QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Queen on the application of UK Power Networks Services (Contracting) Limited
|- and -
|The Gas and Electricity Markets Authority
- and -
Heathrow Airport Limited
Javan Herberg QC and Tom Mountford (instructed by Ofgem) for the Defendant
Daniel Beard QC, Gerry Facenna and Ligia Osepciu (instructed by Heathrow Airport Ltd) for the Interested Party
Hearing dates: 13th & 14th October 2014
Crown Copyright ©
|A. Introduction, issue and conclusion||1-16|
|(i) The issue||1-8|
|(ii) The task of the High Court in this judicial review||9-12|
|(iii) The parties||13-15|
|(iv) Conclusion and remedy||16|
|B. The electricity distribution network at Heathrow||17-25|
|C. The facts||26-41|
|(i) The agreements between UKPNS and HAL in relation to the system at Heathrow: The Distribution Agreement||26-31|
|(ii) The expression of interest by Hilton Hotels to take a supply of electricity from a new third party supplier||32-36|
|(iii) The complaint by HAL to the Authority||37-40|
|(iv) The position of HAL in relation to the system||41|
|D. The Decision: 31st March 2014||42-53|
|(i) The Decision||42-43|
|(ii) The identification of the Leased Network as the "system"||44|
|(iii) The conclusion that there cannot be more than one DEH per network||45-48|
|(iv) The meaning of "supply"||49-50|
|(v) The test to be applied: "Operation or control"||51-52|
|(vi) The conclusion on the ability of UKPNS and HAL to reach voluntary agreement: The "workability" test||53|
|E. The challenge to the Decision and the proffering of undertakings by HAL||54-60|
|(i) The application for judicial review||54-55|
|(ii) Undertakings offered by HAL||56-58|
|(iii) The practical implications of HAL's reservation of the right to terminate||59-60|
|F. The extent to which UKPNS is unable to perform its obligations as DEH without an agreement with HAL||61-67|
|(i) General warnings||61-62|
|(ii) UKPNS' claims||63-65|
|(iii) HAL's response||66-67|
|G. The Legislative Regime||68-105|
|(ii) EU Directive 2009/72: The policy as set out in the recitals||70-78|
|(iii) The relevant substantive provisions of the Directive||79-89|
|(iv) Implementing measures adopted in the United Kingdom||90-99|
|(vi) Principles of interpretation to be applied to the domestic implementing legislation||103-105|
|H. The judgment of the European Court of Justice in|
|Case C – 439/06 Citiworks||106-114|
|(i) The significance of the judgment||106|
|(ii) The facts of the case||107-108|
|(iii) The opinion of Advocate General Mazak||109|
|(iv) The judgment of the Court||110-114|
|I. Conclusion: What is the relevant "system" for the purpose of applying the duty to secure third party access?||115-120|
|J. Conclusion: Can there be more than one DEH per system?||121-133|
|K. Conclusion: The meaning of "supply" in Paragraph 1(1)(b)|
|of Schedule 2ZA||134-142|
|L. Conclusion: Application of the "operation or control" test||143-153|
|M. Conclusion: The relevance of the "workability" test||154-159|
|N. Materiality of legal errors||160|
Mr Justice Green :
A. Introduction, issue and conclusion
(i) The Issue
(ii) The task of the High Court in this judicial review
a) What is the relevant "system" for the purpose of applying the duty to secure third party access?
b) Can there be more than one person with responsibility for securing third party access per system?
c) What is meant by "supply" in Paragraph 1(1) of Schedule 2ZA?
d) What is meant by "operation or control" in Paragraph 1(1) of Schedule 2ZA?
e) Is the "workability" test applied by the Authority in the Decision a relevant test to apply?
I have set out the relevant parts of the Decision which relate to these questions at paragraphs  –  below; and I have set out my conclusions at Sections I – M below.
(iii) The parties
(iv) Conclusion and remedy.
B. The electricity distribution network at Heathrow
C. The Facts
(i) The agreements between UKPNS and HAL in relation to the system at Heathrow: The Distribution Agreement
"4.2 [UKPNS shall neither itself nor permit any third party] to, make or receive supplies of electricity through the Distribution System without the prior written consent of HAL, unless it is required to do so by law and further so that this restriction shall not have the effect of preventing [UKPNS] from undertaking any activity in relation to the Distribution System which any other distributor or supplier of electricity could lawfully require that such other distributor or supplier undertake in relation to that Distribution System under the then current electricity regulatory regime. Where [UKPNS], or a third party, wishes to make or receive supplies of electricity through the Distribution System, HAL shall be responsible for negotiating appropriate terms with [UKPNS] or the third party for the distribution of electricity through the Distribution System; HAL shall allocate to [UKPNS] or such third party, as the case may be, an appropriate proportion of the distribution charges payable by HAL under this Agreement. Neither [UKPNS] nor such third party shall enter into a direct contractual relationship with [UKPNS] in relation to the distribution of electricity through the Distribution System".
(ii) The expression of interest by Hilton Hotels to take a supply of electricity from a new third party supplier
"We continue to be in discussions with UK Power Networks Services (Contracting) Limited ("UKPNS") regarding the identity of the distribution exemption holder in the context of the Heathrow electricity distribution system. From our interpretation of the new legislation, your notice should have been directed to UKPNS since that company operates and has control of the electricity distribution system from which Hilton currently takes a supply. We hope to be able to reach a conclusion on this point with UKPNS shortly, but in the meantime please note that this response is without prejudice to our position that UKPNS is the distribution exemption holder and as such is under an obligation to comply with the provisions of Schedule 2ZA of the Electricity Act 1989 (as inserted by the Electricity and Gas (Internal Markets) Regulations 2011).
We will be working with UKPNS over the coming days to provide further information in connection with Hilton's expression of interest, including (i) any metering arrangements which will be required to enable access to be given and (ii) whether access will be possible through contractual arrangements without making or modifying a connection. Irrespective of the final analysis regarding the identity of the Distribution Exemption Holder, the conditions in paragraph 1(4)(b)(i) or (ii) of Schedule 2ZA to the Electricity Act 1989 will not apply in respect of Hilton's expression of interest".
"In summary, under the agreement UKPNS bought some of the electricity distribution assets at the airport and took a long lease of the land on which they stand. For simplicity we'll refer to this as the "leased network". UKPNS also carries out modifications to the leased network (at BAA's request) which includes design (agreed with BAA), procurement (agreed with BAA), construction and maintenance of the leased network for the duration of the agreement. The maintenance programme for each year is agreed with HAL. HAL then makes the necessary arrangements with its tenants for the maintenance to proceed (UKPNS is expressly prohibited from having any relationship with the tenants). The day to day control of the entire distribution system (both the leased network and the remainder of the network which remains in the ownership of HAL) is the responsibility of HAL's control staff, and UKPNS staff are required to comply with all relevant operational instructions issued by such control staff".
