Licence Modification Procedures

Licence modification is a central regulatory mechanism in the electricity and energy sector. It allows the regulator to alter the rights, obligations, standards, financial arrangements, or operational requirements attached to an existing licence without necessarily revoking and reissuing the entire licence. In the UK electricity sector, the principal statutory framework is found in the Electricity Act 1989, particularly sections 11A–11H. Legislation.gov.uk

The discussion below focuses primarily on the UK electricity licensing framework, because the terminology "licence modification" and the statutory procedure under sections 11A–11H are particularly developed in UK energy law.

1. Meaning of Licence Modification

A licence is a legal instrument under which an electricity generator, transmitter, distributor, supplier, or other regulated entity is permitted to carry out specified activities.

A licence modification means a legally authorised alteration to one or more conditions of an existing licence.

Modification may involve:

• changing an existing licence condition;
• inserting a new condition;
• removing an obsolete condition;
• changing financial or price-control obligations;
• changing reporting requirements;
• modifying network-access obligations;
• changing regulatory controls applicable to a particular licensee;
• correcting drafting errors; or
• making consequential amendments following changes elsewhere in the regulatory framework.

The modification may concern either:

1. a particular licence, or
2. standard conditions applying to licences of a particular type.

Section 11A expressly gives the Authority power to modify conditions of a particular licence and standard conditions of licences of a specified type. Legislation.gov.uk

2. Why Licence Modification Is Necessary

Energy markets are technically and economically dynamic. A licence granted several years ago may contain provisions that no longer adequately address:

• technological developments;
• changes in electricity markets;
• network investment;
• consumer protection;
• cybersecurity;
• environmental requirements;
• financial resilience;
• price-control arrangements;
• changes in market structure;
• new trading arrangements;
• regulatory experience; or
• errors discovered in existing licence drafting.

Consequently, licence modification enables the regulator to adapt the regulatory framework without requiring a completely new licensing process.

For example, Ofgem has recently used licence modification procedures to implement changes associated with electricity distribution price controls and to make technical clarifications and corrections to standard and special licence conditions. Ofgem

3. Statutory Framework

The principal provisions are contained in the Electricity Act 1989.

The legislation distinguishes between several mechanisms, including:

Section 11A

Provides the principal statutory power for the Authority to modify licence conditions.

Section 11B

Contains supplementary provisions concerning modifications, including consequential changes and publication requirements.

Sections 11C–11H

Provide a framework for appeals against certain licence-modification decisions to the Competition and Markets Authority (CMA). Legislation.gov.uk

The Electricity Act also contains other specialised modification powers, including section 15A concerning modifications relating to new electricity trading arrangements. Legislation.gov.uk

4. Types of Licence Modification

A. Modification of an Individual Licence

The regulator may modify conditions applicable to a particular licensee.

This is appropriate where the circumstances of one undertaking are materially different from those of other licensees.

For example, Ofgem modified special conditions of the electricity transmission licence held by National Grid Electricity System Operator Limited concerning its specific regulatory arrangements. Ofgem

B. Modification of Standard Licence Conditions

Standard conditions apply across a category of licences.

A modification can therefore affect multiple licensees simultaneously.

For example, Ofgem has undertaken statutory consultations concerning modifications to standard conditions of electricity distribution licences. Ofgem

Under section 11B, when standard conditions are modified, corresponding modifications generally have to be incorporated into licences of that type granted subsequently. Legislation.gov.uk

C. Consequential Modification

A primary regulatory change may require related provisions to be amended.

Section 11B expressly allows incidental or consequential modifications where necessary or expedient. Legislation.gov.uk

This avoids situations in which one modified provision conflicts with another provision of the licence.

5. Licence Modification Procedure

The procedure can broadly be divided into the following stages.

Stage 1: Identification of Regulatory Need

The regulator first identifies a reason for changing the licence.

Possible reasons include:

• market reform;
• consumer protection;
• network investment;
• price-control changes;
• implementation of legislation;
• correction of drafting errors;
• security of supply;
• financial resilience;
• technological development; or
• regulatory experience.

A modification should therefore be connected to a legitimate regulatory purpose rather than being an arbitrary alteration of the contractual or regulatory position of the licensee.

