Flawed Consultation Gives Energy Companies Victory over Regulator
Rhion Jones comments:
This is a highly technical but important case where the inadequacies of stakeholder consultation jeopardised a public policy that matters to millions of people. In this article, Stephen Hill, our new Legal and Parliamentary Officer considers the details and rightly highlights the need for consultors to take extreme care when relying on assumptions in their proposals.
The introduction of the Domestic Gas and Electricity Tariff Cap Act 2018 mandated the adoption of price caps on certain tariffs for the supply of domestic energy needs, to be implemented and enforced by the Gas and Electricity Markets Authority (GEMA). In determining where the cap should be set, section 1 of that act required GEMA to have regard to four specific criteria, the relevant one of which is:
“(d) the need to ensure that holders of supply licenses who operate efficiently are able to finance activities authorised by the license.”
Before implementing this provision GEMA consulted relevant stakeholders on how this cap should be implemented- first through the issuing of a series of working papers in March 2018, and then through both a non-statutory consultation in May 2018, followed by a statutory consultation in September 2018. The decision to set the cap at a certain rate was made on 6th November 2018.
The claimants argued that the assessment of the mechanism used to calculate the rate cap was insufficient as the defendant had used an incorrect assumption as to ‘typical’ supplier behaviour as to how they purchased their energy for supply, an assumption which, as they were not aware of it until the end of the consultation, they had been unable to comment on and correct.
The defendants responded that the assumption had not been made or alternatively was not material to the decision. Moreover, they argued that the assumption had been explained adequately and that the suppliers had the opportunity to challenge it.
Mrs Justice Andrews found for the claimants and wholeheartedly rejected the argument that it had not made the assumption, and that said assumption had been communicated to the consultees and ruled that the reasoning of GEMA had been insufficiently transparent, rendering that part of the consultation process unfair. Declaratory relief was granted.
This is a factually complicated but fairly clear-cut Gunning 2 case in which a public authority neglected to share vital information about how it had reached its proposals with consultees. Although the case is highly fact-specific and therefore unlikely to set any important legal precedents, it does provide some salutary lessons in the need for caution when using assumptions. The decision of the regulator not to share the critical assumption until the end of the consultation process meant that it was impossible for the consultees to correct it, which rendered the entire process sufficiently flawed to require subsequent correction. It is a reminder to share all relevant material with your consultees, even when it is background and mechanistic. Caution should also be used in determining when something is ‘typical’. The defendant’s argument if they had been using ‘typical’ to mean ‘average’ was rejected by the court who highlighted the mental gymnastics required to claim something as being typical when 5 of the 6 biggest subjects did the precise opposite. In summary, although the tariff cap remains in place after this judgment, the decision has provided a symbolic victory for the energy companies over regulatory mistakes