Regulator ordered to use a 65th percentile figure, not mid-point, when setting pipeline prices
The High Court amended gas pipeline price rules to raise the cost of capital the regulator must use, after a First Gas appeal succeeded.
The orders in First Gas Limited v Commerce Commission [2026] NZHC 2462, released on 20 August 2026, followed a successful appeal by First Gas Limited (First Gas). The company had challenged the Commerce Commission's input methodologies, the rules that govern how the prices and revenues of regulated gas transmission and distribution services are set under Part 4 of the Commerce Act 1986.
The court decided the orders without a hearing on the basis of written submissions. In its earlier substantive judgment, it had upheld the appeal but left the precise form of the orders for the parties to settle. The court noted that the parties filed a joint memorandum proposing orders on 5 June 2026, and said that it was satisfied with the terms proposed.
Under the orders, the court amended the two 2023 determinations covering gas transmission and gas distribution to introduce a 65th percentile estimate of the weighted average cost of capital, the blended return a regulated business must offer investors and lenders. The Commission uses that figure when it sets the prices and revenues those businesses can charge.
The Commission estimates the cost of capital as a central figure, namely mid-point, and had used that mid-point in its determinations. The amended method instead required it to use a value set higher up the estimate range, at the 65th percentile. Under the formula the court adopted, the 65th percentile equalled the mid-point plus 0.385 times a standard error of 0.0112, which produced a figure above the mid-point.
The revised method applied from the 2026 disclosure year and covered the versions of the cost of capital the Commission uses across the price and quality controls it sets for regulated gas suppliers.
Schedules to the judgment set out marked-up versions of the two determinations, showing the changes. The orders brought the appeal to an end. The court had given its reasons for allowing the appeal in an earlier judgment, First Gas Limited v Commerce Commission [2026] NZHC 1224.
