“The concept of an abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.”
“85. In the Decision the Authority concluded that: (a) The MSAs impose significant switching costs on gas suppliers who wish to replace a larger number of meters than is allowed without penalty under the glidepath. The early replacement charges in the Legacy MSAs are triggered by modest levels of meter replacement; (b) The BLRs paid for meters that have been removed take no account of avoidable costs and the suppliers’ ability to leave the Take or Pay zone is constrained by future non-discretionary replacement requirements …; (c) The level of the PRC in the first year of the Legacy MSA,£57 per meter for DCMs, is high relative to the commercial benefits that gas suppliers would expect to obtain by switching to a cheaper CMO and will reduce their incentive to switch; (d) The bundling of meter maintenance by National Grid exacerbates the effect of the Legacy MSA provisions because meters replaced on a maintenance visit are replaced by National Grid rather than the CMO and count against the “free” allowance under the glidepath. But in the absence of other restrictive factors of the MSAs, the requirement to take maintenance from National Grid would not of itself appreciably restrict competition and so is not a separate abuse; (e) The Legacy MSAs have had an actual foreclosing effect on competing CMOs; (f) The Legacy MSAs have deprived customers of the benefits of competition in terms of lower prices and reducing or removing the incentives on suppliers to improve technology and introduce smart meters. 86. The Authority therefore concluded that the MSAs have the actual and likely effect of foreclosing competition within the relevant market. They are long term contracts that limit significantly the commercial benefits that gas suppliers and customers could obtain if there was more effective competition in the market and suppliers could switch to CMOs without incurring artificially high switching costs. 87. Critically, the Authority recognised that the use of early replacement charges may be necessary and proportionate to allow for the recovery of customer specific sunk costs such as the cost of the installation of the meter. But the Authority’s conclusion was that the Legacy MSAs were not a necessary or proportionate means of recovering those costs. First, the Authority found that the rentals payable in the Take or Pay zone do not reflect a reasonable estimate of National Grid’s avoided costs (given that the company is no longer required to maintain or provide other services in relation to the meter). Secondly, the Authority found that a different contract structure linking charges payable on early replacement to the age of the meter would have protected National Grid’s position but would have been cheaper for the gas suppliers. This latter point relates to extensive expert evidence and argument over whether the age-related counterfactual should have been ‘revenue neutral’ ….”
“200. The Tribunal upholds the Authority’s finding that the early replacement provisions of the Legacy MSAs constitute an abuse by National Grid of its dominant position. They clearly have a foreclosure effect in discouraging gas suppliers from moving more of their business to the CMOs and hence are likely to delay the reduction of National Grid’s market share. The effect of the Legacy MSAs was demonstrated by British Gas’s actions taken to reduce the volume of business it provided to some of the CMOs once the terms of the Legacy MSAs had crystallised. It is true that National Grid has incurred sunk costs in providing the installed meter to the gas supplier without an upfront charge. But this does not justify putting in place charges which may have the effect of maintaining volumes of replacement at little more than the level that applied when National Grid was a monopoly supplier. The disproportionate nature of the early replacement charges is, in our judgment, amply demonstrated by the comparison carried out with the terms in the CMO contracts and in National Grid’s N/R MSA. There are some minor aspects of the Decision where we have found that the Authority was not justified in coming to the conclusions it did. But the main finding of abuse set out in the Decision was, in our judgment, undoubtedly right.”
“24. It is trite to say that a point of law is to be distinguished from a point of fact. As is well known, it may be difficult to say, in any given case, where the border lies between the two. In the present case, the issue is whether Napp has committed an ‘abuse’ within the meaning of the Chapter II prohibition. At one end of the spectrum, the Court of Justice and the Court of First Instance have laid down certain legal principles which apply when determining whether the Chapter II prohibition has been infringed. Whether we had, for example, ignored a relevant decision of the Court of Justice, would, we would have thought, be a point of law. At the other end of the spectrum, there will plainly be points of primary fact. For example, whether in this case Napp’s prices to hospitals were or were not below the cost of raw materials is a point of fact. However, between these opposite ends of the spectrum there will, so it seems to us, often be questions arising under the Act which are essentially questions of appreciation or economic assessment of a more or less complex kind, depending on the circumstances, in which the Tribunal will be called upon to assess a range of factors, bringing to bear such expertise as it has, in order to determine such matters as the boundaries of the ‘relevant market’, the existence of ‘barriers to entry’, whether ‘dominance’ is established, whether a response by the dominant undertaking is ‘proportionate’ and so on. 27. In the present application, for example, a substantial part of Napp’s argument on the hospital pricing abuse is that its pricing policy constituted ‘normal competition’ …. Whether, on the facts of this case what Napp did can be defended on the ground that it constituted ‘normal competition’ does not seem to us to be a ‘point of law’ as such, but rather a question of appreciation of the various interrelated facts and considerations discussed in paragraphs 231 to 352 of the judgment.”
