tool that allows analysis and modelling of the code, and of any potential changes to it.
The EMAR solution will enable accelerated change and better outcomes for consumers by:
- Removing impediments to market entry: EMAR will make REC rules accessible making it easier for new entrants to comprehend information;
- Accelerating the introduction of new energy services: As definition of new services is achievable within its model;
- Creating a more flexible market model: Support for derogation via versioning;
- Improving the integrity of metadata: through reliable business process models driven by REC data-model; and
- Improving the scope and quality of change impact assessment: change impact generated automatically and recorded with full traceability.
The EMAR utilises a tried-and-tested software as a service tool already spearheading many industries, including many of the largest financial services companies in the world. Configuration of the EMAR was completed during the first of three REC mobilisation phases, with the second phase focused on the Logical Analysis of the REC content. This is an iterative process, which provides regular progress checks, allows us to adapt and learn as we go, and gives greater certainty of outcome. However, it does require a stable baseline of material, which makes progress dependent upon the progress and outcome of Ofgem’s consultations on the REC drafting, and may require re-work where that drafting is subjected to change.
We will populate the EMAR as we go through Logical Analysis, and will be able to use early content to demonstrate its functionality to stakeholders in the coming months. This will give stakeholders an early experience of what the enduring service will look and feel like.
We consider that the EMAR could deliver further value to RECCo and REC stakeholders if its content is expanded beyond the REC itself, potentially to incorporate full end-to-end requirements, whether they stem from a licence or complementary provisions from other codes. This could enable the fully holistic impact assessment of future change. We will explore opportunities to work in partnership with other code bodies and/or service providers in search of further value for our stakeholders.
We have developed a clear vision to build a REC portal aligned to our digitalisation strategy. We have chosen "best in breed technologies," in particular service management tools which are flexible and can integrate between different modular technologies so as to meet requirements now but also for the future. The portal follows our Digital-first principles, including the enablement of single sign-on for the user, secure by design features, cloud-hosted, feature-rich, scalable and able to maximise the value of data.
We have built user journeys for the key components of the REC Manager services, including:
- Change Management;
- Committee Management;
- Service Management;
- Performance Assurance;
- Innovation Hub; and
The REC portal will be the single front door for REC parties and stakeholders giving access to the EMAR, a Knowledge Repository, the Digital REC, Change Management updates and a Community forum. User experience is at the heart of the approach and during the remainder of mobilisation, we will take an agile approach to the build.
We will take an inclusive, proactive and, where necessary, tailored approach to stakeholder engagement. This will primarily support parties understand their REC obligations, but also inform stakeholders of how we are fulfilling our strategic vision, e.g. putting the consumer first.
The Code Manager will provide Operational Account Managers for REC Parties, and via playback sessions, Q&A sessions and industry-wide engagement sessions, will update you on progress towards service go-live, and inform you of key outputs once the service goes live.
A key part of our stakeholder strategy will be to understand each stakeholder level of engagement with the existing industry codes and therefore absent intervention, their likely interaction with the REC, and extent of their digital maturity. This will be important to ensure that all stakeholders are able to effectively engage with the REC through digital means such as the portal, and allow us to take mitigating actions where they are not. The efficacy and cost-efficiency of our communications will increase as our stakeholder progress further along the path towards digital maturity. This may also have implication for our ability to pursue digital solutions, without a disproportionate burden and/or compliance risk falling upon REC Parties who are not ready to adopt them. It is therefore in our and REC Parties’ interests to help stakeholders along this journey to digital maturity where appropriate.
Alongside the final RECCo Strategy and Budget publication we will publish further detail on user engagement and how stakeholders can get involved in development.
Ofgem modified the standard conditions of all gas and electricity suppliers requiring their accession to the REC.