The letter continued to reject the suggestion that the Hilton notification was properly directed to it, as opposed to BAA/HAL.
"Your premises at the Hilton London Heathrow Airport are connected at High Voltage to the airport electricity distribution network. That network comprises some parts which fall under the Distribution Agreement (referred to in this letter as the "Outsourced Network"), and some parts which are operated, maintained and owned by HAL (the "HAL Network"). Although your premises are connected to part of the Outsourced Network, HAL has retained operational control of the whole of the airport electricity distribution network – including the part to which you are connected.
Schedule 2ZA places certain duties on "distribution exemption holders" and our view is that HAL is such a distribution exemption holder in relation to the whole of the airport electricity network.
We understand that you are currently taking a supply of electricity through the airport distribution system from HAL and your letter of 18 April indicates that you now wish to be supplied by a third party supplier. We understand that you have previously served an expression of interest under Schedule 2ZA on HAL.
Basis upon which HAL is the correct recipient of your Expression of Interest
On the basis that:
i) HAL is the distribution exemption holder which has control of the entire airport electricity network;
ii) You are currently taking your supply of electricity from HAL; and
iii) UKPNS has no knowledge of your current electricity supply, billing or metering arrangements – only HAL has this information.
It is clear to UKPNS that HAL is the correct recipient of the expression of interest under Schedule 2ZA, and that your second expression of interest (to UKPNS, received on 20 April) was misdirected.
For the reasons set out above, UKPNS is not in the position to give your third party electricity supplier the information it needs in order to start supplying you with electricity in place of HAL – only HAL can do this".
(iii) The Complaint by HAL to the Authority
(iv) The position of HAL in relation to the system
D. The Decision: 31st March 2014
(i) The Decision
(ii) The identification of the Leased Network as the "system"
"1.On 14 May 2012 HAL formally requested the Gas and Electricity Markets Authority" make a determination on the identity of the distribution exemption holder for the Heathrow Leased Network.
2. By reference to the documentation submitted by the parties the dispute was defined as:
"Whether the duties imposed by Schedule 2ZA of the Electricity Act 1989 on distribution exemption holders apply to UKPNS in the context of requests to take a supply of electricity from third party supplier by customers of HAL that are connected to the portion of the distribution network at Heathrow Airport that has been leased to UKPNS."
3. The dispute was framed in this way, asking whether the duties imposed by Schedule 2ZA of the Electricity Act 1989 fall on UK Power Network Services (Contracting) Limited ("UKPNS") because the dispute was submitted by HAL. But it could equally well have been framed the other way round had the request for dispute resolution been made by UKPNS, asking whether the duties imposed by the Schedule apply to HAL. The nature of the dispute and our approach was explained in the course of the oral hearing. In this decision we answer the dispute as defined, but in reaching that decision we have considered the position of both UKPNS and HAL, and nothing turns on the way in which the question was put.
4. For ease of reference, in this decision we refer to the portion of the distribution network at Heathrow Airport that has been leased to UKPNS as the "Leased Network".
(iii) The conclusion that there cannot be more than one DEH per network
"c. We also consider that the EU legislation supports the view that there can only be one relevant DEH in respect of the same distribution system. There is force in HAL's argument (as set out at paragraphs 28, 31 and 32 above) that the EU legislation essentially contemplates a single DSO for a particular area and that the obligation to provide a charging methodology falls on the DSO. UKPNS seeks to rely on paragraph 52 of Citiworks and the observation of the ECJ that "Article 13 of Directive 2003/54 requires undertakings that own or are responsible for distribution systems to designate distribution system operators It is not apparent either from that provision or from any other provision of that directive that only undertakings acting principally as distribution system operators are subject to the obligation to allow open access to the systems." UKPNS' point is that this suggests that identification of the DSO does not necessarily determine the identity of the correct person to give third party access. However, we do not read paragraph 52 of Citiworks, in the context of the surrounding provisions, to mean that the obligations of third party access do not necessarily fall on the DSO. We consider that the reference to "undertakings acting principally as distribution system operators" is referring to the argument that in respect of a system which is operated as an ancillary activity by an entity such as an airport owner, that entity's primary function is not one of a DSO, i.e. that is not its core business. This can be seen from paragraph 53 of the judgment where the ECJ continues, "It is appropriate to observe in that regard that the first point of Paragraph 110(1) of the EnWG does not stipulate whether the activity of operating the energy supply system must, for the operator, be a principal or ancillary activity for the purpose of defining the systems which come within its scope." Read together with the other parts of the decision and the Directives, we accept HAL's submission that the European legislation contemplates a single DSO for a particular area and envisages the obligations of third party access falling upon that singular relevant DSO. We do not accept that in circumstances where most DSOs will be licensed distributors subject to standard licence conditions requiring third party access, that the obligations on DSOs do not apply to DEHs because that is a concept created by the domestic statutory provisions. It seems to us that at a simple level both licensed distributors and DEHs are DSOs within the meaning of the European legislation".
"b. We do not agree with UKPNS that the definition of exempt distribution system leads to the conclusion that there may be more than one DEH in respect of a single system. The wording of the statutory definition of a DEH is consistent with there being a single relevant DEH who is either the operator or, alternatively, the controller of the system. Whilst we agree with UKPNS' point that, at least on the facts of this case, the possibility of there being more than one DEH for the purpose of sections 64 and 4 of the Act does not present the same problem of conformity with the European legislation as the possibility of there being more than one DEH for the purpose of Schedule 2ZA, that does not compel the conclusion that there can be more than one DEH for the purposes of sections 64 and 4 of the Act. We are not attracted to UKPNS' suggestion that the defined concept of a DEH should have different meanings in different parts of the Act, and we note that DEH connotes a status. The word is used in both sections 64 and 4 and in schedule 2ZA and we do not see any good reason why a party should be considered to have the status of a DEH for the purpose of one part of the Act but not for another. If the same meaning should be accorded to the term throughout the Act, then conformity with the European legislation strongly favours there being only one DEH".
