Northumbrian Water Limited, R (on the application of) v Water Services Regulation Authority

Where regulatory guidance permits a water company to seek relief from performance consequences following a civil emergency, the regulator may have an evaluative discretion rather than a duty to grant automatic relief. That discretion must be exercised consistently with the regulator’s statutory duties and the relevant price-control framework.

Judicial review does not permit the court to substitute its assessment for an expert regulator’s economic or predictive judgment. A published policy is not invariably required to guide a discretion. The need for prescription depends on matters including consistency, protection against arbitrariness, informed representations and effective challenge.

Northumbrian Water challenged Ofwat’s in-period determination following Storm Arwen. The storm caused widespread water-supply interruptions and constituted a civil emergency under the Civil Contingencies Act 2004. Under the PR19 price-control settlement and its Reporting Guidance, Ofwat relieved Northumbrian Water of 50% of the resulting underperformance payment.

The claim alleged that the civil-emergency exception required automatic exclusion of qualifying interruptions, that Ofwat was required to publish a policy governing its discretion, and that the determination was unlawful because Ofwat considered irrelevant matters or reached an irrational and disproportionate conclusion.

1. Construction. The Reporting Guidance created a discretion for Ofwat to decide whether, and to what extent, relief should be granted following a qualifying civil emergency. The phrase “on the basis of” did not confine applications to interruptions caused without fault. The guidance was capable of covering interruptions which would not have occurred but for the emergency, while leaving Ofwat to determine the appropriate response.
2. Ofwat’s power arose through licence condition B12.5. That provision imposed no restriction on the matters Ofwat could consider. In making an in-period determination, Ofwat was required by s.2 of the Water Industry Act 1991 to act consistently with its statutory duties, which could be in tension. Those duties supported an evaluative discretion enabling Ofwat to balance customer interests, resilience and the proper carrying out and financing of water-company functions.
3. The absence of automatic relief was consistent with PR19’s purpose. PR19 allocated risk to the party considered best able to manage it, limited reporting exclusions and sought to improve resilience. Automatic exclusion could produce arbitrary results between events marginally inside or outside the civil-emergency threshold and between fault-free and fault-based consequences.
4. Duty of prescription. No duty required Ofwat to publish a policy governing the discretion. The discretion was constrained by statutory duties; qualifying emergencies were rare and variable; the decision was taken by a senior official; and the published draft determination and consultation enabled informed representations and challenge. The principles discussed in R (ZLL) v Secretary of State for Housing, Communities and Local Government did not require prescription in these circumstances.
5. Judicial review. The court applied the restrained approach required for an expert regulator’s economic and predictive judgments. Ofwat was entitled to consider the impact on customers, Northumbrian Water’s performance and the wider PR19 risk-and-reward package. Its evaluative conclusion that a 50:50 allocation retained incentives and was proportionate was not irrational or manifestly disproportionate. The claim was dismissed.