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

A civil-emergency provision in regulatory reporting guidance that permits a company to make representations for an exception to be granted creates a procedural right to request relief. It does not create an automatic entitlement to exclude service interruptions. A qualifying civil emergency is a condition for the exercise of the regulator’s discretion, which may grant relief in whole or in part.

In adjusting price controls, a requirement to consider the company’s performance identifies a mandatory consideration. It does not exclude other relevant considerations, including the regulator’s duties under the Water Industry Act 1991. There is no general common-law duty requiring a public authority to adopt a policy for every discretionary power.

Northumbrian Water sought judicial review of Ofwat’s final determination concerning the financial consequences of water-supply interruptions caused by Storm Arwen. The storm was agreed to be a civil emergency. Ofwat excluded 50% of its effects from the company’s performance calculation, rather than granting the full exclusion sought.

HHJ Klein, sitting as a High Court judge, dismissed the claim: [2023] EWHC 2410 (Admin). The company appealed. It contended that the Reporting Guidance required a full exclusion, or confined Ofwat to matters of operational performance; alternatively, it argued that Ofwat had to publish a policy governing the discretion.

Appeal dismissed. Lewis LJ, with whom Elisabeth Laing and Peter Jackson LJJ agreed, held that Ofwat’s final determination was lawful.

1. The Reporting Guidance had to be construed objectively, by its natural and ordinary meaning, in its regulatory context and in light of its purpose. Its default rule was that the company bore the risk of supply interruptions, regardless of their cause. The words allowing a company to make representations for an exception to be granted created a mechanism to request an exception. They did not require Ofwat to grant one automatically.

   A civil emergency was a necessary condition for an exception, provided the interruption was not the cause of that emergency. Once that threshold was met, Ofwat had to consider the representation but retained discretion whether to grant relief and, if so, to what extent. It could therefore grant a partial exception.

2. Condition B12.7 required Ofwat to consider the company’s performance against the relevant performance commitments. That was a mandatory material consideration, not an exhaustive code of permissible considerations. Under Condition B12.5, Ofwat could also consider the financial effect of underperformance and other matters it properly regarded as relevant.

   Ofwat also had to act consistently with its duties under section 2 of the Water Industry Act 1991 when exercising the licence-derived power to adjust price controls. Its consideration of the company’s risk and return, customers’ disrupted service, and continuing incentives to mitigate interruptions was lawful. The 50:50 allocation of the storm’s financial impact was within its discretion.

3. The authorities on unpublished policies and departures from existing policies did not establish a general common-law duty to formulate a policy whenever a public body has a discretion. Whether a particular discretionary decision is lawful remains a question for established public-law principles. Although policies may be good practice, the rare and variable circumstances of civil emergencies gave no basis for such a duty here. The procedure was also fair: the company made representations, received a detailed draft determination, and made further submissions before the final decision.

• Court of Appeal (Civil Division): dismissed Northumbrian Water’s appeal and upheld Ofwat’s partial civil-emergency exception: [2024] EWCA Civ 842.
• High Court, Administrative Court: HHJ Klein dismissed the claim for judicial review of Ofwat’s final determination: [2023] EWHC 2410 (Admin).