"Practical considerations also militate against the conclusion that there may be more than one DEH. We accept that those practical conclusions do not arise in this case (on UKPNS' argument) because it says that it (as one of the two DEHs) does not meet the "supply" definition, leaving HAL as the only relevant DEH. But that will not always be the case. If there can be two DEHs in respect of a particular network it may be the case that both could satisfy the supply condition. That would seem to give rise to the possibility, if both satisfy the test of supply and the operation or control obligations are read disjunctively (see further discussion on this below at paragraph 86), so that (for example) the lessee is said to operate the network but the owner to control it, that the regulatory obligations in Schedule 2ZA would fall on both parties. That is in our view impracticable and inconsistent with legal certainty because it would mean that both have the obligation to allow access/to submit charging methodologies if they wish to charge for third party access. We note that the obligation to formulate and submit a charging methodology is not an insignificant obligation. Thus, the requirement to produce and submit one is only triggered when an end user serves a qualifying expression of interest. Equally, the charging methodology produced should be cost reflective. In all those circumstances it seems not to be a sensible conclusion that the legislative requirements, properly construed, envisage or require the provision of charging methodologies by two separate parties in respect of the same exempt network, or that if there is only one relevant DEH (for the purpose of the obligations in Schedule 2ZA) of multiple DEHs, the relevant DEH is ascertainable only upon reference to Ofgem for resolution of the question in each case."
"f. If (contrary to the above) there can be more than one DEH (because of the reference to operation or control in the definition of an exempt distribution system) we consider that, for the reasons given below, there would not be two DEHs in the present case as we consider that on the evidence of the arrangements between the parties, UKPNS is properly described both as the operator and the controller of the Leased Network".
(iv) The meaning of "supply"
"79. We are persuaded, by reference to the recitals and operative provisions of the Directive, that the purpose of the Directive and the third package is broader than simply unbundling monopoly distribution and supply, and is concerned more broadly with facilitating third party access and consumer choice as part of the proper functioning of a competitive market. We therefore conclude that a construction of "supply" which could lead to particular classes of customer being deprived of third party access rights risks putting the UK in breach of its primary European legal obligations and is a factor which would strongly militate in favour of a construction which avoided such a result".
"85. In conclusion, we determine that UKPNS is supplying and the other HV tenants connected directly to the Leased Network for the purposes of Schedule 2ZA of the Act".
(iv) The test to be applied: "Operation or control".
"The question which then arises is whether UKPNS can be said to be operating or controlling the system in addition to supplying in the physical sense in which we have determined above that expression must be construed in Schedule 2ZA."
"87. Paragraph l(l)(b)(i) refers to "the distribution exemption holder that operates or has control of the system". We make the following observations on this:
a. Operation and control are, linguistically, disjunctive conditions.
b. If there can only be one DEH, the disjunctive nature of the condition is less significant as the test, although focusing on the two separate elements of operation and control, is a single one. The two limbs may have been designed with the intention of ensuring, from an abundance of caution, that the DEH is not able to evade the third party access obligation on the basis of a delegation of operational roles to (potentially a number of different) subcontractors."
"88. In any event, for the purpose of the present question it is not necessary to reach a definite conclusion on whether control as referenced in Schedule 2ZA is superfluous by reference to the European legislation. This is because it is clear that UKPNS both operates and controls the Leased Network: …"
(v) The conclusion on the ability of UKPNS and HAL to reach voluntary agreement: The "workability" test
"95. By reference to the parties' submissions on the workability of the DA, the strongest point in favour of UKPNS is that the consequences flowing from the fact that UKPNS being recognised as having the relevant obligations as DEH under Schedule 2ZA may allow HAL to terminate the agreement early (see clause 28 of the DA). However, we also note that, as HAL has pointed out, there is a strong obligation on both parties using its best endeavours to seek to agree any necessary amendments to accommodate a material regulatory intervention. It should therefore be possible for the DA to continue to be operated in circumstances where, as a result of this decision, UKPNS is recognised as having the obligations of the relevant DEH under Schedule 2ZA of the Act in respect of the high voltage network tenants. We consider it unlikely that there would be some problem in the operation of the DA (including the need for one party to provide certain data to the other) that is not capable of resolution by amendment upon both parties' best endeavours. We therefore do not consider that this is a sufficiently weighty consideration to overcome the clear conclusions we have otherwise reached on the questions set out above".
E. The challenge to the Decision and the proffering of undertakings by HAL
(i) The application for judicial review
(ii) Undertakings offered by HAL
"Heathrow Airport Ltd (HAL) hereby provides these undertakings to UK Power Network Service (Contracting) Ltd (UKPNS).
With a view to protecting the interests of third party electricity access applicants who are connected to the private electricity network located at Heathrow Airport and wish to make formal applications under Schedule 2ZA of the Electricity Act 1989, HAL undertakes to not do anything that would prevent or impede a person connected (or who becomes connected) to the private electricity network located at Heathrow Airport and eligible to take a supply of electricity from a third party supplier under Schedule 2ZA of the Electricity Act 1989 to take such a supply.
In addition, HAL undertakes to provide such information and assistance to UKPNS as is reasonably required to enable UKPNS to properly fulfil their obligations under Schedule 2ZA of the Electricity Act 1989.
These undertakings are provided for the purpose of interim relief and are without prejudice to (i) the question of to whom the duties imposed by Schedule 2ZA of the Electricity Act 1989 apply at Heathrow Airport; and (ii) HAL's right in respect of material regulatory intervention and any associated rights (including rights of termination) set out in the 25 March 1993 Distribution Agreement.
This deed constitutes and will constitute the legal, valid, binding and enforceable obligations of the undertaker and is, and will continue to be, effective until the conclusion of the Judicial Review proceedings (Case CO/2625/2014).
HAL have executed and delivered this undertaking as a deed on the date above".
"if … the Parties shall have used best endeavours in an effort to prevent, reduce or mitigate the effects of any such material Regulatory Intervention and to establish whether any practicable course of action is available to avoid the result referred to in paragraph (iii) below and shall have been unable, having used best endeavours, to agree appropriate amendments to the Agreements … or to agree to take other action to achieve such effect; Provided that notice of termination is served by the Terminating party within six months after the occurrence of the Material Regulatory Intervention".
(iii) The practical implications of HAL's reservations of the right to terminate
F. The extent to which UKPNS is unable to perform its obligations as DEH without an agreement with HAL
(i) General warnings
(ii) UKPNS' claims
- That the ability to comply with key requirements relating to such matters as negotiation with third party suppliers, being responsible for interfaces between the network and the customer, and the conclusion of interconnection agreements with Customers, lay with HAL not UKPNS.
- That the Distribution Agreement actually prohibited UKPNS from carrying out actions which it was otherwise required to do by the Decision, such as entering into direct contractual relations with third parties in relation to the distribution of electricity through the leased lines.
