THE QUEEN (on the application of SSE GENERATION LIMITED & Ors) v COMPETITION AND MARKETS AUTHORITY

The challenge in this case is directed to a decision of the Competition and Markets Authority (“the CMA”) on the terms to be included in the Connection and Use of System Code to give effect to European Commission Regulation 838/2010. The decision is set out in a document dated 30 March 2021. The provisions in the Connection and Use of System Code apply as between National Grid Electricity System Operator Ltd (“National Grid”) and electricity generators such as the Claimants, and set the charges paid by generators to use the national high voltage electricity transmission system.

The decision of the CMA was made on an appeal against decisions of the Gas and Electricity Markets Authority (“GEMA”) taken on 17 December 2020. The principal appellant before the CMA was SSE Generation Ltd (“SSEGL”) which is the primary Claimant in this application for judicial review. All the other Claimants are members of the SSE Group of companies. SSEGL is a producer of electricity. It owns and operates power stations and associated assets. It is the holder of a Generation Licence issued by GEMA under section 6 of the Electricity Act 1989.

National Grid, the Transmission Licence, and the Connection and Use of System Code.

National Grid holds a Transmission Licence, also issued by GEMA under section 6 of the Electricity Act 1989. A transmission licence permits the holder to “participate in the transmission of electricity” for the purposes of providing or enabling the supply of electricity to any premises. “Transmission” is defined to mean “transmission by means of a transmission system”. A transmission system is one, wholly or mainly, made up of high voltage lines and electrical plant and is used to convey electricity from a generating station to a substation, from one generating station to another, or from one substation to another.

Under the terms of its transmission licence, National Grid is required to put in place arrangements for connection to and use of the transmission system and to devise a Balancing and Settlement Code. The reasons for the former need no further explanation. The latter is intended to set out arrangements between National Grid and those who use the transmission system to coordinate and control the flow of electricity over that system. The Balancing and Settlement Code includes arrangements for payments between National Grid and network users.

All these arrangements are required to be set out in the Connection and Use of System Code (“the CUSC”). Pursuant to an agreement known as the CUSC Framework Agreement, the CUSC is contractually binding as between National Grid and those (including generators) it is applied to. The CUSC includes details of the charges made by the National Grid for use of the transmission system. The obligation to set such charges is the subject of a separate licence obligation under which National Grid must prepare a statement of the “use of system charging methodology”. The methodology must be approved by GEMA and once approved, National Grid is required to apply it. The charges set are paid by generators such as SSEGL. The methodology is at Section 14 of the CUSC. So far as relevant for present purposes, the charging methodology includes arrangements for payment of a Use of System Charge, and charges for Balancing Services. Licence Condition C5 requires National Grid to “keep the use of system charging methodology at all times under review”, and to modify the methodology for the purpose of “better achieving the relevant objectives”. Those objectives (also at Condition C5 in the Transmission Licence) include “compliance with Electricity Regulation and any relevant legally binding decisions of the European Commission and/or the Agency”. Similar objectives apply to the contents of the Balancing and Settlement Code: see Condition C3(1)(b) and (3) in the Transmission Licence. The reference to the “Electricity Regulation” is to Regulation EU 2019/943 as in force on 31 December 2020; the “Agency” is the European Union Agency for the Co-operation of Energy Regulators, established under Regulation EU 713/2009.

Section 8 of the CUSC prescribes the way in which modifications may be made to the Section 14 charging methodology. In summary, the process is started by a proposal from any of the persons identified in Section 14, paragraph 8.16, which includes any person who is party to the CUSC Framework Agreement. The proposal is then evaluated by the CUSC Modification Panel. The Panel may refer the proposals for consideration to a Workgroup. If that happens, the workgroup evaluates both the proposal and any alternatives to the proposal that might be put forward by any party to the CUSC Framework Agreement, and then provides a report to the CUSC Modification Panel. There is then a requirement for consultation on the proposals and any alternatives. Next, the CUSC Modification Panel reports to GEMA. The final decision is taken by GEMA. By paragraph 8.23.7 of the CUSC, GEMA may (subject to exceptions none of which is material in the circumstances of this case): (a) approve the original proposal; or (b) approve one of the alternative proposals; or (c) “if [GEMA] believes that neither the CUSC modification proposal (nor any workgroup alternative CUSC modification) would better facilitate achievement of the Applicable CUSC Objectives then there will be no approval”. The relevant objectives are the ones at Condition C5 of the Transmission Licence.

