Water supply – Charges – Regulatory scheme – Charges by appellant for water supply reduced under regulatory scheme when supply interrupted by storm – Appellant applying to respondent regulator for civil emergency exception – Respondent granting partial exception – Court dismissing application for judicial review – Appellant appealing – Whether respondent having discretion to determine application for exemption – Whether respondent required to adopt policy on exercise of discretion – Appeal dismissed
The appellant was a water and sewerage undertaker. The respondent was a body corporate created under section 1A of the Water Industry Act 1991 as the statutory regulator for water supply. The appellant’s licence included condition B which enabled the respondent to make determinations setting price controls in respect of charges to be levied by, or revenue allowed to, the appellant for the supply of water and sewerage services.
Following Storm Arwen in Northumberland in November 2021, there was a civil emergency within the meaning of section 1 of the Civil Contingencies Act 2004 and the appellant’s supply of water to its customers was severely disrupted.
The default position under the regulatory scheme implemented by the respondent was that the appellant managed the risk of water supply interruptions. The interruptions in supply resulted in the appellant underperforming in its performance commitments so that the price the appellant was allowed to charge customers for the following year would be reduced by £25.787m under the price control regime in the regulatory scheme.
The appellant argued that it was entitled to exemption from the price reduction because the storm fell within the civil emergency exception provided for in the price control arrangements. By its final determination, the respondent refused to apply the exception although it relieved the appellant of £12.9m (ie 50%) of the price reduction.
The appellant’s application for judicial review was dismissed: [2023] EWHC 2410 (Admin). The appellant appealed.
Held: The appeal was dismissed.
(1) The price controls for the period 2020 to 2025 were contained in a document known as Price Review 19 Final Determinations (PR19). There were three performance commitments relating to water supply interruptions in an appendix to PR19. Each performance commitment was accompanied by reporting guidance.
The guidance did not confer an automatic exception entitling a water company to exclude water supply interruptions arising out of circumstances amounting to a civil emergency. Rather, it established a procedural mechanism whereby a water company could make representations requesting that an exception be granted. The respondent would then have to determine whether to grant an exception, in whole or in part, guided by its overriding statutory duties.
(2) The starting point was that the reporting guidance provided a mechanism whereby a water company might request an exclusion, so that water supply interruptions arising from a civil emergency were not included in the calculation of performance (as they otherwise would be).
On the facts of this case, the central issue was whether the decision of the respondent to grant a partial exception was lawful. The basic reason for its conclusion was its assessment of the impact of including the interruptions on the revenue that the water company was entitled to receive.
The respondent accepted that the impact on the appellant was significant and considered it appropriate to make some adjustment to the calculation and, in effect, to exclude 50% of the impact from the burden to be borne by the appellant. That meant that the customers would still receive some recognition that their supplies were severely disrupted.
In considering whether to make an adjustment to the system of price controls pursuant to the power conferred by paragraph 12.5 of Condition B, the authority had to have regard to a water company’s performance in relation to its performance commitments, its duties under section 2 of the 1991 Act and might have regard to other relevant considerations.
(3) Paragraph 12.5 of condition B provided that the respondent “may determine the question of whether there should be a change to the revenue allowed”. In determining that matter, paragraph 12.7 provided that the respondent had to consider the water company’s performance in relation to its performance commitments. That was a mandatory material consideration. Its purpose was to ensure that the water company’s performance was one of the things that was taken into account.
The decision reached by the respondent in the present case did not involve any consideration of impermissible matters. In particular, the respondent had to consider the appellant’s performance in relation to the performance commitments and it was entitled to take account of, amongst other things, the impact that including the supply interruptions in the calculation of performance would have on the appellant, both over the five-year review period and during a single year. The approach taken by the respondent, while generous to the appellant, was one that it was entitled to take.
(4) There was no proper basis for finding that there was any common law duty in the present case whereby the respondent was obliged to adopt a policy indicating how it would decide whether to grant an exception from including water supply interruptions arising in circumstances amounting to a civil emergency. The ability to apply for an exception might be financially important to an appellant.
The rarity of supply interruptions resulting from a civil emergency, the range of circumstances that might need to be considered in whether, and to what extent, to grant an exception were, however, likely to vary. It could not be said that there was any common law obligation to adopt a policy in those circumstances.
The respondent’s final determination did not involve the adoption of a policy. It was a decision on whether to adjust the system price controls in a particular case. It involved considering whether a particular request for an exception to the system of price controls should be granted. The appellant was able to make representations that an exception be granted and those representations were considered by the respondent.
That, in general, was sufficient to ensure fairness. In the present case, however, the respondent went further. It considered the representations, it published a detailed draft determination, it invited further representations on that draft from the appellant and other interested bodies, and reviewed its draft determination in the light of those representations. There was no legitimate basis for concluding that the absence of a policy led to any procedural unfairness. In all the circumstances, the final determination was lawful.
Thomas de la Mare KC, David Lowe and Christopher Leigh (instructed by KPMG Law) appeared for the appellant; Kieron Beal KC, Ajay Ratan and Thomas Lowenthal (instructed by Gowling WLG (UK) LLP) appeared for the respondent.
Eileen O’Grady is a barrister
