SSE Generation Ltd v Competition and Markets Authority
| Jurisdiction | England & Wales |
| Judge | Mr Justice Swift |
| Judgment Date | 11 April 2022 |
| Neutral Citation | [2022] EWHC 865 (Admin) |
| Docket Number | Case No: CO/1890/2021 |
| Year | 2022 |
| Court | Queen's Bench Division (Administrative Court) |
The Queen on the application of
and
[2022] EWHC 865 (Admin)
Mr Justice Swift
Case No: CO/1890/2021
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Kieron Beal QC (instructed by Addleshaw Goddard LLP) for the Claimants
Rob Williams QC, Christopher Brown, Ewan West (instructed by the CMA) for the Defendant
Kassie Smith QC, Amy Rogers, George Molyneaux (instructed by GEMA solicitor) for the First Interested Party
Hearing dates: 2, 3 and 30 November 2021, and 1 December 2021
Approved Judgment
A. Introduction
The challenge in this case is directed to a decision of the Competition and Markets Authority (“the CMA”) on the terms to be included in the Connection and Use of System Code to give effect to European Commission Regulation 838/2010. The decision is set out in a document dated 30 March 2021. The provisions in the Connection and Use of System Code apply as between National Grid Electricity System Operator Ltd (“National Grid”) and electricity generators such as the Claimants, and set the charges paid by generators to use the national high voltage electricity transmission system.
The decision of the CMA was made on an appeal against decisions of the Gas and Electricity Markets Authority (“GEMA”) taken on 17 December 2020. The principal appellant before the CMA was SSE Generation Ltd (“SSEGL”) which is the primary Claimant in this application for judicial review. All the other Claimants are members of the SSE Group of companies. SSEGL is a producer of electricity. It owns and operates power stations and associated assets. It is the holder of a Generation Licence issued by GEMA under section 6 of the Electricity Act 1989.
(1) National Grid, the Transmission Licence, and the Connection and Use of System Code .
National Grid holds a Transmission Licence, also issued by GEMA under section 6 of the Electricity Act 1989. A transmission licence permits the holder to “participate in the transmission of electricity” for the purposes of providing or enabling the supply of electricity to any premises. “Transmission” is defined to mean “transmission by means of a transmission system”. A transmission system is one, wholly or mainly, made up of high voltage lines and electrical plant and is used to convey electricity from a generating station to a substation, from one generating station to another, or from one substation to another.
Under the terms of its transmission licence, National Grid is required to put in place arrangements for connection to and use of the transmission system and to devise a Balancing and Settlement Code. The reasons for the former need no further explanation. The latter is intended to set out arrangements between National Grid and those who use the transmission system to coordinate and control the flow of electricity over that system. The Balancing and Settlement Code includes arrangements for payments between National Grid and network users.
All these arrangements are required to be set out in the Connection and Use of System Code (“the CUSC”). Pursuant to an agreement known as the CUSC Framework Agreement, the CUSC is contractually binding as between National Grid and those (including generators) it is applied to. The CUSC includes details of the charges made by the National Grid for use of the transmission system. The obligation to set such charges is the subject of a separate licence obligation under which National Grid must prepare a statement of the “use of system charging methodology”. The methodology must be approved by GEMA and once approved, National Grid is required to apply it. The charges set are paid by generators such as SSEGL. The methodology is at Section 14 of the CUSC. So far as relevant for present purposes, the charging methodology includes arrangements for payment of a Use of System Charge, and charges for Balancing Services. Licence Condition C5 requires National Grid to “keep the use of system charging methodology at all times under review”, and to modify the methodology for the purpose of “better achieving the relevant objectives”. Those objectives (also at Condition C5 in the Transmission Licence) include “compliance with Electricity Regulation and any relevant legally binding decisions of the European Commission and/or the Agency”. Similar objectives apply to the contents of the Balancing and Settlement Code: see Condition C3(1)(b) and (3) in the Transmission Licence. The reference to the “Electricity Regulation” is to Regulation EU 2019/943 as in force on 31 December 2020; the “Agency” is the European Union Agency for the Co-operation of Energy Regulators, established under Regulation EU 713/2009.
