Albion Water Ltd, R (on the application of) v Water Services Regulation Authority

On a renewed application for permission to seek judicial review of an economic regulator’s determination, the court must distinguish an arguable public-law error from a challenge to the merits. The regulator is generally entitled to choose its methodology, assess evidence and decide the weight of relevant considerations, particularly in technical and predictive matters. Judicial review may nevertheless be arguable where the regulator may have failed to have regard to a factor expressly identified by statute, or may have assessed the wrong statutory matter. The court granted permission only on the issue whether the regulator had properly considered the supplier’s expenses in obtaining the water resource.

Albion supplied water to a paper mill under an inset appointment and purchased the water from Welsh Water. After the parties failed to agree the terms of their bulk supply agreement, Ofwat made a determination under section 40 A of the Water Industry Act 1991. Albion challenged the determination on six grounds, including alleged failures to obtain relevant evidence, excessive resource pricing, depreciation, infrastructure renewal, return on capital and indexation.

Blair J had refused permission on paper. On renewal, the central question was whether any of Albion’s grounds disclosed an arguable error of public law warranting a substantive judicial review hearing.

1. Permission. Permission to apply for judicial review was granted on ground 2 only. The remaining grounds were refused.
2. The court applied the orthodox supervisory approach. A regulator’s decision may be challenged for irrationality, failure to take account of relevant considerations, reliance on irrelevant considerations, inadequate inquiry or absence of evidential support. The intensity and manner of inquiry are primarily for the decision-maker, subject to rationality review. The court must not substitute its own assessment of evidence, methodology or weight.
3. Ofwat was entitled to use the earlier Referred Work as a starting point, invite the parties to update it and accept figures supplied by Welsh Water without conducting an audit, absent a strong and reasonable basis for suspecting bad faith. Questions concerning depreciation, capital employed, infrastructure renewal and indexation were matters of expert regulatory judgment. Disagreement with Ofwat’s methodology did not make those grounds arguable.
4. Ground 2 raised a distinct statutory issue. Section 40 A(7) required regard to be had to the expenses incurred by the supplier in complying with its bulk supply obligations. It was arguable that Ofwat’s use of an average water-resource cost assessed the value of the resource rather than the supplier’s expense in obtaining it, or otherwise failed to give proper regard to the statutory factor. It was also arguable that the approach involved an impermissible cross-subsidy.
5. The court expressed only a provisional view on the merits of ground 2. The issue required a substantive hearing. The matter was to proceed with directions, including costs and relief if not agreed.

High Court (Administrative Court): Blair J refused permission on paper on 22 March 2012. On renewal, Edwards-Stuart J granted permission on ground 2 and refused it on the remaining grounds.