System re-boot: High Court turns up the voltage for UK energy appeals

On 22 January 2026, the English High Court delivered an important judgment for companies and investors in UK regulated infrastructure. 

Many sectors of UK infrastructure, such as electricity and gas, airports and water are subject to licensing regimes and periodic price control regulation by a sector regulator.  The regulators' decisions have enormous significance for the companies and their investors.  One major common component of such decisions is the Weighted Average Cost of Capital or "WACC", a key financial benchmark for returns to investors. A critical safeguard in the legislation governing the process for reaching these decisions is that the company has the right of appeal to the Competition and Markets Authority (CMA). 

However, following the last round of price control decisions, and subsequent appeals to the CMA, companies and their investors were left scratching their heads.  In the space of only a few months, two separate CMA panels reached contradictory decisions on key building blocks for the WACC in the water and energy industries, despite having considered essentially the same evidence.  The CMA sought to justify this surprising outcome by pointing to differences in the relevant appeal regimes, stating that the regime that applies in energy had a very high threshold for intervention and required the CMA to give very significant deference to the regulator’s decision.  This outcome left energy companies and their investors concerned that their right of appeal was far less effective in practice than had previously been believed.

The Court's ruling, following a judicial review application by Wales & West Utilities (WWU), has now reset the balance.

Notably, the judgment clarifies the standard of legal review the CMA should apply in price control and licence modification appeals when considering whether a regulator’s decision is ‘wrong’.  The CMA’s decision had stated that appellants were required to show that there is an alternative that is “clearly superior” to the decision made by the regulator.  The Court has now clarified that this was an error and set too high a hurdle for appellants.  Instead, what should be required is that there is an alternative that is “materially” better, meaning that it “offers something more than” the regulator’s approach.  

This is an important clarification which will provide comfort to regulated companies and their investors that the appeal regime for energy companies can be effective in practice.  It also comes at a timely moment: at the end of 2025, the energy regulator, Ofgem, took its decision for the next price control period which will apply from 1 April 2026 to 31 March 2031.  Regulated companies are now actively reviewing the regulator’s decision and considering whether they should consider an appeal.

Background to the ruling

In December 2020, Ofgem issued its price control decision for all electricity transmission, gas transmission and gas distribution companies in Great Britain. Ofgem’s decision was controversial and all affected companies launched appeals to the CMA in March 2021, arguing that Ofgem’s decision contained fundamental errors.  The relevant appeal regime requires the CMA to determine whether Ofgem was ‘wrong’ in relation to any of the specific grounds of appeal raised by the appellants. 

Although the appellants were successful on a number of their grounds of appeal, the CMA’s Final Determination concluded that Ofgem had not erred in others, including in setting the cost of equity component of the WACC. The CMA’s Final Determination indicated that in order to succeed the appealing companies had to show that there was an alternative that was “clearly superior” to Ofgem’s decision.  On this basis, the CMA said that it was not prepared to follow its own recent approach when assessing the cost of equity for UK water companies.

One of the companies that had appealed to the CMA - WWU - launched a further challenge to the CMA’s decision by way of judicial review before the Court.  

In the judicial review proceedings Freshfields represented another energy company - SSEN Transmission (SSEN-T) - as an interested party.  SSEN-T intervened specifically on the issue of the legal test applied by the CMA and argued that the CMA’s approach was contrary to the requirements of the statutory framework and unjustifiably raised the bar that appellants must meet.  

Clarifying the CMA’s and Ofgem’s legal duties

First, as noted above, the Court ruled that the CMA’s formulation which required a “clearly superior” alternative was too stringent.  The Court acknowledged that the CMA doesn't need to re-assess the issues from scratch but made clear that the “clearly superior” language used by the CMA in its decision risks affording too much deference to Ofgem.  In practice this would require appellants to show that any alternative proposed by an appellant had to be “much better” and not “just better”. Instead, the Court stated that all that is required is that the alternative proposed by an appellant is “materially” better or “offers something more than" GEMA’s approach. 

Second, the Court also ruled that the CMA had made an error of law in interpreting the “financing duty” in the relevant legislation.  This requires the regulator to have regard to the need to secure that regulated companies are able to finance their activities.  This is an important duty which ensures that a company’s financing needs and ability to raise debt on appropriate terms is taken into account.  The CMA had decided that Ofgem was only required to consider the needs of all relevant energy companies on a collective basis, and not the individual needs of any specific company.  The Court ruled that this was a further clear error of law and that the statute does require the needs of each individual company to be considered.

In the event, WWU’s judicial review was not successful on the substance of its challenges.  The Court decided that although the CMA had made errors, these did not sufficiently affect the substantive outcome for WWU.  However, it accepted WWU’s and SSEN-T’s arguments relating to the legal test for appeals and these important legal clarifications will have far reaching effects for the appeal regime in future going beyond the other detailed arguments raised by WWU.  

Impact on future licence modification appeals 

The judgment provides welcome relief for regulated infrastructure companies and their investors.  The Court’s clarification of the law provides comfort that the appeal regime for energy companies can operate effectively and remains an important safeguard in the system.  This may be especially important for companies that are currently in the process of considering whether to appeal Ofgem’s most recent price control decision taken in December 2025.  More widely, the ruling will also be influential in other regulated sectors such as airports which have a similar appeal regime.  The UK Government has also proposed to amend the appeal regime for water companies to mirror that in energy (in its Water White Paper earlier this week).  It seems likely that this ruling will also become influential in that sector in future too.

Our team has wide experience in acting for regulated companies in CMA appeals having been involved in all of the significant price control appeals in energy, water and airports in the last decade.  Please get in touch with any of the authors if you would like to discuss this judgment further.