Section 8 of the CUSC prescribes the way in which modifications may be made to the Section 14 charging methodology. In summary, the process is started by a proposal from any of the persons identified in Section 14, paragraph 8.16, which includes any person who is party to the CUSC Framework Agreement. The proposal is then evaluated by the CUSC Modification Panel. The Panel may refer the proposals for consideration to a Workgroup. If that happens, the workgroup evaluates both the proposal and any alternatives to the proposal that might be put forward by any party to the CUSC Framework Agreement, and then provides a report to the CUSC Modification Panel. There is then a requirement for consultation on the proposals and any alternatives. Next, the CUSC Modification Panel reports to GEMA. The final decision is taken by GEMA. By paragraph 8.23.7 of the CUSC, GEMA may (subject to exceptions none of which is material in the circumstances of this case): (a) approve the original proposal; or (b) approve one of the alternative proposals; or (c) “if [GEMA] believes that neither the CUSC modification proposal (nor any workgroup alternative CUSC modification) would better facilitate achievement of the Applicable CUSC Objectives then there will be no approval”. The relevant objectives are the ones at Condition C5 of the Transmission Licence.
The arrangements for modification contained in the CUSC reflect part of Condition C10 of the Transmission Licence. Condition C10 paragraph 7(a) is to the effect that if on consideration of a report from the CUSC Modification Panel, GEMA “… is of the opinion that a modification set out in such report would, as compared with the then existing provisions of the CUSC and any alternative modifications set out in such report, better facilitate achieving the applicable CUSC objectives [GEMA] may direct [National Grid] to make that modification”.
(2) European legislation
Three European law measures came into effect on 3 March 2011. The first was Directive 2009/72/EC “… concerning common rules for the internal market in electricity…” (“the 2009 Electricity Directive”). The Directive set common rules for the generation, transmission, distribution, and supply of electricity. The Directive required ownership of the high or very high voltage electricity transmission system to be separate from ownership of facilities for generation or supply of electricity. To this end, the Directive included the notion of “transmission system operator”, defined as the person responsible for operating and maintaining the transmission system in any given area. The Directive went on to set out various obligations incumbent on transmission system operators. The Directive also made provision for the establishment of national regulatory authorities. GEMA is the national regulatory authority for Great Britain. The Directive provides that the responsibilities of each national regulatory authority include that for “… approving, in accordance with transparent criteria, transmission … tariffs or their methodologies” (article 37).
The second measure was Regulation EC 714/2009 (“the 2009 Regulation”). This was primarily concerned with conditions for access to the electricity transmission network to facilitate cross-border exchange of electricity. However, it also contained provision about the charges that could be made by “network operators” (synonymous with transmission system operators, at least for the purposes of issues considered in this judgment) for access to transmission networks. Article 14(1) provided as follows:
“1. Charges applied by network operators for access to networks shall be transparent, take into account the need for network security and reflect actual costs incurred insofar as they correspond to those of an efficient and structurally comparable network operator and are applied in a non-discriminatory manner. Those charges shall not be distance-related.”
By article 18, the European Commission was permitted to issue Guidelines on matters within the scope of (inter alia) article 14. Article 18(2) was in the following terms:
“2. Guidelines may also determine appropriate rules leading to a progressive harmonisation of the underlying principles for the setting of charges applied to producers and consumers (load) under national tariff systems, including the reflection of inter-transmission system operator compensation mechanism in national network charges and the provision of appropriate and efficient locational signals, in accordance with the principles set out in Article 14.”
By article 19 of the 2009 Regulation, national regulatory authorities were required to “… ensure compliance with this Regulation and the Guidelines adopted pursuant to...
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