Those licence conditions, which came into effect 1 February 2019 also provide the REC objectives, as follows:
TO ENSURE THE REC OPERATES AND EVOLVES IN A MANNER THAT FACILITATES THE ACHIEVEMENT OF ITS MISSION STATEMENT
TO ENSURE CUSTOMERS’ INTERESTS AND DATA ARE PROTECTED IN THE OPERATION OF THE REC; AND
TO DRIVE CONTINUOUS IMPROVEMENTS AND EFFICIENCIES IN THE OPERATION OF THE REC AND THE CENTRAL SYSTEMS AND COMMUNICATION INFRASTRUCTURES IT GOVERNS
As with other industry codes, these objectives will form the initial criteria for Ofgem to determine whether to accept any REC change proposal submitted to it for a decision. However, in keeping with the aim of ensuring that REC has an agile and proportionate change management, decision making over much of the REC documentation will be delegated to the relevant responsible committee. In some cases this will be a group with dedicated subject matter expertise; in others it will be the REC Change Panel.
Following Ofgem’s decision to give effect to REC v1.1 and with the support of the RECCo nominations committee, we will appoint a Change Panel. In Q1 we will set out the process and timetable by which we expect to appoint the Change Panel members, including details of any election process and/or recruitment. We aim to appoint the Change Panel in advance of RCC implementation in order that its members can familiarise themselves with the REC change management procedures and all relevant material, allowing them to hit the ground running on 1 September. In particular, we anticipate that there may be a number of change proposals to be carried over into the REC, as a result of the effective change freeze to the SPAA and MRA.
Although the development of the REC will go some way towards consolidating the industry codes, there will continue to be areas where solution development must extend beyond the retail arrangements and into the jurisdiction of other codes. We will work with other code bodies and systems providers in order to establish effective cross-code arrangements, facilitating collaborative working on matters such as holistic Impact Assessments and identifying consequential changes that may be required to give full effect to solutions. Where necessary, those external bodies will be able to raise changes directly to the REC and we anticipate the REC Code Manager being given reciprocal right to raise changes to other codes as part of the Retail Code Consolidation SCR.
We will pursue the early implementation of the Change Management procedures, including the establishment of the Cross-Code Steering Group, ahead of REC v2.0 taking effect September 2021. In the meantime, we will continue to work with the other code bodies and service providers on an informal basis and further develop effective working relationships.
As part of the mobilisation towards full REC operation on 1 September 2021, working with the Code Manager we will design, implement and manage the REC Performance Assurance Framework.
A key part of this activity will be to review the REC legal text to ensure that all requirements are identified, along with any risk to them being met. The Code Manager will then support the Performance Assurance Board in seeking to mitigate those risks. The Code Manager will:
1. Design, implement and manage the REC Performance Assurance Framework to identify, assess and mitigate retail market risks
2. Support the running of the Performance Assurance Board (PAB)
3. Perform market monitoring and REC Party compliance audits
4. Administer the REC Party entry and exit process on behalf of the PAB.
We will ensure that the services provided by RECCo are also meeting the requirements of the REC. Our performance assurance function will also have oversight of the Professional Services and Technical Service Providers.
Once the performance assurance framework is established, we would expect the work of the PAB may feed into the RECCo strategy and objectives for the following year(s), to the extent we may have a role in mitigating any of the retail risks the PAB identify.
The Performance Assurance Board will also oversee the REC Sandbox. As with those of other codes, the REC Sandbox will enable new entrants and incumbents to trial disruptive and innovative ideas, even if they do not meet the usual rules and procedures of the REC. In this way, we hope to facilitate improved products and services finding their way to market and deliver benefit for consumers. The REC Sandbox will differ from other codes insofar as the REC Performance Assurance Board will review the lessons learnt from each trial, and raise any change proposals it considers appropriate, rather than place that burden upon the trial participant.
Metering Equipment Managers are currently subject to several different Codes of Practice, associated accreditation and audit regimes. These metering Codes of Practices will be simplified and consolidated within the REC as part of the Retail Code Consolidation. Ofgem confirmed in its recent decision on REC v1.1 that the Metering Equipment Managers would be Parties to the REC, allowing for more effective assurance over the metering arrangements, and ensuring that the Metering Equipment Managers would be fully enfranchised in the governance and decision-making of the REC.
