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Section C: Elexon and its Subsidiaries

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Section C: Elexon and its Subsidiaries

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Introduction

Section C covers:

(a) the constitution of Elexon and the obligations of the shareholder of Elexon;

(b) the powers, functions and responsibilities of Elexon;

(c) the management of Elexon;

(d) the relationship between Elexon and Parties;

(e) the Business Strategy and Annual Budget for Elexon;

(f) Subsidiaries of Elexon.

In Section C whenever the phrase 'Party' is used, this does not include Elexon or Elexon Clear.

Role and powers, functions and responsibilities of BSCCo

The principal role of Elexon is to provide and procure facilities, resources and services (including those required by the Panel and Panel Committees) required for the proper, effective and efficient implementation of the BSC.

Elexon has to exercise its powers and discharge its functions and responsibilities with a view to achieving the Panel objectives (Section B) as if references to the Panel were references to Elexon.

Elexon may establish affiliated companies (“Permitted Affiliates”) to undertake those activities set out in Annex C-1.

Elexon does not make a profit or loss in any year.

Constitution of Elexon and Obligations of National Electricity Transmission System Operator (NETSO) as Elexon Shareholder

The form of Elexon's Memorandum and Articles of Association were designated under the Implementation Scheme and amended at BETTA Go Active but are treated as if they form part of the BSC and the form can therefore only be modified via the BSC Modifications Procedures.

NETSO is the sole shareholder of Elexon. If the Authority so directs, NETSO must transfer the shares of Elexon to another person that the Authority considers appropriate to succeed NETSO as shareholder of Elexon. NETSO will only exercise the following rights in accordance with the provisions of the BSC or any direction of the Panel consistent with the provisions of the BSC:

(a) amending the Memorandum or Articles of Association of Elexon;

(b) appointing, re-appointing or removing any Director or the secretary or auditors of Elexon;

(c) approving the annual accounts of Elexon;

(d) anything else in relation to Elexon which can or must be done by a vote or resolution or assent of the Elexon Shareholder.

NETSO must not consolidate the financial results of Elexon or any of its Subsidiaries with those of NETSO or any Affiliate unless required to do so by a Legal Requirement. NETSO as Elexon Shareholder has no obligation to provide any finance or financial support to Elexon or any of its Subsidiaries. If NETSO as Elexon Shareholder, requires Elexon not to take certain steps in order that NETSO complies with (or does not breach) a Legal Requirement, Elexon must not take those steps unless it has first consulted with NETSO in relation to such a step, or NETSO has approved the taking of the step, or Elexon is required to take the step pursuant to the BSC.

To the extent that NETSO incurs any corporation tax liability or chargeable gains that it would not have otherwise incurred if Elexon or any of its Subsidiaries had not been treated as being in the same group for the purposes of corporation tax and chargeable gains, then Elexon will recompense NETSO for that amount. The reverse case is also true, where NETSO recompenses Elexon, should Elexon or any of its Subsidiaries incur corporation tax liabilities or chargeable gains, where they would not have otherwise incurred them had they not been treated as being in the same group as NETSO.

Powers and Functions of Elexon

Elexon has the powers, functions and responsibilities set out in the BSC and does not undertake any business or activity other than that which is provided for in the BSC. Some of the powers, functions and responsibilities are listed in Section C and include:

(a) entering into and managing BSC Agent Contracts for the supply of the services required by BSC Service Descriptions (Section E);

(b) advising the Panel on matters that the Panel should consider in order for the Panel to discharge its functions and responsibilities;

(c) providing facilities, resources and support required by the Panel, Panel Committees and Modification Groups (including secretarial and administrative services and the provision of a Panel Secretary);

(d) providing and making available to Parties facilities, services and information associated with the implementation of the BSC that may be required by the Panel or provided for by the BSC;

(e) entering into contracts of employment or other terms of engagement with the Panel Chair and the independent Panel Members appointed by the Panel Chair (Section B);

(f) indemnifying and reimbursing the expenses of Panel Members, Panel Committee members, Modification Group members and others as provided for in the BSC;

(g) entering into Accession Agreements with new Parties and entering into Novation Agreements with transferring Parties (Section A);

(h) acting as shareholder of Elexon Clear;

(i) collecting and holding data and information, and maintaining books and records, as necessary to enable Elexon to comply with its functions under the BSC or as is otherwise required under the BSC, and to providing data and information held by it to the Panel on request or to other persons as provided for in the BSC;