- That for the Claimant to comply with the Decision HAL would have to: (i) appoint UKPNS to act as its agent for capacity allocation and reserved capacity allocation to HAL customers; (ii) agree to the replacement of its meters; (iii) provide detailed technical and commercial information to the third party supplier to enable it to put supply arrangements in place; (iv) make modifications to the distribution system (under Clause 23) where required by third party customers for additional capacity; (v) grant new land rights and/or consents and if necessary provide supporting infrastructure such as pits and ducts required for new electricity lines of electrical plant in order to enable new or modified connection by a third party supplier; and (vi) direct its control staff to take steps to enable outages to facilitate connection of third party meters and any maintenance subsequently required on third party connections.
- That to enable UKPNS to observe its obligation it also required HAL to provide undertakings not to operate or switch the Leased Network or otherwise perform its obligation under the connection agreement in a way which placed UKPNS in breach of any of its contractual obligations with third parties, or Schedule 2ZA.
"1. HAL undertakes not to treat the Ofgem determination as a Material Regulatory Intervention for the purposes of a termination right under Clause 28.2(I) of the Distribution Agreement, and to withdraw any previous correspondence purporting to do so;
2. UKPNS gives a binding waiver of HAL's responsibility under Clause 4.2 to negotiate terms with third party suppliers (TPS) for the distribution of electricity through the leased network at Heathrow (the Leased Network), of HAL's obligation under Clause 13.3 to retain responsibility for the interface between the Distribution System and Customers (including in relation to changed capacity and new supplies) and of HAL's obligation under Clause 19.2 to enter into connection agreements with Customers;
3. HAL gives a binding waiver of the restriction in Clause 4.2 prohibiting UKPNS from entering into a direct contractual relationship with any third party in relation to the distribution of electricity through the leased network and authorises UKPNS to enter into use of system agreements with TPS and connection agreements with customers. UKPNS intends to provide copies of any such agreements to HAL, subject to customer consent;
4. HAL appoints UKPNS as its agent to allocate connection capacity and reserved capacity on the Leased Network to customers on HAL's behalf and undertakes to honour any commitments made by UKPNS in connection agreements with customers;
5. HAL gives a binding undertaking to provide all required access and consents for TPS' meter operator to install a settlement compliant half-hourly meter in place of HAL's existing meter;
6. HAL gives a binding undertaking to provide directly to TPS (with a copy to UKPNS) all meter operator, data collector and data aggregator details in order to enable TPS to put necessary agreements in place;
7. HAL undertakes to instruct modifications or extensions to the Distribution System under Clause 23 where required by a third party customer for additional capacity (unless Schedule 2ZA exclusions apply);
8. HAL undertakes to grant any land rights or consents (and, if relevant, provide supporting infrastructure (e.g. pits and ducts etc)) required for new electric lines or electrical plant in order to enable new or modified connection by a third party customer;
9. HAL undertakes to direct its control staff to take such steps (consistent with good industry practice, the safety rules and all relevant legislation) as are required to enable outages to facilitate connection of third party meters and any maintenance subsequently required on third party connections in accordance with Schedule 2ZA;
10. HAL undertakes not to operate or switch the Leased Network in a way which puts UKPNS in breach of:
(a) the terms of any connection agreement between UKPNS and a third party;
(b) the terms of any use of system agreement between UKPNS and TPS; and
(c) Schedule 2ZA.
11. HAL undertakes to perform its obligations under the connection agreement with the Licensed DNO in a way which avoids putting UKPNS in breach of:
(a) the terms of any connection agreement between UKPNS and third party;
(b) the terms of any use of system agreement between UKPNS and TPS; or
(c) Schedule 2ZA.
12. HAL indemnifies UKPNS for any additional costs it incurs in performing the duties under Schedule 2ZA which it is unable to recover from a third party customer or TPS, and against any claims from a third party customer or TPS as a result of HAL's breach of the above undertakings;
13. HAL (or in the alternative Ofgem) indemnifies third party customers and TPS for wasted costs in the event that agreements are put in place with UKPNS which then need to be cancelled if HAL is held to be DEH following the determination of UKPNS' Judicial Review application".
(iii) HAL's response
G. The Legislative regime
(ii) Directive 2009/72: The policy as set out in the recitals
"(34) Energy regulators need to be able to take decisions in relation to all relevant regulatory issues if the internal market in electricity is to function properly, and to be fully independent from any other public or private interests."
"(37) Energy regulators should have the power to issue binding decisions in relation to electricity undertakings and to impose effective, proportionate and dissuasive penalties on electricity undertakings which fail to comply with their obligations or to propose that a competent court impose such penalties on them. Energy regulators should also be granted the power to decide, irrespective of the application of competition rules, on appropriate measures ensuring customer benefits through the promotion of effective competition necessary for the proper functioning of the internal market in electricity".
"51. Consumer interests should be at the heart of this Directive and quality of service should be a central responsibility of electricity undertakings. Existing rights of consumers need to be strengthened and guaranteed, and should include greater transparency. Consumer protection should ensure that all consumers in the wider remit of the Community benefit from a competitive market. Consumer rights should be enforced by Member States or, where a Member State has so provided, the regulatory authorities".
"Promoting fair competition and easy access for different suppliers and fostering capacity for new electricity generation should be of the utmost importance for Member States in order to allow consumers to take full advantage of the opportunities of a liberalised internal market in electricity".
"62. Since the objective of this Directive, namely the creation of a fully operational internal electricity market, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective".
Parliament and Council, in adopting this measure, had well in mind the extent to which the duty to supervise would create "an overly onerous regulatory regime for national regulatory authorities". But of course the notion that any obligation imposed by the Directive would have such an effect was not accepted: See recital .
"20. In order to develop competition in the internal market in electricity, large non-household customers should be able to choose their supplier and enter into contracts with several suppliers to secure their electricity requirements. Such customers should be protected against exclusivity clauses the effect of which is to exclude competing or complementary offers".
The combined effect of recitals 20 and 51 (supra) makes clear that it is a prime responsibility or duty of regulators to enforce those rights conferred upon consumers by the Directive. Recital 20 is, moreover, an elaborated version of its predecessor in Directive 2003/54. There, recital 4 stated:
"The freedoms which the Treaty guarantees European Citizens – free movement of goods, freedom to provide services and freedom of establishment – are only possible in a fully open market, which enables all consumers freely to choose their suppliers and all suppliers freely to deliver to their customers".
That particular recital was relied upon by the Court in Citiworks in guiding the interpretation of Article 20 of the Directive which, as explained above, was in, mutatis mutandis, identical terms to Article 32 of the Directive.
