Peak Gen Top Company Ltd and Others v The Gas and Electricity Markets Authority
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lavender |
| Judgment Date | 22 June 2018 |
| Neutral Citation | [2018] EWHC 1583 (Admin) |
| Docket Number | Case No: CO/4397/2017 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 22 June 2018 |
[2018] EWHC 1583 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Lavender
Case No: CO/4397/2017
The Queen on the application of
and
Nigel Pleming QC and Robert Palmer (instructed by Osborne Clarke LLP) for the Claimants
Kassie Smith QC and Ligia Osepciu (instructed by Steve Gee and Mark Mills of the Gas and Electricity Markets Authority) for the Defendant
Kieron Beal QC (instructed by Addleshaw Goddard) for the Second Interested Party
Hearing dates: 25–27 April 2018
(1) Introduction
This is an application for judicial review by eight companies who carry on business generating and supplying electricity as what are known as “small embedded generators”. For most of the Claimants, this activity represents all, or a large part, of their business. However, the Seventh Claimant, E.ON UK plc (“E.ON”), is a very large business which plays a number of different roles in the electricity industry, both generating and supplying electricity.
The Claimants have applied for judicial review of a decision (“the Decision”) taken by the Defendant (“Ofgem”) in June 2017 and announced on 20 June 2017. The reasons for the Decision are contained in a document (“the Decision Notice”) published on 22 June 2017 entitled “Impact Assessment and Decision on industry proposals (CMP264 and CMP265) to change electricity transmission charging arrangements for Embedded Generators”.
The Claimants were given permission to rely on two grounds for seeking judicial review. They contend that:
(1) the Decision was contrary to the EU principle of non-discrimination; and
(2) in taking the Decision, Ofgem failed to take account of material considerations and/or facts.
The Claimants were refused permission to seek judicial review of the Decision on the ground that it was irrational.
The Claimants' application was resisted by Ofgem and by the Second Interested Party, SSE LLP (“SSE”). SSE is a company whose subsidiaries: (1) generate electricity, both as transmission-connected generators and as small embedded generators; (2) operate two electricity distribution networks; and (3) supply electricity to customers. The First Interested Party, National Grid Electricity Transmission Plc (“National Grid”), has taken no part in these proceedings.
The parties have produced over 280 pages of witness statements, with about 5,500 pages of exhibits. The witness statements were made by:
(1) Mark Robert Draper (2 statements), the chief executive and co-founder of the First Claimant, Peak Gen Top Co Ltd (“Peak Gen”).
(2) Nick Sillito (2 statements), the commercial director of Peak Gen.
(3) Matthew Tucker, the finance director of the Third Claimant, Welsh Power Group Ltd (“Welsh Power”).
(4) Laurence Barrett, the Upstream Market Rules Manager for E.ON.
(5) Simon Henry Hobday, a partner in Osborne Clarke, the Claimants' solicitors.
(6) Frances Warburton (2 statements), a civil servant with the Defendant and its partner for Energy Systems Integration.
(7) Andrew Self, a civil servant with the Defendant and the head of its Targeted Charging Review (to which I will return).
(8) Daniel Roberts (2 statements) of Frontier Economics Ltd, a firm of consultants retained by the Defendant.
(9) Angus Neil MacRae of SSE.
(2) Electricity Generation, Transmission, Distribution and Supply
To understand the Decision, it is necessary to say a little about the system for the generation, transmission, distribution and supply of electricity in Great Britain and the regulation of that system. Much electricity is generated in large power stations, transmitted via the transmission network (also known as the national grid) to regional distribution networks and transmitted by those networks to domestic, industrial and commercial customers. However, in recent years this arrangement has been supplemented in a number of ways and to an increasing extent.
The electricity market is very large. According to their consolidated segmental statements, the six largest electricity suppliers (who include E.ON and SSE) had an aggregate revenue in 2016 of over £24billion from the supply of electricity.
