Wales & West Utilities Limited, R (on the application of) v Competition and Markets Authority

An appeal against a regulatory price-control decision is not a de novo rehearing. The appellate body must assess the challenged decision through the specific statutory grounds of appeal. Where those grounds concern whether the regulator had proper regard to specified matters or gave them appropriate weight, the appellate body must make its own assessment, while allowing appropriate respect to the specialist regulator. An alternative regulatory approach need only be materially better, not clearly superior, to establish that the original approach was wrong.

A statutory duty to have regard to the need for licence holders to finance their activities requires consideration of individual licence holders, although a notional efficient operator may remain a useful benchmark. Cost-of-debt allowances may rationally use sector averages and exclude derivatives, while tax clawback may rationally include actual derivative costs because the two policies serve different purposes.

Wales & West Utilities Limited challenged the Competition and Markets Authority’s determination of its appeal against GEMA’s RIIO-2 price-control decision. The CMA had rejected challenges concerning the financing duty, the use of a sector-based cost-of-debt index, the exclusion of most derivatives from that allowance, and the inclusion of derivatives in tax clawback.

WWU sought judicial review on four grounds: the CMA’s standard of review; the construction of the financing duty under the Gas Act 1986; the cost-of-debt methodology; and the alleged inconsistency between that methodology and tax clawback. The central issues were the proper intensity of the CMA’s appellate scrutiny, the scope of the financing duty, and whether the CMA’s conclusions were legally or rationally open to it.

1. Ground 1. The challenge to the CMA’s approach to cost-of-debt and derivatives was misconceived because WWU’s appeal had alleged irrationality. More generally, an appeal under section 23 D of the Gas Act 1986 is not a re-run of GEMA’s investigation or a de novo hearing. The CMA must examine the merits through the specific statutory errors alleged and in light of the reasoning in the decision under challenge. The different statutory grounds require different forms of scrutiny, including independent determination of errors of fact and law.
2. For challenges under section 23 D(4)(a) and (b), the CMA must assess what constitutes proper regard and appropriate weight. That is more intensive than asking whether GEMA’s evaluation was irrational. Nevertheless, GEMA remains the primary specialist decision-maker and the CMA must show some respect to its judgment. The CMA’s statement that a competing approach must be “clearly superior” risked setting the threshold too high. The correct comparison is whether the alternative is materially better, after weighing the competing advantages and disadvantages. An equally good approach should be upheld.
3. Ground 2. Section 4 AA(2)(b) requires regard to the financing needs of each licence holder, not merely licence holders collectively. The CMA’s contrary construction was a legal misdirection. It did not, however, affect the outcome. GEMA and the CMA considered individual circumstances, including WWU’s size and expected debt-issuance frequency, while retaining a notional efficient licence holder as a general benchmark. The duty is one to have regard, not a duty to guarantee financeability or secure a particular outcome. Relief was therefore refused under section 31(2A) of the Senior Courts Act 1981.
4. Grounds 3 and 4. The CMA was entitled to uphold GEMA’s sector-average cost-of-debt methodology and its distinction between structural factors outside management control and financing choices made by management or shareholders. Excluding derivatives was rational because the allowance could be achieved with standard debt instruments, some derivatives could shift costs between periods, and the aggregate evidence showed no material shortfall. Including derivatives for tax clawback was also rational: tax clawback measures the actual firm’s tax benefit, whereas the cost-of-debt allowance concerns a notional company. The judicial-review claim was dismissed.

• High Court (Administrative Court): permission was initially refused by Henshaw J on 30 June 2022 and by Mostyn J on renewal on 21 November 2022. Green LJ granted permission on the papers on 22 March 2023. The claim was then dismissed by Mr Justice Sheldon on 22 January 2026.