REGULATORY: UK Competition Law: UK Competition Commission Publishes Energy Licence Modification Appeals Rules

by King & Spalding

[author: Suzanne Rab]

The UK Competition Commission (“CC”) has published new rules of procedure for the conduct and disposal of energy licence modification appeals. The Energy Licence Modification Appeals Rules of 25 September 2012 (the “Rules”)[1] set out how the CC intends to ensure that appeals against decisions by the Office of Gas and Electricity Markets (“Ofgem”) to modify energy licences are conducted in a fair, efficient and timely manner. The development highlights some of the themes currently prevailing in the UK about how to streamline the decision-making of the UK regulatory and competition authorities and make them more effective.

Legal Framework

The EU’s third energy package, adopted in 2009, specifies that member states must ensure that national regulatory authorities (“NRAs”) are able to take independent decisions in specified regulatory areas. Member states must ensure that appropriate mechanisms exist at national level whereby a party affected by a decision of a regulatory authority has a suitable right of appeal to an independent body. The third package was required to be implemented in national law by 3 March 2011. In the UK, implementing regulations came into force on 10 November 2011, specifically the Electricity and Gas (Internal Markets) Regulations 2011 (the “Regulations”).

Ofgem is the designated NRA for Great Britain. The Regulations set out the process for Ofgem to modify licence conditions providing for a merits-based appeal of Ofgem’s decisions to the CC. The CC is an independent public body that carries out investigations into mergers, markets and the regulated industries, including energy. Under the previous system, if a licensed company disagreed with Ofgem’s proposed licence modification, Ofgem had to refer the matter to the CC.

Key Features of the New Rules

The Rules took effect on 25 September 2012. Key features include the following:

  • Standing: An appeal may be brought by a relevant licence-holder, any other person holding certain specified licences whose interests are materially affected by the decision, the National Consumer Council representing consumers whose interests are materially affected by the decision, or a qualifying body or association representing affected licence- holders.
  • Permission: Appellants must obtain the permission of the CC to bring an appeal. Applications for permission will typically be heard without a hearing. Ofgem may make representations or observations to the CC, to which the CC must have regard. In the case of appellants other than the relevant licence-holder, the CC may only refuse permission if the relevant interests of the appellant are not materially affected by the decision, or if the appeal is brought for reasons that are trivial or vexatious, or the appeal has no reasonable prospects of success.
  • Review: In its determination of the appeal, the CC must act within the same legal framework as Ofgem. The CC may only allow an appeal if (a) it is satisfied that Ofgem failed to have proper regard to, or give appropriate weight to, its duties; (b) the decision was based, wholly or partly, on an error of fact or was wrong in law; (c) a licence modification failed to achieve its intended effect; or (d) the decision was wrong in law.
  • Third party representations: Where permission is granted, an interested third party may make representations on the grounds on which the appeal is brought.
  • Appeal management conferences: The CC will hold appeal management conferences where it considers that to do so would further the overriding objective, namely to enable the CC to dispose of appeals fairly and efficiently and within the prescribed time periods.
  • Oral hearing: The procedure for an oral hearing will be determined by the CC. For example, the CC will determine the extent to which, if at all, any persons other than the parties to the appeal are to be present or heard at the hearing, whether by themselves or through representatives.
  • Timing: The CC must determine an appeal relating to a price control decision within six months. Appeals against other licence modification decisions must be determined within four months. The timetable can be extended by one month where the CC receives representations from a party to an appeal and the CC is satisfied that there are special reasons why the appeal cannot be determined within the prescribed time.
  • Determination by the CC: If the CC allows an appeal, it may quash a relevant decision (in whole or in part) and remit the decision back to Ofgem for redetermination in accordance with any directions of the CC. If the CC does not allow the appeal, it must confirm Ofgem’s decision.
  • Costs: On a determination, the CC will make an order for its own costs. It may also make such order as it thinks fit for requiring a party to the appeal to make payment to another party relating to costs reasonably incurred by that other party in connection with the appeal.

Streamlining the UK’s Competition and Regulatory Authorities and Looking Ahead

Although this briefing focuses on the somewhat narrow subject of energy licence modifications appeals, the issue interfaces with the current debate on the proposed restructuring of the UK competition and regulatory authorities and their functions.

On 15 March 2012, the UK Government issued its response to a consultation on the reform of UK competition law. The planned reform package is wide-ranging. In particular, a new “Competition and Markets Authority” (“CMA”) will be formed and will merge the current functions of the OFT (the UK’s first stage competition authority) and the CC. It is expected that the CMA will be operational by April 2014. The aim is that the merger will lead to more streamlined decision making. The CMA (and sector regulators) will be subject to a “performance framework” to monitor their effectiveness.

A noteworthy feature of the current system is the split in appellate functions between different bodies. A few examples will illustrate this point. A decision of the OFT and the sectoral regulators under the Competition Act 1998 (the UK’s main competition legislation) may be appealed to the Competition Appellate Tribunal (“CAT”), a specialist independent tribunal. An appeal may be made on a point of law or fact or as to the level of the penalty. An appeal may be made in relation to judgments of the CAT to the Court of Appeal, either on a point of law or as to the amount of any penalty. Permission for appeal must be granted by the CAT or the Court of Appeal. There is a further prospect of appeal to the Supreme Court on a point of law where permission must be granted by the Court of Appeal or the Supreme Court. Finally, procedural issues may be challenged by an application for judicial review.

The CAT may be contrasted with the CC and courts in terms of its composition and procedures. To some extent, the CAT resembles features of the judicial system with parties invariably represented by senior barristers or Queens Counsel, while also having lay members. It is generally considered to be more legalistic in its approach than the CC. The CAT has limited ability to research issues in depth, although it does have the power to substitute its own decisions for those of the OFT or sector regulators where their decisions are being appealed under the Competition Act.

However, not all appeals go to the CAT. Appeals are brought before the CC in respect of references under the Energy Act 2004, price control matters under the Communications Act 2003 and disputes over licence modifications by sector regulators, as discussed here.

It may not be surprising, therefore, that John Fingleton, former Chief Executive of the OFT, has made public his concerns about what he sees as “the current fragmentation of the [UK competition regime]”.[2] On the question of appeals, he has lamented that the “various complex appeal processes for regulators, for example, may not be appropriate as they can take a lot of time, protect incumbents against rapid change, stall new entry and innovation and can cause delay in delivering better market outcomes”.[3]

An answer to this concern in relation to the different appeal routes could potentially be a restructuring whereby the appeals which currently go to the CC would be transferred to the CAT. In support of this it may be said that, on the whole, the CAT has been viewed as a successful appeal body and it is now familiar to lawyers, economists, and academics. However, reservations about such a transfer have been expressed, in particular whether price control determinations which tend to involve more complex issues and be more staff-intensive might need to be excluded from such a transfer.

Notwithstanding the developing debate, and the impending overhaul of the UK competition regime, however, those appeals that are currently brought before the CC, including appeals against licence modification decisions, would presumably still be brought before the new CMA. Under such a system, regulatory appeal arrangements in the UK will tend to remain less of a one stop shop and more of a patchwork quilt.

[1] CC14.
[2] Challenges and opportunities for the competition regime, [2010] Comp Law 301-312.
[3] Ibid.



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