“These findings do not and could not involve points of law, at least unless it were to be contended that the conclusions had been arrived at on the basis of no evidence at all: something that is not and could not possibly be said. They cannot therefore be reviewed in this court. But even if we did have authority to review such findings, as the conclusion of an expert and specialist tribunal, specifically constituted by Parliament to make judgments in an area in which judges have no expertise, they fall exactly into the category identified by Hale LJ in Cooke v Secretary of State for Social Security[2001] EWCA Civ 734 , as an area which this court would be very slow indeed to enter.”
“… This is an expert tribunal charged with administering a complex area of law in challenging circumstances. To paraphrase a view I have expressed about such expert tribunals in another context, the ordinary courts should approach appeals from them with an appropriate degree of caution; it is probable that in understanding and applying the law in their specialised field the tribunal will have got it right: see Cooke v Secretary of State for Social Security[2002] 3 All ER 279 , para 16. They and they alone are the judges of the facts. It is not enough that their decision on those facts may seem harsh to people who have not heard and read the evidence and arguments which they have heard and read. Their decisions should be respected unless it is quite clear that they have misdirected themselves in law. Appellate courts should not rush to find such misdirections simply because they might have reached a different conclusion on the facts or expressed themselves differently ….”
“89. National Grid argued that the Authority had to establish that the Legacy MSAs constituted ‘recourse to methods different from those which condition normal competition’ [see Hoffmann-La Roche, paragraph 91, quoted at [16] above] before it could establish that they were abusive. In this market, the Authority had accepted that it was ‘normal’, given the nature of the assets, for operators to put some form of premature replacement protection in place in their contracts. No deviation from ‘normal competition’ had been established by the Authority and hence there was no abuse within the meaning of Hoffmann-La Roche.”
“90. We do not accept that this is the correct way to interpret what the ECJ said in Hoffmann-La Roche. ‘Normal competition’ there means the parameters which affect a customer’s choice in a situation where the customer is free to choose from amongst the products which make up the relevant market. In conditions of normal competition, a buyer will base his purchasing decisions on his assessment of who offers the best price and the best quality product or service. He might, on the basis of these criteria, choose the dominant firm’s product and thereby maintain or increase the dominant firm’s market share. That does not involve an abuse because the dominant firm has won that business because its product is the better overall offer from the customer’s point of view. If the customer subsequently discovers that another company offers a better, cheaper product he will switch his custom to the new supplier – he may switch back again if the dominant undertaking then improves its offer. 91. Any form of contract which ties the buyer to continuing to trade with a particular undertaking, even if a competitor appears on the market offering a better, cheaper product or service, inhibits the competitive process to some extent. There may be entirely proper justifications for such contracts and they do not always have anti-competitive effects. But they are still capable of being abusive if entered into by a dominant firm because that firm has a special responsibility not to impede whatever competition takes place on the market. 92. All Hoffmann-La Roche indicates is that a dominant firm is free to compete vigorously on price and quality and similar parameters …. 93. We therefore do not accept that the Authority’s recognition that some form of premature replacement charge would feature in this market under conditions of normal competition rules out a finding that this contract is an abuse. The issue in this case is not whether any payment protection arrangements could be justified where a long-lived rented asset is installed without an upfront transaction charge. It is accepted on all sides that such arrangements are legitimate or normal. The question in this case is whether the Legacy MSA goes too far in protecting National Grid from the consequences of competition and whether the agreement’s foreclosing effect is too severe to be justified by National Grid’s desire to protect the revenue stream generated by its meters.”
