1. Introduction

Industry-led rulemaking in electricity markets refers to a regulatory model in which detailed market, technical, operational, and commercial rules are developed substantially by electricity-market participants—such as generators, transmission and distribution companies, suppliers, power exchanges, traders, and system operators—subject to statutory authority and regulatory oversight.

Electricity markets require highly technical rules governing matters such as:

grid connection and access;

transmission and distribution use;

balancing and ancillary services;

electricity scheduling and dispatch;

market settlement;

metering and data exchange;

congestion management;

power-purchase arrangements;

demand response;

renewable-energy integration; and

system-security standards.

A conventional legislative model cannot realistically place every technical rule in primary legislation. Consequently, regulators often permit industry participants to develop detailed codes and market procedures, while retaining powers to approve, modify, reject, or supervise them.

The important legal question is therefore how far rulemaking can be delegated to industry without sacrificing public accountability, competition, consumer protection, transparency and legality.

In Great Britain, electricity industry codes have historically operated as detailed contractual and technical rules administered through industry-led panels and code administrators. Ofgem explains that these codes contain the rules for changing the codes and that proposed modifications are assessed against the relevant code objectives. (Ofgem)

2. Meaning and Nature of Industry-Led Rulemaking

Industry-led rulemaking is different from purely private contractual self-regulation.

Three levels can be distinguished:

A. Pure self-regulation

Industry participants themselves formulate and enforce rules with little or no governmental intervention.

This model is generally unsuitable for electricity because electricity networks are essential infrastructure and electricity markets possess significant public-interest characteristics.

B. Co-regulation

Industry participants formulate detailed technical and commercial rules, but a statutory regulator supervises the process.

This is the dominant model in many electricity markets.

C. Regulatory rulemaking with industry participation

The regulator formally makes the rules but obtains technical information, draft proposals and stakeholder submissions from market participants.

India's regulatory framework illustrates this approach. Under the CERC's regulatory procedure, stakeholders can submit information and comments on draft regulations, and the Commission may conduct public hearings before finalising regulations. A 2026 APTEL judgment concerning India Energy Exchange also discussed these procedures and the Commission's authority to obtain stakeholder information while developing regulations. (Indian Kanoon)

3. Why Electricity Markets Use Industry-Led Rulemaking

Electricity markets are technically complex.

A regulator may have the legal authority to establish a market rule, but industry participants often possess the operational information required to design that rule effectively.

For example, rules concerning:

frequency response;

imbalance settlement;

generator availability;

transmission constraints;

grid-code compliance;

meter-data validation; and

ancillary-service procurement

may require specialist engineering and market knowledge.

Industry participation therefore provides technical expertise and practical knowledge.

Ofgem historically recognised this rationale, noting that industry-led processes allowed participants with relevant information to develop codes dynamically in response to emerging needs. At the same time, Ofgem and the CMA identified risks that an industry-led system could become slow, resistant to strategic change, or insufficiently focused on consumers and competition. (Ofgem)

4. Legal Structure of Industry Rulemaking

An effective industry-led system normally contains five elements.

4.1 Statutory enabling legislation

Parliament or the legislature establishes the regulator and grants it rulemaking powers.

For example, India's Electricity Act 2003 gives regulatory commissions powers to make regulations concerning matters falling within their statutory jurisdiction.

4.2 Industry codes

The regulator or legislation recognises detailed industry codes.

Examples in Great Britain include:

Balancing and Settlement Code (BSC);

Connection and Use of System Code (CUSC);

Distribution Connection and Use of System Agreement (DCUSA);

Grid Code;

Smart Energy Code (SEC); and

Retail Energy Code (REC).

These codes establish detailed rules governing technical and commercial relationships within the electricity system. (Ofgem)

4.3 Industry participants

Generators, suppliers, network companies, traders and other market participants participate in:

code panels;

working groups;

consultations;

modification proposals; and

technical committees.

4.4 Regulatory approval

The regulator retains ultimate authority over important modifications.

