UK Power Networks Services (Contracting) Ltd, R (on the Application of) v The Gas and Electricity Markets Authority & Ors

In construing legislation implementing an EU electricity directive, the regulator must identify every system and every undertaking whose responsibility is materially involved in carrying electricity from a third-party supplier to a customer. The legislation does not impose a one-distribution-exemption-holder rule. Joint responsibility is possible, and obligations must be imposed proportionately according to each undertaking’s role. “Supply” in Schedule 2ZA means physical conveyance in that context, rather than sale. “Operation or control” must be interpreted consistently with the Directive’s broader concept of responsibility. A separate workability inquiry is unnecessary where all undertakings responsible for the relevant carriage can be regulated.

UKPNS operated the high-voltage Leased Network at Heathrow under agreements with HAL, which owned the wider airport electricity network and sold electricity to airport customers. Following a customer’s request to obtain electricity from a third-party supplier, HAL asked the Authority to determine whether UKPNS or HAL was the distribution exemption holder under Schedule 2ZA to the Electricity Act 1989.

The Authority decided that UKPNS alone was the relevant distribution exemption holder, that “supply” included physical provision, and that UKPNS operated or controlled the Leased Network. It also considered the arrangement workable because HAL and UKPNS were likely to renegotiate their agreements. UKPNS sought judicial review, raising the proper identification of the system, the possibility of multiple distribution exemption holders, the meaning of “supply”, the operation-or-control test, and the relevance of workability.

1. The claim was granted. The Authority’s decision was quashed in substance and the matter was remitted for reconsideration.
2. The relevant “system” comprises all infrastructure and equipment required to transport or deliver electricity between the third-party supplier and the customer. The Authority erred by accepting, without analysis, that the Leased Network alone was the relevant system. A regulator must ask the right legal question, even where the parties have agreed a narrower formulation.
3. The Directive and Schedule 2ZA do not limit the position to one distribution exemption holder per system. Any undertaking with responsibility, however limited, for the relevant carriage or delivery may fall within the regime. Joint responsibility is possible. The regulatory burden must be proportionate to each undertaking’s role, and the Authority has flexible formal and informal powers to secure the required result.
4. “Supply” in paragraph 1(1)(b) of Schedule 2ZA means physical provision or conveyance in that context, not sale. That construction is required to give effect to the Directive’s purpose of securing third-party access and consumer choice. The Directive’s definitions of distribution and distribution-system operator provide the relevant context.
5. “Operation or control” must be construed consistently with the Directive’s concept of responsibility for operating, maintaining, interconnecting, developing and ensuring the long-term capacity of the system. It is not a relative test requiring comparison between competing undertakings, and it must be applied to all infrastructure between supplier and customer.
6. The Authority’s “workability” test was a consequence of its erroneous one-holder premise and did not arise. Where several undertakings share responsibility, the regulatory obligation can be imposed collectively and proportionately. The errors were material because reconsideration might result in both UKPNS and HAL being distribution exemption holders.