Over the coming months, we will engage with Metering Equipment Managers and the wider metering market to ensure that new, consolidated audit and accreditation regime reduces the burden upon Parties, whilst strengthening the assurance of those elements that can have a significant impact on subsequent retail process and consumer outcomes. We will do this in part through the early formation of the REC Metering Group, which will in due course have certain delegated responsibilities in accordance with the REC Change Management arrangements. We will look to these Subject Matter Experts to help inform our requirements of the replacement accreditation and audit regime and in turn the procurement of those services.
Metering plays an integral role in balancing and settlement as well as retail arrangements. It is therefore important that any change to the governance and assurance of metering continue to meet the requirements of these end-to-end processes.
We have worked with Elexon and Ofgem to define and analyse several options for the future governance of metering arrangements, seeking to find the optimum split between the BSC and REC. The scope of the REC metering arrangements will therefore depend on the outcome of the current Ofgem consultation on REC v2.0, but at this stage, we agree with Ofgem on the preferred option. Under this option, all provisions relating to Supplier Volume Allocation will be transferred to the REC, while provisions associated with Central Volume Allocation would be retained in the Balancing and Settlement Code (BSC).
Whichever option Ofgem decides, we will continue to work collaboratively with Elexon to ensure that the BSC and REC performance assurance regimes complement each other in providing robust assurance over both the wholesale and retail electricity arrangements.
We will seek to identify opportunities for collaborative working in the gas arrangements. We have invited representatives of both the BSC and Uniform Network Code (UNC) assurance bodies to sit on the REC Performance Assurance Board.
We will develop a Theft Reduction Strategy that will better facilitate the discharge of REC Parties licence obligations to prevent, detect and investigate gas and electricity theft.
The theft arrangement is currently set out in the Supply Point Administration Agreement (SPAA) and the Distribution Connection and Use of Systems Agreement (DCUSA). These arrangements will migrate to the REC as part of Retail Code Consolidation. During this transitional period, we will continue to work with Electralink, the SPAA and DCUSA administrator, to ensure that there is a smooth transfer of responsibilities and to keep stakeholders informed of any changes that affect them. In particular, we collaborated to produce a webinar explaining the changes to the arrangements, which is available to download here. We will also continue to produce joint updates until the transition is complete.
In order to inform our approach to the Theft Reduction Strategy, we will shortly commission a robust methodology for quantifying the scale and nature of the issue. As noted by Ofgem in its consultation on REC v1.1, the Impact Assessment on which many industry estimates of the extent of energy theft are now several years old. We consider that a robust methodology upon which stakeholders can agree, will help inform our thinking, both on whether the efforts we are making to mitigate energy theft are proportionate and subsequently, whether they are having any effect.
We are confident that the energy theft-tip off service currently operated by Crimestoppers is delivering value for money, insofar as the monetary value of the instances of theft identified through the scheme outweigh the cost of its operation. RECCo will take over responsibility for the contract management of that service from 1 April 2021, and further to discussion with the Theft Steering Group, we will not be looking to make any substantive changes other than to increase the marketing budget, to raise public awareness of the scheme and it is hoped, further improve its efficacy.
The current contract for the Theft Risk Assessment Service (TRAS) will also expire at the end of the current financial year. However, rather than immediately procure a like-for-like data analytics services, we will conduct a review of stakeholder requirements, including any lessons learnt from the operation of the TRAS, and identify all available options.
In some cases, we would expect these options to be complementary and reinforce the efficacy of wider elements of the theft strategy. For instance, we will also examine whether the current theft detection incentive schemes are fulfilling their objectives, or whether they could be developed in such a way that they are better targeted and/or help to reinforce other aspects of the theft strategy.
2021 - 2022
At its Stakeholder Engagement event in December 2020, RECCo was asked to publish an early sight estimate of the headline 2021/22 Budget numbers in advance of the Budget Consultation in February.
REC v1.1 requires the RECCo Board to develop an annual budget on a bottom-up basis, agree the budget and then publish for REC Party consultation. The RECCo Board expects to agree the final 2021/22 Budget at its next Board meeting on 3rd February and publish for consultation in that same week. Section 9.7 and 9.8 of REC v1.1 sets out the basis on which a Party can appeal the agreed Budget to Ofgem.