(j) where it is not the job of a BSC Agent to do so, maintaining records of the extent to which Parties have satisfied the requirements to undertake certain registration activities prior to exercising any right under the BSC (Section A) and to provide details of these records to others as provided under the BSC;

(k) monitoring whether any Party is or will be in Default and giving notice of Default (Section H);

(l) acting as the Performance Assurance Administrator (PAA) (Section B);

(m) making recommendations to the Panel on possible modifications to the BSC where the BSC provides for Elexon to do so (Section F);

(n) preparing and/or assisting the Panel in preparing the Annual BSC Report (Section B);

(o) maintaining, publishing and reviewing the Code Administration Code of Practice (in conjunction with the other code administrators, and subject to the Authority approving any changes); and

(p) delegating its powers, functions and responsibilities to the BSC Services Manager where one has been appointed (Section E), except those relating to management of the BSC Services Manager and acting as shareholder for the BSC Clearer.

If instructed to do so by the Panel, Elexon can take proceedings against a Party that is (or may be) in breach of any provision of the BSC. Where the Panel has instructed Elexon to take proceedings, other Parties must not commence proceedings directly against the Party in breach without the prior approval of the Panel (unless a Party needs to take proceedings for interim relief or other steps where that Party believes that they are required as a matter of urgency to protect its interests). All costs incurred by Elexon in the proceedings are treated as BSC Costs and where any amount is recovered from the Party in breach, it is paid to other Parties in the proportion of their Annual Funding Shares (unless the Panel decides on some other basis of apportionment).

Where a Party is (or may be) in breach of the BSC and it appears to Elexon that as a matter of urgency, proceedings should commence in order to protect the interests of Elexon and/or other Parties, Elexon can take such action, after consulting (where time permits) with the Panel Chair.

These provisions relating to proceedings for breach do not apply in relation to any breach by a Party of a payment obligation under Section D or Section N.

Unless stated otherwise in a particular provision of the BSC, or instructed by the Panel, and subject to the objectives that govern Elexon's operation, Elexon has discretion in its management and organisation. There are certain actions for which Elexon must gain prior approval of the Panel. These include entering into borrowings that in aggregate exceed £10,000,000 and making loans or granting credit to anyone other than an Elexon Subsidiary or as otherwise allowed under the BSC. Elexon cannot issue shares in Elexon or acquire shares in any company other than Elexon Clear and shares acquired under the Implementation Scheme, or dispose of shares in Elexon Clear or any other Elexon Subsidiary. Elexon may not give or receive any cross subsidy from a Permitted Affiliate.

Elexon must collect and provide to the Authority any relevant information and undertake any analysis of the information that the Authority requests. Unless the Authority has requested that Elexon should only notify the Party to whom the information relates, Elexon notifies all Parties of any requests that it receives from the Authority for information.

If the Authority directs NETSO under its Transmission Licence to secure compliance with any provision of the BSC, Elexon must provide assistance and take the steps that NETSO may require in order to secure compliance. Any reasonable costs incurred by NETSO in complying with such a direction are paid by Elexon.

Elexon performs periodic reviews1 of the BSC and its implementation and operation and (if the Authority requests) a review of any particular aspect of the BSC, in order to evaluate whether the BSC continues to facilitate achievement of the Applicable BSC Objectives. Elexon reports on the reviews and provides copies of the report to the Authority, each Party and places it on the BSC Website.

Management of Elexon

Directors are appointed to Elexon’s Board on the recommendation of a Nomination Committee. The Board must include at least two Directors who are suitably independent from the electricity industry, but a majority of the Directors (excluding the Chair and Directors which are Elexon employees) must have relevant electricity industry expertise. Directors have a term of office which is no greater than three years and can resign or be removed in accordance with the provisions of Elexon's Articles of Association, or by certain BSC Parties under Section C4. Section C4 (and Annex C-2) provides a process for such BSC Parties to vote to approve the appointment of Directors, as well as the aforementioned right to remove Directors, and to vote on non-binding resolutions on other matters. Directors can be re-appointed when their term of office ends.

All Directors are entitled to reimbursement for costs and expenses. All Directors except Directors who are Elexon employees are entitled to remuneration and benefits (to be determined by the Nomination Committee). Any remuneration and benefits must be disclosed in the Annual BSC Report.

The Directors of Elexon are indemnified by Elexon as provided for in the Articles of Association.

The Board appoints (and can remove) the Chief Executive of Elexon, who is not a Director of Elexon. The Board delegates to the Chief Executive the authority to conduct the day-to-day business of Elexon.