(2)(a) The Transmission Network
There is a single transmission network in Great Britain, which is a network of underground, overhead and subsea lines and cables and substations transmitting electricity at extra high voltage. The largest part of the transmission network is owned by National Grid. Others own those parts of the transmission network which are situated in Scotland or offshore. The entire transmission network is operated by National Grid on behalf of itself and the other transmission network owners. For the sake of convenience, I will refer simply to National Grid as the representative of all of the transmission network owners (who were sometimes referred to as the “TOs”).
The transmission network is connected to:
(1) Electricity generators. Most large conventional coal- and gas-fired power stations and an increasing number of large wind farms are connected directly to the transmission system.
(2) Regional distribution networks. The point at which the transmission network connects to a distribution network is known as a grid supply point or “GSP”. On the whole, the transmission network transmits electricity from the transmission-connected generators to the distribution networks. But distribution networks can and do “export” electricity onto the transmission network for transmission to other distribution networks.
(3) A few very large customers, such as steel plants.
Overall, the flow of electricity on the transmission network is from generators to GSPs. But the network is a complex one and should not be thought of as purely linear. Subject to local variations, there is generally an excess of supply of electricity over demand in the north of Great Britain and an excess of demand over supply in the south. This has an impact on the work which the transmission network is required to do.
(2)(b) The Distribution Networks
There are 14 regional distribution networks. Each consists of a network of underground and overhead lines and cables and substations transmitting electricity at lower voltage. With the exception of those few customers connected directly to the transmission network, all customers receive their electricity supply from a distribution network.
(2)(c) Electricity Generators
The generation of electricity takes places at various locations. It can be connected: (1) to the transmission network; (2) to a distribution network; or (3) directly to the customer's premises.
Electricity generators who are connected directly to the transmission network are referred to as transmission-connected generators or “TG”. There are currently about 210 transmission-connected generators. At peak times, they generate about 87% of Great Britain's demand for electricity.
Electricity generators who are connected to distribution networks are referred to as “distributed generators”, “embedded generators” or “EG”. These generators are divided into:
(1) Large embedded generators, i.e. those with a capacity of 100MW or more.
(2) Small embedded generators or “SEG”, i.e. those with a capacity of less than 100MW.
This distinction between large and small embedded generators is drawn, inter alia, in the licensing arrangements for electricity generators. Small embedded generators are granted exemption from the requirement in section 4(1)(a) of the Electricity Act 1989 to have a licence to generate electricity. There are class exemptions in paragraph 3(1) of, and Classes A and C in Schedule 2 to, the Electricity (Class Exemptions from the Requirement for a Licence) Order 2001. Individual exemptions can also be granted. The Secretary of State's policy has broadly been to only consider applications for individual exemptions from generators of less than 100MW capacity:
“because such plants will generally have a low impact on the total electricity system and it is considered appropriate therefore that, subject to consultation, such stations should be exempted from the same degree of system regulation (and costs) as imposed by standard licensing conditions.”
There has been considerable growth in the number of small embedded generators in recent years. Their total capacity has grown from about 10GW in 2012 to about 30GW in 2018, with the Claimants accounting for about 1.4GW of that capacity. Different small embedded generators use different technology, ranging from solar energy (about 15GW in capacity) and wind energy (about 5.5GW in capacity) to gas-powered generators. For example, Peak Gen uses container-sized units.
Generation equipment which is connected directly to the customer's premises is known as behind the meter generation or “BTMG”. This includes, for example, back-up diesel generators at commercial premises or solar panels on the roof of a consumer's home. For some larger customers, the BTMG generator may consist of a commercially-operated power plant (such as the container-sized units used by Peak Gen) which could instead have been connected directly to the relevant distribution network, in which case it would have constituted a small embedded generator.
(2)(d) Electricity Suppliers
Electricity suppliers are companies who supply electricity to customers. They enter into contracts: with generators, for the purchase of electricity; with the operators of the transmission and distribution networks, for the transmission of electricity from generator to customer; and with customers, for the sale of electricity.
(2)(e) Customers
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