High Court examines regulatory decisions on energy pricing

On 1 April 2025, the High Court of Justice in the King’s Bench Division delivered a noteworthy judgment in the case of Wales & West Utilities Limited v Competition and Markets Authority (CMA) ([2025] EWHC 754 (Admin)). This case revolves around crucial issues regarding the regulatory review process and the standards that the CMA must adhere to when handling appeals in the UK's energy sector. The judgment specifically delves into a judicial review sought against the Final Determination issued by the CMA concerning gas distribution price controls.

The case has roots in a complicated legal and commercial landscape that traces back to the regulatory framework established under the Gas Act 1986. The Claimant, Wales & West Utilities Limited (WWU), contested the CMA’s methodology and decisions related to the 'Revenue = Incentives + Innovation + Outputs' (RIIO-2) scheme, particularly those which dictate price controls for gas distribution and transmission networks from April 2021 to March 2026.

The basis for the judicial review stems from concerns over the CMA's adjustments relating to the 'Cost of Equity.' Various companies and involved parties raised questions about whether the CMA justifiably assessed the cost implications for gas distribution firms. The High Court’s deliberation involved multiple factors contributing to the outcome. Central to the dispute were assertions that the CMA did not apply the appropriate standards when addressing the objections to its determinations. The Claimant highlighted several grounds, focusing particularly on alleged inconsistencies in statutory duty applications and financial assessments considered during the CMA’s decision-making process.

The judgment details reveal the complexities of interested party status, as it involved numerous regulatory entities throughout the proceedings. The Court underscored that the frameworks created by the Gas Act demand the CMA operate not just as a supervisory body but as an appellate institution with a substantial responsibility to independently scrutinise the merits of decisions made by the Gas and Electricity Markets Authority (GEMA). Observations from the Ministry of Justice pointed out that the larger implications of these decisions impact not just WWU but also energy consumers who depend on equitable pricing.

Ultimately, the Hadjiev-led judgment emphasised the paramount importance of transparency and rigorous analysis in regulatory initiatives. The claimants' concerns regarding the cost of equity underscore a wider issue: that regulatory frameworks must consider the diverse financial pressures faced by utility providers to ensure market sustainability. This is critical for promoting investor confidence and protecting consumer interests within the energy sector.

The High Court's ruling illustrates a pivotal interpretative shift in the dynamics between regulatory bodies and the entities they oversee, with significant effects on how energy legislation is viewed both legally and in responsiveness to market conditions. This decision reaffirms the judiciary's role in regulatory review, ensuring adherence to statutory principles governing price controls, and opens the possibility for renewed challenges to the methods employed by the CMA and the accountability required from them in the future. Additional forthcoming judicial actions are expected to further clarify these regulatory frameworks and establish more defined lines of accountability within the energy sector