The arrangements for modification contained in the CUSC reflect part of Condition C10 of the Transmission Licence. Condition C10 paragraph 7(a) is to the effect that if on consideration of a report from the CUSC Modification Panel, GEMA “… is of the opinion that a modification set out in such report would, as compared with the then existing provisions of the CUSC and any alternative modifications set out in such report, better facilitate achieving the applicable CUSC objectives [GEMA] may direct [National Grid] to make that modification”.

European legislation

Three European law measures came into effect on 3 March 2011. The first was Directive 2009/72/EC “… concerning common rules for the internal market in electricity…” (“the 2009 Electricity Directive”). The Directive set common rules for the generation, transmission, distribution, and supply of electricity. The Directive required ownership of the high or very high voltage electricity transmission system to be separate from ownership of facilities for generation or supply of electricity. To this end, the Directive included the notion of “transmission system operator”, defined as the person responsible for operating and maintaining the transmission system in any given area. The Directive went on to set out various obligations incumbent on transmission system operators. The Directive also made provision for the establishment of national regulatory authorities. GEMA is the national regulatory authority for Great Britain. The Directive provides that the responsibilities of each national regulatory authority include that for “… approving, in accordance with transparent criteria, transmission … tariffs or their methodologies” (article 37).

The second measure was Regulation EC 714/2009 (“the 2009 Regulation”). This was primarily concerned with conditions for access to the electricity transmission network to facilitate cross-border exchange of electricity. However, it also contained provision about the charges that could be made by “network operators” (synonymous with transmission system operators, at least for the purposes of issues considered in this judgment) for access to transmission networks. Article 14(1) provided as follows:

“1.

Charges applied by network operators for access to networks shall be transparent, take into account the need for network security and reflect actual costs incurred insofar as they correspond to those of an efficient and structurally comparable network operator and are applied in a non-discriminatory manner. Those charges shall not be distance-related.”

The third of the measures was Commission Regulation 838/2010 (“Regulation 838/2010”). This contains guidelines issued pursuant to the power at article 18 of the 2009 Regulation. Article 2 of the Regulation 838/2010 is as follows:

“Charges applied by network operators for access to the transmission system shall be in accordance with guidelines set out in Part B of the Annex.”

The 2009 Regulation was repealed by Regulation 2019/943 (“the 2019 Regulation”) with effect from 1 January 2020. Article 18 of the 2019 Regulation is, for present purposes, the functional equivalent of article 14 of the 2009 Regulation. The Commission’s power to issue Guidelines is at article 61 of the 2019 Regulation. At the hearing before me, no one suggested there was any relevant difference between this power and the power previously at article 18 of the 2009 Regulation. The obligation on national regulatory authorities previously at article 19 of the 2009 Regulation is now at article 59(1) of Directive EU/2019/944 “… on common rules for the internal market for electricity …” (“the 2019 Electricity Directive”). The 2019 Electricity Directive came into effect on 1 January 2021 and from that date, as a matter of EU law, replaced the 2009 Electricity Directive.

Although both the 2009 Electricity Directive and the 2009 Regulation have been repealed, Regulation 838/2010 has not been repealed. The parties’ position is that Regulation 838/2010 remains in force notwithstanding the repeal of the 2009 Regulation, and is to be regarded in the same manner as Guidelines issued under the 2019 Regulation. That reflects the premise implicit both in GEMA’s decision of 17 December 2020 and the decision of the CMA of 30 March 2021.

The final matter as far as concerns legislation, is the effect of the United Kingdom’s departure from the European Union. It is common ground that the 2019 Regulation, Regulation 838/2010 and the 2009 Electricity Directive are all within the notion of retained EU law defined in the European Union (Withdrawal) Act 2018. Each was in force on “IP Completion Day” (defined at section 39 of the European Union (Withdrawal Agreement) Act 2020). Minor amendments were made to Part B of the Annex to Regulation 838/2010 by the Electricity Network Codes and Guidelines (Markets and Trading) (Amendment) (EU Exit) Regulations 2019. None of these amendments is material for present purposes.

