29/02/2016

Following its introduction in 2000, the development of competition for electricity connections has been slow in comparison to gas. As a consequence, the regulator, Ofgem, developed measures in their Distribution Price Control Review 5 (DPCR5) to improve the conditions for competition. Collectively these measures were referred to as the ‘Competition Test Process’.

There were two stages of competition tests, which all UK Distribution Network Operator (DNO’s) were instructed to comply with. The objectives of these tests were to ensure the DNO’s implemented mandatory systems, processes and behaviours enabling them to demonstrate that effective competition was being facilitated. The reward for any DNO successfully passing the tests was the abolishment of price control regulations which once lifted would enable the DNO’s to charge first regulated (up to 4%) and then unregulated margin on their connections activities.

The results of these tests however have shown that whilst competition had developed in some sections of the market, it had not been adopted in all market sectors and across all DNO’s.

Following further consultation with key industry stakeholders, including SMS Plc, Ofgem instigated a further review of the electricity new connections market in June 2014 to investigate continued concerns regarding the effectiveness of competition. Some of the findings of this investigation pointed to issues in the market which were limiting competition and specifically highlighted that many of these issues related to the DNO’s role in the connections process.

As a consequence, the DNO’s and their key stakeholder groups, including SMS Plc, identified solutions to these barriers which were then published for consultation by Ofgem in January 2015. The range of best practice behaviours proposed were drafted as a code of practice (CoP) to underpin a new licence condition, which every DNO should comply with.

This new licence condition (SLC52) came into effect on October 2015 and sets out an absolute requirement for each of the DNO’s to reduce the extent to which competitors depend on them for essential services, referencing specifically that where the DNO is required to provide key input services (e.g. point of connection determination), that it will need to do so on the same basis to both its competitors and its own connections business.

SMS Plc welcomes this long overdue enforcement action from Ofgem, which should serve to remove any barriers to effective competition in the electricity connections marketplace, in which SMS Plc has been operating in for a number of years and will ensure that we can continue to deliver best value solutions to our customers with increased confidence.

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