No cash penalties for new energy body

By Finance News On Aug 30, 2024

New rules for the National Energy System Operator (NESO) will forgo financial penalties for breaches and focus on reputational consequences instead.

The new NESO will be established under the Energy Act 2023.

NESO will manage electricity, gas and hydrogen systems, taking over from the Electricity System Operator (NGESO).

It aims to plan and operate the UK’s energy sector and support the goal of a decarbonised power system by 2030.

The government and Ofgem have reviewed responses to the consultation on NESO’s licences, which ended on 9th May 2024.

The feedback highlighted concerns about how NESO would handle compliance without financial penalties, as it operates on a not-for-profit basis.

Some stakeholders suggested implementing minimum service standards to ensure effective compliance and requested more clarity on certain licence conditions.

Ofgem has confirmed that NESO will follow the same enforcement process as other licensed operators, but financial penalties will be less effective since NESO’s status means such penalties would be recycled through consumer bills.

Instead, reputational damage and public scrutiny are expected to be the main consequences of non-compliance.

NESO’s remuneration policy will also reflect any instances of non-compliance.

The consultation also noted that while some stakeholders wanted clearer standards, the existing licence conditions and proposed guidance are deemed sufficient for the time being.

Ofgem plans to review and potentially refine these conditions as NESO’s regulatory framework develops.