Wales and West Utilities Limited, R (on the application of) & Anor. v Gas and Electricity Markets Authority & Ors.

An appeal under sections 23B–23G of the Gas Act 1986 is a statutory review for wrongness, not a de novo rehearing. The applicable standard depends on the ground of appeal. Errors of law are reviewed for wrongness; factual findings and evaluations attract substantial restraint; and discretionary regulatory judgments may be challenged only for failure to consider relevant matters, reliance on irrelevant matters or plain irrationality.

The financing duty requires the regulator to have regard to the ability of actual licence holders to finance their activities. It does not require an individually tailored cost-of-debt allowance. A standardised model with adjustments for factors outside a licensee’s control may lawfully balance consumer protection, efficiency and financing considerations. Voluntarily adopted financing costs need not be passed to consumers.

Wales and West Utilities Ltd sought permission to apply for judicial review of the Competition and Markets Authority’s decision of 28 October 2021 concerning appeals from GEMA’s gas distribution price-control determination.

The challenge concerned the statutory appeal standard, the financing duty under the Gas Act 1986, GEMA’s standardised cost-of-debt methodology and treatment of derivatives, the tax clawback mechanism, and licence modifications arising from appeals brought by other parties.

The central issues were whether the CMA had misunderstood the statutory appeal regime, whether the financing duty required an individuated approach, whether the regulatory methodology was irrational or discriminatory, and whether WWU had standing to challenge decisions to which it was not a party.

1. Disposition. Permission to apply for judicial review was refused and the application was dismissed. Ground 1 was unarguable because the CMA correctly treated the statutory appeal as a review for wrongness rather than a de novo reconsideration of the merits.
2. The statutory scheme creates a sui generis appeal. Errors of law are assessed for wrongness. A challenge to concrete primary facts succeeds only where there was no supporting evidence, a misunderstanding of the evidence, or a finding no reasonable regulator could reach. Similar restraint applies to evaluations of primary facts. A discretionary decision may be overturned for failure to consider relevant matters, consideration of irrelevant matters or plain irrationality. Mere disagreement is insufficient.
3. The CMA was entitled to apply a high degree of deference to GEMA’s expert regulatory judgments. The statutory grounds of appeal are wider than a point-of-law appeal, but they do not authorise substitution of the CMA’s or court’s judgment for GEMA’s unless the decision was wrong.
4. The financing duty in section 4AA(2)(b) is a consideration within the consumer-protection objective. It does not require the regulator to improve a licensee’s financing position or adopt a bespoke allowance for every operator. Read in its statutory context, the provision permits and favours a standardised approach with suitable adjustments.
5. The standardised cost-of-debt model, including the exclusion of voluntarily assumed derivative costs, was neither irrational nor discriminatory. Transferring the consequences of an individual financing strategy to consumers could undermine efficiency and consumer protection.
6. The tax clawback and cost-of-debt allowances served different purposes. Taking derivative interest into account when calculating actual corporation tax did not require that interest also to be included in the cost-of-debt allowance.
7. WWU lacked standing to challenge CMA decisions on appeals brought by other parties, particularly where it had not appealed the subsequent licence re-modifications and had an alternative remedy. Its complaint concerning Associated Documents was properly rejected because GEMA had consulted and considered the relevant representations.

This was a renewed application for permission to apply for judicial review. Henshaw J had refused permission on all five grounds on 30 June 2022. The Administrative Court, per Mostyn J, agreed with that conclusion and dismissed the application.