Stage 2: Development of the Proposed Modification

The regulator develops the proposed drafting.

This usually involves:

• identifying the existing condition;
• identifying the regulatory problem;
• preparing revised drafting;
• considering consequences for the licensee;
• assessing impacts on consumers and other stakeholders;
• determining implementation arrangements; and
• considering whether consequential amendments are necessary.

The technical wording of the proposed licence modification is particularly important because licence conditions are legally binding obligations.

6. Statutory Consultation

Consultation is a fundamental component of the licence-modification process.

Section 11A requires the Authority, before making modifications, to give notice stating:

1. that it proposes to make modifications;
2. the proposed modifications and their effect;
3. the reasons for the proposed modifications; and
4. the period within which representations may be made. Legislation.gov.uk

The purpose is to give affected parties an opportunity to scrutinise the proposed regulatory intervention.

Ofgem routinely publishes statutory consultations and invites responses before implementing licence modifications. For example, in 2026 Ofgem consulted on modifications to electricity distribution licence conditions concerning RIIO-ED2 load-related expenditure volume drivers. Ofgem

7. Requirements of a Proper Consultation

A consultation must be meaningful rather than merely formal.

A useful judicial formulation comes from R v North and East Devon Health Authority, ex parte Coughlan [2001] QB 213, which has been relied upon in regulatory contexts.

The principles include:

• consultation should occur while proposals are still at a formative stage;
• sufficient reasons should be provided;
• consultees should have enough information to respond intelligently;
• adequate time should be provided; and
• the decision-maker should conscientiously consider the responses.

These principles were specifically invoked in the context of Ofgem's licence-modification procedure in the British Gas Trading appeal materials. GOV.UK Assets

Thus, consultation is not simply a procedural box to be ticked. The regulator must genuinely consider relevant representations.

8. Consideration of Representations

After the consultation period, the regulator considers submissions.

Responses may raise issues concerning:

• legality;
• proportionality;
• economic impact;
• consumer consequences;
• technical feasibility;
• discrimination between licensees;
• implementation dates;
• drafting ambiguity;
• regulatory consistency; or
• unintended consequences.

The regulator may:

• proceed unchanged;
• modify the proposal;
• abandon part of the proposal;
• undertake further consultation; or
• withdraw the proposal altogether.

Ofgem's published decisions frequently explain how consultation responses were considered before final licence modifications were adopted. Ofgem

9. Final Decision

After considering representations, the Authority may make the modification.

The final decision normally identifies:

• the legal authority;
• the licence or licences affected;
• the final wording;
• reasons for the decision;
• responses to significant consultation issues;
• effective date; and
• consequential provisions.

For example, Ofgem's 2022 decision concerning National Grid Electricity System Operator's business-separation arrangements stated that it had considered consultation responses before deciding to modify the relevant special conditions. Ofgem

10. Effective Date

A modification does not necessarily take effect immediately.

The statutory framework can require a period between the decision and the effective date, depending upon the particular modification and applicable provisions.

In one Ofgem statutory consultation, for example, the notice stated that, subject to consultation responses, the modification would take effect not less than 56 days after publication of the decision. Ofgem

The effective date is important because licensees need sufficient time to adapt their:

• systems;
• contracts;
• compliance procedures;
• financial arrangements;
• reporting systems; and
• operational practices.

11. Publication and Transparency

Transparency is an important feature of the procedure.

Ofgem generally publishes:

• consultation notices;
• proposed modifications;
• stakeholder responses;
• decision documents;
• licence-modification notices; and
• final licence drafting.

For example, Ofgem's 2024 electricity distribution decision published the decision together with licence-modification notices and related documents. Ofgem

This allows licensees, consumers and other interested parties to understand how regulatory decisions were reached.

12. Appeals Against Licence Modification

The Electricity Act 1989 provides a specialised appeal mechanism.

Under section 11C, an appeal can lie to the CMA against an Authority decision to proceed with a licence modification under section 11A. Legislation.gov.uk

The CMA therefore provides an important external check on the regulator.