The 2019 Electricity Directive is not retained EU law. It came into force only on 1 January 2021. For the purposes of Ground 3 in these proceedings, SSEGL relies on a definition contained in the Electricity Directive 2019 (the definition of “ancillary service” at article 2(48), see below at paragraph 59). However, that definition is incorporated by reference into the 2019 Regulation (see the Regulation at article 2(60)). One wrinkle concerns the fate of the obligation on national regulatory authorities at article 19 of the 2009 Regulation. This now sits, not in the 2019 Regulation, but in article 59 of the 2019 Electricity Directive. It was not incorporated by reference into the 2019 Regulation. However, no party submitted that any significance attaches to this point. Submissions proceeded on the basis that neither the status of the Guidelines in Part B of the Annex to Regulation 838/2010, nor GEMA’s obligation to give effect to it, altered on 1 January 2021.

GEMA’s decision

Grounds 1 and 2 of SSEGL’s claim arise from GEMA’s decision to modify the way in which the Use of System Charge is calculated. The following sets the context for that decision.

The amount that can be charged to meet the cost of building, maintaining, and operating the transmission system is set each year by GEMA. This is the Use of System Charge (in the jargon of the decision, it is referred to as the “TNUoS”). This charge is then split between generators (such as SSEGL) and other users of the transmission system referred to as “demand users” (such as suppliers who buy electricity from generators to sell to end-users). Since 2014 the proportion of the Use of System Charge payable by generators was determined so as to ensure that the charge they paid did not exceed €2.5/MWh, i.e. the limit set in Part B of the Annex to Regulation 838/2010. In practice this meant that around 13% of the Use of System Charge was paid by generators and 87% by demand users.

The Use of System Charge paid by generators comprises two parts: “local charges” (intended to reflect matters such as the cost of assets needed to connect the generators equipment – for example a power station – to the transmission network); and “wider locational charges” (intended to recover the cost imposed on the transmission network as result of the connection to the network of the individual generator). Together these are referred to as “locational charges”. In addition, there is a Generator (or Generation) Residual Charge (in the jargon, the “TGR”) which is intended to meet the difference between the amount recovered as locational charges and the total proportion of the Use of System Charge that is to be paid by generators.

One significant matter within this description is the maximum charge (€2.5/MWh) arising by reason of Part B of the Annex to Regulation 838/2010. As mentioned already, this sets the extent to which the Use of System Charge may be levied on generators such as SSEGL. This provision was added into the CUSC with effect from 22 October 2014, consequent on a modification proposal known as CMP 224, approved by GEMA. In the course of the decision on CMP 224, an issue arose on the meaning and effect of the connection exclusion at paragraph 2(1) of Part B of the Annex to Regulation 838/2010. GEMA recognised that the meaning of this exclusion was open to debate. One option was that it should be understood as meaning only the things referred to in the CUSC as “connection charges”, namely charges made for the cost of work and equipment necessary to construct “entry and exit points” to the transmission system. GEMA referred to this as the “narrow construction”. The other option (referred to as the “broad interpretation”) was that the connection exclusion included both connection charges as defined in the CUSC and local charges for circuits linking generators to the transmission system. When reaching its decision on CMP 224, GEMA reached no settled conclusion on the matter but said it preferred the narrow construction. In its decision on CMP 224, GEMA pointed out that the modification made to the calculation prescribed in the CUSC (at paragraph 14.14.5) included a margin of error provision such that compliance with the requirement in the Annex to Regulation 838/2010 that annual average transmission charges paid by producers would fall within the prescribed range, would be secured regardless of which of the two possible approaches was taken to the meaning of the connection exclusion.

The net effect of the decision in CMP 224 was described by the CMA in its subsequent decision on CMP 261, as follows:

“4.22.

The result of the CMP 224 Decision, in terms of charging practices, was that NGET had to:

(a)

Forecast transmission output and exchange rates one year ahead;

(b)

Calculate what ex ante charges could be levied on Generators, such that the outturn charge in Euros per MWh was expected to be compliant with the Cap (calculated by reference to the narrow interpretation of the Connection Exclusion), where the ex-post calculation would be as follows:

€ per MWh equals (Total TNUoS Charges levied on generators /transmission output) * (£:€ exchange rate)

(c)

Derive the appropriate G:D split on this basis, including an allowance for forecasting error. NGET explained that ‘this limit has been reduced to €2.34/MWh to incorporate a risk margin for forecasting error’”.

