Judgment (ROC Issues)

The Tribunal’s judgment in relation to certain issues (the “ROC Issues”) that were tried in a single hearing of the Spottiswoode Proceedings (Case No. 1330/7/7/22) and the London Array Proceedings (Case No. 1518/5/7/22), pursuant to the Order dated 22 May 2024.

The ROC Issues arose as both the Spottiswoode and the London Array Proceedings  concern an alleged overcharge in the price of subsea power cables following on from the Decision of the European Commission (the “Commission”) dated 2 April 2014 in Case AT.39610, Power Cables (the “Commission Decision”) that a number of cable manufacturers had been involved in a long-running cartel affecting high-voltage power cables between February 1999 and January 2009 (the “Cartel”).

The Spottiswoode Proceedings combine follow-on damages claims in which the Class Representative alleges that purchasers of high-voltage power cables, including electricity transmission and distribution companies in Great Britain and offshore windfarms, paid increased prices for such cables (including associated works and services) as a result of the Cartel. She argues that this overcharge has been (and continues to be) passed on to electricity suppliers through the charges which transmission and distribution companies levy on suppliers and via payments made by suppliers in respect of offshore windfarms pursuant to the UK Government’s scheme known as the Renewables Obligation scheme (the “RO scheme”). It is alleged that that the overcharge was passed on by electricity suppliers to the billpayers whom she represents.

The London Array Proceedings are claims for follow-on damages brought against the cable manufacturer Nexans only by various companies associated with the London Array windfarm project, arising out of the supply of power cables used at the London Array windfarm. In the London Array Proceedings, the position of both London Array and Nexans is that any loss suffered by London Array would not have been avoided or passed on as a result of higher levels of subsidies under the RO scheme and/or higher prices for the sale of electricity. However, Nexans’s position was that the Tribunal should treat the issue of pass-on under the RO scheme as a common issue across both sets of Proceedings to avoid the risk of inconsistent judgments. The Tribunal accepted that and made case management directions to the effect that London Array should not be entitled to obtain final judgment in its favour until that part of the Class Representative’s claim relating to alleged pass-on of any overcharge paid by London Array to Nexans has been determined.

The four ROC Issues concerned the way in which the UK Government decided to set the banding for offshore wind generators at 2 Renewables Obligation Certificates (“ROCs”) per megawatt-hour (“MWh”) for the purposes of the Renewables Obligation (Amendment) Order 2010 (“ROO10”) and whether its decision was affected by the alleged overcharge.

The four ROC Issues (referred to as Questions 1 to 4) were as follows:

1. Value of commerce: In respect of ROO10, what is the appropriate value of commerce in respect of the benchmark windfarms relevant for the purposes of determining Question 2, both as a total amount and by reference to the relevant categories of costs?
2. Effect of 26% overcharge on number of ROCs/MWh: Assuming that the benchmark windfarms relevant to the ROO10 were subject to an overcharge, resulting from the infringement as found by the Commission Decision, at the rate of 26%, would the number of ROCs/MWh awarded to offshore wind have been less in the counterfactual?
3. Minimum cost elevation that would have reduced the number: If the answer to Question 2 above is “yes”, and in light of the value of commerce as found under Question 1 above, what is the minimum level of total elevated cost on the relevant benchmark windfarms that would on the balance of probabilities have resulted in fewer ROCs/MWh being awarded in the counterfactual (the “Minimum Cost Elevation”)?
4. Issue to be resolved so as to be binding in the London Array Proceedings only: Based on the material before the Tribunal and the pleaded issues in those proceedings, was the Minimum Cost Elevation met or exceeded for ROO10 and, if so, with what effect on the number of ROCs/MWh awarded?

The main focus of the ROC Issue trial related to Question 2, the Tribunal determined as follows:

• Renewables Obligation (Amendment) Order (“ROO09”): The Tribunal considered the evidence concerning the Government’s approach to ROO09 was useful background to the decision in ROO10. The Tribunal accepted that the evidence shows that both the Government and the Commission were aiming to avoid overcompensation but were keenly aware of the uncertainties involved in cost and revenue predictions and the consequential difficulties in making fine distinctions between levels of support for different technologies. These uncertainties meant that the Government could not quantify whether or not there was overcompensation simply by taking a “pinpoint” estimate of revenue or income. There were significant variations in the margins being afforded to different technologies and approved by the Commission, with ten technologies having a positive margin ranging in size from 6% to 35% and the remainder having negative margins. The Tribunal does not accept the Class Representative’s submission that there was any material change of approach between the 2009 and 2010 Orders leading to more precision in 2010. The fact that different technologies were grouped together under the ROO09 banding did not mean that the Government was any less concerned about possible overcompensation.
• The developers’ requests: in the Tribunal’s judgment it was clear that the developers’ requests for an increase of banding to 2 ROCs/MWh were a key driver of the Government’s subsequent decision making. In order to succeed, the Class Representative had to establish that in the counterfactual the developers would have requested a lower band than 2 ROCs, or that, if the developers had maintained a request for 2 ROCs, the Government would nevertheless have awarded a lower band level than requested. The Tribunal found both of those scenarios to be implausible.
• The Ernst & Young Report: the Tribunal concluded that the “EY Report” set out conclusions on 2 ROCs because that is what industry was asking for and would still have been asking for in the counterfactual. The Tribunal was prepared to accept that in the counterfactual the levelised cost of energy calculated by EY would been lower which meant that 0.1 fewer ROCs were required and this would have led to a recommendation of 2.4 ROCs in its base case. However, that would not have prompted the Government to reduce its support for offshore wind to 1.9 ROCs/MWh as the base case would have remained significantly greater than 2 ROCs. Therefore, the Tribunal considered that EY would have reached the same conclusion in the counterfactual. The Tribunal considered that the Government performed a critical examination, both of the conclusions in the EY Report and the offshore wind industry’s request for 2 ROCs/MWh.
• The Government’s decision: in the Tribunal’s view, the state aid notification and the answers to the Commission’s questions did not support the Class Representative’s case that the Government’s ROO10 decision was primarily governed by a comparison between point costs and revenues, providing for a margin to account for uncertainty. The explanation for the Government’s inclusion of central estimates rather than ranges was the absence of the relevant data. The state aid notifications and the answers to the Commission’s questions, read as a whole, indicated that the Government was approaching the banding decision as a multifactorial exercise reflecting not only the need to avoid overcompensation but also the need to ensure that sufficient offshore wind projects proceeded.
• Use of 0.1 increments: the Tribunal concluded that the Government was genuinely reluctant to move to a banding increment of 0.1 ROCs/MWh for the reasons it gave (unwillingness to create a spurious impression of accuracy, additional administration costs and complexity). Whilst the concept of banding at 0.1 increments was not “off limits”, the prospect of higher administrative costs meant that the Government had an instinctive reluctance to set the band at such a granular level.

The Tribunal concluded that in the counterfactual:

1. The developers would have maintained their requests for 2 ROCs/MWh.
2. The EY Report would have presented a base case of 2.4 ROCs/MWh. In these circumstances, the Government would still have approved the developers’ requests for 2 ROCs/MWh.
3. The Government would have awarded 2 ROCs/MWh to offshore wind on the basis that that is what the windfarm developers would have sought and EY would have found to be justified. It would not have focused on a particular margin between point estimates of costs and revenue.
4. The Government would not have moved to a banding increment of 0.1 ROCs/MWh.

Therefore, the number of ROC/MWh awarded to offshore windfarms under ROO10 would not have been less in the counterfactual

The Tribunal concluded that the answer to Question 2 was “no”. Therefore, Questions 1, 3 and 4 did not need to be answered.