Relationship Between Parties and Elexon

If any Party or Parties were to make any claim against any BSC Company2 , the financial consequences of the claim would be borne by all Trading Parties (as Elexon is not intended to make a profit or loss in any year). The BSC therefore provides that Parties agree that any Party or Parties should not be able to make a claim (in damages or other financial nature) against any BSC Company. In addition no Party must take any step in relation to a BSC Company which could result in it being in Default (Section H), but this does not prevent a Party from notifying a BSC Company of a requirement to pay an amount due for payment to the Party.

There is an exception where Elexon is in breach of a provision of the BSC (other than a breach by Elexon relating to its role as Performance Assurance Administrator or under Section M or under Section F or a breach of Legal Requirements relating to NETSO) and a Party is unfairly and particularly prejudiced by the breach and as a consequence suffered a loss however the breach must not result in some loss being suffered by all other Parties or all Trading Parties. In such circumstances Elexon's liability in damages to that Party is not excluded or limited (however this is without prejudice to some specific provisions on limitation of liability outlined in Section H).

Any claims or commencement of proceedings against Elexon must occur within six months of the breach occurring or (if later) within three months of the Party becoming aware of (or could have been expected to become aware of) the breach. A Party cannot make a claim against Elexon if the amount of the loss resulting from the breach is less than £50,000 and the aggregate cumulative payment that Elexon can make in respect of claims against it in any year is capped at £3,000,000.

Business Strategy and Annual Budget

Elexon sets out a Business Strategy and Annual Budget each year. The Business Strategy contains the principal activities which Elexon expects to undertake in the Plan Year and the following two BSC Years. Elexon discusses with the Panel the scope and format of the Business Strategy and Annual Budget. In preparing the Business Strategy, Elexon invites comments from those persons eligible to propose modifications to the BSC. Elexon must keep any approved Business Strategy under review.

At the same time as preparing the Business Strategy, Elexon prepares and circulates the Annual Budget. Following finalisation of the Business Strategy Elexon finalises and adopts the Annual Budget. If the Business Strategy gets revised, Elexon can, if appropriate, revise the Annual Budget. The Elexon Board must approve the Annual Budget and any revisions to it.

The Annual Budget will refer to all costs incurred by Elexon in execution of their duties, including, but not limited to, their role as Market-Wide Half Hourly Settlement (MHHS) Manager.

A copy of each Business Strategy and Annual Budget (and any revisions to them) are provided to the Authority, the Panel and each Party after adopting (or revising) them.

BSC Companies

Elexon can discharge any of its powers, functions or responsibilities through a Subsidiary (where the BSC allows for one) but only to the extent that the delegated activities relate to activities that the Subsidiary carried out by the company before it became a Subsidiary on the Code Effective Date.

No Subsidiary of Elexon can have or exercise any powers beyond those of Elexon or do anything which cannot be undertaken by Elexon pursuant to the BSC or with the consent or approval of the Panel.

Elexon Clear has the role provided in Section N and the duties, responsibilities and functions set out in that Section. Its Memorandum and Articles of Association must be in the form designated in the Implementation Scheme and are treated as if they form part of the BSC. The form can therefore only be modified by applying the BSC Modifications Procedures.

Elexon must always be the holder of all share capital issued in relation to its Subsidiaries and must exercise its rights as shareholder to ensure that the provisions of the BSC are given effect. The Board and Chief Executive of the Subsidiaries must be the same as the Board and Chief Executive of Elexon.

Provision of the Profile Administration Service by Elexon

The Profile Administrator is a BSC Agent and in the circumstances where the attempts of Elexon to appoint a Profile Administrator are unsuccessful, Elexon may, with Panel approval, provide the "Profile Administration Services". However, Elexon may not provide this service for a period in more than one year without further Panel approval.

Permissible Activities Undertaken by Permitted Affiliates

Elexon is entitled to hold shares in a Permitted Affiliate but may not dispose of its shares in the EMR Settlement Services Provider except to the Low Carbon Contracts Company or the Electricity Settlements Company or as otherwise directed by the Secretary of State. The restrictions relating to BSC Companies (summarised above) do not apply to a Permitted Affiliate.

BSC Parties and the Panel may not prevent or restrict a Permitted Affiliate from performing the activities set out in Annex C-1. Parties are not entitled to make a claim (in damages or other financial nature) against a Permitted Affiliate except to the extent that liability cannot be legally excluded. This will not prevent companies that are BSC Parties from bringing a claim against the EMR Settlement Services Provider under any relevant EMR legislation.