The headline estimates set out below are for information purposes only and are yet to be finalised by the RECCo Board.
A number of individual budget lines have been aggregated to ensure RECCo does not breach confidentiality (e.g. disclose contract values), and to protect its commercial interest (e.g. disclose estimates associated with procurement activities).
For the coming 2021/22 Financial Year, RECCo will operate in an evolving and changing environment both internal to the organisation and within the retail energy governance space.
Key factors impacting RECCo’s operations will include:
Mobilisation of REC Code Manager services ready for retail code consolidation;
Central switching service entering UEPT phase;
Migration of 14 existing industry services from existing codes to recco; initiation of projects to assess the viability, including value for money, of a replacement TRAS;
Delivering metering efficiencies through consolidation of codes of practice and meter auditing services.
RECCo will establish an infrastructure capable of delivering an “Intelligent Customer” role on behalf of the REC Parties to ensure Service Providers deliver service quality, continual improvement, and value for money under the enduring service.
In support of the delivery and achievement of the RECCo Strategy, the budget reflects the resources required for the following
Key Strategic Deliverables:
Code Manager readiness for Retail Code Consolidation and service delivery thereafter;
Create a RECCo infrastructure to act as “intelligent customer” on behalf of industry;
Develop a vision and strategy for TRAS2 and commence procurement;
Metering Codes of Practice consolidation and procurement of a single metering code auditor; and
Stakeholder Engagement Programme.
The budget cost for delivering the REC for the 2021/22 Financial Year will be £0.38 per supply point.
Based on aggregate 56.8m gas and electricity supply points as reported for December 2020
REC Services include allowances for Code Manager mobilisation costs, Code Manager operational delivery costs, RECCo projects including TRAS2 and metering procurements and support of the development REC.
The budget reflects RECCo taking over responsibility for delivery of 14 services (shown as Transitioned Services below) which are currently contracted, and funded, through existing industry codes (i.e., MRA, SPAA and SMICoP). Parties should see a corresponding reduction in the budgets for those codes relating to these services for the period after Retail Code Consolidation (RCC) in September 21.
RECCo is working with Ofgem to finalise Switching Programme Support the budget allowance. This budget allowance provides funding for Programme Coordination and Licensed Party Assurance which are under the control of Ofgem. Also included are costs for supporting RECCo’s direct engagement with Switching Programme and RECCo taking on Party Under Integration responsibilities from MRASCo from RCC date.
A Contingency Allowance has been included to reflect the uncertainty of the operational environment. In accordance with the obligation for bottom-up budgeting, each budget allowance has been assessed to understand the degree of certainty of the budget cost estimates and an appropriate contingency allowance has been set. These range from 0% - 10%. The total Contingency Allowance included is 6.6% of the Budget (2020/21: 10%, 2019/20: 10%). As services mature in the coming years it is hoped that the level of contingency, as a percentage of the overall budget will reduce.
A Change Allowance has also been included to fund the consequential impact on REC service provider contracts because of external factors and/or industry-driven change. These could arise from multiple external sources including, but not limited to, the switching programme, enhanced REC obligations on transitioned service providers and Ofgem policy.
RECCo will continue to manage its costs prudently and as a matter of course, the Board will require a robust business case to support any proposed spend against the budget which it is not contractually bound to make. All substantive spends will be subject to competitive procurement. At all times, the Board will strike a balance between collecting funding from REC Parties which reflects the expected costs to be incurred in any quarter and ensuring that RECCo has sufficient resources to enable it to deliver its obligations.
Any underspend against Budget for the year will be refunded to Parties as a rebate.
REC v1.1 section 9.
Analysis of Draft 2021/22 Budget by category
Analysis of 2021/22 Budget by category (% and values)
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Please submit comments on this draft strategy and budget to: email@example.com no later than Tuesday 02 February 2021.
Submitted responses will be made available to the RECCo Board and, unless you ask us not to, may be published on the RECCo website.
05 February 2021
Final Budget issued
Week Commencing 15 February 2021
Budget Stakeholder Engagement Event