The meaning and effect of the connection exclusion was considered again in CMP 261, a decision of the CMA dated 26 February 2018 on a further proposed modification to the CUSC. CMP 261 (a modification proposal raised by SSEGL) was to the effect that the CUSC should be amended to provide for a mid-year reconciliation of the Use of System Charge to ensure within the course of each charging year, that the charge did not exceed the €2.5/MWh maximum. This would avoid the need for generators to seek to recover excess payments after the end of each charging year. GEMA considered that the modification to the CUSC proposed by CMP 261 should not be made. GEMA relied on the broad interpretation of the connection exclusion. From this premise it concluded that in the 2015/2016 charging year the maximum charge permitted under Regulation 838/2010 had not been exceeded. From that conclusion, applying the criterion at paragraph 8.23.7 of the CUSC, GEMA concluded that CMP 261 would not better facilitate the achievement of the objectives at Condition 5, paragraph 5 of the Transmission Licence.

SSEGL appealed the decision on CMP 261 to the CMA. One of its arguments was that GEMA’s reliance on the broad interpretation of the connection exclusion was wrong. That ground of appeal failed. The CMA concluded that, on an ordinary reading of the language in Regulation 838/2010, the reference to assets “required for connection to the system” was not limited to matters within the notion of “connection charges” as defined for the purposes of the CUSC. Rather, the exclusion included anything needed for the purpose of connecting the generator to the system, taking the system as it existed at a time connection was first requested. Further, the CMA concluded that those things needed for connection at the material time continued to fall within the exclusion thereafter; they would not, over time, cease to be part of a means of connection and instead come to be regarded as part of the transmission system itself. In practice the consequence of this conclusion was that a significant part of the “local charges” element of the Use of System Charge could fall within the scope of the connection exclusion. How much would depend on the circumstance of the generator concerned, as at the time it had connected to the transmission system.

In August 2017, GEMA had commenced what it described as a Targeted Charging Review. This was part of a wider programme of reform. It considered possible changes to residual charges with a view to reducing “harmful distortion in the current charging framework”. The problem arose because the Generation Residual Charge only affected large generators (with capacity greater than 100 MW). It did not affect either small distributed generators, or on-site generation. Further, by 2017 the Generation Residual Charge had turned into a negative charge – i.e., a rebate payable to ensure the Use of System Charge stayed within the €0 – 2.5/MWh range imposed by Regulation 838/2010.

In November 2018, and as part of the review, GEMA proposed that the Generation Residual Charge should be set at zero. This proposal was made following the conclusion of the CMA on CMP 261 on the scope of the connection exclusion. On 21 November 2019, GEMA published its decision following the Targeted Charging Review. This included the following on the Generation Residual Charge.

“Maintaining compliance with EU regulation 838/2010

4.72

One concern raised by some stakeholders was compliance with European Regulation 838/2010 …

This states that “Annual average transmission charges paid by producers in each Member State shall be within the ranges set out …”, for which Ireland, Great Britain and Northern Ireland is the range from 0 to 2.50 EUR/MWh. In Great Britain, “producers” are the larger generators – transmission-connected and larger distribution-connected generators (above 100 MW) but excludes Smaller Distribution Generators (which are currently treated as negative demand for the purposes of transmission charging).

4.73

Maintaining compliance with this “EU cap and floor” has been achieved through a combination of charges and credits for larger generators who are liable for transmission charges. The credits have been paid to generators through the Transmission Generation Residual charge.

4.74

As noted above, stakeholders raised questions around how compliance with the cap and floor will be maintained if the Transmission Generation Residual is set to zero and is not available as a mechanism to achieve compliance. Questions were also raised as to what reconciliation process would exist to ensure payments are correct for all generators.

4.75

There is a wider context around this issue. In May 2018, Ofgem made a decision related to how compliance with the cap and floor is determined through CMP 261, and this decision was appealed to the Competition and Markets Authority (CMA). The CMA upheld Ofgem’s decision on CMP 261.

4.76

There is currently a Connection and Use of System Code (CUSC) modification at workgroup stage considering EU Regulation 838/2010 which is likely to be impacted by this decision. The CMP 317 modification was raised in response to CMP 261 and the CMA ruling, which provided some guidance as to how the “connection exclusion” should be correctly interpreted.

