THE QUEEN (on the application of SSE GENERATION LIMITED & Ors) v COMPETITION AND MARKETS AUTHORITY

Part B of the Annex to Commission Regulation 838/2010 imposes cumulative requirements. Annual average transmission charges must fall within the prescribed range and must be calculated using the prescribed exclusions. Compliance with the range alone is insufficient.

Where a regulator has chosen to implement those requirements through modifications to a statutory code, it cannot approve a modification that fails properly to give effect to an exclusion, even if the modification improves compliance and contains an adjustment mechanism. On a judicial review of an evaluative classification by a specialist regulator, the court should avoid merits review and intervene only for legal error.

The claimants, electricity generators, challenged the Competition and Markets Authority’s dismissal of their appeal against decisions of the Gas and Electricity Markets Authority concerning modifications to the Connection and Use of System Code.

The first issue was whether the modifications properly implemented the connection exclusion in Part B of the Annex to Commission Regulation 838/2010. The second concerned the scope of that exclusion. The third concerned the ancillary services exclusion, including charges under the Balancing and Settlement Code and Balancing Services Use of System Charges.

The CMA’s appeal decision was issued on 30 March 2021. The judicial review concerned whether the CMA had made errors of law in upholding GEMA’s conclusions.

1. Ground 1 allowed. Part B of the Annex to Commission Regulation 838/2010 requires both compliance with the specified annual average transmission-charge range and calculation of the charge in accordance with paragraph 2. There is no hierarchy between those requirements. Failure to give effect to the connection exclusion is therefore a breach of the Regulation, even where the resulting charge remains within the prescribed range (paras [40]-[46]).
2. In principle, GEMA could secure compliance with the Regulation by means other than the CUSC. In this case, however, it had chosen to use CUSC modifications to implement the connection exclusion. It therefore could not approve a modification containing an incorrect definition of that exclusion. The fact that the modification improved the position and included an adjustment mechanism did not satisfy the requirement of actual compliance. The criterion in paragraph 8.23.7 of the CUSC gave GEMA no relevant margin of judgment where the applicable objective was compliance with a defined legal standard (paras [43]-[45]).
3. Ground 2 failed. The challenge to GEMA’s supplementary reasoning on the meaning of the connection exclusion did not concern an appealable decision under section 173(2)(a) of the Energy Act 2004. That reasoning was incidental and obiter because it did not alter the CUSC. The court declined to give an anticipatory, binding ruling on the meaning of the exclusion before GEMA made an operative decision. The judge nevertheless observed obiter that the scope of the exclusion is fact-sensitive and that generic definitions may yield to the circumstances of a particular connection (paras [52]-[57]).
4. Ground 3 failed. The ancillary services exclusion should be interpreted in light of the later definition in the 2019 regulatory regime, including the exclusion of congestion management. Charges under the Balancing and Settlement Code were properly treated as charges for a service necessary for the operation of the transmission system. Their classification was evaluative, not a hard-edged question of law, and GEMA’s conclusion disclosed no legal error (paras [58]-[67]).
5. Congestion management in the later definition concerned congestion arising from requests to trade between network areas, synonymous in this context with trade across interconnectors. Internal constraints within a single network area were addressed through balancing and non-frequency ancillary services. The relevant Balancing Services Use of System Charges therefore remained within the ancillary services exclusion (paras [68]-[71]).
6. The claim succeeded on Ground 1 and failed on Grounds 2 and 3. The judgment also criticised excessive pleadings and skeleton arguments and emphasised compliance with Practice Direction 54A (paras [72]-[78]).

The CMA dismissed SSE Generation Ltd’s appeal against GEMA’s decisions on 30 March 2021. The Administrative Court allowed judicial review on Ground 1, but dismissed Grounds 2 and 3.