This is crucial because industry participants may have conflicting commercial interests.

4.5 Judicial review or statutory appeal

Affected parties may challenge unlawful regulatory decisions before the appropriate appellate or judicial forum.

Thus, industry-led rulemaking remains embedded within the broader administrative-law framework.

5. Industry Codes as a Form of Delegated Governance

Industry codes occupy an unusual legal position.

They may originate from industry agreements but can acquire substantial regulatory significance because participation in the electricity market may depend upon compliance with them.

The UK's legislative materials describe energy codes as detailed technical, operational and commercial rules covering generation, transmission, distribution, supply and retail. They have historically operated largely through industry-led panels and code administrators. (Legislation.gov.uk)

Consequently, the distinction between private contractual rules and public regulatory rules can become blurred.

A code may formally resemble a contract while practically functioning as a regulatory instrument.

This creates an important legal principle:

The more powerful the legal and economic consequences of an industry code, the greater the need for transparency, procedural fairness, regulatory supervision and accountability.

6. Advantages of Industry-Led Rulemaking

6.1 Technical expertise

Industry participants possess detailed knowledge of:

network operation;

electricity trading;

market settlement;

generation technologies;

storage;

renewable integration; and

system balancing.

This can improve the technical quality of rules.

6.2 Regulatory flexibility

Electricity systems change rapidly.

New technologies include:

batteries;

offshore wind;

hydrogen;

electric vehicles;

distributed energy resources;

virtual power plants; and

demand-response systems.

Industry-led mechanisms can potentially amend technical rules faster than primary legislation.

6.3 Lower information costs

Regulators can obtain information directly from market participants instead of independently reconstructing every technical detail.

6.4 Innovation

Industry participation can allow new market mechanisms to emerge without requiring Parliament or the legislature to legislate every technical innovation.

6.5 Stakeholder legitimacy

Participation by affected entities can improve acceptance of technical rules.

7. Risks of Industry-Led Rulemaking

Industry participation also creates significant legal risks.

7.1 Regulatory capture

Large incumbent electricity companies may have greater resources and technical expertise than smaller competitors or consumer organisations.

They may therefore exercise disproportionate influence over rulemaking.

Academic analysis of British energy-code governance has specifically identified delegation as carrying risks of capture and institutional inertia. (ScienceDirect)

7.2 Entrenchment of incumbents

Rules may unintentionally favour existing market structures.

For example, connection requirements or settlement procedures could impose disproportionately high costs on smaller or innovative participants.

7.3 Consumer representation

Electricity consumers may have substantially less organisational capacity than generators, suppliers and network operators.

Therefore, a formally open process may still produce unequal participation.

7.4 Delay

Industry consensus can take considerable time.

The UK Parliament's Industry and Regulators Committee has noted concerns that electricity codes can be slow-moving and resistant to change, including concerns about excessive influence by established participants. (UK Parliament)

7.5 Conflicts of interest

A participant may advocate a rule that improves its own commercial position while presenting the proposal as technically necessary.

This makes independent regulatory oversight essential.

8. Regulatory Oversight as a Safeguard

A successful industry-led system therefore normally follows a principle of:

industry expertise + regulatory accountability.

The regulator should have authority to:

approve or reject modifications;

require additional information;

establish code objectives;

protect consumers;

protect competition;

prevent discrimination;

address conflicts of interest;

require transparency;

intervene where industry processes fail; and

modify rules where legally authorised.

Ofgem currently describes its role as reviewing proposed material code modifications and deciding whether to approve or reject them. (Ofgem)

9. United Kingdom: Industry Codes and Ofgem

The British electricity market provides one of the clearest examples.

Historically, industry participants played a major role in developing and modifying electricity codes. Ofgem nevertheless retained approval powers.

The system therefore represented a form of regulated industry self-governance.

However, concerns emerged that the existing governance system could be too fragmented and slow to deliver strategic transformation.