The appeal process is governed by the Energy Licence Modification Appeals Rules (CMA70). The CMA's guidance explains that these rules govern appeals against specified decisions made by Ofgem and certain other energy regulators. GOV.UK

13. Case Law and Important Regulatory Decisions

1. British Gas Trading Ltd – RIIO-ED1 Appeal

A significant example is the appeal by British Gas Trading Limited concerning Ofgem's RIIO-ED1 price-control decision.

British Gas appealed the decision to modify the licences of the electricity distribution network operators. The CMA's case record confirms that permission to appeal was granted in March 2015. GOV.UK

Legal significance

The case illustrates that licence modification is not immune from external scrutiny. A licensee can challenge the regulator's decision through the statutory appeal framework where the statutory requirements are satisfied.

It also demonstrates the importance of:

• consultation;
• reasons;
• evidence;
• regulatory methodology; and
• procedural fairness.

2. Northern Powergrid v GEMA – Energy Licence Modification Appeal 2023

Another important example concerns Northern Powergrid (Northeast) Plc and Northern Powergrid (Yorkshire) Plc.

The companies appealed GEMA's decision to proceed with modifications to their electricity distribution licences arising from RIIO-ED2. The CMA granted permission to appeal on all pleaded grounds and ultimately issued a final determination in September 2023. GOV.UK

Ofgem subsequently incorporated changes required by the CMA's order into its electricity distribution licence modifications. Ofgem

Legal significance

This demonstrates an important feature of licence modification law:

the regulator's modification power is subject to statutory appellate supervision.

The case also demonstrates the relationship between:

Ofgem decision → licence modification → CMA appeal → CMA determination/order → consequential licence amendments.

3. Utilita Energy – Financial Resilience Appeal

In 2023, Utilita Energy Limited appealed Ofgem's decision concerning the introduction of a common minimum capital requirement.

The CMA's case concerned the regulatory decision to impose financial-resilience requirements on energy suppliers. GOV.UK

Legal significance

The case illustrates that licence conditions may be modified not only to regulate technical electricity operations but also to address the financial resilience of regulated businesses.

This is particularly important because financial failure of an energy supplier can produce consequences for consumers and market stability.

4. Wales & West Utilities Ltd v CMA [2026] EWHC 99 (Admin)

A recent judicial development is Wales & West Utilities Ltd, R (On the Application Of) v Competition and Markets Authority [2026] EWHC 99 (Admin).

The case concerned challenges associated with the energy regulatory appeal framework and involved GEMA, the CMA and several energy-sector participants. The judgment was handed down on 22 January 2026. Bailii

Legal significance

The case demonstrates that disputes arising from energy licence modification decisions can progress beyond the specialist regulatory appeal process into judicial review proceedings concerning the legality of the regulatory decision-making process.

14. Licence Modification and Procedural Fairness

Procedural fairness is particularly important because licence modification can significantly affect an operator's economic position.

For example, a modification may:

• increase compliance costs;
• reduce permitted revenue;
• impose additional reporting duties;
• require capital expenditure;
• change network obligations;
• alter risk allocation; or
• impose new consumer-protection obligations.

Therefore, the regulator should provide adequate information and a genuine opportunity to make representations.

The consultation principle established in Coughlan is particularly relevant to understanding this requirement, although its application depends upon the statutory and factual context. The principle was specifically raised in the British Gas Trading licence-modification appeal materials. GOV.UK Assets

15. Licence Modification and Regulatory Discretion

A regulator generally possesses considerable discretion in designing regulatory requirements.

However, discretion is not unlimited.

A modification may be vulnerable to challenge where the decision involves, for example:

• acting outside statutory powers;
• failure to comply with mandatory procedural requirements;
• inadequate consideration of relevant matters;
• reliance on irrelevant considerations;
• irrationality;
• unlawful discrimination;
• inadequate reasoning; or
• failure to follow applicable statutory appeal procedures.

The precise legal grounds depend upon the statutory framework and the circumstances of the case.

16. Licence Modification and Legitimate Expectations

Licence modification can also raise questions concerning legitimate expectations.

A licensee may argue that regulatory representations, established procedures, or sufficiently clear promises created an expectation that a particular regulatory position would continue.

