High Court overturns CMA appeal ruling on transmission charging

Gordon Downie discusses the outcome of a High Court ruling brought by SSE Generation and others against the rejection by the CMA of its appeal against the decision of GEMA regarding transmission charging for electricity generators.

13 April 2022

The High Court handed down its ruling on 11 April in the judicial review proceedings brought by SSE Generation and others against the rejection by the Competition and Market Authority (CMA) of its appeal against the decision of the Gas and Electricity Markets Authority (GEMA) approving a modification to the GB rules on transmission charging for electricity generators.

A key part of the relevant legal framework under which the relevant modification was proposed is the so-called “connection exclusion” under a piece of retained EU electricity law. This requires that transmission charges exclude charges paid by generators for physical assets required for connection to the system or connection upgrades.

GEMA approved the relevant modification notwithstanding its conclusion that the revised charging methodology it introduced did not properly implement the connection exclusion. GEMA reasoned that, whilst this was the case, the modification would be likely to avoid breach of the “range requirement” under the same EU provision (limiting the permissible range of average transmission charges) and that, therefore, it would better facilitate achievement of the applicable charging objectives than the status quo (the legal prerequisite for GEMA’s approval).

A central part of the dispute between SSE and GEMA in SSE’s unsuccessful appeal to the CMA was whether GEMA had erred in law in approving the modification given that (a) the charging methodology was required to achieve the applicable charging objectives (which include compliance with binding EU requirements), but (b) the modification to the methodology was acknowledged not to be compliant with the connection exclusion.

The CMA’s defence in the High Court (supported by GEMA) rested on three propositions: first, the range requirement was hierarchically superior to the connection exclusion as a matter of the relevant EU law provision; second, there was no duty on GEMA to implement the connection exclusion via the charging methodology; and, third, GEMA was entitled to approve a modification which (whilst not compliant with the connection exclusion) nonetheless improved on the status quo by mitigating the risk of breaching the range requirement.

The High Court (Swift J) ruled in SSE’s favour on this argument. In rejecting the CMA’s three arguments, the judge found as follows:

  1. Properly construed, the range requirement and the connection exclusion were equally binding; there was no hierarchical priority to be given to the former over the latter; as such, a failure to give effect to the connection exclusion was as much a breach of the EU provision as a failure to comply with the range requirement.
  2.  Notwithstanding any other options that may have been available to GEMA to give effect to the connection exclusion it had decided to use the powers available to it to require modification to the charging methodology as the means of doing so. This point was further underlined by GEMA’s approval decision in which it stated that it “expected” the system operator to make a new proposal to modify the charging methodology further so that it correctly gave effect to the connection exclusion.
  3. Whilst the decision-making criterion of ‘better facilitating achievement of the applicable CUSC objectives’ would in many circumstances, “bring with it a practical margin of judgement for GEMA as expert regulator”, here, the “relevant objective was compliance with a legal standard and in that context a miss is as good as a mile”.

It remains to be seen whether the CMA will appeal against the judgment.

Stepping back, it is interesting to see that Swift J’s judgment seems to show little if any reticence as regards the availability of judicial review against the ruling of an appellate tribunal such as the CMA.

For more information, contact Gordon Downie, Partner in our regulation and markets team, at gordon.downie@shepwedd.co.uk, or your usual Shepherd and Wedderburn contact.