Centrica Plc & Anor v Premier Power Ltd

A contractual provision for transmission charges must be construed in the context of the agreement and its commercial purpose. A supplier’s costs and expenses of operating a pipeline may include sums paid to a subcontractor, even where the subcontractor is no longer an affiliate. Charges imposed by regulation remain recoverable where, in substance, they are costs incurred for operating the particular pipeline. Their calculation by reference to a wider network does not alter that character. Postalised monthly payments and balancing and scheduling charges therefore fell within the contractual definition of unpredictable operating costs.

British Gas entered into a long-term gas supply agreement with Premier Power Limited for the supply of gas to Ballylumford Power Station. The agreement provided for transmission charges, including unpredictable operating costs, connected with the operation of a pipeline. Following British Gas’s demerger, the pipeline operator was no longer an affiliate, and later regulatory action introduced postalised monthly payments. Centrica sought to recover those payments and balancing and scheduling charges from Premier Power.

The High Court rejected Centrica’s primary construction argument but held that postalised payments could be recovered through a contractual variation. Premier Power appealed that conclusion, while Centrica cross-appealed on construction. The central issue was whether both categories of charge were recoverable under the existing terms of the agreement.

Disposition

The Court of Appeal unanimously allowed Centrica’s cross-appeal on construction and set aside the judge’s order. Both postalised monthly payments and balancing and scheduling charges were recoverable as BG Unpredictable Operating Costs under the GSA. The variation issue therefore did not require determination. Waller LJ indicated that, if it had arisen on the alternative construction, he would have been inclined to allow Premier Power’s appeal on variation.

1. Construction in context. Clause 2.1(b) identified the commercial subject matter as the costs of gas transportation along the pipeline. Clause 2.6 required calculation under Annex 5, but Annex 5 had to be read consistently with the commercial purpose of the transmission-charge provisions. The relevant factual matrix supported recovery of the supplier’s costs of operating the pipeline. Subjective beliefs of witnesses were not legitimate matrix evidence.
2. Subcontracted operation. The agreement did not require British Gas or an affiliate to operate the pipeline personally. Its assignment provisions showed that operation could be arranged through another entity. After the demerger, Premier Transmission Limited was properly analysed as a subcontractor. Costs incurred by British Gas or Centrica included the charges paid to that subcontractor for operating, repairing and maintaining the pipeline. The wording of Annex 5, Part 3, paragraph 11 was wide enough to cover those payments.
3. Nature of the charges. Balancing and scheduling charges were costs and expenses payable to the subcontractor in operating the pipeline. Postalised payments were likewise recoverable. The fact that they were calculated by reference to several pipelines did not matter, since Centrica was claiming the costs charged for operating the particular pipeline.
4. Variation. On the assumed alternative construction, the inability to recover unpredictable operating costs resulted from the 1997 demerger, not from the later postalisation measures. The court therefore treated the variation reasoning as unnecessary to the actual disposition.

• Court of Appeal (Civil Division) — [2007] EWCA Civ 1225: unanimously allowed Centrica’s cross-appeal on construction and held that both categories of charge were recoverable under the GSA.
• High Court, Commercial Court — [2006] EWHC 3068 (Comm): rejected Centrica’s primary construction case, allowed variation for postalised monthly payments, and rejected variation for balancing and scheduling charges.