Gas and Electricity Markets Authority v Npower Direct Ltd & Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ZACAROLI |
| Judgment Date | 05 October 2018 |
| Neutral Citation | [2018] EWHC 2748 (Ch) |
| Date | 05 October 2018 |
| Court | Chancery Division |
| Docket Number | Case No: FS-2018-0000014 |
[2018] EWHC 2748 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
FINANCIAL SERVICES AND REGULATORY LIST
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Mr Justice Zacaroli
Case No: FS-2018-0000014
Ms J Simor QC (instructed by GEMA) appeared on behalf of the Claimant
Mr D Sinclair (instructed by Eversheds LLP) appeared on behalf of the Defendants
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: This is an application by the Gas and Electricity Markets Authority (“GEMA”) for an injunction to enforce compliance with a Provisional Order made by it under section 25 of the Electricity Act 1989 [and the equivalent materially similar provision of the Gas Act 1986]. I will refer only to the provisions of the Electricity Act, but the same conclusions apply equally to the Gas Act. The application was brought on urgently in the applications court yesterday morning.
The Provisional Order was made as a result of a decision by GEMA that Npower had breached the terms of a condition of its licence (Licence Condition 32A), imposed on it by a Direction dated 31 August 2018. The Direction relates to concerns of the Competition Markets Authority that lack of engagement with customers leads to significant financial detriment, estimated at £1.4 billion, and is an obstacle to fair competition. After extensive consultation into the issue, the Competition Markets Authority proposed that Ofgem introduce a Licence modification, providing it with power to direct licence holders to undertake testing and trialling. In January 2017, Ofgem introduced Licence Condition 32A, which imposes on suppliers the obligation to comply with a direction from Ofgem to undertake a trial to test consumer engagement measures. This was to be for a limited period, until 31 December 2022.
By 32A.7, a supplier is not obliged to comply until selection criteria are published. Those were published on 30 January 2017. Essentially those criteria relate to whether the supplier has enough customers and whether the burden is proportionate for that particular supplier. Between February and April 2018, pursuant to a direction given to Scottish Power, a trial was run in relation to 50,000 of its customers. The result was that a significant proportion of customers switched to other suppliers. Ofgem wished to undertake a further trial to see whether that was a one-off or whether it could be replicated, and replicated in a scaled-up trial involving a total of up to 200,000 customers.
On 12 July 2018 the current trial was proposed. Npower was informed that suppliers would be selected on the following basis. Two suppliers would be chosen from those with more than 500,000 customers on a standard variable tariff. Each would identify 100,000 eligible customers. The trial would commence in September 2018, with initial communication letters then being sent. The trial would be completed in December 2018. Npower made representations to Ofgem, including in an email dated 18 July, that it should not be chosen, including because it had volunteered for an earlier trial and was to be involved in an exercise with Ofgem relating to something called the “disengaged customer database” which had been delayed to the back end of the year. Nevertheless, it was chosen and was formally told of this on 1 August 2018, when it was sent a draft Direction. The Direction followed the terms previously indicated: 100,000 customers with the trial commencing in early September and, importantly, initial communication with customers by 20 September (or such later date as might subsequently be indicated by the Authority).
I note that on 31 July there was a communication between Npower and Moorhouse Consulting, which I understand to have been acting on behalf of GEMA, where Moorhouse Consulting explained that all “big six” suppliers had been involved with earlier trials and that the earlier trial that involved Npower was the smallest, involving a population of only 1,200. Npower responded saying that they now better understood the size of other trials and thus the selection of Npower looked fair when looking just at trials and that it was unlikely that the trials and database work would clash, “…hence, we will get on with the trial.”
On 10 August Npower emailed Ofgem with concerns about the trial, in particular focussing on the numbers involved. It considered that 100,000 customers should be viewed as more than a trial and expressed concern that it would suffer a significant financial detriment. It suggested a trial of 10,000 to 30,000 customers. That number would, of course, have not satisfied the scaling-up objective of the trials. They concluded the email, “We will of course comply with the SLC 32A,” but asked to discuss as a matter of urgency the number of customers. On 20 August Ofgem provided a further and more comprehensive response as to why 100,000 was the necessary number and not something smaller. It said:
“To take this option to the next level, we need to understand whether such a service is scalable. To do this we need to understand two things: (1) can call centres deal with the increase in the volume of the customers they will need to interact with; (2) what is the market appetite for bidders on the collective switch auction at larger volumes. Taking that all into consideration, we came to the conclusion that we need to ramp up the numbers to circa 200,000 customers. To limit the impact on the chosen supplier, we took the decision to split that between the two suppliers.”
On 31 August 2018 Npower sent a long email to Ofgem to put their concerns in writing in relation to the trial. These included concerns over proportionality and that the trial fell outside the legitimate aims in SLC 32A. But, on the same date, the actual Direction (intimated in draft at the beginning of the month) was served on Npower. The dates for steps in early September had not changed. In particular, the obligation to send initial letters to customers was to be undertaken on 20 September. Npower commenced complying with the Direction but continued to object.
On 7 September Ofgem provided a fuller response to the concerns expressed by Npower on 31 August. On 14 September there was a meeting at which Npower indicated it was not comfortable with 100,000 customers, that half that number would be acceptable and they were not willing to proceed with the larger number.
On 18 September GEMA provided a further and fuller explanation of the proportionality of the decision to conduct the trial with 100,000 customers. In essence, this repeated the point that this was necessitated by the objective of testing whether the Scottish Power results could be upscaled. On 19 September Npower informed Ofgem that while it was, without accepting that Ofgem's direction was itself lawful, prepared to run a trial with 50,000 customers, it would not run a trial with 100,000 customers. It set out reasons, having taking counsel's advice, as to why the decision to give the direction was unlawful. These included that the direction could not be ordered under SLC 32A, that Ofgem had not followed its own guidance, that Ofgem had not considered proportionality at all, in breach of public law, and that Article 1 of the first protocol to the Human Rights Act was engaged.
Accordingly, although Npower had complied with the preliminary steps required by the Direction, they refused to comply with the obligation to send initial letters to customers on 20 September. In light of that failure, Ofgem exercised its power under section 25 of the Electricity Act and issued a provisional order requiring compliance with the obligation to send the initial customer letters by the extended deadline of 26 September. Npower failed to do that so, on the following day, Ofgem issued this application for an injunction.
On 2 October Npower issued a claim form seeking relief under section 27(1) of the Act to quash the Provisional Order. It is important to note that at no point did Npower seek to challenge the Direction or selection criteria as unlawful. It could have done so (in relation to selection criteria) in July 2018 and (in relation to the Direction) immediately upon the Direction being made on 31 August 2018. It would have had to do so by way of an application for judicial review. It could have applied for interim relief, as necessary, in those proceedings pending a final determination.
I turn to the legal basis for the injunction. By section 25(1) of the Electricity Act 1989:
“Subject to subsections (2), (5) [and other irrelevant subsections] and section 26 below, where the authority [i.e. GEMA] is satisfied that a regulated person is contravening, or is likely to contravene, any relevant condition or requirement, it shall by a final order make such...
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