4.77

The CMA ruling, confirmed Ofgem’s decision on CMP 261 and means that CUSC is not currently aligned with the correct interpretation of which assets should be included in the “connection exclusion” for the purposes of the EU cap and floor. The [Electricity System Operator] which has proposed the modification to ensure CUSC calculate generation charges in accordance with the interpretation of the EU Regulation 838/2010 reflected in CMP 261, has included an adjustment mechanism to ensure compliance in the proposal. The industry code working group will also evaluate whether there might be a need for, and consider the design of, any reconciliation should there be a breach of the lower or upper limit of the charging range. Subject to our final decision on this modification, we expect that this will allow the Transmission Generation Residual to be set to zero, resulting in the correct charges and achieving compliance with the EU Regulation 838/2010. We accept that a negative adjustment charge may be required in the future to ensure compliance with the Regulation.

4.78

We said in the minded-to consultation that the ESO is developing a modification which would implement the correct post-CMP 261 definition of the EU Regulation 838/2010 range, and would allow us to direct that our policy position of no residuals charged to generation is met. Subject to our final decision on this modification, we currently expect that the correct interpretation of the EU Regulation 838/2010 will be in place in the CUSC by April 2021 in order for the Transmission Generation Residual to be set to zero on this date. If that is not the case, we expect the TCR proposal and subsequent modification to implement the TCR decision to include an appropriate adjustment charge to ensure compliance with the CMP 261 interpretation of the regulation.

4.79

For the avoidance of doubt, we consider that CUSC is compliant with EU Regulation 838/2010 except for the interpretation of the “exclusion connection” which needs to have the correct interpretation, in accordance with the CMA appeal regarding CMP 261. We think that generators should face transmission charges for:

•

off-shore local charges

•

on-shore local charges (less those which fall into the “Connection Exclusion”), and

•

wider locational charges.

For compliance with the EU Regulation 838/2010 we expect these annual average transmission charges paid by producers not to exceed €2.5/MWh or fall below €0/MWh. We accept that an “adjustment charge” may be necessary to rectify this.”

Also on 21 November 2019, GEMA gave directions to National Grid to propose modifications to the CUSC to give effect to the conclusions in the Targeted Charging Review. The material part of the direction for present purposes was at paragraphs 45 – 48:

“Terms: Embedded Benefits

45.

The Proposal(s) must set out proposals to modify the Use of System Charging Methodology, Section 14 CUSC to set the TGR to £0, subject to ensuring ongoing compliance with EU Regulation No 838/2010 (in particular, the requirement that average transmission charges paid by producers in each Member State must be within prescribed ranges – which for Ireland, Great Britain and Northern Ireland is 0 to 2.50 EUR/MWh). This should be achieved by charging generators all applicable charges (having factored in the correct interpretation of the connection exclusion as set out in EU Regulation 838/2010) and adjusted if needed to ensure compliance with the 0 to 2.50 EUR/MWh range.

46.

NGESO must work in conjunction with the relevant industry work group(s) in place for CMP 317 (and provide such input as appropriate) to seek to ensure that any impact on that modification proposal by the TCR Decision is addressed in a manner that does not undermine NGESO’s ability to comply with its obligations under this Direction. In doing so, the Proposal(s) must set out proposals for an appropriate adjustment charge to ensure compliance with the EU Regulation 838/2010, if NGESO considers it necessary (see paragraphs 4.76 to 4.78 of the TCR Decision).

47.

The Proposal(s) must set out proposals to modify the Use of System Charging Methodology, Section 14 of CUSC regarding the basis on which suppliers balancing services charges are applied. In particular, such charges are to be applied using gross demand measured at the Grid Supply Point, having the effect of removing the Embedded Benefit that balances the offsetting of Suppliers’ net demand and in turn, a reduction of liability for balancing services charges. This will remove payments from suppliers to smaller distributed generators for this service.

48.

The Proposal(s) must set out proposals to modify Section 11 (Interpretation and Definitions) of CUSC to introduce and/or adjust any terms and definitions and any other associated provisions as required as a result of the Proposal(s).”

Prior to the report on the Targeted Charging Review and GEMA’s direction, National Grid had raised CMP 317, a proposal to modify the CUSC consequent on the CMA’s decision on CMP 261. CMP 317 proposed that the Generation Residual Charge be calculated after the cost of “assets required for connection” had been calculated and removed from the calculation at paragraph 14.14.5(v) of the CUSC. The proposal included the following by way of explanation (Footnote: ¹).