The UK Parliament noted that industry codes contain detailed rules governing participation in gas and electricity markets and that many codes have traditionally been managed by industry-owned organisations. (UK Parliament)

10. Energy Act 2023 and the Shift Toward Strategic Regulation

The Energy Act 2023 significantly changed the British approach.

The reforms give Ofgem additional powers concerning industry-code governance, including strategic direction and the licensing of code management.

Ofgem's current reform programme involves licensed code managers, intended to provide greater coordination and accountability while continuing to use industry expertise. (Ofgem)

The new architecture therefore does not simply eliminate industry participation.

Instead, it seeks to move from:

industry-led rulemaking

toward:

industry-informed but regulator-directed rulemaking.

Ofgem's Strategic Direction Statement is intended to coordinate and prioritise strategic change across the codes. (Ofgem)

The reform also retains stakeholder participation through mechanisms such as stakeholder advisory forums. (GOV.UK)

11. Case Law and Judicial Principles

Case 1: India Energy Exchange Ltd. v. Central Electricity Regulatory Commission — APTEL, 2026

This recent Indian case is particularly relevant to industry participation in electricity-market regulation.

The dispute concerned CERC's regulatory process in relation to market coupling and information obtained from power exchanges.

The Tribunal examined provisions governing CERC's regulation-making procedure, including:

obtaining information from stakeholders;

publishing draft regulations;

inviting stakeholder comments;

allowing a minimum period for comments;

conducting public hearings where considered necessary; and

finalising regulations after considering stakeholder submissions. (Indian Kanoon)

Legal significance

The case demonstrates that industry expertise and information can legitimately contribute to electricity-market rulemaking, but such participation exists within the statutory regulatory framework.

Industry participants therefore inform regulation but do not automatically possess the final public-law authority to make binding regulations.

Case 2: PTC India Ltd. v. Central Electricity Regulatory Commission, (2010) 4 SCC 603

This Supreme Court decision is foundational to Indian electricity regulation.

The Court considered the relationship between CERC's regulatory powers and the broader statutory structure of the Electricity Act 2003.

The case is important because it establishes the significance of regulations made by electricity regulatory commissions under statutory authority.

For industry-led rulemaking, the principle is important:

Market participants cannot replace the statutory regulator merely because they possess technical expertise or market knowledge.

Industry consultation can inform regulation, but legally binding regulatory norms must remain traceable to statutory authority.

Case 3: Energy Watchdog v. CERC, (2017) 14 SCC 80

The Supreme Court examined regulatory intervention in electricity-market contractual arrangements, particularly power-purchase agreements and changes in circumstances affecting their performance.

The decision illustrates the importance of statutory regulatory powers in maintaining the functioning of electricity markets.

Its broader relevance to industry rulemaking is that commercial arrangements in electricity markets operate within a regulated statutory environment.

Industry agreements therefore cannot automatically override statutory requirements or regulatory jurisdiction.

Case 4: Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd., (2008) 4 SCC 755

The Supreme Court considered the jurisdiction of the electricity regulatory commission in disputes arising from power-purchase arrangements.

The decision recognised the specialised statutory jurisdiction of electricity regulators.

Relevance

Industry-designed contractual mechanisms must operate consistently with the regulator's statutory authority.

This supports a model in which industry participants may develop sophisticated commercial rules but remain subject to regulatory supervision.

12. Procedural Fairness

Industry-led rulemaking should follow procedural safeguards.

Important safeguards include:

Notice

Affected stakeholders should know what rule is proposed.

Disclosure

The regulator or code body should disclose relevant information and reasons.

Opportunity to comment

Affected parties should have a meaningful opportunity to submit representations.

Reasoned decision

The final decision should explain why particular proposals were accepted or rejected.

Non-discrimination

Rules should not unfairly favour one class of market participant.

Review

There should be an appropriate mechanism for appeal or judicial review.

These principles become especially important when an industry code has significant economic consequences.

13. Competition Law Dimension

Industry-led rulemaking also interacts with competition law.

Suppose several incumbent electricity companies collectively design a technical rule that raises the cost of market entry for new competitors.

