DD1416 Licence Lite – the GLA’s licence application to Ofgem

Type of decision: 
Director's decision
Code: 
DD1416
Date signed: 
02 November 2015
Decision by: 
Fiona Fletcher-Smith, Executive Director of Development, Enterprise and Environment

Executive summary

The GLA has made an application for a junior electricity supply licence (‘licence lite’) to Ofgem. Following discussion with Ofgem, amendments are required to the application, namely: 
1.    that the description of who can be supplied with electricity by the GLA should be changed from a list of premises to all non domestic premises the GLA  decides to supply. In addition to TfL, this may include certain governmental bodies and public authorities; 
2.     that the GLA should not restrict tenders for purchase of electricity for its operations to London sources only. 
The changes do not change the feasibility of the GLA’s licence lite proposals, however this decision is required since these changes modify statements made in the licence application or in DD897 which included its authorisation.

 

Decision

That the Executive Director approves:

•    The change in the description of the licensable activities in the application from the purchase by the GLA of electricity generated by London boroughs and other public sector bodies in London to the purchase of electricity from any party.
•    In substitution for the GLA supplying electricity only to non domestic premises owned or managed by London boroughs, Transport for London, the London Fire and Emergency Planning Authority, the Metropolitan Police and other governmental bodies and public authorities in London, the GLA be able to supply any non domestic premises (on the basis that the GLA’s business plan proposes only to supply non-domestic premises within or proximate to the GLA area). 

Part 1: Non-confidential facts and advice

Introduction and background

1.1    The GLA application for a junior (licence lite) electricity supply licence was authorised in DD897, so that the GLA could buy the electricity produced by London boroughs and other public sector decentralised energy generators in London and sell it at proper market rates. The decision noted that the request for a decision has gone to IPB and will come back to IPB at the point at which a decision is needed on accepting the grant of the licence and entering into the contracts necessary to purchase and supply electricity in the manner described in DD897.

1.2    Since the licence application to Ofgem was made in March 2013, the outstanding regulatory issues in respect of the licence application have been resolved, a detailed financial model delivered to Ofgem and a third party fully licensed electricity supplier appointed to provide market interface services to the GLA, as required under the terms of the grant of the licence to the GLA. 

1.3    Some statements made by the GLA in its lite licence application now require revision, to comply with the conclusions reached in discussions with Ofgem.

1.4    The revisions are concerned with two matters. The first is that the premises to which the GLA may supply electricity under the licence be differently defined. The licence application currently defines premises to which the GLA may supply electricity as- .

•    London boroughs and non domestic premises owned or managed by them;
•    Transport for London, the London Fire and Emergency Planning Authority, the Metropolitan Police and non domestic premises owned or managed by them;
•    other governmental bodies and public authorities in London and non domestic premises owned or managed by them.

1.5          This DD requests authorisation to change the definition of premises which the GLA  may supply to   
            any non domestic premises, not distinguished by ownership or location within Great Britain.

1.6    The reason for the change is technical, in that specifying narrow classes of premises that can be supplied would be complex and time consuming to administer, since the premises would need to be individually identified so that Ofgem can monitor that the scope of the licence is being complied with and the premises supplied would be constantly subject to change. 
 
1.7    The GLA may still keep the scope of its supply activities to within the GLA area, since the GLA is at liberty to manage its licence lite business within that scope. It is suggested that the practical scope adopted be the GLA area and also consumers proximate to it, to provide a small amount of flexibility.

1.8    This change of scope would not cause the GLA to be exposed to any additional risks or liabilities under its licence. At the operational level, the change would improve the flexibility available to the GLA regarding whom it may supply and increase potential demand for the GLA’s electricity supply. That would be advantageous to its licence lite business and consistent with its licence lite objectives because it increases potential demand.   

1.9    Second, that the source of the electricity that the GLA purchases from generators for the purposes of its licence lite supply be changed from its current description in the licence application as – 

‘electricity generated by or on behalf of the London boroughs and other public sector bodies in London;’ 
          to  - 
‘electricity generated from any source’. 

1.10    The reason for the change is to allow the GLA to evaluate potential sources of supply on a number of criteria including price and to be able to select the most economically advantageous sources not solely by reference to geographical location or ownership.

1.11    Decentralised small scale electricity generating capacity is likely to find meeting the GLA’s needs for power for its licence lite business attractive because of the enhanced financial margins. This has already been demonstrated in the responses received from small scale electricity generating interest to the GLA’s Pre-qualification Questionnaire, received in June 2015. 

Objectives and expected outcomes

2.1    The objective is to conform to Ofgem’s guidance and legal requirements through the alterations to the licence application terms described above; but to do so without causing the GLA to be exposed to any additional risk or liabilities under the terms of its licence.

2.2    The outcome of changing the relevant terms in the licence application is expected to be positive, in that – 

a)    it will facilitate the grant of the licence upon which the GLA’s licence lite operations are dependent;
b)    adopting the changes to the licence application terms should not adversely affect the feasibility of the licence lite business, including the opportunity to realise the full economic advantages  available to smaller scale decentralised electricity generators and the GLA as the supplier, through the matching of generation with electricity consumption requirements which is central to the licence lite business model. 

Equality comments

3.1    The changes in respect of which this decision is being made will have no impact, either positive or negative, on those with protected characteristics.

Other considerations

4.1    That there are no additional risks or liabilities in relation to the licence involved in extending the permitted scope for electricity supply under the licence.

Financial comments

5.1    There are no direct financial implications to the GLA arising from this proposal. However, the purchase and associated sale of the electricity must still be in line with the conditions set out in DD897 and the Authority’s financial and statutory obligations. 

Planned delivery approach and next steps

Activity

Timeline

Issue of Prequalification questionnaire to electricity generators

20th October  2015

Tenders received for generating capacity

November 2015

Contracts terms settled but not signed with third party electricity supplier

December 2015

Ofgem advertises GLA licence application

December 2015

Contract forms settled (but not signed) with generators and TfL for supply of electricity

December 2015

IPB approval  and MD requested to business plan /grant of licence  /contract commitments

January 2016