“157. … It is settled case law that the concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of the market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products and services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition [footnote reference to Hoffmann-La Roche, para 91]. It follows that Art 86 [now article 82] of the Treaty prohibits a dominant undertaking from eliminating a competitor and from strengthening its position by recourse to means other than those based on competition on the merits. The prohibition laid down in that provision is also justified by the concern not to cause harm to consumers. 158. Consequently, although a finding that an undertaking has a dominant position is not in itself a recrimination, it means that, irrespective of the reasons for which it has such a dominant position, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition in the common market. 159. The Court finds, as a preliminary point, that HB rightly submits that the provision of freezer cabinets on a condition of exclusivity constitutes a standard practice on the relevant market. In the normal situation of a competitive market, those agreements are concluded in the interests of the two parties and cannot be prohibited as a matter of principle. However, those considerations, which are applicable in the normal situation of a competitive market, cannot be accepted without reservation in the case of a market on which, precisely because of the dominant position held by one of the traders, competition is already restricted. Business conduct which contributes to an improvement in production or distribution of goods and which has a beneficial effect on competition in a balanced market may restrict such competition where it is engaged in by an undertaking which has a dominant position on the relevant market ….”
“Although in the passage just cited [from Hoffmann-La Roche] the Court of Justice refers to ‘recourse to methods different from those which condition normal competition, it is clear that this does not mean that an abuse must comprise conduct peculiar to dominant firms or capable of being indulged in only by reason of dominance. Conduct which may be permissible in a normal competitive situation may amount to abuse if carried out by dominant firms because such firms have a ‘special responsibility’ on account of the prejudice that their activities may cause to competition in general and the interests of competitors, suppliers, customers and consumers. It follows from the nature of the obligations imposed by Article 82 that undertakings in a dominant position may be deprived of the right to adopt a course of conduct or take measures which would be unobjectionable if adopted or undertaken by non-dominant undertakings ….”
“The key question for the Tribunal is whether the Authority was right to conclude that the foreclosure effect arising from the Legacy MSA was too severe to be justified by National Grid’s admittedly legitimate interest in ensuring that it was able to recoup some of the costs that it had incurred in installing the legacy meters.”
“21. When pursuing a case the Commission will develop the analysis of the general factors mentioned in paragraph 20, together with the more specific factors described in the sections dealing with certain types of exclusionary conduct, and any other factors which it may consider to be appropriate. This assessment will usually be made by comparing the actual or likely future situation in the relevant market (with the dominant undertaking’s conduct in place) with an appropriate counterfactual, such as the simple absence of the conduct in question or with another realistic alternative scenario, having regard to established business practices.”
“Article 82 does not provide a comprehensive definition of abuse. The specific instances set out at Article 82(a)-(d) seek to specify categories of prohibited conduct …. However, concepts such as ‘unfair’ and ‘competitive disadvantage’ are inevitably unclear in their scope and highly dependent on factual appreciation, so that the distinction between conduct on the part of a dominant firm which is permissible and conduct which is prohibited as abusive is often a difficult one. For the dominant firm, the assessment of its actions in any particular case will be a question of fact and degree, in which the following considerations are relevant when assessing whether a credible case of anti-competitive conduct is made out ….”
“National Grid also referred us to contemporaneous documents which make clear that neither National Grid nor British Gas thought it was either feasible or desirable to have an early replacement scheme which relied on the characteristics of specific meters. For various practical reasons, both parties preferred a scheme which involved a flat rate charge because this minimised transaction costs and maximised the flexibility that the gas suppliers had in deciding which of their portfolio of meters they replaced at any given time.”
“130. In our judgment this criticism is based on a misapprehension of the function of the counterfactual in the economic analysis required in a case such as this. The Authority does not have to establish that the parties would have preferred to enter into a contract along the lines posited in the age-related counterfactual. The age-related counterfactual is based on features of other contracts operating in the market, namely the CMO contracts and National Grid’s N/R MSA. The question the Authority is asking is ‘what would have been the position if the parties had operated a system in relation to the legacy meters similar to the system that now operates in relation to new meters?’. We regard that as a useful avenue of inquiry even if there would have been logistical or financial difficulties in setting up such a system. As Ms Carss-Frisk QC argued in her closing submissions, the Authority is not setting out to prove that the counterfactual is what would or should have happened or that it would have been preferred by the parties. It is simply asking what would be the result if they had.”
