Enbridge Gas New Brunswick has won its legal challenge of provincial regulations that stipulate how the Energy and Utilities Board sets distribution rates.

The Court of Appeal of New Brunswick has struck down the ratio that capped Enbridge rates for industrial and commercial customers at 120 per cent of the utility's costs.

In its written decision, dated May 3, the court says cabinet overstepped its authority in limiting the way the EUB can set rates under regulations introduced by Energy Minister Craig Leonard in December 2011.

It's up to the EUB, the provincial regulator, to set the formula, not cabinet, according to the 27-page ruling.

The general manager of Enbridge Gas New Brunswick says the decision from the province's top court is good news for the company and ultimately, for all customers.

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Enbridge had argued if it couldn't recover reasonable costs, including the cost of building the pipeline, it would have to lay off about 50 employees.

"Now with this out of the way, we'll be able to fully recover our full costs, which means we should be able to continue to invest and grow the utility, and adding customers by growing ends up reducing rates for everybody," Gilles Volpé told CBC News on Monday.

Enbridge may now look at going back to the EUB and applying for new industrial rates, said Volpé.

"That is potentially an option," he said. "Right now we're evaluating what the best course of action is. We certainly do want to have a healthy, sustainable public utility."

The energy minister was unavailable for comment on Monday. He is expected to comment on Tuesday.

Residential rates unaffected

Enbridge still cannot use the deferral account in its calculations because that is stipulated by law in the Gas Distribution Act, not just the regulations.

So while industrial rates could rise, they are unlikely to rise to previous levels.

Residential rates come under a separate formula and are not affected.

Meanwhile, a judicial review application filed by Enbridge over the rates established by the EUB last year is still pending.

The reforms were intended to reduce rates for natural gas users and lead to price sustainability, the energy minister had said.

Leonard had alleged the company was hampering economic development in the province by charging businesses the highest natural gas distribution rates in North America.

He predicted large industrial customers could see natural gas distribution costs fall by 40 to 50 per cent under the changes.

Leading up to the reforms, several large industries had argued their rates were unfairly high.

Enbridge argued the new regulation 4(1) usurped the authority of the EUB to set prices.

The company has also warned it could lose more than $9.7 million a year and be forced to cut its staff in half and reduce services under the new regulations.

The 120 per cent formula was not enough to recoup costs and give shareholders a fair return, officials had said.

Costs were not awarded to either party.

Justice Paulette Garnett, of the Court of Queen's Bench, had previously dismissed an application by Enbridge to overturn the regulations.

She ruled the legislature had the authority to pass laws and create regulations on how the Energy and Utilities Board functions since it created the EUB.

It is not up to the court to consider the wisdom of the regulation, only if it's within the scope of law authorizing it, she had said in her 16-page decision.

When Enbridge started creating the province's natural gas pipeline, it put all of the costs associated with the development stage into a deferral account, which has to be repaid. The deferral account total was about $170 million, as of late 2011.