High Court upholds direction and provisional order made by Ofgem in implementation of CMA remedy in energy markets

14/01/19

In a judgment dated 21 December 2018, Mr Justice Freedman has dismissed two applications by npower: (i) an application for statutory review to quash a provision order (PO) made by Ofgem following npower’s refusal to comply with a direction and (ii) an application for judicial review of the direction itself.

The direction, which required npower to participate in a collective switch trial, had been issued pursuant to standard licence condition (SLC) 32A. SLC 32A was introduced by Ofgem in the light of the findings and recommendations made by the Competition and Markets Authority (CMA) in its final report of June 2016 in the energy market investigation.

The CMA identified in the final report a number of adverse effects on competition (AECs), including an AEC in retail energy markets arising from an overarching feature of weak customer response. The CMA found substantial numbers of customers to be disengaged from domestic retail energy markets, giving rise to price detriment (estimated at £1.4 billion annually) and non-price detriment. One of the main elements of the package of remedies that the CMA proposed to address this AEC was an Ofgem-led programme of identifying, testing and implementing measures to increase customer engagement with domestic retail energy markets.

Npower sought to challenge the direction and PO on several grounds, one of which was that Ofgem had failed to assess the proportionality of the alleged interference in npower’s property rights under Article 1, Protocol 1 ECHR and had failed to act proportionately. The CMA intervened in the proceedings.

Mr Justice Freedman adopted the CMA’s summary of the relevant principles relating to proportionality. Applying those principles in the light of the context (which included the CMA’s unchallenged findings on the problem of customer disengagement and significant customer detriment, as well as the CMA’s duties in the event that it finds there to be an AEC), he found that Ofgem had acted proportionately.

The judgment is here.