Introduction

The case of SSE Generation Ltd & Ors v Competition and Markets Authority (CMA) ([2022] EWCA Civ 1472) addresses critical issues surrounding the methodology for setting electricity transmission charges in Great Britain. The dispute involves the Gas and Electricity Markets Authority (GEMA), the CMA, and SSE Generation Limited (SSE), with broader implications for regulatory compliance and the interpretation of key terms within energy legislation.

The central matters at stake are twofold:

1. The legality of GEMA adopting an interim, non-compliant methodology to set transmission charges as a stop-gap measure while transitioning to full compliance.
2. The proper interpretation of "congestion management" within the regulatory framework and its impact on transmission charge calculations.

Summary of the Judgment

The Court of Appeal dealt with two primary appeals:

• Issue I: Whether GEMA acted lawfully by implementing an interim, non-compliant methodology to set transmission charges as part of a phased approach to full compliance with existing regulations.
• Issue II: The correct interpretation of "congestion management"—whether it pertains solely to interconnectors between EU member states or extends to broader network congestion.

In its ruling, the Court upheld GEMA's discretion in adopting a temporary non-compliant methodology (Issue I), acknowledging the regulator's need to balance immediate compliance risks with practical transition capabilities. However, the Court allowed SSE's cross-appeal on Issue II, determining that "congestion management" extends beyond interconnectors, thereby requiring broader consideration in transmission charge calculations.

Analysis

Precedents Cited

The judgment referenced several key cases and legal principles to support its conclusions:

• R v Paddington Valuation Officer ex p Peachey [1966] 1 QB 380: Highlighted that maintaining a "near miss" in compliance is insufficient.
• Quintavalle v Secretary of State for Health [2003] 2 AC 687: Emphasized the importance of interpreting legislation in light of its intended purpose and historical context.
• Inco Europe Ltd v First Choice Distribution [2000] UKHL 15: Discussed the limits of judicial intervention in correcting legislative errors without overstepping interpretative boundaries.
• Solar Century Holdings Ltd v Secretary of State for Energy & Climate Change [2014] EWHC 3677 (Admin): Reinforced the methodology for statutory interpretation, particularly in light of legislative intent.

These precedents collectively underscore the judiciary's role in upholding the rule of law while respecting the discretion afforded to regulatory bodies.

Legal Reasoning

The Court's reasoning can be distilled into several key points:

1. Regulatory Duty and Discretion: Regulators like GEMA are bound by statutory duties to ensure compliance with the law but also possess discretion in determining how to achieve this compliance. The Court acknowledged that immediate full compliance might be impractical, thereby justifying the use of temporary measures.
2. Proportionality and Rationality: Under EU law principles, the Court applied a test of proportionality, assessing whether GEMA's actions were a suitable and balanced response to the compliance issues, even if temporary non-compliance existed.
3. Interpretation of 'Congestion Management': The broader interpretation favored by SSE suggests that congestion management should not be confined to interconnectors but should encompass any part of the transmission network, aligning with the modern, integrated energy market.
4. EU Retained Law Confusion: A significant aspect was the discrepancy between the 2009 and 2019 definitions of "congestion" within EU regulations, compounded by the peculiarities of Brexit-related legislative changes. The Court found that the UK’s adoption of the old definition as retained EU law (post-Brexit) was erroneous but limited its ability to rectify this error, emphasizing legislative intent.

The Court ultimately concluded that while GEMA's stop-gap measure introduced temporary non-compliance risks, it was a lawful exercise of regulatory discretion given the absence of viable compliant alternatives.

Impact

This judgment has several noteworthy implications:

• Regulatory Flexibility: The ruling reinforces the capacity of regulatory bodies to implement interim measures in complex sectors like energy, provided they act within their statutory discretion and aim toward eventual full compliance.
• Interpretation of Legislation: By allowing a broader interpretation of "congestion management," the Court aligns regulatory practices with the evolving structure of the energy market, potentially influencing future regulatory definitions and methodologies.
• Legislative Clarity Post-Brexit: The case highlights legislative oversights stemming from Brexit, emphasizing the need for clear, consistent definitions within retained EU law to prevent regulatory ambiguity.
• Future Litigation: The decision may guide future challenges to regulatory decisions where interim non-compliant measures are employed, balancing immediate practical needs with strict legal adherence.

Complex Concepts Simplified

Transmission Charges

Transmission charges are fees levied by network operators on electricity generators for using the transmission network. These charges are regulated to ensure they remain within specified limits to prevent undue financial burdens on generators.

Permitted Range

The Permitted Range refers to the legally set boundaries (0 to €2.5 per megawatt-hour) within which the annual average transmission charges must fall. Charges outside this range could lead to regulatory breaches.

Ancillary Services Exclusion (ASE)

ASE excludes certain charges related to ancillary services—services necessary for the operation of the transmission or distribution system—from the core transmission charge calculations. Balancing services, however, are included within ASE.

Congestion Management

Traditionally, congestion management involved addressing bottlenecks at interconnectors between national transmission systems. The broader interpretation now includes managing any congestion within the entire transmission network, not limited to international points.

Stop-Gap Measure

A stop-gap measure is a temporary solution implemented while a more permanent, compliant methodology is being developed and approved. Such measures are employed when immediate full compliance is not feasible.

Conclusion

The SSE Generation Ltd v CMA judgment marks a pivotal moment in energy regulation jurisprudence. By upholding GEMA's interim measure, the Court acknowledges the intricate balance regulators must maintain between immediate practical needs and stringent legal compliance. Simultaneously, by broadening the interpretation of "congestion management," the decision aligns regulatory practices with the integrated and evolving nature of modern energy systems.

The ruling not only clarifies the scope of regulatory discretion but also sets a precedent for how ambiguities in legislative definitions—particularly those arising from significant political shifts like Brexit—are to be navigated in legal practice. Moving forward, regulators and stakeholders in the energy sector must heed this judgment's implications, ensuring methodologies and definitions are both legally sound and operationally viable.