“Under this CUSC Modification Proposal removal of revenue linked to definition of “assets required for connection” will be added to the calculation of Maximum Allowed Revenue (MAR) under 14.14.15(v). This will align the CUSC to the broader interpretation of these assets in [Regulation 838/2010] in accordance with the Authority’s decision. This will lead to changes in the manner in which the generator and demand residual charges are calculated. For the avoidance of doubt the Company intends to maintain compliance on an ex-ante basis as today. However, the solution will also need to incorporate an “if-needed” process to adjust charges on an ex-post basis should tariffs set on an ex-ante basis be non-compliant with [Regulation 838/2010] when the actual values are used. This is necessary as the ex-ante approach contains an error margin but forecasting errors, movement in exchange rates and generator output can all affect the outturn compliance. This error margin will need to be applied to both the upper and lower ends of the range.”

On 29 January 2020 GEMA agreed that CMP 317 should be amalgamated with CMP 327, the modification proposal (also made by National Grid) consequent on the direction above (at paragraph 24), to remove the Generation Residual Charge (by setting it to zero). The combined effect of CMP 317 and 327 was described by National Grid as follows (Footnote: ²):

“Therefore, the consolidated situation encompasses the requirements of CMP 317 and CMP 327 and is detailed below:

1.

The proposer’s solution will set the transmission generation residual to zero. This will in preference be achieved through the removal of the relevant sections of the CUSC that require the use of a transmission generation residual.

2.

The proposer’s solution will establish a definition of Assets required for connection and charges (revenues) associated with these. These will be excluded from the calculation of average generation charge within the CUSC. The proposer considers that a straightforward approach to this is to exclude all local charges and assess compliance with the range against the wider charges within the charging methodology.

3.

The proposer’s solution will not establish a target within the range [in Regulation 838/2010], rather it will only adjust charges if required to maintain compliance as per Ofgem’s direction that generators should pay all applicable charges.

4.

The proposer’s solution will include an ex-ante tariff adjustment that will be applied if the average charge to generators falls outside of the range within [Regulation 838/2010] when tariffs are produced.

5.

The proposer’s solution will include an error margin calculated in the same manner as today. The need for an ex-ante tariff adjustment will be assessed against the error margin adjusted range to ensure that ex-post adjustments are not necessary.

6.

The proposer’s solution will stipulate that an ex-post adjustment to the users’ charges must be carried out as soon as possible. In practice this will be carried out as part of generator and demand reconciliation to ensure that correct monies are returned to and billed from parties within the same charging year.”

These proposals to modify the CUSC were considered pursuant to the process in Section 8 of the CUSC. They were considered by the Modification Panel and by the workgroup. The workgroup also considered 83 alternative proposals put forward by parties to the CUSC.

GEMA’s decision (published on 17 December 2020) was to approve the proposals as made by National Grid. So far as concerns giving effect to the connection exclusion in Regulation 838/2010 the decision was to include the following as a new paragraph (vi) within paragraph 14.14.5 of the CUSC.

“(vi)

For the purpose of compliance with [Regulation 838/2010] in the context of setting limits on the annual charges paid by generation The Company will exclude Charges for Physical Assets Required for Connection when calculating the total amount to be recovered from Generators (GCharge (forecast)).”

“Charges for physical assets required for connection” was defined as follows:

“Connection Charges and charges in respect of an On-shore local circuit, On-shore local substation, Off-shore local circuit and Off-shore local substation.”

In respect of this part of its decision, GEMA said this:

“Our decision

We have considered the issues raised by the modification proposals and the FMR dated 13 August 2020, including taking into account the responses to the Workgroup Consultation and Code Administrator Consultation. We have also considered and taken into account the votes of the Workgroup and the CUSC Panel on CMP 317/327.

We do not consider that any of the proposals incorporate the correct interpretation of the Connection Exclusion. Notwithstanding this, we have concluded that the Original Proposal [i.e., the proposal made by National Grid] would be likely to avoid the imminent risk of a breach of [Regulation 838/2010] that is posed by the status quo, and better facilitate achievement of the [Applicable Charging Objectives] than either the status quo or any of the [workgroup alternative code modifications]. We also consider that approval of the Original Proposal would be consistent with principal, objective and statutory duties.

Accordingly, our decision is to approve the Original Proposal and direct that it be implemented.