“137. In our judgment this criticism of the age-related counterfactual and Mr Matthew’s evidence is misguided. There would be much force in National Grid’s argument if the Authority had simply picked the various inputs in the counterfactual at random. If it had simply used lower PRCs or higher numbers of free replacements in an arbitrary manner, the fact that they resulted in lower overall costs would not have told us anything useful. But the point about the counterfactual was, as Mr Keyworth repeatedly stressed, that it was ‘rooted in market reality’ …. [Reference was then made to what Mr Keyworth had said about this in his evidence.] 138. The counterfactual is therefore looking at what bargains have in fact been struck in the sector of the market where meter operators are subject to competitive pressures. These meter operators are incurring the same kinds of customer specific sunk costs as National Grid has incurred, albeit not necessarily the same level of costs. It is relevant to ask to what extent those meter operators have been able in their negotiations with British Gas to protect their revenue streams from the risk of early meter replacement. To put it another way, it is relevant to look at what kinds of arrangements other meter operators regard as giving them adequate revenue assurance such that they are prepared to conclude contracts, enter the market and carry out meter replacement on the basis of those arrangements. Having identified those terms, the counterfactual then assesses what would have happened if those kinds of provisions had been applied to the legacy meter stock – would gas suppliers have been better off? That is a perfectly valid question to ask and constructing the counterfactual as Mr Keyworth has done is a good way to find out the answer to that question. It does not matter whether the age-related counterfactual is value or revenue neutral. What matters is that it is based on the contractual terms under which competing CMOs have been prepared to enter the market. If the counterfactual shows that gas suppliers would be better off under the counterfactual than they are under the Legacy MSA, that points to a conclusion that the Legacy MSAs go further than they should or need to go in order to protect National Grid’s revenue in a competitive market. 139. We agree with Mr Keyworth that it would only be necessary to ensure that the age-related counterfactual was revenue neutral compared with the Legacy MSA if the Authority accepted that National Grid was entitled to receive from the gas suppliers the level of revenue that is generated for it by the Legacy MSAs (that is some part of the RAV). The Authority is very far from accepting that and they are clearly right to reject any such suggestion ….. Even though the Authority has not treated this as an excessive pricing case, it is still entitled to find that the level and structure of the early replacement charges in the Legacy MSA create a disproportionate disincentive for gas suppliers to move their business to new entrants. The Authority was therefore entitled to find … that the charges provide a level of protection for the dominant undertaking which is far greater than the new entrants were able to achieve in their negotiations with the same customer.”
“142. National Grid complained that the counterfactual also ignores the fact that the CMOs have a five year exclusivity period at the start of their contracts and (though there was some dispute about this) that after that exclusivity has expired, British Gas can only replace the CMOs’ meters in limited circumstances. But we consider that the Authority was right to conclude that it would not make sense to replicate all the terms of the CMOs’ contracts into the counterfactual. Those contracts are entered into by firms which are not only non-dominant but also new entrants into the market. As Mr Keyworth pointed out, at least one of the contracts – the UMS contract – does allow replacement in the secondary period by another party of any of the CMO’s installed meters and in all three of the contracts, the PRC payable where the meter can be taken out in that period is clearly based on an age-related structure. We do not agree with National Grid that there was unfair ‘cherry picking’ of those aspects of the CMOs’ contracts which served the Authority’s purpose in devising the counterfactual.”
“National Grid’s second point seems to be that Legacy MSAs allow more free replacement of PPMs than are allowed under the CMO contracts. Although National Grid refer to this point having been raised in the 559th paragraph of their Notice of Appeal, this is not a point that was made in National Grid’s skeleton argument or during the course of submissions at the hearing. It is not a point that the Tribunal was invited to consider and it is not appropriate for National Grid to rely on it now.”
“185. We find therefore that the evidence as regards CML and UMS supports the Authority’s findings that the Legacy MSAs have had an actual foreclosing effect on competing CMOs and that this is likely to make it more difficult for the CMOs to compete with National Grid for even the limited numbers that suppliers might want to replace using a CMO.”
“163. In Napp, and in turn in the two judgments under appeal, the Tribunal commented on the application of the Guidance by the Director (in Napp) and by the OFT (in the present cases), then went on to set out its own views on the seriousness of the infringement, and to make its own assessment of the penalty, on the basis of a ‘broad brush’ approach, taking the case as a whole. The Tribunal carried out a ‘cross check’ to see whether the amount so arrived at would be within the parameters set out in the Guidance, and concluded that it would be. It seems to us that this is an appropriate approach for the Tribunal.”
