Major Gas Users' Group Inc v Commerce Commission - [2024] NZHC 959
Date of Judgment
29 April 2024
Decision
Major Gas Users' Group Inc v Commerce Commission (PDF 632 KB)
Summary
Major Gas Users’ Group Inc (MGUG) appealed two decisions of the Commerce Commission made under pt 4 of the Commerce Act 1986: one that amended the input methodologies for gas transmission and distribution services; and one that determined the default price-quality path for gas transmission and distribution services. Both decisions were made in response to government signalling on the phase-out of natural gas because of climate change. The effect of the input methodologies decision was to enable the Commission to adjust the asset lives of gas pipeline assets. The effect of the default price-quality path decision was to utilise that adjustment to bring forward depreciation of gas pipeline assets. The appeal from the input methodologies decision operates under s 52Z of the Commerce Act so can only succeed if the Court is satisfied that there is an amended or substituted input methodology that is materially better in meeting the purpose of pt 4, set out in s 52A, or the purpose of input methodologies, set out in s 52R of the Act. The appeal from the default price-quality path decision operates under s 91(1B) of the Act so can only succeed if the appellant can show the Commission made an error of law.
Appeal from the input methodologies decision dismissed. The Court found MGUG’s proposals would not be materially better at meeting the purposes set out in s 52A or s 52R of the Commerce Act. The decision itself was not inconsistent with the purposes set out in s 52A or s 52R of the Commerce Act as MGUG submitted; it promotes the long-term benefit of the relevant consumers by facilitating the ongoing provision of gas transmission and distribution services at prices which reflect the long-run costs of supplying them, particularly in the face of the risk of asset stranding that climate change, and government responses to it, pose. In particular, stranding risk is not otherwise provided for in the input methodologies, the decision was not premature and it does not incentivize excessive investment. MGUG’s first proposal, to leave the asset valuation input methodologies unchanged, was not materially better; while it would allow consumers to pay lower prices in the short run, it would compromise the safety and reliability of the service over the longer term by undermining supplier incentives to invest now and in the future. MGUG’s second proposal, to only apply the amended input methodologies to new investments, was also not materially better; it would still put at risk the substantial ongoing investments required from suppliers to maintain gas pipeline services into the future. Finally, MGUG’s third proposal, to refer the input methodologies back to the Commission under s 52Z(3)(b)(iii) of the Act, was not materially better; the options presented by MGUG about the directions the Court could provide the Commission in making such a referral failed to make good on suppliers’ prior expectations of ex ante compensation for the risk of asset stranding and could, as a result, undermine investor confidence in the regulatory system.
Appeal of the default price-quality path decision dismissed; there was no error of law involved.
Appeal from the input methodologies decision dismissed. The Court found MGUG’s proposals would not be materially better at meeting the purposes set out in s 52A or s 52R of the Commerce Act. The decision itself was not inconsistent with the purposes set out in s 52A or s 52R of the Commerce Act as MGUG submitted; it promotes the long-term benefit of the relevant consumers by facilitating the ongoing provision of gas transmission and distribution services at prices which reflect the long-run costs of supplying them, particularly in the face of the risk of asset stranding that climate change, and government responses to it, pose. In particular, stranding risk is not otherwise provided for in the input methodologies, the decision was not premature and it does not incentivize excessive investment. MGUG’s first proposal, to leave the asset valuation input methodologies unchanged, was not materially better; while it would allow consumers to pay lower prices in the short run, it would compromise the safety and reliability of the service over the longer term by undermining supplier incentives to invest now and in the future. MGUG’s second proposal, to only apply the amended input methodologies to new investments, was also not materially better; it would still put at risk the substantial ongoing investments required from suppliers to maintain gas pipeline services into the future. Finally, MGUG’s third proposal, to refer the input methodologies back to the Commission under s 52Z(3)(b)(iii) of the Act, was not materially better; the options presented by MGUG about the directions the Court could provide the Commission in making such a referral failed to make good on suppliers’ prior expectations of ex ante compensation for the risk of asset stranding and could, as a result, undermine investor confidence in the regulatory system.
Appeal of the default price-quality path decision dismissed; there was no error of law involved.