Our approval of the Original Proposal is on the express basis that it is a “stop-gap” measure which should avert an imminent risk of breach of [Regulation 838/2020] and allow time for the formulation of a longer-term solution that properly reflects the correct interpretation of the Connection Exclusion. We expect NGESO to bring forward a further CUSC Modification Proposal that will fully give effect to the correct interpretation of the Connection Exclusion.”

Ground 3 of SSEGL’s challenge concerns a different part of GEMA’s decision on modification proposal CMP 317/327. GEMA considered that in part, CMP 317/327 required consideration of “new proposals as regards the treatment of [Balancing Services Code] charges and certain [Balancing Services Use of System Charges] (related to Congestion Management) and whether those charges should be included within the CUSC calculation” (GEMA decision, internal page 7). These proposals concerned paragraph 2(2) in Part B of the Annex to Regulation 838/2010, the paragraph that provides that the annual average transmission charge is to be calculated after exclusion of “charges paid by producers related to ancillary services” – i.e., the ancillary services exclusion.

The proposal considered by GEMA arose from the workgroup process (part of the process at Section 8 of the CUSC: see above at paragraph 6).

GEMA reached two conclusions. The first was that Balancing Services Code charges fell within the scope of the ancillary services exclusion. The second conclusion concerned the part of the Balancing Services Use of System Charge referred to as charges for “constraint management services”. GEMA described these services as concerning monitoring the amount of electricity on different parts of the transmission system and taking steps to ensure relevant constraints were not exceeded. The example given was that of making payments to generators to reduce output to reduce the load on the transmission system: see “Legal Annex One” to the GEMA decision at paragraph 16. GEMA’s conclusion was that these charges also fell within the ancillary services exclusion.

The appeal to the CMA

SSEGL appealed GEMA’s decision to the CMA. This appeal is provided by the Energy Act 2004: see section 173(1) read together with section 173(2)(a). Section 175 of the 2004 Act sets out the CMA’s functions on an appeal:

“(4)

The CMA may allow the appeal only if it is satisfied that the decision appealed against was wrong on one or more of the following grounds— 

(a)

that GEMA failed properly to have regard to the matters mentioned in subsection (2);

(b)

that GEMA failed properly to have regard to —

(i)

the purposes for which the relevant condition has effect (in the case of an appeal by virtue of section 173(2)), or

(ii)

the purposes of the power to give a direction under section 36 of the Gas Act 1986 or the purposes of Standard Special Condition A11 of licences granted under section 7 of that Act (in the case of an appeal by virtue of section 173(2A));

(c)

that GEMA failed to give the appropriate weight to one or more of those matters or purposes;

(d)

that the decision was based, wholly or partly, on an error of fact;

(e)

that the decision was wrong in law.

(5)

Where the CMA does not allow the appeal, it must confirm the decision appealed against. 

(6)

Where it allows the appeal, it must do one or more of the following—

(a)

quash the decision appealed against;

(b)

remit the matter to GEMA for reconsideration and determination in accordance with the directions given by the CMA; 

(c)

where it quashes the refusal of a consent, give directions to GEMA, and to such other persons as it considers appropriate, for securing that the relevant condition has effect as if the consent had been given.”

SSEGL pursued six grounds of appeal. The CMA issued its decision on 30 March 2021; the appeal failed on all grounds. The CMA’s decision on the appeal runs to almost 230 pages. It is not necessary in this judgment to summarise the CMA’s reasons because SSEGL’s challenge, as put in this application for judicial review, is to the effect that in four respects the CMA’s decision repeats errors of law made by GEMA in its decision. To the extent it is necessary to touch on any aspect of the CMA’s reasons that can conveniently be done when addressing the substantive grounds of challenge.

The grounds of challenge in this case

SSEGL’s grounds of challenge in this application for judicial review are as follows. Ground 1 is that the CMA erred in law in failing to conclude that GEMA had itself erred in law by approving a modification to the CUSC that did not accurately reflect the connection exclusion (i.e., paragraph 2(1) in Part B of the Annex to Regulation 838/2010). Ground 2 challenges the conclusion stated by GEMA in its decision on CMP 317/327 as to the correct meaning of the connection exclusion. Ground 3 is directed to the decision on the scope of the ancillary services exclusion (paragraph 2(2) of Part B of the Annex to Regulation 838/2010). SSEGL contends that the conclusions that the Balancing Services Code charge and the congestion management charge were both within the ancillary services exclusion were wrong.