“As we have said, this Court should recognise that the Tribunal is an expert and specialised body: this Court should hesitate before interfering with its assessment of the penalty needed to mark the gravity of the infringement which has occurred and to deter future infringers.”
“208. We have considered carefully the meeting notes and correspondence between National Grid and the Authority over the whole period. These must be seen in the context of the fact that the Authority was the architect and main driver of the process of opening up metering services to competition. … It must have been clear to the Authority that the terms of National Grid’s contracts dealing with the legacy meters were absolutely key to the success or failure of the RGMA project. Given the importance that the Authority has attached to the success of the RGMA project, we are surprised that the Authority did not consider that it was part of its role either as an industry regulator or as a competition law enforcement agency to steer the industry participants away from making private arrangements which risked jeopardising the competitive process to a serious degree. The Authority appeared content for National Grid to enter into contracts with the gas suppliers which it now considers, according to the Decision, have had a significant actual anti-competitive foreclosure effect and hindered the development of the business of the CMOs. 209. Both National Grid and British Gas are undertakings with long experience of working under regulation and are used to conducting their business under the scrutiny of the regulator and indeed of having major aspects of their business decided or at least influenced by the regulator. Ms Frerk [a senior official at the Authority] records in an email in August 2002 that at a meeting at the end of June 2002 the Authority had invited National Grid: ‘to come up with a creative solution to the problem of premature replacement of meters’ which did not involve a re-opening of the price control and which offered benefits to customers. In response to that invitation, National Grid wrote to the Authority in August 2002 proposing the introduction of premature replacement charges linked to a reduction in annual rentals as ‘the most transparent and most effective’ way to reduce the current incentive for premature replacement. The letter closed with the National Grid Head of Regulation saying that he would welcome the Authority’s views on their proposals. The paper attached to that letter sets out the proposal in more detail and again invites the Authority’s views on the approach. There followed meetings between National Grid and the Authority in August and September 2002 and further correspondence where the Authority outlined several detailed concerns about the proposals and National Grid responded to those concerns by changing the proposals. Overall, we can well understand National Grid’s surprise and dismay when the Authority opened its investigation into these agreements under the 1998 Act and imposed such a substantial fine. 210. There were two particular points which the Authority put forward to show that they had not given any comfort to National Grid in the course of the discussions. The first was that, so far as the Authority was concerned, the issue about the stranding of National Grid’s assets had been dealt with in the earlier decisions which set the 2002 price control. … .. 214. … In our judgment, the correspondence and meeting notes all point to the fact that the Authority did recognise, despite the bargain struck in the 2002 price control, that National Grid could legitimately impose early replacement charges in its commercial contracts in order to recover some of its sunk costs. National Grid understood this to be the case and acted accordingly. 215. We also accept National Grid’s point that it believed that it had the support of the Authority in trying to slow down the replacement of legacy meters in order to avoid the disruption to customers caused by a programme of accelerated meter replacement. We do not accept that the Authority’s concern was limited to a very rapid programme of replacement or ‘hell for leather replacement’ as Ms Frerk put it. … 216. Even if some of the Authority’s senior management believed it was beneficial to replace working meters in the short term to push National Grid to reduce its prices, that was not the message that came across from the Authority to the industry participants. The industry understood from their discussions with the Authority that the Authority’s concern about the public perception of waste and inconvenience arising from opening up this market was more general than that. Again, National Grid interpreted this as a reason why the Authority would not object to National Grid and the gas suppliers putting in place a contract which spread replacement over a longer period than might otherwise occur. 217. We reject the criticisms levelled at National Grid in the Decision that the company did not discuss the introduction of PRCs openly and frankly with the Authority. … 218. This is not to say that sectoral regulators are in all cases required to step in and sound some warning bells on competition grounds if they see market developments taking a worrying turn. Neither are we saying that if a company sends a draft contract out of the blue to an official within the regulator it can then claim to have tacit approval if the regulator does not take action. But the Authority was closely involved in and concerned about the roll out of the RGMA project from start to finish and there were internal meetings of the Authority at which National Grid’s proposals for its contracts with the gas suppliers were discussed in detail. In our judgment, the history of the discussions in the particular circumstances of this case merits a significant reduction in the fine.”
“220. Taking all these points into account, the Tribunal has concluded that a fine of£30 million properly reflects the seriousness of the infringement and the mitigating factor arising from the Authority’s involvement with the development of the Legacy MSAs.”