(iii) The relevant substantive provisions of the Directive
"For the purposes of this Directive, the following definitions apply:
1. 'generation' means the production of electricity;
2. 'producer' means a natural or legal person generating electricity;
3. 'transmission' means the transport of electricity on the extra high-voltage and high-voltage interconnected system with a view to its delivery to final customers or to distributors, but does not include supply;
4. 'transmission system operator' means a natural or legal person responsible for operating, ensuring the maintenance of and, if necessary, developing the transmission system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity;
5. 'distribution' means the transport of electricity on high-voltage, medium-voltage and low-voltage distribution systems with a view to its delivery to customers, but does not include supply;
6. 'distribution system operator' means a natural or legal person responsible for operating, ensuring the maintenance of and, if necessary, developing the distribution system in a given area and, where applicable, its interconnections with other systems and for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity;
7. 'customer' means a wholesale or final customer of electricity;
8. 'wholesale customer' means a natural or legal person purchasing electricity for the purpose of resale inside or outside the system where he is established;
9. 'final customer' means a customer purchasing electricity for his own use;
10. 'household customer' means a customer purchasing electricity for his own household consumption, excluding commercial or professional activities;
11. 'non-household customer' means a [sic] natural or legal persons purchasing electricity which is not for their own household use and includes producers and wholesale customers;
12. 'eligible customer' means a customer who is free to purchase electricity from the supplier of his choice within the meaning of Article 33;
13. 'interconnector' means equipment used to link electricity systems;
14. 'interconnected system' means a number of transmission and distribution systems linked together by means of one or more interconnectors;
17. 'ancillary service' means a service necessary for the operation of a transmission or distribution system;
18. 'system user' means a natural or legal person supplying to, or being supplied by, a transmission or distribution system;
19. 'supply' means the sale, including resale, of electricity to customers…".
"1.The distribution system operator shall be responsible for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity, for operating, maintaining and developing under economic conditions a secure, reliable and efficient electricity distribution system in its area with due regard for the environment and energy efficiency."
"ORGANISATION OF ACCESS TO THE SYSTEM
1. Member States shall ensure the implementation of a system of third party access to the transmission and distribution systems based on published tariffs, applicable to all eligible customers and applied objectively and without discrimination between system users. Member States shall ensure that those tariffs, or the methodologies underlying their calculation, are approved prior to their entry into force in accordance with Article 37 and that those tariffs, and the methodologies — where only methodologies are approved — are published prior to their entry into force.
2. The transmission or distribution system operator may refuse access where it lacks the necessary capacity. Duly substantiated reasons must be given for such refusal, in particular having regard to Article 3, and based on objective and technically and economically justified criteria. The regulatory authorities where Member States have so provided or Member States shall ensure that those criteria are consistently applied and that the system user who has been refused access can make use of a dispute settlement procedure. The regulatory authorities shall also ensure, where appropriate and when refusal of access takes place, that the transmission or distribution system operator provides relevant information on measures that would be necessary to reinforce the network. The party requesting such information may be charged a reasonable fee reflecting the cost of providing such information".
a) Distribution is not sale: First, the Article is concerned only with distribution not sale. There is no reference to "supply" in Article 32. This is logical because, following unbundling, there is no reason why sellers should have any responsibility for distribution related activities.
b) Distribution means "transport" or "delivery": Secondly, it is evident from the definitions of "distribution" and "distribution system operator" in Articles 2(5) and 2(6) that Article 32 is concerned with "transport" or "delivery" which functions are (obviously) different from sale or resale (cf Articles 2(5) and 2(19)). This conclusion is made clear by the judgment of the Court of Justice in Citiworks at paragraphs  –  and .
c) "Systems" connect sellers and buyers: Thirdly, the subject matter of the Article 32 obligations is the system or systems which connect a supplier and a customer. "Systems" is not a defined term but it is apparent (cf Article 2(6)) that it connotes all that infrastructure which must be used to ensure the "transport" or "delivery" of current between a third party supplier and a customer. Article 32 is neutral and silent as to the number of systems operators who may be subject to the duty to provide third party access. The precise number of persons subject to the duty is simply a function of the number of operators whose "systems" may need to be used to ensure the carriage of the current from the supplier to the customer.
d) "Responsibility": Fourthly, Article 32 coupled to Article 2(5) and (6) establish that the person(s) subject to the duty to secure third party access are those who have "responsibility" for carrying or delivering current or for performing the activities referred to in Article 2(6). The Directive is, as observed, silent and neutral as to the number of such persons who may be responsible, this being a question of fact. It may on the facts be a single "monopoly" carrier but nothing precludes the possibility that the duty will also fall upon other persons who have responsibility for a part or parts of the system. Nothing precludes the possibility of joint responsibility.
e) The scope of regulator's powers: Fifthly, it follows also that if third party access is to be "ensured" regulatory authorities must be empowered to regulate every person who in any way has responsibility for the carriage or delivery of electricity from a supplier to a customer. There can be no regulatory lacuna or black holes.
"In carrying out the regulatory tasks specified in this Directive, the regulatory authority shall take all reasonable measures in pursuit of the following objectives within the framework of their duties and powers as laid down in Article 37, in close consultation with other relevant national authorities including competition authorities, as appropriate, and without prejudice to their competencies".
"4. Member States shall ensure that regulatory authorities are granted the powers enabling them to carry out the duties referred to in paragraphs 1, 3 and 6 in an efficient and expeditious manner. For this purpose, the regulatory authority shall have at least the following powers:
(a) to issue binding decisions on electricity undertakings;
(b) to carry out investigations into the functioning of the electricity markets, and to decide upon and impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market
(iv) Implementing measures adopted in the United Kingdom
"4. Prohibition on unlicensed supply etc.
(1)A person who—
(a) generates electricity for the purpose of giving a supply to any premises or enabling a supply to be so given;
(b) transmits electricity for that purpose; or
(bb) distributes electricity for that purpose;
(c) supplies electricity to any premises…
shall be guilty of an offence unless he is authorised to do so by a licence".
"(4) In this Part, unless the context otherwise requires -
"distribute", in relation to electricity, means distribute by means of a distribution system, that is to say, a system which consists (wholly or mainly) of low voltage lines and electrical plant and is used for conveying electricity to any premises or to any other distribution system;
"supply", in relation to electricity, means supply of electricity conveyed by a distribution system to premises other than premises occupied by a licence holder for the purpose of carrying on the activities which he is authorised by his licence to carry on;
"transmit", in relation to electricity, means transmit by means of a transmission system, that is to say, a system which consists (wholly or mainly) of high voltage lines and electrical plant and is used for conveying electricity from a generating station to a substation, from one generating station to another or from one substation to another".
