Introduction to the Competition Commission’s energy code modification appeal jurisdiction

This is a brief general introduction to the energy code modification appeal jurisdiction based on the background note the Competition Commission (CC) prepared for its consultation on the Energy Code Modification Rules. It is not a substitute for the CC’s published Rules and Guidance.

The gas and electricity industries have in force various codes that govern matters such as use of the system, connection, energy balancing, supply point administration and security of supply. A party to a code can seek its modification by putting forward a code modification for consideration within the industry and by a code panel. After wide consultation within the industry and consideration by expert groups, the code panel makes a recommendation to Ofgem1 as to whether the proposal should be accepted or rejected. Ofgem publishes a decision and, until now, these decisions have been open to judicial review2.

The Government made a commitment in its Energy White Paper published in February 2003 to work with Ofgem to strengthen the code modification process. The DTI’s Consultation Paper of April 20033 called Gas and Electricity Codes: Strengthening the transparency and accountability of the gas and electricity industry code modification process included the option of an appeal mechanism against Ofgem’s decisions on code modifications to Transco’s Network Code, and the electricity industry’s Balancing and Settlement Code and Connection and Use of System Code. The Government concluded in its response to that consultation paper of April 20034 that an appeal mechanism was the appropriate way to improve the accountability and transparency of the code modification process, but that such a mechanism must minimize regulatory uncertainty and delay and so be tightly constrained. To ensure security of supply, appeals on urgent decisions concerning code modifications were to be excluded. These policy decisions were given statutory force in sections 173 to 177 of and Schedule 22 to the Energy Act 2004 (‘the Act’) and Statutory Instrument 2005 No. 1646 of The Electricity and Gas Appeals (Designation and Exclusion) Order 2005, by which three more codes were added.

Accordingly, the Act makes provision for appeals to the Competition Commission (CC) from Ofgem’s decisions on code modifications. The CC has published Rules and Guidance to assist parties who wish to bring such an appeal.

Summary of the rules

The purpose of the appeal system created by the Act is to provide a fast and authoritative review by the CC of the merits of Ofgem’s decision. The Rules provide the procedural mechanism for that review. They are to be read together with sections 173 to 176 of, and Schedule 22 to, the Act. The CC has at the end of many of the rules provided a short note to assist the reader. These notes do not claim to state the effects of the relevant statutory provision.

The key features of the appeal jurisdiction are as follows:

(a) First, it is an appeal. The CC will carry out a merits-based review of Ofgem’s decision. The Act requires the CC to decide whether Ofgem’s decision is right or wrong. In reaching its decision, the CC will not carry out an investigation, or hold what is effectively a re-run of the process by which Ofgem reached its decision. Instead, the CC will review Ofgem’s decision.

(b) Second, the corollary of the fact that the CC will not carry out an investigation is that the appeal will be adversarial, although the Act confers upon the CC some information-gathering powers.

(c) Third, the CC must reach a decision within a short period of time—in most cases, it will give its decision on the appeal within the period of 12 weeks beginning with the day on which OFGEM made its decision on the relevant code modification recommendation.

Timeline

The principal stages in an appeal will be:

• the application for permission: to bring an appeal, an applicant must obtain permission from the CC. The application for permission must be made within 15 working days of Ofgem’s decision and must include, among other things, the applicant’s statement of case stating the grounds of appeal and the facts and reasons relied on

• the CC’s decision on the application for permission: the CC must decide whether to allow an appeal to proceed within ten working days of the application;

• Ofgem’s reply: Ofgem must submit its observations on the appeal within 15 working days of the applicant’s request for permission; and

• the CC’s decision: this must be given within 30 working days of the last date that Ofgem could have made its observations on the appeal.

Third parties may seek to intervene in the appeal, there will normally be one or more hearings, and there may be case management conferences and pre-hearing reviews. Where the appeal is against Ofgem’s decision to consent to a modification, the Act allows for an application to be made for the suspension of the modification pending the CC’s determination of the appeal.

The appeal proceedings will be open to the public (except where matters raising issues of confidentiality are discussed). They will be more formal than the CC’s procedure in other jurisdictions, and this formality is reflected in the Rules.

Competition Commission
September 2005

1.Ofgem is the Office of the Gas and Electricity Markets Authority (GEMA). The terms Ofgem and GEMA are often used interchangeably.

2. For more information on the codes, see the DTI’s April 2003 document Gas and Electricity Codes: Strengthening the transparency and accountability of the gas and electricity industry code modification process available at:
www.dti.gov.uk/energy/consultations/elec_mod.pdf

3. Paragraphs 9.13 to 9.18 of the DTI Energy White Paper Our energy future—creating a low carbon economy available at:
www.dti.gov.uk/energy/whitepaper/index.shtml#wp

4.DTI’s November 2003 document Gas and Electricity Codes: Strengthening the transparency and accountability of the gas and electricity industry code modification process: Government Response available at:
www.dti.gov.uk/energy/consultations/govresponse.pdf