News and Publications

Rare Ofgem decision in contested case demonstrates thinking on ‘all reasonable steps’

Posted: 06/08/2018

On 1 August 2018 Ofgem’s Enforcement Decision Panel (EDP) issued a ‘determination’ in a contested enforcement case which illustrates how the regulator analyses whether ‘all reasonable steps’ (often a key obligation, in respect of smart meters, for example) have been taken where there has been a potential breach.

The EDP concluded (paras 42 and 43):

  • contractual case law is ‘of limited value’ when examining a regulatory obligation. The words ‘must be given their ordinary meaning in light of the specific context in which they are used’;
  • principles for identifying a breach (stated to apply in respect of the SLC 12 advanced meters obligation, although they seem to be of more universal application) are:

(a) whether a step is reasonable is an objective question;
(b) there is 'no fixed measuring stick'. What is reasonable depends on the circumstances;
(c) it is insufficient to take a single reasonable step if that step doesn’t achieve the outcome being aimed for. The obligation is to take all reasonable steps;
(d) proportionality is relevant to the question of whether a step is reasonable at the time. Not all possible steps need to be taken from the start, but more costly steps may need to be taken later if the outcome aimed for isn’t being achieved;
(e) Ofgem doesn’t need to identify all possible reasonable steps, but it does need to identify a step (or steps) not taken which it says was reasonable to take;
(f) it is ‘not helpful to characterise 'all reasonable steps' as used in SLC12.22 as establishing a 'high threshold'.

Whilst the all reasonable steps obligation will need to be considered on a case-by-case basis, it is interesting to read how the Ofgem case team, licensee, and EDP analysed the steps taken (or not taken) in this instance.

The burden of proof appears to have been a point of contention with Ofgem apparently suggesting that the licensee should prove that, having not achieved the particular advanced meter roll-out, it could nevertheless establish a defence by showing that it had taken all reasonable steps. The EDP concludes that it can decide the case without deciding the burden of proof point and that in this case it has come to its conclusions on liability without approaching the matter on the basis that the burden of proof was on the licensee.

The licensee appears to have run an argument that the SLC obligation needed to be interpreted in a way that was consistent with Article 13 of Directive 2006/32/EC, Marleasing, and the requirement of proportionality. Whilst this would have been another interesting legal point to see the EDP discuss and decide, it again concludes that it does not need to in this case because proportionality comes into the analysis of all reasonable steps discussed above.

This is a very rare Ofgem case that has not settled and has instead gone all the way to a two day contested EDP hearing. The determination gives some insights into the course of the investigation/proceedings, which have lasted several years, and how the contest played-out, beyond the Ofgem Enforcement Guidelines.

As an interesting aside Ofgem is, strictly speaking, consulting on the proposed decision and penalty, as it is required to do by law. This is not however the impression given by the Ofgem investigation homepage which talks about having made findings on liability and penalty.

Arrow GIFReturn to news headlines

Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

Penningtons Manches Cooper LLP