However, the existence and enforceability of a legitimate expectation depend heavily upon:

• the nature of the representation;
• its clarity;
• whether it was authorised;
• the statutory framework;
• reliance;
• overriding public-interest considerations; and
• the regulator's legal powers.

In highly regulated energy markets, the fact that a regulatory arrangement existed previously does not automatically prevent lawful modification.

17. Licence Modification and Proportionality

A particularly important consideration is whether the modification is proportionate to the regulatory objective.

The regulator should generally consider whether:

1. the modification addresses a legitimate regulatory objective;
2. the measure is connected to that objective;
3. less burdensome alternatives are available; and
4. the regulatory benefits justify the burdens imposed.

This is especially important where modifications impose substantial financial or operational burdens upon licensees.

18. Licence Modification and Consumer Interests

Energy regulation is ultimately closely connected with consumer interests.

Licence modifications may be designed to improve:

• reliability;
• affordability;
• market competition;
• transparency;
• financial resilience;
• quality of supply;
• customer service;
• network investment; or
• protection of vulnerable consumers.

For example, modifications relating to financial resilience can seek to reduce the risk that supplier failure causes disruption or costs to consumers.

19. Licence Modification in Price-Control Regulation

Licence modification is particularly important under UK network price-control regimes such as RIIO.

Price-control decisions often require corresponding changes to licence conditions.

For example, Ofgem's RIIO-ED2 processes have involved modifications to electricity distribution licences, including modifications resulting from CMA appeal decisions. Ofgem

This illustrates that a price-control decision is not necessarily implemented merely through a policy document; it can require legally binding licence amendments.

20. Licence Modification for Technological Change

Modern electricity systems increasingly involve:

• smart grids;
• battery storage;
• distributed generation;
• demand response;
• artificial intelligence;
• digitalisation;
• electric vehicles;
• flexibility markets; and
• automated system operation.

Existing licence conditions may not adequately address these technologies.

Licence modification therefore provides a mechanism through which regulators can adapt legal obligations to technological change without completely redesigning the licensing system.

21. Difference Between Licence Modification and Licence Revocation

Thus, modification is generally an instrument of regulatory adaptation, while revocation is an instrument of regulatory termination.

22. Key Principles Emerging from Licence Modification Law

The main principles can be summarised as follows:

1. Statutory authority

The regulator must identify a valid statutory power for the modification.

2. Proper consultation

Affected parties should receive adequate notice and an opportunity to make meaningful representations.

3. Transparency

The regulator should explain the proposed modification and its effects.

4. Reasoned decision-making

The final decision should provide an adequate explanation of the regulatory reasoning.

5. Consideration of representations

Consultation responses must be genuinely considered.

6. Proportionality

The regulatory intervention should be appropriately connected to the objective being pursued.

7. Consistency

Similar licensees should ordinarily be treated consistently unless there is a rational regulatory basis for differentiation.

8. Legal accountability

Licence modification decisions may be subject to statutory appeal and, where appropriate, judicial scrutiny.

9. Regulatory adaptability

Licence conditions must be capable of responding to changing energy markets and technologies.

23. Conclusion

Licence modification is an essential mechanism of modern energy regulation. It enables regulators to adjust legally binding licence conditions in response to changes in markets, technology, consumer interests, financial conditions and regulatory policy.

Under the UK Electricity Act 1989, section 11A provides the principal mechanism for modifying individual and standard licence conditions, while sections 11B–11H establish supplementary rules and appeal mechanisms. Legislation.gov.uk

The procedure generally involves identification of the regulatory need, preparation of proposed amendments, statutory consultation, consideration of representations, final decision, publication, implementation and, where applicable, appeal to the CMA.

The British Gas Trading, Northern Powergrid, Utilita and recent Wales & West Utilities proceedings demonstrate that licence modification is not simply an administrative exercise. It is a legally structured regulatory process subject to requirements of statutory authority, procedural fairness, reasoned decision-making and external scrutiny. GOV.UK

Accordingly, licence modification serves as a bridge between regulatory stability and regulatory adaptability: it preserves the continuity of existing licences while allowing the legal framework governing electricity markets to evolve with changing economic, technological and public-interest requirements.