In R (on the application of RWE Generation UK Plc) v Gas and Electricity Markets Authority [2015] EWHC 2164 (Admin) the Administrative Court held that proposals to modify charging structures for the use of the transmission infrastructure by electricity generators were lawful.

  1. Key Points
  2. Background
  3. The Decision
  4. Comment  

1. Key Points

  • In determining if there is unlawful discrimination under EU law, the court will consider all material differences between classes which justify differential treatment, unless it is expressly required to limit itself to certain considerations by statute.
  • A judicial review court of limited expertise is not the appropriate forum to make substantive decisions on matters involving complex technical and economic judgment.

2. Background

The Claimant challenged the Defendant Authority's decision to introduce modifications to the charging system by which the owners of the infrastructure that transports electricity, such as overhead lines, cables and substations, to the distribution network can recover investment costs from electricity generators.

The modifications in question involved splitting a charge which was previously charged to all generators into two separate charges: a 'Year Round Tariff' and a 'Peak Security Tariff'. All generators would continue to pay the Year Round Tariff. However a distinction was drawn between conventional generators and intermittent generators, who rely on fuel sources which were out of their control such as wind and sun, in relation to the Peak Security Tariff. Only conventional generators would pay the Peak Security Tariff.

The Claimant, a conventional generator, argued that the modification was unlawful raising various grounds of challenge including: (1) requiring conventional generators to pay the Peak Security Tariff, while excusing the intermittent generators, involved unlawful discrimination; (2) the Defendant had failed to take into account relevant considerations and acted irrationally in reaching this decision; and (3) the modification constituted state aid within the meaning of Article 107 of TFEU and must therefore be notified to the European Commission.

In response, the Authority sought to rely on the argument that the modifications aligned the position on charging with the factors which the transmission owners required to take into account when deciding on investment in infrastructure to ensure peak electricity demand could be met. Most significantly, they noted that they were required to assume that intermittent generators did not contribute to meeting peak demand when making this decision. 

3. The Decision

The court found in favour of the Defendant on all grounds.

Unlawful discrimination between conventional and intermittent generators

The court, applying existing case law in this area, stated that the test as to whether there was unlawful discrimination could be analysed in two ways:

  1. a two stage test in which one examines whether the situations of the two organisations are comparable and, if so whether differential treatment was objectively justified; or
  2. a single question of whether a relevant difference between the situations is sufficient to justify differential treatment.

Lewis J dismissed the Claimant’s contention that the directive on electricity within the internal market (the “Directive”) provided an exhaustive list of objective grounds which could justify differential treatment. In the absence of express provision, he refused to infer that the circumstances in which differential charging was permissible were limited. The fact that certain circumstances were expressly listed did not mean other relevant differences must be ignored.

He held that intermittent generators and conventional generators were in a materially different position in relation to the Peak Security Tariff as it was the activity of conventional generators alone which was relevant to investment decisions in order to meet peak demand. Therefore, the modification to the charging system did not involve unlawful discrimination.

Failure to take into account relevant considerations and irrational decision making

The court accepted that the Defendant had not considered the proposed modification in charging in the context of other charges relating to the compensation paid to generators who were unable to gain access to the system. It was noted that “the fact that one set of costs has not been the subject of review and modification does not demonstrate that there is any legal flaw in the modification proposed for a different set of costs”. The methodology by which these other charges were levied was irrelevant to the modification and therefore the decision not to take these into account had no impact on whether the proposed modification was lawful or discriminatory.

Similarly, the court dismissed the Claimant’s argument that the basis on which the charging modification had been made was irrational as intermittent generators did, in fact, contribute to meeting peak demand. The Defendant simply proposed to align the charging methodology with the considerations and assumptions that transmission owners were required to take into account when making investment decisions. Those assumptions were not themselves under challenge. The issue of contribution at peak times was a complex one and the court concluded that "it is not necessary for the court to reach a conclusion on that debate, nor is a judicial review court, with limited expertise, capable of reaching conclusions on matters involving complex technical and economic judgment on the basis of limited evidence and submissions."

Whether differential charges constituted state aid under Art 107 of TFEU

The Claimant conceded that if the modification did not involve unlawful discrimination or irrational decision making then it would not involve the provision of state aid within the meaning of Art 107 of TFEU. Lewis J agreed with this conclusion, stating that this change in charging does not involve state aid as this modification did not confer a benefit upon intermittent generators.

The court was highly critical of the Claimant’s suggestion that, even if the modifications did not involve state aid, an existing renewables obligations scheme would need to be re-notified to the Commission as the modifications would result in a change in the cost assumptions on which the original notification was made. Lewis J stated that fundamentally the scheme in question was in no way related to the current judicial review, the grounds for review had made no mention on this and no evidence had been presented to the court which would allow the court to determine if the modifications did affect the cost assumptions of the previous scheme.

4. Comment

This case makes clear that charging regimes which differentiate between classes of economic operators will not necessarily constitute unlawful discrimination. The key in considering different regimes for different operators is to consider if there are material differences between those operators which are relevant to the proposed differentiation in charging.

Further, the judgement makes clear that the mere fact that a class of operators are not liable to pay charges which another class pays does not mean that class is receiving state aid. Instead, one must establish if the differential treatment is provided for under EU legislation and carefully consider whether any advantage had actually been conferred.