R (SSE Generation Ltd & Others) (SSE) v The Competition and Markets Authority (CMA)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Green,Lord Justice Snowden,Sir Julian Flaux |
| Judgment Date | 08 November 2022 |
| Neutral Citation | [2022] EWCA Civ 1472 |
| Docket Number | Case No: CA-2022-000852 |
| Court | Court of Appeal (Civil Division) |
and
and
[2022] EWCA Civ 1472
Sir Julian Flaux, CHANCELLOR OF THE HIGH COURT
Lord Justice Green
and
Lord Justice Snowden
Case No: CA-2022-000852
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)
MR JUSTICE SWIFT
Royal Courts of Justice
Strand, London, WC2A 2LL
Kassie Smith KC, Amy Rogers, George Molyneaux (instructed by GEMA)
Tom Hickman KC, Christopher Brown (instructed by the CMA)
Kieron Beal KC, instructed by Addleshaw Goddard LLP for SSE
National Grid Electricity System Operator Ltd, Centrica Plc and British Gas Trading Ltd did not appear and were not represented
Hearing dates: 18–19 July & 22 September 2022
Approved Judgment
This judgment was handed down remotely at 10.30am on 8 November 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
A. Introduction
The appeals
There are two appeals before the Court. They raise issues of importance to the operation of the system for the setting of charges for the transmission of electricity but also to wider public law.
They concern a decision of the Gas and Electricity Markets Authority (“ GEMA”) dated 17 th December 2020 (“ the GEMA Decision”). The decision relates to a modification to the methodology for setting transmission charges payable to network operators by electricity generators using the network in Great Britain. In the decision GEMA ( inter alia): (i) required a methodology to be adopted for the setting of electricity transmission charges which was not compliant with the relevant law but which was intended to constitute an interim position pending a fresh decision which would be legally compliant; and (ii) adopted a definition of the expression “ congestion management” which meant that the costs attributable to the management of “ congestion” on the transmission system within Great Britain were not taken into account when calculating limits on the transmission charges which could be levied This had the effect of limiting the costs taken into account when transmission charges were set to those incurred by the network operators attributable to the management of congestion on interconnectors governing international trade between EU member states only, and not also the costs of managing congestion elsewhere within the transmission system. For reasons explained below it is in the commercial interests of generators for all the costs attributable to congestion management to be taken into account because, under the relevant rules, there is a cap on the transmission charges that can then be levied on generators by network operators.
One affected generator, SSE Generation Limited (“ SSE”), brought a statutory appeal to the Competition and Markets Authority (“ CMA”) which in a decision dated 30 th March 2021 upheld the GEMA Decision (“ The CMA Decision” 1). SSE sought judicial review of the CMA Decision on a variety of grounds, all but one of which were rejected. As to the one successful ground, the High Court held that it was unlawful for the CMA to approve the GEMA Decision endorsing the imposition of unlawful charges, even as an interim measure. The Court came to this conclusion notwithstanding that implementation of the decision would give rise to a significant improvement upon the pre-existing position and its setting aside would resurrect a situation that was less compliant with the law than the interim position set out in the decision. The High Court however upheld the conclusion of the CMA, and therefore of GEMA, that the only congestion management costs falling outside of the exclusion for ancillary services were those relating to the management of congestion on interconnectors between EU member states.
There are two appeals against the judgment of the High Court. The first is brought by GEMA in relation to its power to adopt interim measures which include non-legally
compliant components. The CMA supports GEMA as an interested party to the appeal. The respondent to the appeal is SSE. The interested parties are National Grid Electricity System Operator Limited (“ NGESO”) and, Centrica PLC/ British Gas Trading Limited, who were also parties to the CMA appeal proceedings and were interested parties in the judicial review (Issue I). The second appeal is brought by SSE. GEMA are the respondent party. CMA appeared as an interested party only in this proceedings. This concerns the treatment of “ congestion management” costs (Issue II).Outline of Issue I: The duty of regulators to ensure compliance with the law — how to transition from non-compliance into compliance
Issue I concerns the powers and duties of a relevant regulator (GEMA) when confronted with a situation whereby a system (here a charging regime) is not compliant with the law. The regulator then has to devise a system to bring the system into compliance. But this is not a state of affairs that can be brought about easily or immediately; it will be a complex exercise which will take time. The expert judgment of the regulator was that the transition to a state of compliance is best achieved in two stages with the first being a “ stop gap” applicable in the short term pending a full resolution of the issue. A corollary is that because the stop gap is a staging post it will, unavoidably, not yet be fully compliant with the law. It will, though, be a significant improvement upon the status quo ante and it will lead in due course to a state of full compliance. The issue arising is whether, in adopting such a non-compliant stop gap, the regulator was acting lawfully? The Judge below held that it was not. The question for this Court is whether this is correct.
Outline of Issue II: The meaning of the expression “congestion management” – purposive interpretation — EU retained law – correcting errors in legislation
Issue II is about the meaning of the phrase “ congestion management” and, more specifically, whether the costs of managing certain aspects of network congestion must be taken into account in the calculation of transmission charges. We were told that very substantial sums of money rested upon the correct meaning of this expression. At the risk of over simplification congestion arises on a network where there is some physical blockage or bottleneck which means that the flow of electricity moving in one direction gets held up. There are many costs associated with managing this problem. Congestion can arise anywhere on a network. One point where it can be especially problematic is at the interconnections between different national networks.
If such costs of congestion management amount to costs for an “ ancillary service” provided to generators then, under the relevant law, they must be excluded from the calculation of transmission charges that are subject to annual average regulatory limits. The issue then concerns the meaning of the expression “ congestion”. A definition used in a 2009 Regulation made clear that it was congestion at interconnectors between different states which impeded international trade that the legislation was aimed at. However, a decade later, in the 2019 Recast Regulation, the definition of “ congestion” was changed and all references to interconnectors and to international trade between states were removed from the definition. The earlier definition was expressly repealed. At the same time, “ congestion management” was explicitly carved out of the exclusion for “ ancillary services”. This had the consequence, prima facie, that charges in respect of such costs fell to be included in the calculation of the core transmission charge that was subject to annual average limits. The dispute now is whether “ congestion” is still to be taken as referring to the costs of congestion management only on interconnectors governing international trade, or, on the entirety of a transmission system wherever it arises.
The position has been complicated by the fact that when the relevant (2019) EU measures were translated into EU retained law, upon the expiry of the post-Brexit implementation period, for reasons which are very difficult to discern, the drafter of the EU retained law, whilst purporting not to change anything, instead of just copying and pasting the 2019 definition of “ congestion” into the domestic retained EU law, instead reverted back to the 2009 version and used the repealed definition of “ congestion”, but at the same time suggested that this reversion was not intended to bear a meaning differing from the new 2019 version. To complicate matters even further, the version of the law applicable under the Northern Ireland Protocol (“ the NI Protocol”) left intact the applicable 2019 EU definition.
The domestic electricity market is interconnected to wider EU markets. It is no part of current domestic energy policy to create a set of rules diverging from those governing the operation of transmission systems elsewhere in the EU. It is considered important that everyone in the market works from the same overarching charging principles. If, however, Great Britain adopts a definition of “ congestion management” differing from that being used elsewhere (whether in Northern Ireland or in the EU) this risks creating market distortions. Divergence in the pricing signals being communicated to the market arising from inconsistent charging regimes can cause distortions in the free flow of energy, and this in turn risks distorting investment decisions. This court has no information about how...
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