“We therefore do not accept that the Authority’s recognition that some form of premature replacement charge would feature in this market under conditions of normal competition rules out a finding that this contract is an abuse. The issue in this case is not whether any payment protection arrangements could be justified where a long-lived rented asset is installed without an upfront transaction charge. It is accepted on all sides that such arrangements are legitimate or normal. The question in this case is whether the Legacy MSA goes too far in protecting National Grid from the consequences of competition and whether the agreement’s foreclosing effect is too severe to be justified by National Grid’s desire to protect the revenue stream generated by its meters.”
“. . . the distinction between conduct on the part of a dominant firm which is permissible and conduct which is prohibited as abusive is often a difficult one.”
“Conclusion The Tribunal upholds the Authority’s finding that the early replacement provisions of the Legacy MSAs constitute an abuse by National Grid of its dominant position. They clearly have a foreclosure effect in discouraging gas suppliers from moving more of their business to the CMOs and hence are likely to delay the reduction of National Grid’s market share. The effect of the Legacy MSAs was demonstrated by British Gas’s actions taken to reduce the volume of business it provided to some of the CMOs once the terms of the Legacy MSAs had crystallised. It is true that National Grid has incurred sunk costs in providing the installed meter to the gas supplier without an upfront charge. But this does not justify putting in place charges which may have the effect of maintaining volumes of replacement at little more than the level that applied when National Grid was a monopoly supplier. The disproportionate nature of the early replacement charges is, in our judgment, amply demonstrated by the comparison carried out with the terms in the CMO contracts and in National Grid’s N/R MSA. There are some minor aspects of the Decision where we have found that the Authority was not justified in coming to the conclusions it did. But the main finding of abuse set out in the Decision was, in our judgment, undoubtedly right.”
“In our judgment, the correspondence and meeting notes all point to the fact that the Authority did recognise, despite the bargain struck in the 2002 price control, that National Grid could legitimately impose early replacement charges in its commercial contracts in order to recover some of its sunk costs. National Grid understood this to be the case and acted accordingly.”
“We also accept National Grid’s point that it believed that it had the support of the Authority in trying to slow down the replacement of legacy meters in order to avoid the disruption to customers caused by a programme of accelerated meter replacement . . .”
“The industry understood from their discussions with the Authority that the Authority’s concern about the public perception of waste and inconvenience arising from opening up this market was more general than that. Again, National Grid interpreted this as a reason why the Authority would not object to National Grid and the gas suppliers putting in place a contract which spread replacement over a longer period than might otherwise occur.”
“In September 2003 National Grid sent to the Authority a six page summary of the terms of the Legacy and N/R MSAs setting out very simply and accurately how the contracts worked. The Authority’s assertion that these were provided to the Authority for a different regulatory purpose and not for formal competition law clearance is unconvincing in this case.”
“The Authority appeared content for National Grid to enter into contracts with the gas suppliers which it now considers, according to the Decision, have had a significant actual anti-competitive foreclosure effect and hindered the development of the business of the CMOs.”
“Overall, we can well understand National Grid’s surprise and dismay when the Authority opened its investigation into these agreements under the 1998 Act and imposed such a substantial fine.”
“In our judgment this criticism [by National Grid] is based on a misapprehension of the function of the counterfactual in the economic analysis required in a case such as this. The Authority does not have to establish that the parties would have preferred to enter into a contract along the lines posited in the age-related counterfactual. The age-related counterfactual is based on features of other contracts operating in the market, namely the CMO contracts and National Grid’s N/R MSA. The question the Authority is asking is ‘what would have been the position if the parties had operated a system in relation to the legacy meters similar to the system that now operates in relation to new meters?’ We regard that as a useful avenue of inquiry even if there would have been logistical or financial difficulties in setting up such a system.”
“The Authority was therefore entitled to find . . . that the charges provide a level of protection for the dominant firm which is far greater than the new entrants were able to achieve in their negotiations with the same customer.”
“whether the Authority was right to conclude that the foreclosure effect arising from the Legacy MSA was too severe to be justified by National Grid’s admittedly legitimate interest in ensuring that it was able to recoup some of the costs that it had incurred in installing the legacy meters.”
“. . . entitled to find that the level and structure of the early replacement charges in the Legacy MSA creates a disproportionate disincentive for gas suppliers to move their business to new entrants.”