ScottishPower unsuccessful in challenge to Ofgem ‘Supplier of Last Resort’ costs


Re: ScottishPower Energy Retail Limited v The Gas and Electricity Markets Authority [2022] EWHC 37 (Admin)

In November 2018 the industry regulator, Ofgem, appointed ScottishPower Energy Retail Limited to continue supplying customers of the failed energy supplier Extra Energy in a role known as ‘Supplier of Last Resort”. This claim arose out of a dispute between Ofgem and ScottishPower as to whether ScottishPower could claim the costs of performing aspects of the role from an industry levy, paid for ultimately by consumers. Whilst Ofgem permitted the majority of the costs sought by ScottishPower (£10.6 million), it did not permit the company to claim the cost of debts of £3.1 million accrued by former Extra Energy customers in respect of energy supplied to them by ScottishPower after its appointment as Supplier of Last Resort.

ScottishPower claimed that Ofgem’s decision to refuse its claim for customer debt was unlawful on three grounds:

  1. Ofgem fettered its broad discretion by taking an “in-principle” decision that debt costs were not within the scope of a LRSP. It therefore “closed its mind” to allowing this aspect of the claim.
  2. The decision was irrational. Ofgem failed to follow its published criteria for assessing claims.
  3. Ofgem failed to give adequate reasons for its decision.

These grounds failed and the claim was dismissed. The court held that Ofgem reached a judgment distinguishing between debt costs, which are to be viewed as a matter of commercial risk for suppliers, and other costs more directly associated with onboarding customers. Furthermore, it held that a reasons challenge will only succeed if the party aggrieved can satisfy the court that it has genuinely been substantially prejudiced by the failure to provide an adequately reasoned decision.

Jessica Simor QC represented Ofgem.