High Court Provides Valuable Guidance On Correct Test In Energy Price Control Appeals

The High Court has provided helpful guidance on the correct legal approach to energy price control appeals under the Gas Act 1986 (GA 1986) in R (Wales and West Utilities Ltd) v Competition and Markets Authority [2026] EWHC 99 (Admin). In this case, Wales and West Utilities (WWU) brought a judicial review challenge against the Competition and Markets Authority's (CMA) determination of its appeal concerning the RIIO-2 price control. Although the claim was ultimately dismissed, the court did not agree with how the CMA had put the test and clarified what it considered to be the correct approach.

Key Points

• The court considered (i) the test that the CMA should apply to energy price control appeals when assessing whether a regulator's decision is "wrong" on one of the prescribed statutory grounds; and (ii) the proper construction of the duty in s.4AA(2)(b) of the GA 1986 to have regard to the need to secure that licence holders can finance their activities (the Financing Duty).
• In relation to (i), all that is needed for the CMA to find that a decision taken by the Gas and Electricity Markets Authority (GEMA) is "wrong" is that an alternative approach advanced by the appellants is "materially" better than GEMA's. The CMA's approach of considering whether there was a "clearly superior" alternative put the bar too high.
• A proper construction of the Financing Duty requires at least some consideration of the individual licence holder, and it is insufficient to only consider the licence holders as a collective or group.

Background

On 8 December 2020, the Office of Gas and Electricity Markets (Ofgem) (who acts on behalf of GEMA) issued its final determinations (which were later revised) on the price controls for transmission, gas distribution and the electricity system operator covering 1 April 2021 to 31 March 2026 (the RIIO-2 Decision).

Various operators, including WWU, appealed the RIIO-2 Decision before the CMA, which may allow an appeal where it is satisfied that the decision appealed against was "wrong" on one or more of the grounds in s.23D(4) of the GA 1986 (e.g. that it was wrong in law, based on an error of fact or failed to have regard to certain matters). Following the appeals process, the CMA partly dismissed WWU's appeal (the Appeal Decision).

WWU challenged the Appeal Decision by way of judicial review on four grounds, namely that the CMA: (i) erred as to the appropriate standard of review when considering whether the RIIO-2 Decision was "wrong" (Ground 1); (ii) misconstrued the Financing Duty (Ground 2); (iii) erred in law in upholding GEMA's cost of debt approach (Ground 3); and (iv) erred in its approach to WWU's tax clawback appeal (Ground 4). In this blog, we focus on Grounds 1 and 2.

Judgment

The court dismissed the application for judicial review, concluding that:

1. Ground 1 was misconceived in relation to WWU's submission that the CMA erroneously applied a rationality test to certain issues on appeal. Sheldon J explained that it was entirely appropriate for the CMA to apply a rationality test to those matters in the circumstances, which meant the arguments under this ground as to the proper approach the CMA should take to an appeal from GEMA were academic. Nonetheless, having heard detailed submissions, the court addressed some key points which may assist energy operators who seek to invoke the appellate mechanism in the future.
2. While Ground 2 identified a misdirection in the CMA's construction of the Financing Duty, no relief should be granted; and
3. Ground 3 and Ground 4 were not made out.

Standard of review on appeals

The court rejected the formulation of the test that the CMA applied when considering whether GEMA's decision was "wrong" on one of the prescribed statutory grounds. The CMA's description of the test essentially suggested that GEMA's decision would be likely to prevail unless an appellant advanced a "clearly superior" alternative. However, Sheldon J explained that the CMA's approach ran the risk of affording GEMA too much deference because the words "clearly superior" would require an alternative to be "much better" and not simply "better" than the one adopted by GEMA, in order to persuade the CMA to intervene. Despite the CMA's description being nuanced, using the words "clearly superior" also ran the risk of crystallising into a test that appellants would think they have to meet and would then actually be applied by the CMA. Instead, in Sheldon J's view, all that is required for the CMA to judge that GEMA got it "wrong" is that an alternative approach advanced by an appellant is "materially" better than GEMA's approach. This means that weighing up the pros and cons of the different approaches, the alternative approach offers something more than GEMA's approach. Where GEMA's approach is equally as good as the other approaches, it should be upheld even if the CMA would have preferred a different one.

The court also reaffirmed that an appeal of GEMA's decision does not give rise to a de novo hearing of the matters that GEMA considered, given GEMA's role as the primary decision-maker. Therefore, the CMA does not need to adopt its own approach and then compare the merits of that approach with GEMA's.

The court noted that if s.23D(4) had not gone on to list the different grounds on which GEMA could have been "wrong", then a proper construction of the appellate power would have been for the CMA to conduct its own investigation and make its own determination as if it were the primary decision-maker.

Financing Duty

In relation to Ground 2, the court found that the CMA had misdirected itself as to the proper construction of the Financing Duty. While the CMA suggested that there was no duty to have regard to the financing need of any particular licence holder, the court clarified that the Financing Duty must include at least some consideration of the individual licence holder and not just consider licence holders as a collective or group (although the duty does not exclude consideration of the latter entirely). What is required under the Financing Duty, as a "have regard" duty, will depend on the circumstances of the particular case.

Despite the CMA misdirecting itself in relation to the Financing Duty, the court ultimately did not grant WWU any relief under this ground as it was judged to make no difference to the outcome (in line with the obligation in s.31(2A) of the Senior Courts Act 1981 to refuse relief if it appears highly likely that the outcome for the applicant would not have been substantially different if the conduct complained of had not occurred). Both GEMA, and the CMA on appeal, were found in fact to have considered individual licence holders in this case. In particular: (i) a specific approach was adopted for one of the interested parties to the judicial review based on its circumstances; (ii) an adjustment to the cost of debt formula was made for individual licence holders, including WWU, to account for their size and the frequency with which they would be expected to go to the debt market; and (iii) consideration was given to the impact of the exclusion of derivatives on WWU.

Comment

The judgment provides clarity for those in the energy sector affected by price controls and considering appeals. It also comes at a particularly interesting time, given that Ofgem published its final determinations in December 2025 for the upcoming price control period – a decision which could be appealed in the near future. We expect that this judgment will also provide a helpful steer to companies operating in other sectors where price control appeals are relevant, including the water, transport and telecommunications sectors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.