Permitted Affiliates are subject to a legal ring-fence to prevent BSC Parties from having to fund non-BSC liabilities. The ring-fence prevents Elexon from entering into transactions with a Permitted Affiliate except on an arm’s length basis. This ensures that Elexon cannot cross-subsidise a Permitted Affiliate. Elexon is required to enter into a contract with a Permitted Affiliate to ensure shared costs are allocated reasonably and equitably between Elexon and the Permitted Affiliate. This also ensures that any services provided by Elexon to the Permitted Affiliate are chargeable on a cost recovery basis. BSC Parties have no liability to provide financial support to a Permitted Affiliate.

Provision of Support to EMR Settlement Services Providers

Elexon may provide support services to the EMR Settlement Services Provider where such services are reasonably incidental to its EMR functions. Elexon is required to enter into an agreement with the EMR Settlement Services Provider that:

(a) prevents the latter from using BSC data other than to discharge EMR settlement functions;

(b) is consistent with the data licence agreements granted by Elexon to non-Parties under Section V;

(c) for data provided for CfD settlement purposes, imposes confidentiality restrictions equivalent to those contained in Section H;

(d) for data provided for Capacity Market settlement purposes, imposes confidentiality restrictions equivalent to those contained in EMR legislation;

(e) any BSC data disclosed to a service provider of the EMR Settlement Services Provider shall be made on a need to know basis only;

(f) restricts Elexon’s liability for any services provided by it to the EMR Settlement Services Provider;

(g) provides for the payment by the EMR Settlement Services Provider of Elexon’s costs in supporting EMR in accordance with Section D.

MHHS Implementation

BSCCo has been tasked by the Authority to act as the MHHS Implementation Manager (IM). The IM role encompasses the roles of the MHHS SRO (Senior Responsible Officer), MHHS SI (Systems Integrator), MHHS PMO (Programme Management Office), MHHS PPC (Programme Party Coordinator), and MHHS DA (Design Authority).

Appointment of service providers

    1. Elexon is allowed to contract out some of these roles to an external service provider, and to delegate aspects of these roles, but Elexon remains responsible for performing all of the IM roles and ensuring obligations are performed in accordance with the BSC.

    2. Ofgem may direct Elexon to appoint a service provider to provide one or more of the IM roles, and Ofgem may direct Elexon to terminate a contract with a service provider performing one or more IM roles and appoint a replacement provider.

Removal of Elexon from IM role

    1. Ofgem may, in accordance with the MHHS Governance Framework, determine at any time that someone other than Elexon is to perform some or all of the IM role(s).

    2. In this scenario, Elexon would be relieved of responsibility for any part of the role that Ofgem had removed. However, if still continuing to perform some of the IM roles, it would need to co-operate with the replacement provider.

    3. If Ofgem at any point were to direct that an entity other than Elexon should perform the IM role, the costs of that other entity would still be BSC Costs, and Elexon would be required to enter a funding agreement to facilitate this.

Programme Manager Obligations

    1. In performing its IM role, Elexon must comply with a number of additional obligations including:

      • Ensuing it has sufficient and appropriate personnel, facilities, service providers, and IT systems to perform its role as IM;

      • Performing its roles in accordance with key MHHS Programme governance documents and requirements (including the MHHS Implementation timetable, the MHHS Governance Framework, MHHS ISMS);

      • Taking into account recommendations of the Independent Assurance Provider, or explaining to Ofgem why it has not followed such recommendations;

      • Acting in accordance with Ofgem’s directions;

      • Performing its roles without undue discrimination between MHHS Participants (including between Elexon (as an MHHS Participant) and other MHHS Participants);

      • Performing its roles economically and efficiently and with consideration of the total cost to and impact on MHHS Participants, and taking into account the likely impact on consumers.

    1. The specific tasks and functions of each of the IM roles are include:

      • SRO: responsible for delivery of MHHS Implementation in accordance with the MHHS Implementation Timetable, and accountable for ensuring that MHHS Implementation delivers the MHHS Target Operating Model and achieves the other outcomes specified by Ofgem as part of the MHHS Significant Code Review.

      • DA: responsible for securing the robust and stable design of the business processes and IT Systems via which market-wide, half-hourly Settlement is to be provided, including the existing and new IT Systems of Elexon and any other new central IT System and the interface of those IT Systems with those of other MHHS Participants (excluding the IT Systems of other MHHS Participants).