"'distribute', in relation to electricity, has the meaning given by section 4(4), and cognate expressions shall be construed accordingly;
'distribution exemption holder' means a person who - (a) is distributing electricity for the purpose mentioned in section 4(l)(bb); and (b) is authorised to do so by an exemption.".
"1.—(1) This paragraph applies where—
(a) a customer owns or occupies premises which are connected to an exempt distribution system;
(b) the customer is taking a supply of electricity through that system from—
(i) the distribution exemption holder that operates or has control of the system, or
(ii) a person related to the distribution exemption holder; and
(c) the customer—
(i) has served on the distribution exemption holder a notice expressing the customer's interest in taking a supply of electricity from a third party supplier through that system; and
(ii) has provided with the notice evidence that at least one third party supplier would be willing to supply the customer with electricity through that system, and has identified any such third party supplier in the notice.
(2) In this Schedule "expression of interest" means a notice served under sub-paragraph (1).
(3) Within 5 working days beginning with the day on which it receives the expression of interest, the distribution exemption holder must provide any person related to it that is currently supplying the customer with electricity with a copy of the expression of interest.
(4) Within 10 working days beginning with the day on which it receives the expression of interest, the distribution exemption holder must serve on the customer—
(a) a notice informing the customer that it will take the steps in sub-paragraph (6) with a view to giving a third party supplier access to its distribution system; or
(b) a notice informing the customer that the distribution exemption holder considers—
(i) that it would need to increase the capacity of its distribution system in order to give a third party supplier access to that distribution system; and
(ii) that one of the conditions in sub-paragraph (5) is met.
(5) Those conditions are—
(a) that it is not technically feasible to provide the increase in capacity in question;
(b) that providing that increase in capacity would have a significant and adverse economic impact on the distribution exemption holder or any other person.
(6) Where the distribution exemption holder has served on the customer a notice under sub-paragraph (4)(a), the distribution exemption holder must—
(a) serve on any third party supplier identified in the expression of interest a notice specifying—
(i) any metering arrangements that the distribution exemption holder considers would be required to enable access to be given; and
(ii) whether it would be willing to give access through contractual arrangements which would not require a connection to be made or modified; and
(b) provide each such third party supplier with any other documents or information that it may reasonably request.
(7) The distribution exemption holder must serve the notice required by sub-paragraph (6)(a) within 20 working days beginning with the day on which it receives the expression of interest.
(8) The distribution exemption holder must provide any documents or information requested by a third party supplier under sub-paragraph (6)(b)—
(a) within 20 working days beginning with the day of the distribution exemption holder's receipt of the expression of interest; or
(b) if the request is made at a time when there are fewer than 10 working days remaining in the 20 working day period mentioned in paragraph (a) above, within 10 working days beginning with the day of the distribution exemption holder's receipt of the request".
a) First, the focus in Paragraph 1(1) is upon the rights of the customer to obtain a competitive source of supply. It is this particular competitive dynamic which characterises the conditions in Paragraph 1(1) and it provides the relevant important optic through which to interpret the remainder of the Schedule; one is concerned here with consumers' rights.
b) Secondly, the paragraph does not refer to "networks" but, upon five occasions, to "system". That term is not defined but, as with the Directive, in context it means all of the infrastructure and equipment that is required to be used for electricity to be transported or delivered or conveyed from the third party supplier to the customer.
c) Thirdly, the person who has the duty to secure third party access is the "distribution exemption holder", the "DEH". A combination of sections 64(4) and 4(1)(bb) and (b) EA 1989 make clear that a DEH is someone who "distributes", or "conveys", electricity. In context this is, manifestly, a carriage or transport function.
d) Fourthly, nothing in the Schedule states that there can only be one DEH per system or part thereof. The Schedule is silent as to this. Read consistently with the Directive the answer to the question: Who is a DEH? – must be, all those whose system or systems in any way are used to connect the current from the third party supplier to the customer.
(vi) Principles of interpretation to be applied to the domestic implementing legislation
H. The judgment of the European Court of Justice in Case C-439/06 Citiworks
(i) The significance of the judgment
(ii) The facts of the case
(iii) The opinion of Advocate General Mazak
a) The subject matter of the third party access obligation are the transmission systems and the distribution systems. It follows: "…only so called 'transmission systems' or 'distribution systems' within the meaning of the directive are subject to third party access obligations pursuant to the directive." (para ).
b) It is irrelevant whether a person subject to an obligation to provide third party access has multiple functions in addition to being a distributor of electricity. Such a person might be a wholesaler or a supplier (seller) at the same time as being a "distribution system operator". The fact that such a person simultaneously served other functions was "irrelevant" (para )
c) Terms such as "distribution system" must be interpreted in the light of (i) the context in which it occurs and (ii) the object of the rules of which it forms a part (para ).
d) Given the importance of the principle of third party access exceptions or limitations to the principle had to be construed narrowly:
"71. The objective of achieving a level playing field between Member States in terms of market opening … requires a uniform interpretation of the material scope to which the directive applies. This requires that restrictions to the general principle of third party access be interpreted narrowly and be limited to those provided for under the directive. This also precludes the possibility that a provision such as Article 13 of the Directive, which provides that Member States are to designate, or to require undertakings that own or are responsible for distribution systems to designate, one or more distribution system operators, could give Member States total freedom in the definition of a 'distribution system'."
e) The essence of Article 20 was that suppliers had a right to choose their customers and customers a right to choose their suppliers:
"72. Furthermore, it appears from the directive that one of the essential elements of the liberalisation of energy markets is to ensure that electricity customers have the right to choose freely their suppliers and all suppliers the right to freely deliver their customers. These two rights are necessarily linked because, if customers are to choose freely their supplier, it is necessary that suppliers have the right to access, for an adequate and non-discriminatory remuneration, the different transmission and distribution systems which carry electricity to the customer.
73. The importance of the principle of third party access is also apparent from the legislative history of the directive. The provision requiring Member States to ensure third party access was an essential element of the Commission's proposal to amend the first electricity directive … and was adopted, essentially unchanged, in Article 20 of the Directive".
f) Applying the purpose behind the Directive it applied to a "wide range of different systems regardless of their size" (paragraphs  - ).
g) The purpose for which a system is operated by a person is immaterial in determining whether a "system" was a distribution system. The Advocate General took by way of illustration the position of an airport that outsourced its supply obligation to a third party. He stated:
"83. The exemption of certain systems from third party access obligations on the sole basis of the purpose for which they are operated bears the risk that the same system, depending on whether it is run as part of another business or as a business on its own, will or will not be eligible for exemption from third party access obligations. For example, if FLH had outsourced the operation of its electricity system to another company having as its sole purpose the operation of the system with a view to delivering electricity to the airport and other end-users located at the airport, the distribution of electricity would certainly be made 'with a view to its delivery to customers', as stated in Article 2(5) of the Directive. Thus, the exclusion of so called 'operation networks' from third party access obligations could result in a different treatment of the same system solely on the basis of the business purpose of the system operator.
