The Gas and Electricity Markets Authority (GEMA) v R (SSE Generation Limited & Ors) (SSE)

A regulator subject to a duty to secure legal compliance may, where immediate compliance is not practicable, adopt a temporary and less non-compliant transitional measure. Its lawfulness depends on context, including the need for staging, whether the measure is the best available option, the practical risk of non-compliance, and whether full compliance will be achieved with reasonable certainty. A contractual code cannot dilute the regulator’s overriding statutory duty.

Under Regulation (EU) 2019/943, “congestion” is not confined to cross-border interconnectors. Charges for congestion management therefore fall outside the ancillary-services exclusion in Commission Regulation (EU) No 838/2010 and must be included when calculating the regulated annual average transmission charge.

GEMA approved an interim modification to the charging methodology in the Connection and Use of System Code. The modification reduced an imminent risk that generation charges would fall outside the permitted range, but it did not fully implement the correct interpretation of the connection exclusion in the applicable charging rules.

SSE’s statutory appeal to the Competition and Markets Authority was dismissed. On judicial review, the High Court held that GEMA and the CMA could not approve an admittedly non-compliant interim methodology, but upheld their conclusion that congestion management concerned only congestion at international interconnectors: [2022] EWHC 865 (Admin).

GEMA appealed the first conclusion. SSE cross-appealed the construction of “congestion management”. The central questions were whether staged regulatory compliance could be lawful and whether the governing EU-law definition of congestion extended beyond interconnectors.

1. GEMA’s appeal was allowed. GEMA had a statutory duty to comply with and secure compliance with the charging rules, but that duty left it a broad regulatory judgment as to how compliance should be achieved. The relevant inquiry was fact- and context-sensitive. GEMA was entitled to find an imminent risk of breach, that an immediate cure was impossible under the available process, and that the chosen proposal was the best available interim measure.

   The interim methodology created a transient risk of non-compliance because it retained an erroneous component. That did not make the decision unlawful. It was an unavoidable staging measure, materially preferable to the status quo, subject to a route to full compliance and to ex post adjustment. The High Court had wrongly treated any departure from immediate full compliance as necessarily fatal.

2. The contractual Code could not qualify GEMA’s overriding duty to secure compliance with Commission Regulation (EU) No 838/2010. The Court added that, if the Code impeded timely performance of that duty, GEMA should use other available powers and/or amend the Code.

3. SSE’s cross-appeal was allowed. Article 2(4) of Regulation (EU) 2019/943 deliberately replaced the former language of international trade and interconnectors with trade between network areas and physical flows on network elements. Read purposively, congestion was therefore not confined to international interconnectors. Article 2(60), read with Article 2(48) of Directive (EU) 2019/944, excluded congestion management from ancillary services. Its costs had to be included in the Annex B calculation of annual average transmission charges.

4. The retained-law version appeared mistakenly to revive the narrower earlier definition. Although a court may correct an obvious drafting error, correcting this measure would require a legislative choice in a complex regulatory and constitutional setting. The Court therefore declined to rewrite it and left any amendment to the Secretary of State.

5. The High Court judgment was reversed on both challenged issues.

• Court of Appeal (Civil Division): Allowed GEMA’s appeal on the lawfulness of the transitional charging measure and allowed SSE’s cross-appeal on the meaning of congestion management. The court reversed the High Court on both issues.
• High Court (King’s Bench Division, Administrative Court): Allowed SSE’s judicial-review challenge only insofar as the CMA had upheld an admittedly non-compliant interim methodology, but upheld the CMA’s construction of congestion management: [2022] EWHC 865 (Admin).
• Competition and Markets Authority: On SSE’s statutory appeal under section 173 of the Energy Act 2004, upheld GEMA’s decision of 17 December 2020 concerning the Code modification.