      • PMO: responsible for providing full and effective programme management to support MHHS Implementation.

      • SI: responsible for securing the robust and stable integration of the business processes and IT Systems to be used by MHHS Participants for the purposes of market-wide, half-hourly Settlement (including integration with Elexon IT Systems and associated business processes).

      • PPC: responsible for full and effective co-ordination of MHHS Participants in relation to MHHS Implementation.

Escalation

    1. The BSC and the MHHS Governance Framework set out the thresholds for the MHHS IM, in particular the SRO, to escalate decisions to Ofgem where they impact on key MHHS Programme parameters or timeframes.

    2. The Independent Assurance Provider may also determine that a decision should be escalated to Ofgem.

Separation Requirements

    1. The BSC and the MHHS Governance Framework set out the requirements Elexon is required to meet to ensure sufficient separation of the service providers, personnel, IT Systems and facilities Elexon uses to perform its role as IM from those it uses as MHHS Participant.

    2. Elexon must have in place a business separation plan that sets out how it will meet the separation requirements contained in the BSC and the MHHS Governance Framework. The business separation plan must also be approved by Ofgem.

    3. The Elexon Board is required to maintain appropriate delegations to the Elexon executive and the MHHS SRO to facilitate separation of MHHS functions and decision-making.

    4. BSCCo may only share MHHS IM information with the Board and the executive where necessary to enable them to perform their oversight responsibilities. Where this happens, the information must be anonymised and Elexon must inform Ofgem and the Independent Assurance Provider that the information has been shared and provide a record of any decisions made in relation to that information.

    5. MHHS IM information must not otherwise be shared with the rest of Elexon outside the MHHS Programme (unless it is information that is being provided to all MHHS Participants).

    6. The Elexon Board remains responsible for ensuring Elexon complies with the separation requirements (as set out in the BSC, the MHHS Governance Framework and the MHHS Separation Solution).

Obligations of Elexon as MHHS Participant

    1. Separate from its role as MHHS Implementation Manager, Elexon is an MHHS Participant, and in addition to its general obligations as an MHHS Participant it has particular responsibilities in respect of the MHHS Qualification Plan and the MHHS Migration Plan.

Relationship with MHHS Independent Assurance Provider (IPA)

    1. The IPA will be appointed by Ofgem, but will be managed on a day-to-day basis by the MHHS IM

    2. The SRO can engage with the IPA to seek advice.

    3. The IPA can give recommendations to the IM regarding MHHS Implementation. If Elexon decided not to comply with a recommendation from the IPA, it would need to notify Ofgem and provide reasons for this.

Obligations of other MHHS Participants

    1. MHHS Participants generally have obligations to comply with BSC MHHS Implementation requirements and the MHHS Governance Framework (including the MHHS Timetable); to deliver their IT Systems and business processes required as part of MHHS Implementation; and to generally facilitate MHHS Implementation.

    2. No BSC Party or Party Agent will be able to participate in market-wide, half-hourly Settlement until it has successfully completed MHHS Qualification.

    3. MHHS Participants cannot avoid complying with their obligations due to costs.

    4. Other Affected Code Bodies are required to provide co-operation and information required by the IM to perform its obligations in respect of other Industry Code.

Funding

    1. Costs incurred by Elexon in undertaking the role of IM are BSC Costs for BSC purposes, however, they must be accounted for separately from other BSC Costs. MHHS Implementation Costs must also be identified separately in the Annual Budget.

    2. Section D8 of the BSC provides that MHHS Implementation Management Costs are recoverable from Trading Parties, and sets out the specific process and requirements for MHHS Implementation Management Costs.

    3. Costs of the Independent Assurance Provider appointed by Ofgem must be paid for the MHHS SRO. Elexon may also be required to enter into a funding agreement with the Independent Assurance Provider to facilitate this.

Need more information?

For more information please contact the BSC Service Desk at bscservicedesk@cgi.com or call 0370 010 6950.

Copyright Notice

If you have an interest in the electricity industry, you may view, download, copy, distribute, modify, transmit, publish, sell or create derivative works (in whatever format) from this document or in other cases use for personal academic or other non-commercial purposes. All copyright and other proprietary notices contained in the document must be retained on any copy you make. All other rights of the copyright owner not expressly dealt with are reserved.

1 The reviews are no more than once a year and at least once every two years.

2 A BSC Company is Elexon and any Subsidiary of Elexon.