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Challenge to gas tariff regime rejected

A LEGAL challenge to the legality of the tariff regime for access to the State's natural gas transmission network has been rejected.

Two wholly owned subsidiaries of the US multinational Hess Corporation had brought the High Court challenge against the proposal from the energy regulator.

Mr Justice John Cooke today dismissed on all grounds the judicial review challenge by Shannon LNG Ltd and Shannon LNG Energy Ltd to the June 2012 decision by the Commission for Energy Regulation in relation to the tariff regime which is scheduled to be introduced in October 2014.

The June 2012 decision concerns proposed tariffs to apply for use of, and access to, the Bord Gais Eireann (BGE)-owned transmission system and pipeline network for transport and delivery of natural gas in the State.  The network includes two undersea inter-connectors to the transmission network in the UK.

Shannon LNG was established in 2003 to develop a terminal near Tarbert, Co Limerick, to import liquefied natural gas (LNG) to be shipped to the State and supplied to the on-shore transmission system through a new 26km pipeline.

The Shannon companies' plan involved using Shannon LNG's new terminal at Foynes and selling natural gas to wholesale buyers and large consumers such as power stations within Ireland.

Mr Justice Cooke rejected the companies' claims the regulators tariff decision breached provisions of national or EU law.

He also rejected their claim the regulator had effectively granted an unnotified State aid to BGE contrary to EU law or that the Shannon companies were being required to cross-subsidise BGE's operating costs.

What is envisaged is there should be "a broad correspondence" between the total revenue exacted by the operator from tariffs for access and the amount of revenues it requires for maintenance, operation and development of the transmission system, he said.

He described as "clearly unfounded" arguments BGE would infringe European law by conduct amounting to "margins squeeze".

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While some details of the proposed regime have yet to be finalised, the regulator had reached final conclusions as to how the existing transmission regime will be reformed, he said.

The Shannon companies claimed those conclusions meant it, and the producers on the Corrib gas pipeline, would be discriminated against in favour of shippers importing from the UK.

The conclusions include ending the current distinction, for tariff purposes, between onshore assets and offshore  inter-connectors and by adopting a particular methodology as the future basis for entry point tariff calculation.

The judge noted all natural gas currently distributed within the State for supply originates in off-shore supply sources and the supplies are distributed over an on-shore transmission system or pipeline network belonging to BGE and operated by it through a wholly owned subsidiary, Gaslink.

Some 99pc of the total supply is imported from the UK through the two undersea inter connectors, running from Moffat in Scotalnd and coming ashore to join the main ring at the two main points at Loughshinny, Co Dublin, and Gormanstown, Co Meath.

Another and new source of supply, from the Corrb gas field, is anticipated to become operational in 2015, the judge noted.

A central dispute in the action related to how the two inter-connectors were to be treated for tariff setting purposes and whether the gas delivered through them should be treated as entering the BGE system at Moffat, as the regulator argued, or at Loughshinny/Gormanstown, as the two Shannon companies contended.

Having analysed the evidence and law, the judge rejected arguments the regulator had acted, or proposed to act, unlawfully in the proposed alterations to the manner in which the BGE network and inter-connectors are treated for regulatory purposes and the basis upon which the tariffs for use of and access to the infrastructures are fixed.

The regulator was entitled to regard the inter-connectors as an integral part of BGE's transmission infrastructure and to charge a two part tariff for access to that system based on a "Long Run Marginal Cost" element and a "revenue shortfall" element, not upon actual costs incurred by BGE, he ruled.

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