When the regulator oversteps its bounds – how to defend against its decisions

Kseniya Mezhova, Attorney, Dispute Resolution Practice, Juscutum

Energy regulation is always a balancing act between the public interest and the right of businesses to fair operating conditions. For the state, it is a matter of energy security and social stability. For companies, it is a matter of survival. A single resolution of the National Commission for State Regulation of Energy and Utilities (hereinafter – NCSREU, the Regulator) can cost businesses millions of hryvnias: changing tariffs, restricting investment programs, or even revoking a license.

Why Timely Action Matters

As regulatory pressure increases, businesses are increasingly asking: does the Regulator act within the law, or does it overstep its discretion? Today, it is the courts that provide the answer. Judicial practice shows that it is indeed possible to win against the NCSREU if arguments are built not on emotions, but on clear legal norms, figures, and evidence

The legal basis of the Regulator’s activities is defined by the Law of Ukraine “On the National Commission…” No. 1540-VIII, as well as the Laws of Ukraine “On the Electricity Market” No. 2019-VIII, “On Natural Monopolies” No. 1682-III, and a number of sectoral acts. Formally, the goal of the Regulator is to ensure transparent and balanced market conditions. In practice, however, the grounds for issuing resolutions often stem from the results of inspections (scheduled or unscheduled), detection of violations of licensing conditions, submission of inaccurate reports, or failure to comply with previous directives.

This forms the basis for imposing fines or even revoking licenses. Often, this leads to the Regulator exceeding its discretion—shifting from supervision to direct interference in a company’s business operations.

Court practice clearly identifies two main types of violations by the NCSREU: procedural and substantive.

Procedural violations occur when inspections are conducted off-plan, without proper notice or approval, when an inspection report lacks factual evidence, or when the scope of inspection exceeds its mandate. Such actions directly violate Article 19 of the Constitution of Ukraine, which obliges state authorities to act only within their powers.

Substantive violations involve improper application of tariff-setting methodologies, arbitrary exclusion of expenses, incorrect assessment of accounting data, or disregard for economic feasibility. The Supreme Court has repeatedly emphasized: economic proportionality and reasonableness of decisions must be proven, not presumed.

For the energy business, each regulatory decision is a potential financial risk. An improperly calculated tariff can result in a lack of funds for network repair and modernization, delays in settlements with contractors, or loss of investment appeal. Excessive fines or license revocation can lead to bankruptcy or complete shutdown of operations.

Beyond financial implications, there are reputational risks when NCSREU decisions are made public, inevitably affecting relationships with partners, banks, and investors. For public companies, this may also result in a drop in capitalization, as any regulatory sanctions or disputes may be perceived by the market as signs of instability or management issues. Even short-term regulatory conflicts can cause long-term reputational damage, affecting credit ratings, financing access, and shareholder trust.

Therefore, timely response to the Regulator’s actions is not only a legal, but a strategic decision. The annulment or suspension of an unlawful act of the NCSREU is not just a courtroom victory—it restores market confidence in the company, demonstrating resilience and the ability to defend legitimate interests. For investors, it signals that the company manages risks, operates within the law, and has a professional team capable of safeguarding its business even in a complex regulatory environment.

Methodology, Proportionality, and Accounting Evidence

Success in such disputes is never accidental. Victory over the Regulator is always a combination of three elements: methodology, proportionality, and accounting evidence. Together, they shape the legal and financial strategy that allows a business to move from being an “object of control” to a full participant in the regulatory dialogue. In the current volatile electricity market, these three elements serve not only as legal tools but as strategic risk management instruments.

The first component is the tariff-setting methodology. It is binding not only for licensees but also for the NCSREU itself, as it defines the limits of regulatory influence. Its violation creates arbitrariness in decision-making and undermines trust in state regulation. If the Regulator excludes confirmed expenses without economic justification, without analyzing primary documents, or without considering the company’s operational specifics, this constitutes an abuse of power and interference in internal business policy. In such cases, courts increasingly side with businesses, recognizing such actions as violations of the principle of legal certainty.

Equally important is proportionality, one of the fundamental principles of public administration. It ensures balance between the goal of regulation and its consequences for business. Regulation should not turn into punishment. A fine must correspond to the gravity of the violation, not the size of the company or public attention. Excessive sanctions for formal deficiencies represent a punitive practice inconsistent with European “good governance” standards. The Supreme Court has repeatedly stated that proportionality implies not only a balance between violation and sanction but also consideration of consequences for the market, consumers, and the stability of the energy system.

