Npower Direct Ltd & Ors v The Gas and Electricity Markets Authority & Ors

A regulator may require licensed energy suppliers to participate in a market trial designed to address an identified adverse effect on competition, provided the direction falls within the relevant licence condition and is adopted for the purpose of testing measures capable of addressing that effect. Achieving consumer switching may be a legitimate consequence and objective of the testing programme where it forms part of addressing weak consumer engagement.

Proportionality is assessed in context. A specialist regulator has a wide margin of appreciation, including as to methodology, trial size and the balancing of benefits and burdens. A statutory review of an enforcement order cannot be used as a collateral challenge to the underlying licence condition or direction.

The claimants, licensed suppliers of gas and electricity, challenged Ofgem’s direction requiring them to conduct a collective-switch trial involving 100,000 domestic customers. They sought statutory review of a provisional order made under the Electricity Act 1989 and Gas Act 1986, and judicial review of the underlying direction.

The challenges alleged inadequate reasons, improper purpose, irrationality and disproportionate interference with property rights under A1P1. The claimants also argued that the direction could be challenged through the statutory review of the provisional order. The central issues were whether the direction was lawful, whether Ofgem had acted proportionately and whether the proceedings were properly constituted.

1. Disposition. The applications to quash the provisional order and for judicial review were dismissed. The substantive grounds of challenge failed.
2. Reasons. Ofgem’s letters and preceding communications adequately explained the purpose of the trial, the proposed scale and the reasons for selecting the claimants. The reasons had to be read in their regulatory and factual context. Later communications elucidated and confirmed the original reasons; they did not fundamentally alter or contradict them.
3. Purpose. The purpose of obtaining rigorous data was not separate from the purpose of addressing weak consumer engagement. Testing whether collective switching could prompt engagement, and whether the intervention could be scaled, fell within SLC 32A. Consumer switching was not an improper purpose where it formed part of testing an intervention intended to address the identified adverse effect on competition. The allegation of disguised purpose or bad faith was rejected.
4. Proportionality. The court assumed, without deciding, that the relevant customer relationships were possessions for A1P1 purposes. Ofgem nevertheless undertook a structured proportionality assessment. The four-stage approach in Bank Mellat v Her Majesty’s Treasury (No. 2) [2013] EWSC 38, applied with appropriate regard to context, was satisfied. Ofgem had a wide margin of appreciation extending to its methodology, statistical assessment, choice of trial population and balancing of benefits and burdens. The claimants had not materially undermined Ofgem’s calculations or demonstrated a less onerous equally effective alternative.
5. Statutory review. Section 27 review concerned the making or confirmation of the provisional order and compliance with the statutory procedures. It could not be used as a collateral or indirect challenge to the legality of the underlying direction. That challenge, if available, had to be brought by judicial review.
6. Procedure. The judicial review claim was brought within three months and was not time-barred for want of promptness. Although the trial had substantially progressed, the issues were not academic because they could affect future trials and continuing regulatory interventions.

Not an appeal. The judgment determined joined statutory-review and judicial-review claims at first instance. The court noted that Zacaroli J had previously granted an injunction requiring compliance with the provisional order, but that decision was not under appeal in these proceedings.