R (on the application of) UK Power Networks Services (Contracting) Limited v The Gas and Electricity Markets Authority [2014] EWHC 3678 (Admin)

  • The High Court ruled on issues relating to the obligation of an electricity network operator to open its network to access by rival suppliers ('third party access').
  • The Court found that the Gas and Electricity Markets Authority (the 'Authority') had made material errors of law in its approach to the issues before it, including that it had wrongly assumed that there could only be one person per network subject to the obligation to provide third party access, and that it had wrongly applied the test from which such a duty arises.

Background

To promote competition, under Directive 2009/72 of the European Parliament and of the Council of 13 July 2014 ('the Directive') any customer can switch electricity supplier. To facilitate this, the network supplier must open its network to third party access.

The Directive imposes this duty to open the network to third party access on the persons who are 'responsible' for matters such as operating, maintaining, developing and ensuring the interconnectedness of the system, and ensuring the long term ability of the system to meet distribution demands.

This part of the Directive was implemented by Schedule 2ZA Electricity Act 1989 (EA 1989).

Facts

UK Power Network Service (Contracting) Limited ('UKPNS') runs the high voltage part of the electricity supply network at Heathrow Airport (the "Leased Network") under a distribution agreement with Heathrow Airport Limited ('HAL') (the Interested Party). HAL operates the residual network. UKPNS has responsibilities under the distribution agreement to maintain, operate, repair, replace and reinstate the Leased Network. UKPNS does not sell electricity, but HAL does sell electricity to customers based on the site. In March 2012 a hotel at Heathrow sought to assert its right to switch electricity supplier. This resulted in a regulatory procedure which led to a decision by the Authority that UKPNS was subject to the duty to secure third party access ('the Decision') and it was therefore the 'distribution exemption holder' ('DEH'). The Authority also found that there could only be one DEH per network, although it accepted that as a result of the distribution agreement UKPNS was unable to perform its obligation without the cooperation of HAL. UKPNS sought judicial review of the Decision.

High Court Decision

The Court concluded that the Authority had materially erred in law in a number of respects in the way in which it approached the issues, and therefore remitted the matter to be reconsidered by the Authority.

Identification of the relevant 'system'

Green J considered what the relevant system was for the purposes of Schedule 2ZA EA 1989. He concluded that the relevant system is 'all that infrastructure and equipment which must be used to ensure the transport or delivery of current between a third party supplier and a customer'.

He noted the principle that it was the duty of the Authority to ask itself the correct questions of law. The authority had erred in asking only which of UKPNS and HAL had the greatest responsibility for operating and controlling the Leased Network, and therefore assuming that transport or delivery of current between a supplier and a customer involved only the Leased Network. He found there to be sufficient evidence that at least some responsibility fell on HAL, because HAL's residual network may be used to secure third party access, and because HAL has some degree of responsibility for the Leased Network.

Can there be more than one 'distribution exemption holder'?

Green J found that the authority erred in concluding that there could be only one distribution exemption holder per network because:

  1. Nothing in the Directive or EA1989 says there can only be one per network;
  2. It would be antithetical to the purpose of the Directive to promote competition;
  3. The Directive is a framework directive which mandates results but does not make assumptions about the evolvement of the markets concerned;
  4. This limitation was the central reason why third party access failed in this case as it can encourage disputes and delay;
  5. It led to the result that the authority could impose the duty on a person who cannot comply with it acting alone and yet could still be subject to enforcement proceedings for non-compliance;
  6. The ability to have more than one DEH per network does not result in practical problems because any obligations would be assigned proportionately and because it would avoid the situation described under (5).

The meaning of 'supply'

UKPNS submitted that the correct interpretation of 'supplier' under Schedule 2ZA EA1989 meant that the obligations only apply to electricity vendors.

Green J pointed out that part of the Directive is concerned only with the transport and conveyance of electricity, and not with the sale of electricity. Therefore, he found that 'supply' for the purposes of Schedule 2ZA EA1989 should be interpreted in the context of the Directive which it implements, and hence it means physical distribution rather than sale.

Application of test for duty to secure third party access

The test under EA 1989 to determine who is obliged to provide third party access refers to those who 'operate and control' the system. The Authority considered which out of UKPNS and HAL exercised the greater operative powers or control over the system.

Green J found that the phrase 'operation or control' should be interpreted consistently with the Directive, which does not use the word 'control'. Under the Directive, the test is 'responsibility' for operation, maintenance, interconnection, development and stability of demand. Green J held that 'the concepts of 'operation' and 'control', may, with a purposive interpretation, be broad enough to encompass these matters', in that 'control' was introduced to implement 'responsibility' and 'operation' encompassed the remainder of the test.

Green J concluded that the Authority had not considered all of the relevant matters under the test. He also found that the Authority had erred in treating 'operation' and 'control' as alternate tests because there is no equivalent alternative test in the Directive. Furthermore, because there can be more than one DEH per system, it was incorrect for the Authority to treat the test as a relative one and ask which of HAL and UKPNS had the greater control or operative powers. The Authority was also wrong to apply the test only to the Leased Network.

Relevance of the 'workability' test

The Authority had applied a 'workability' test to its decision. This meant that once a person had been labelled the DEH within a system it must then be decided whether this was 'workable'. Green J concluded that this question was irrelevant and had only arisen because the Authority had wrongly assumed that there could only be one DEH per system.

Comment

This case illustrates the willingness of the Courts to use a purposive approach when considering the application of English legislation designed to implement EU law. Although Member States are allowed a margin of discretion in the way they implement EU Directives, the Courts will interpret English law in line with the parent EU law where issues arise. Furthermore, in view of the proper and limited role of the Court in judicial review the Court was only willing to decide on issues of law; despite hearing extensive submissions of factual issues Green J did not decide any factual issues. The Court ruled on the correct legal tests and then remitted the decision to the Authority to be reconsidered on the facts.