The third and no less crucial element is accounting evidence. It provides the material foundation for any dispute with the Regulator. Ignoring verified financial documents or refusing to consider audit reports is a direct violation of the Law of Ukraine “On Accounting.” Every figure in a report has documentary support: work completion acts, payment orders, contracts, audit opinions. If the Regulator refuses to take them into account, it effectively denies the objectivity of financial accounting as the basis of tariff formation. In court, these documents become the company’s shield—proving not only the legitimacy of its expenses but also the systematic nature of its financial management.

Together, methodology, proportionality, and accounting evidence form a “triangle of legal protection” enabling businesses to withstand even the most challenging regulatory conflicts. These are not only legal arguments but indicators of a company’s maturity—its ability to act lawfully, defend its interests rationally, and maintain a balance between control and development.

Why You Should Not Rush to Pay the Fine

When a company receives an NCSREU resolution, the first step is to pause and conduct a thorough legal analysis. One should not rush to pay the fine or submit formal explanations—it is essential to determine whether the Regulator’s actions were lawful.

The first step is a legal review of the NCSREU resolution. The inspection report must be examined for procedural compliance, the tariff methodology verified, and the Regulator’s actions compared against the Procedure for Imposing Fines (NCSREU Resolution No. 1800 of 29.09.2023). It is common in practice for the Commission to exceed its authority or disregard a licensee’s operational specifics. Legal analysis helps identify such gaps and establish the foundation for defense.

The next step is evidence collection. Documents determine how persuasive a company’s case will appear in court. Contracts, work completion acts, payment orders, accounting notes, and audit reports—all become key instruments in the process.

It is important to remember that in disputes with the NCSREU, figures—not rhetoric—carry the most weight. Courts rely on objective evidence, and well-prepared financial documentation often determines the outcome in favor of the business. It also builds judicial trust and demonstrates transparency and professionalism.

The third step is filing a motion for injunctive relief. This is a strategic tool that can protect a company from immediate losses. Although the NCSREU often states that “appeal does not suspend enforcement,” the Code of Administrative Procedure of Ukraine (Articles 150–151) explicitly allows temporary suspension of a regulatory act if there is a risk of irreparable harm, such as bankruptcy, license revocation, disruption of operations, or failure of investment programs. In practice, such motions buy time, stabilize the situation, and help avoid market backlash.

In Conclusion

Thus, defending against unlawful decisions of the NCSREU is not a reaction but a strategy. Every step—from legal analysis to judicial remedies—must be systematic, accounting for financial, reputational, and operational risks. This is not merely legal tactics but strategic risk management that fosters a culture of responsible business. Such consistency enables companies not only to defend their rights but to strengthen their position with the Regulator—showing that the rules of the game must be equal for both business and the state.

At the same time, this process is not a confrontation but a dialogue, where both sides must act within the law and with a shared goal—the development of the energy market. Legal resistance to unlawful acts is not opposition to the Regulator but a contribution to building a mature legal ecosystem where decisions are made based on facts, law, and economic logic—not inertia or political pressure.

Today, the energy sector is not only a technical but also a legal arena, where success belongs not to the loudest but to the most precise arguments. Therefore, an effective defense strategy must combine legal clarity with financial evidence. The goal of an appeal is not merely to cancel a fine or resolution, but to restore balance between regulatory control and business development, between compliance and entrepreneurial freedom.

The Regulator should supervise, not punish “for statistics.” Its function must be to ensure stability, not create obstacles. When discretion turns into arbitrariness, the court remains the only space of justice where business can defend its right to growth, predictability, and trust in the state. Judicial oversight is not a manifestation of conflict, but a mechanism to restore balance between power and law, between public interest and private initiative.

In today’s conditions, a sound legal strategy is part of corporate resilience. Companies capable of defending themselves legally demonstrate strategic thinking, adherence to law, and a culture of legal responsibility. Defending against NCSREU decisions is not only a fight for one’s interests—it is a contribution to building a civilized energy market, where every participant—from state institutions to private enterprises—acts with predictability, equality, and trust.