A gas leak in the Maui pipeline caused disruption to many businesses and there was uncertainty as to the rights and obligations of gas users, including the ability to obtain compensation.  

What happened?

A rupture in the 30 year old pipeline, thought to be caused by erosion of land under the pipeline, disrupted gas supply into the upper North Island. Gas supply was initially interrupted for all users other than residential users (who were asked to limit consumption). Gas supply was gradually restored to users, with small users and essential services (such as hospitals) being brought back on line first. However, many businesses were without gas for a significant period and had to close or significantly limit their operations.

What are these "Critical Contingency" arrangements that are being referred to?

The gas industry has plans in place to deal with "critical contingencies", such as the loss of supply from a major gas field or the outage of a major pipeline. Under the Gas Governance (Critical Contingency Management) Regulations 2008 (Regulations), a Critical Contingency Operator is appointed to manage critical contingencies. Generally, they act to curtail demand (in accordance with a predetermined order) to ensure that a minimum level of gas pressure can be maintained in the pipeline system. This is important; while the underlying issue (like a gas leak) might be fixed quite quickly, if pipeline pressure falls too low it could take weeks or months to restore system operability.

Were you given a direction to stop using gas?

There has been media coverage of gas retailers directing businesses to stop using gas, and of the reaction of businesses frustrated by that direction. In such an event you should seek legal advice on your specific circumstances, including the terms of your supply agreement. Generally, however, the Regulations give the Critical Contingency Operator the power to determine that a critical contingency has occurred, and require curtailment of demand. The Critical Contingency Operator gives its directions to pipeline owners, who must pass those instructions through to large users and gas retailers. In turn, those retailers are then required to instruct customers to curtail gas demand accordingly. Consumers must then comply with the directions issued by their retailer as soon as it is reasonably practicable.

The media reported that some businesses were refusing the direction to stop using gas. Businesses should be aware that they are legally obliged to comply with a valid curtailment notice. This obligation is set out in the Regulations themselves.

Are you, or should you be, an "essential service provider" or a "minimal load consumer"?

The Regulations set out a specific order for curtailment, based on the type of gas user, with the largest users generally being curtailed first. However, there are two important designations that can defer the need to curtail.

Some users may qualify as "essential service providers" where they have annual usage above 2 terajoules and provide services necessary to further certain civil defence emergency response objectives. If a user is an essential service provider, they come lower down on the curtailment order (so will generally be curtailed later, if at all, and restored to supply earlier). However, to qualify as an essential service provider requires application (and approval) under the Regulations. If you believe you should be an essential service provider, but are not officially designated as one, you should look into the approval process.

Similarly, the Regulations recognise that some large gas users (over 10 terajoules per annum, who are generally curtailed earlier) may need a minimal amount of gas during a critical contingency to avoid serious damage to their plant, or mitigate serious environmental impact. Such users can apply to be approved as "minimal load consumers". This approval will allow the user leeway to manage an orderly wind down of its plant (in accordance with an agreed timeframe), to avoid damage to that plant or the environment. Again, if you believe you should be a minimal load consumer, but are not officially designated as one, you should look into the approval process.

There are also various exceptions to the requirement to comply with a direction to stop using gas if, for example, compliance would unreasonably endanger the life or safety of any person.

Can you recover compensation for the gas outage?

As a starting point you should check your supply terms with your gas retailer, as what happens in the event of a gas outage may be addressed under those terms.

You should also review your insurances, and whether (if you have one) your business interruption policy will provide cover for any losses you suffered because of the loss of supply. This will depend on the terms of your policy and your policy may also include a limit on the level of cover for the loss of a public utility such as gas.

For those gas users outside of the area affected by the outage, we would still suggest it is timely to check your gas supply and insurance arrangements. While major gas outages are rare, the recent events show how significant the consequences can be. We would also recommend you consider what alternative arrangements you might need if gas is unavailable, and whether you should be looking to take advantage of the essential service provider or minimal load consumer designations.