For the reasons above SSEGL’s challenge succeeds on Ground 1 but fails on Grounds 2 and 3.

The present version of Practice Direction 54A came into effect on 31 May 2021. The prompt for the new version of this Practice Direction was the observations of Lord Burnett CJ at paragraphs 116 to 121 in R(Dolan) v Secretary of State for Health and Social Care [2021] 1 WLR 2326. At paragraph 120 Lord Burnett said this:

“120

… We are concerned that a culture has developed in the context of judicial review proceedings for there to be excessive prolixity and complexity in what are supposed to be concise grounds for judicial review. As often as not, excessively long documents serve to conceal rather than illuminate the essence of the case being advanced. They make the task of the court more difficult rather than easier and they are wasteful of costs. It is for these reasons that skeleton arguments are subject to length constraints and so too, for example the length of printed cases in the Supreme Court.”

Among other matters, the new version of Practice Direction 54A set page limits for pleadings (see paragraph 4.2(3), 6.2(4) and 9.1(2)), and set out rules concerning the content and length of skeleton arguments (see paragraph 14.1 to 14.4). These requirements have not been met in this case.

The Claimants’ Statement of Facts and Grounds ran to 99 pages. That pleading was filed before the present version of Practice Direction 54A came into effect. Nevertheless, on any analysis, the 99-page Statement of Facts and Grounds was excessively long. The purpose of a Statement of Facts and Grounds is to provide clear and concise statements of the facts relied on in support of the claim and of the grounds on which the claim is brought. The grounds should explain the claimant’s case succinctly by reference to the facts relied on. Even though the present version of Practice Direction 54A was not in force at the material time, the Statement of Facts and Grounds in this case failed, by any standard of appropriate pleading. The CMA’s Detailed Grounds of Defence dated 31 August 2021 ran to 48 pages, 8 pages longer than the maximum specified at paragraph 9.1(2) of Practice Direction 54A. The Detailed Grounds were, quite properly, accompanied by Application Notice requesting permission to file Detailed Grounds that exceeded the 40-page page limit. The only reason advanced in support of that application was that the Claimant’s Statement of Facts and Grounds had run to 99 pages. That application was made by Mr Williams QC at the outset of the final hearing. I refused the application. The reason advanced was not a sufficient reason to extend the maximum length provided by paragraph 9.1(2) of the Practice Direction. Prolixity cannot be a reason for further prolixity; for this purpose, as for many others, two wrongs do not make a right.

The failure to comply with the requirements in Practice Direction 54A on skeleton arguments was even more striking. A 25-page limit is imposed by the Practice Direction. Further, the Practice Direction sets out the purpose of a skeleton argument and the matters to be contained in it are set out at paragraphs 14.1 to 14.2. Paragraph 14.2(1) says this:

“A skeleton argument must be concise. It should both define and confine the areas of controversy; be set out in numbered paragraphs; be cross-referenced to any relevant document in the bundle; be self-contained and not incorporate by reference material from previous skeleton arguments or pleadings; and should not include extensive quotations from documents or authorities. Documents to be relied on must be identified.”

The Claimants’ Skeleton Argument ran to 25 pages, but at paragraph 2 incorporated by reference the 99-page Statement of Facts and Grounds. At the hearing Mr Beal QC for the Claimants volunteered a new 30 page “Notes for Oral Submissions” document. Overall, therefore, the written submissions ran to 154 pages. The CMA’s skeleton argument took a similar course. While the document ran to only 23 pages, at paragraph 5 it too incorporated a document by reference, the 48-page Detailed Grounds of Defence. Only the First Interested Party, GEMA, produced a Skeleton Argument that met the requirements of Practice Direction 54A.

The Claimants’ and the Defendant’s approach to their Skeleton Arguments was entirely wrong. It was in blatant disregard of the requirements in the Practice Direction. This is intolerable. A properly prepared skeleton argument is essential. It is how the court is assisted to identify and determine the issues, consistent with a proportionate use of court time. Quite plainly too, compliance with the requirements set out in the Practice Direction is in the interests of the parties: a single, concise document will be the best way of putting each party’s case. Paragraph 14.4 of Practice Direction 54A states that a skeleton argument that does not comply with the requirements at paragraph 14.1 to 14.3 “may” be returned by the court. Advocates should now expect that this practice will be followed.