Given the substantial financial penalties imposed by the UK’s economic regulators it is surprising that, unlike competition law enforcement cases, very few regulatory enforcement cases have ever been the subject of contested proceedings.
As a result, those facing enforcement action face enormous uncertainty when sanctions are threatened and negotiated settlements are therefore reached in something of a vacuum.
A recent decision in Ofgem’s enforcement action against npower provides a rare and valuable glimpse into how the regulator handles contested cases.
On 2 August Ofgem announced a proposal to fine npower £2.4 million for supply licence breaches arising from failure to install advanced meters for some electricity business customers by a deadline which expired in April 2014.
Along with other energy suppliers, npower was obliged to install such meters for all of its customers (except where, having taken “all reasonable steps” to do so, this was not possible).
To settle or not to settle?
Ofgem had initially sought to agree a settlement of its case against npower (in terms of which npower would likely have paid an amount by way of penalty and redress), but agreement could not be reached and so it had initiated a (hitherto untested) step in its enforcement process by referring the case to a body known as the Enforcement Decision Panel (EDP).
In presenting its case to the EDP, Ofgem had submitted that a financial penalty of “at least £3.7m” should be imposed in respect of the relevant breaches (which suggests that the (discounted) figure at which Ofgem would have sought to settle the case would have been lower than that).
Decision-making by the Gas and Electricity Markets Authority (GEMA) in enforcement cases consists of an investigative phase undertaken by staff employed in the Office which supports the GEMA board (Ofgem), followed by a decision-making phase.
Virtually all cases dealt with prior to the most recent npower case have ended in a settlement and the decision-making phase has been handled by a settlement committee of the GEMA board.
In this case, however, it was dealt with by the EDP, which is a panel of independent individuals established in 2014 to exercise delegated decision-making powers on behalf of the GEMA board.
The EDP’s decision forms part of GEMA’s administrative decision-making process, but is made independently of Ofgem.
The EDP determines contested matters on the basis of the evidence and submissions put before it by both Ofgem and the licensee(s) alleged to have contravened the relevant regulatory requirement.
The EDP determination produced what might be described as a mixed result for npower.
On the one hand, the EDP decided that npower had indeed breached the relevant requirements (and had, in particular, failed to satisfy the “all reasonable steps” requirement).
On the other hand, the EDP disagreed with Ofgem on the extent of npower’s failings and decided to impose a significantly lower penalty than the one for which Ofgem had contended.
Formal dispute resolution - wider benefits
Beyond those narrow considerations, however, the EDP determination provides stakeholders with something long missing from enforcement activity in the sector, i.e., a rigorous, impartial and transparent assessment of the legal and factual merits of an enforcement case brought by an Ofgem case team.
The EDP was particularly dismissive, for instance, of Ofgem’s attempts to apply contract law concepts to interpret an expression such as, “all reasonable steps”, in the context of regulatory obligations.
It was also fully engaged with the facts of the case and had been prepared (although the opportunity did not arise) to hear oral evidence from (and cross-examination of) witnesses.
The publication of the EDP determination in the npower case offers a valuable insight into the handling of contested cases within the energy regulator.
Those contemplating the alternatives to settling enforcement cases in future will be able to derive substantial comfort from the evident quality of the EDP’s approach to handling the case.