84. If this approach were to be followed, this would also mean that the same customer, for example a shop or a restaurant, would or would not have the right to choose freely among electricity suppliers depending on the business purpose of the system operator running the electricity system to which it is connected for the purpose of receiving electricity. Thus, the exclusion of systems from third party access obligations on the basis of the purpose for which they are operated would result in a different treatment of final customers".
h) Exceptions could not be created to the obligation upon the basis that the obligation was "overly burdensome" for very small or marginal systems (paragraph ). The answer to this lay in "lighter" (proportionate) regulation (paragraph ).
(iv) The judgment of the Court
"43. Recital (4) in the preamble to Directive 2003/54 states that a fully open market must enable all consumers freely to choose their suppliers and all suppliers freely to deliver to their customers. As the Advocate General rightly observed in point 72 of his Opinion, these two rights are necessarily linked. In order for customers to be able to choose freely their suppliers, it is necessary that suppliers should have the right to access the different transmission and distribution systems which carry electricity to the customers.
44. It follows that open third-party access to transmission and distribution systems constitutes one of the essential measures which the Member States are required to implement in order to bring about the internal market in electricity".
"Transmission and distribution do not include supply. The notion of "supply" is defined in Point 19 of Article 2 of Directive 2003/54 as the sale of electricity to customers".
The same point was made in paragraph  where the Court stated that with regard to "the operation and purpose" of transmission and distribution systems these entailed "…electricity [which] is transported with a view to delivery, without there being actual supply". The Court also stated (referring implicitly to the definition of "distribution system operator" in Article 2(6)) that the "…operator is responsible for operating, ensuring the maintenance of, and, if necessary, developing the system in a given area and for guaranteeing its long-term capacity". This exposition excludes supply/sale.
"87. This approach should not be followed. Member States enjoy a wide margin of discretion in how they implement in practice the third party access obligations provided for in the directive. Member States might possibly provide for a lighter administrative regime for smaller or newly-created systems or systems which pursue a main objective that is different from that of the supply of energy to customers. Thus, the actual burden which the fulfilment of such obligations constitutes for an individual operator is to a certain extent the result of regulatory choices made by each Member State. Therefore, such a ground would not in itself allow for the total exclusion of such systems from the obligations imposed by the directive on distribution system operators and especially third party access obligations".
"55. Article 20(1) of that directive leaves the Member States free to take the measures necessary to establish a system of third-party access to transmission or distribution systems. It follows that, in accordance with Article 249 EC, the Member States have authority over the form and the methods to be used to implement such a system. Having regard to the importance of the principle of open access to transmission or distribution systems, that margin of discretion does not, however, authorise them to depart from that principle except in those cases where Directive 2003/54 lays down exceptions or derogations".
I. Conclusion: What is the relevant "system" for the purpose of applying the duty to secure third party access?
"The question for the Court is, did the Secretary of State ask
himself the right question and take reasonable steps to acquaint himself with the relevant information to enable him to answer it correctly"?
"100. The following principles can be gleaned from the authorities:
(1) The obligation upon the decision-maker is only to take such steps to inform himself as are reasonable.
(2) Subject to a Wednesbury challenge, it is for the public body, and not the court to decide upon the manner and intensity of inquiry to be undertaken (R(Khatun) v Newham LBC  QB 37 at paragraph , per Laws LJ).
(3) The court should not intervene merely because it considers that further inquiries would have been sensible or desirable. It should intervene only if no reasonable authority could have been satisfied on the basis of the inquiries made that it possessed the information necessary for its decision (per Neill LJ in R (Bayani) v. Kensington and Chelsea Royal LBC (1990) 22 HLR 406).
(4) The court should establish what material was before the authority and should only strike down a decision by the authority not to make further inquiries if no reasonable council possessed of that material could suppose that the inquiries they had made were sufficient (per Schiemann J in R (Costello) v Nottingham City Council (1989) 21 HLR 301; cited with approval by Laws LJ in (R(Khatun) v Newham LBC (supra) at paragraph ).
(5) The principle that the decision-maker must call his own attention to considerations relevant to his decision, a duty which in practice may require him to consult outside bodies with a particular knowledge or involvement in the case, does not spring from a duty of procedural fairness to the applicant, but from the Secretary of State's duty so to inform himself as to arrive at a rational conclusion (per Laws LJ in (R (London Borough of Southwark) v Secretary of State for Education (supra) at page 323D).
(6) The wider the discretion conferred on the Secretary of State, the more important it must be that he has all relevant material to enable him properly to exercise it (R (Venables) v Secretary of State for the Home Department  AC 407 at 466G)".
J. Conclusion: Can there be more than one DEH per network?
"87. This approach should not be followed. Member States enjoy a wide margin of discretion in how they implement in practice the third party access obligations provided for in the Directive. Member States might possibly provide for a lighter administrative regime for small or newly-created systems or systems which pursue a main objective that is different from that of the supply of energy to customers. Thus, the actual burden which the fulfilment of such obligations constitutes for an individual operator is to a certain extent the result of regulatory choices made by each Member State. Therefore, such a ground would not in itself allow for the total exclusion of such systems from the obligations imposed by the Directive on distribution system operators and especially third party access obligations".
I agree that even if it be the case that HAL's involvement is relatively minor this is not a reason for concluding that it falls outside the scope of the obligation to secure third party access. Schedule 2ZA must be construed in this light.
i) In accordance with Paragraph 1(4), and, (6) the (hypothetical) operator would only have to serve upon the customer such information about metering that it was able to provide.
ii) In accordance with Paragraph 1(6)(b) the operator would only be required to provide the third party supplier with such documents or information which it could provide. This would in any event be because the obligation is subject to an assessment of the reasonableness of the request.
iii) In accordance with Paragraph 2(6) – pursuant to which the DEH must give a third party supplier such access to "its" distribution system as is necessary to enable the third party supplier to give a supply of electricity to the customer – the (hypothetical) DEH would only be required to give such access as it was capable, itself, of giving.
iv) In relation to the obligation to make available pre-approved charging methodologies the Authority has already stated that it will apply this obligation proportionately in its Guidance on third party access charges for licence exempt gas and electricity distribution networks (10th November 2011). The Authority stated this in relation to charging methodologies:
"We will take a proportionate approach to approving the methodologies. For larger ENOs, depending on their circumstances, this means we would prefer a greater level of detail underpinning various items than is included in the example set out in this proforma, where they have the resources to provide this information. This includes the identification of network costs, how the costs have been allocated to customers and detail on factors that are likely to affect network charges in the future, particularly where the impact of the charging methodology is likely to affect a significant number of customers. For very small ENOs with one or two small customers we would not necessarily expect them to provide the level of detail contained in out proforma.