Although the rule may be described as a technical standard, its economic effect could potentially be significant.

Therefore, regulators should examine:

barriers to entry;

discriminatory access;

preferential treatment;

exclusionary standards;

information sharing;

market concentration; and

effects on innovation.

Industry rulemaking should not become a mechanism through which competitors collectively coordinate commercially harmful restrictions.

14. Renewable Energy and Energy Transition

Industry-led rulemaking becomes particularly important during the transition toward renewable electricity.

Traditional electricity rules were often designed around:

large centralised generators;

predictable generation;

one-way electricity flows;

passive consumers; and

relatively stable demand patterns.

Modern electricity systems increasingly involve:

solar generation;

wind generation;

batteries;

distributed generation;

electric vehicles;

prosumers;

demand response; and

digital energy platforms.

Industry participants therefore have important technical knowledge about how existing codes must evolve.

Ofgem's current reform programme explicitly links code reform to the UK's transition toward net zero and clean power objectives. (Ofgem)

15. Indian Legal Context

India provides a somewhat different model.

The Electricity Act 2003 places primary regulatory authority in bodies such as:

Central Electricity Regulatory Commission (CERC);

State Electricity Regulatory Commissions (SERCs);

Central Electricity Authority (CEA); and

other statutory institutions.

Industry stakeholders participate through:

consultations;

public hearings;

technical committees;

stakeholder submissions;

market consultations; and

representations before regulators.

However, the final binding regulatory authority generally rests with the statutory regulator.

The 2026 APTEL decision concerning India Energy Exchange illustrates the importance of distinguishing stakeholder participation from the exercise of statutory regulatory power. (Indian Kanoon)

16. Model for Good Industry-Led Rulemaking

A legally robust model can be represented as:

Legislature
↓
Statutory regulator
↓
Strategic objectives
↓
Industry code body / code manager
↓
Industry proposals and technical expertise
↓
Stakeholder consultation
↓
Independent regulatory assessment
↓
Approval / modification / rejection
↓
Implementation
↓
Appeal / judicial review

This structure preserves industry expertise without allowing private market participants to become the uncontrolled source of public regulation.

17. Emerging Reform: From Industry-Led to Stakeholder-Informed Governance

The modern direction of electricity regulation is increasingly toward stakeholder-informed governance rather than unrestricted industry self-regulation.

Great Britain's current reforms illustrate this transition particularly clearly.

Ofgem's 2025 reforms proposed a more consistent prioritisation process for code modifications and obligations requiring cooperation with code-modification processes supporting strategic objectives. (Ofgem)

By 2026, Ofgem had established a harmonised prioritisation process for industry-code modifications, with the relevant policy taking effect from 29 May 2026. (Ofgem)

The policy direction therefore attempts to combine:

technical expertise from industry + strategic direction from the regulator + participation from stakeholders + accountability to consumers.

18. Conclusion

Industry-led rulemaking is an important institutional mechanism in electricity markets because electricity regulation involves highly specialised technical and commercial questions that cannot efficiently be addressed entirely through conventional legislation.

Its principal strength is expertise and flexibility. Its principal legal risk is private influence over rules having public consequences.

The case law and regulatory experience demonstrate several core principles:

Industry expertise is valuable but does not replace statutory authority.

Industry codes can have substantial regulatory significance.

Regulators must retain meaningful oversight over important market rules.

Stakeholder consultation should be transparent and procedurally fair.

Consumer and new-entrant interests must be capable of effective representation.

Industry rulemaking should remain consistent with competition and electricity legislation.

Judicial and appellate review provide an important accountability mechanism.

Modern electricity-system transformation requires codes capable of changing faster than traditional regulatory structures.

The emerging regulatory model is therefore not simply “industry makes the rules.” It is better understood as “industry supplies technical expertise and develops detailed proposals within a legally accountable regulatory framework.”

That distinction is central to the future governance of electricity markets, particularly as grids become more decentralised, digitalised, renewable-intensive and dependent upon flexible demand and storage. (ScienceDirect)