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Ofgem deems BSC Modification P438 on the introduction of sanctions as urgent

BSC Modification P438 would introduce reference to sanctions into the code. Image: Getty.

BSC Modification P438 would introduce reference to sanctions into the code. Image: Getty.

Ofgem has approved the request to treat Balancing & Settlement Code (BSC) Modification P438 – which covers the implementation of sanctions – as urgent.

In a letter to Michael Gibbons, BSC panel chair at Elexon on 20 April, the regulator stated that it agreed with the urgent status of the modification, the proposal for which was unanimously agreed upon during a an Urgent Panel Meeting on 29 March.

“We are satisfied that progression of P438 is related to a current issue that if not urgently addressed may cause a party to be in breach of relevant legal requirements,” the letter written by Grendon Thompson, head of domestic market management states.

Currently the wording of the BSC does not include any reference to sanctions, and as such if government sanctions were to apply to a BSC party or a Balancing and Settlement Code Company (BSCCo) was required to comply with a sanctions order, there is no mechanism to facilitate this.

This could lead to a BSCCo becoming in breach of the BSC or open them up to potential claims from entities subject to sanctions if steps were taken that were not authorised by the BSC, Ofgem explained.

BSC Modification P438 is designed to mitigate this risk by introducing the concept of sanctions into the BSC. It includes the addition of a new event of default, wherein a BSC party can become a designated person under the Sanctions and Anti-Money Laundering Act 2018 or Regulations made under that Act.

The urgent need for the modification has been brought about as Elexon believes there is currently a high risk of inadvertent contravention of the BSC if sanctions were to be brought in.

Following Russia's invasion of Ukraine in February, there have been repeated calls for sanctions on energy.

As part of this, on 6 April, the UK announced that by the end of 2022 it will end all dependency on Russian coal and oil, as well as ending imports of gas as soon as possible thereafter.

“Today, we are stepping up our campaign to bring Putin’s appalling war to an end with some of our toughest sanctions yet,” said foreign secretary Liz Truss.

“Our latest wave of measures will bring an end to the UK’s imports of Russian energy and sanction yet more individuals and businesses, decimating Putin’s war machine.”

Should further sanctions be brought in that would impact BSC parties, the P438 modification will be required to ensure compliance with both the codes and the sanctions.

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