Our guidance is not prescriptive and any other reasonable and proportionate methods of identifying network costs and allocating them to customers are likely to be acceptable for the purposes of approval".
In the present case Mr Beard QC, for HAL, intimated that such was the minimal level of involvement which would be required by HAL to enable a supplier to convey electricity to a customer that it might levy a zero charge. Moreover, in the present case on 25th April 2012, HAL did submit to the Authority what it described as "…an application under Electricity Act 1989 Schedule 2ZA Charges for Use of System Methodology Approval in respect of Hilton Hotel Heathrow Terminal 4". This incorporated information provided by UKPNS and HAL upon the basis that "…both entities own and control parts of the HV network at Heathrow". It is apparent from the detailed Schedules which comprise the Charging Methodology that there was no obvious difficulty encountered in preparing this information. I thus reject the suggestion that the obligation to proffer charging methodologies to the Authority for prior approval will create real (as opposed to imagined) practical problems.
K. Conclusion: The meaning of "supply" in Paragraph 1(1)(b) of Schedule 2ZA
"Supply in relation to electricity means its supply to premises in cases where –
(a) it is conveyed to premises wholly or partly by means of a distribution system, or
(b) (without being so conveyed) it is supplied to the premises from a substation to which it has been conveyed by means of a transmission system, but does not include its supply to premises occupied by a licence holder for the purposes of carrying on activities which he is authorised by his licence to carry on".
"79. We are persuaded, by reference to recitals and operative provisions of the Directive, that the purpose of the Directive and the third package is broader than simply unbundling monopoly distribution and supply, and is concerned more broadly with facilitating third party access and consumer choice as part of the proper functioning of a competitive market. We therefore conclude that a construction of "supply" which would lead to particular classes of customers being deprived of third party access rights risks putting the UK in breach of its primary European legal obligations and is a factor which would strongly militate in favour of a construction which avoided such a result".
L. Conclusion: Application of the "operation or control" test
"We therefore conclude that UKPNS clearly has the more significant, though not absolute, control, over the Leased Network. We have not found a case to be made by UKPNS to displace the prima facie inference of UKPNS' control of the Leased Network by reference to Clause 6 of the DA. We are also satisfied that it is not necessary for UKPNS to be found to have absolute control in order to satisfy the test at Schedule 2ZA. The disjunctive statement of operation and control means that having concluded that it satisfies the test of supply and operation that is sufficient for it to be recognised as bearing the DH obligation that flow from Schedule 2ZA".
Further it treated "operation" and "control" as alternative tests. This flows from the disjunctive language in Paragraph 1(1) Schedule 2ZA. However, there is no equivalent alternative test in the Directive. Indeed, if "control" is intended to implement "responsibility" then in the Directive "responsibility" and "operate" work together conjunctively, not disjunctively.
N. Conclusion: The relevance of the "workability" test
a) First, the optic through which Article 32 and Schedule 2ZA must be interpreted is that of the "rights" of the third party supplier and the customer whose requirements are for a seamless carriage of current from the former to the latter. The duty upon the national regulatory authority is commensurate: It is to "ensure" that the "right" is respected and the carriage, transport or conveyance is efficient and expeditious. In context the notion that the seamless flow of electricity should be interrupted because the regulator cannot supervise or enforce the duty of carriage upon some of those operators who are "responsible" for the carriage of the electricity is simply illogical.
b) Secondly, the Decision operates upon a supposed assumption said to be found in the Directive that there can only, in principle, be one operator per network. But the Directive contains no such express principle which, given its signal importance, it would have done had it been true. And the reason why the Directive does not endorse such a principle is that it would contradict the very raison d'être of the Directive. The Directive seeks to facilitate competition. It is axiomatic that when competition is liberalised it often emerges in new and unexpected ways. Mr Beard QC, for HAL, in his written submissions post-hearing stated:
"5. Whilst historically it may have been the position that on licence exempt networks, the seller of electricity was also the operator of the network, that is not always the case (see the present case and those at Gatwick and Stansted) and there is no reason to think that in the future such "unbundled" situations will be uncommon. The longer the legislation remains in force, the greater the likelihood that customers will have switched away from a seller/DEH and will be looking to switch again to a different third party supplier. The Authority was entirely right to be concerned about the effectiveness of the Directive in this context".
Mr Beard QC was right in his underlying thesis that as liberalisation occurs different forms of "unbundled" commercial arrangements might arise. The evolution of sub-contracting arrangements is one such development (with ownership unbundled and separated from day to day operation). Yet the Defendant's analysis assumes that the principle of monopoly provision is built into the Directive and therefore it can only regulate the one (monopoly) supplier per network. As I have emphasised above the purpose of the Directive is to increase and facilitate competition, not ossify monopoly structures. The Defendant says that the Directive "essentially contemplates a single DSO for a particular area" but this elides economic happenstance with a principle of law. I have already explained that "on the ground" markets have generally evolved with one operator per geographical network. However, acknowledging this is a far cry indeed from elevating that practical circumstance into a binding principle of law.
c) Thirdly, the citations in the Decision from the Directive and from the Court of Justice in Citiworks relied upon by the Authority to support the conclusion (reflecting arguments advanced to it by HAL) do not in fact support the conclusion drawn from them. None of the references to the Directive entrench a principle of monopoly provision; on the contrary, they all reflect a desire to facilitate competition in the market. The same applies to the statements of the Court of Justice. For example, paragraph  of Citiworks takes as its starting point "…a fully open market". It also talks of third party suppliers and customers having a "right" of access to the "different" transmission and distribution "systems" which carry electricity. These can only be understood in the context of the legislature having made no assumptions whatsoever as to the structure of the different market operating in the different Member States. The Defendant also cites paragraph  of Citiworks (Decision paragraphs  and [76(c)]) seemingly for the proposition that Member States enjoy a margin of discretion as to implementation. However, paragraph  of the judgment makes clear that whilst Member States are left to choose the form and method of implementation there is no discretion to depart from the principle of third party access and the Court, to the contrary, explains that third party access involves access to distribution and transmission "systems", i.e. in the plural. A review of the Directive, its recitals and the travaux preparatoires show that the basis of the Directive was not any sort of detailed assessment of market structures in the different Member States. Recital 22 makes clear that the legislature recognised the heterogeneity of the national markets.
O. Materiality of legal errors