On 23 February 2010 the Court of Appeal upheld Ofgem's decision of February 2008 that National Grid had abused its dominant position in the market relating to the supply of domestic gas meters. While the Court reduced the fine levied by Ofgem from £41.6 million to £15 million (the Competition Appeal Tribunal having, in the interim period, already reduced the fine to £30 million), it is still the largest fine imposed to date by any UK competition authority for an abuse of dominance. Coupled with the possibility of private damages actions by affected parties, it sends a clear message to industry of the need to ensure competition law compliance. On the other hand, the judgement also sends a clear message to those regulators with both regulatory and competition law powers, such as Ofgem, of the need to factor competition law into their regulatory thinking - a critical issue that led to the reduction of the fine on appeal was Ofgem’s knowledge of, and involvement in, the conduct ultimately considered to be abusive. It remains to be seen whether either party will seek to take the matter before the Supreme Court.
The Abusive Conduct
The abuse in question occurred in the context of the opening of the domestic metering to competition in 2004 by virtue of which gas suppliers obtained the ability to use competing meter operators /suppliers to National Grid, the incumbent.
In broad terms, National Grid was found to have abused its dominant position in relation to 'legacy meters' by, in anticipation of the market liberalisation, entering into long term contracts for the supply and maintenance of gas meters with major energy suppliers. These contracts included financial penalties on the energy suppliers if they replaced more than a small permitted number of National Grid meters with those of competing suppliers.
This practice was found to be abusive as it discouraged switching from National Grid to potential competitors, thus foreclosing the market to the latter. While the case throws up a number of interesting competition law issues, fundamentally, the Court stressed the well established principle that a dominant company has a special responsibility not to act in a manner which distorts competition.
Level of the fine
The Court considered a number of factors in reducing Ofgem's fine. This included, most importantly, the fact that Ofgem was closely involved in discussions relating to the development of the agreements in question and did not make clear its competition law concerns at the time. This demonstrates the need for a regulator with competition and regulatory powers to consider a potential issue with both a regulatory and competition law hat on. While in practice this may be difficult, the risk is a detrimental impact on a regulator's enforcement action and potential damage to constructive and effective industry relations.
On the other hand, the Court and the CAT (Competition Appeal Tribunal) stressed that it is not sufficient for a company to avoid liability to fines by pointing to regulatory involvement or the fact they had brought the conduct in question to the attention of the regulator. The Court refused to let National Grid off the hook noting that it was aware of potential competition law issues and could have sought further more 'formal' guidance/comfort from Ofgem on the matter (which raises interesting questions as to what a company can and cannot, and should, do to get regulatory competition law comfort given there is no longer a formal notification system in the UK).