Administration by the CER of the Carbon Revenue Levy

Administration by the CER of the Carbon Revenue Levy DOCUMENT TYPE: REFERENCE: DATE PUBLISHED: QUERIES TO: Decision Paper CER/10/171 23 rd September 2010 Clive Bowers cbowers@cer.ie The Commission for Energy Regulation, The Exchange, Belgard Square North, Tallaght, Dublin 24. www.cer.ie

CER Information Page Abstract: The Electricity Regulation (Amendment) (Carbon Revenue Levy) Act 2010 was enacted on 30 th June 2010. The Act confers a number of obligations and administrative functions on the Commission for Energy Regulation ( the CER ) in relation to the administration of the carbon revenue levy. In July 2010 the CER published a Consultation Paper which set out how the CER proposed to carry out its administrative functions under the Act. This Paper sets out the CER Decision in relation to these administrative obligations. Target Audience: The CER s primary target audience is the generators in Ireland affected by the Carbon Revenue Levy Act Related Documents: The Electricity Regulation (Amendment) (Carbon Revenue Levy) Act 2010 Consultation Paper: CER Administration of the Carbon Revenue Levy 2

Table of Contents 1.0 Introduction... 4 1.1 The Commission for Energy Regulation... 4 1.2 Background Information... 4 1.3 Consultation Paper... 4 1.4 Purpose of this paper... 4 2.0 CER Decision... 5 3.0 Responses Received... 8 4.0 Next Steps... 8 Appendix A Quarterly Returns Cover Sheet Template... 9 Appendix B Duly Authorised Officer Certification Template... 10 Appendix C CADA Generator Methodologies... 11 3

1.0 Introduction 1.1 The Commission for Energy Regulation The Commission for Energy Regulation ( the CER ) is the independent body responsible for overseeing the regulation of Ireland's electricity and gas sectors. The CER was established and granted regulatory powers over the electricity market under the Electricity Regulation Act, 1999. The enactment of the Gas (Interim) (Regulation) Act, 2002 expanded the CER s jurisdiction to include regulation of the natural gas market, while the Energy (Miscellaneous Provisions) Act 2006 granted the CER additional powers in relation to gas and electricity safety. 1.2 Background Information The Electricity Regulation (Amendment) (Carbon Revenue Levy) Act 2010 was enacted on 30 th June 2010. The Act confers a number of administrative obligations and functions on the CER in relation to the administration of the carbon revenue levy and amends the Electricity Regulation Act 1999 by inserting a new Part VIB. Section 40G (2) of the Electricity Regulation Act 1999 (as amended) ( The Act ) allows the CER to make regulations in relation to the returns made by generators. Section 40D (1) of the Act allows the CER to determine how the carbon price which will apply to generator emissions returns for each levy period is to be calculated. 1.3 Consultation Paper On 30th July 2010 the CER published a Consultation Paper (CER/10/127) on the administration of the Carbon Revenue Levy. The paper set out the CER s proposals in relation to the carbon price index to be used and to the form, manner and verification of returns by generators. 1.4 Purpose of this paper The purpose of this Decision Paper is to set out the CER s Decision in relation to the matters raised in the July 2010 Consultation Paper (CER/10/127). 4

2.0 CER Decision Carbon Price Section 40D of the Act requires the CER to determine from time to time the methodology for the construction of the Carbon Price P in the carbon revenue levy formula and in so doing requires the CER to: have regard to such transparent and accessible pricing information relating to allowance trading, including the daily price thereof, as may be available and the Commission shall, as soon as practicable, publish the determination on its website. The CER has decided to use the Bluenext Spot EUA Contract in establishing the Carbon Price P. In coming to this Decision, the CER has compared the Bluenext Spot EUA price index with other available price indices. The Bluenext price index appears to display high levels of liquidity compared to other indices and is freely available on the Bluenext website. It is considered appropriate to use the spot price index, rather than a forward price index, as it is the spot price that is bid into the market on a daily basis by generators. In the event that the Bluenext price index becomes unavailable or that the volume of trades in the Bluenext Spot EUA Contract falls below the levels required to ensure a reliable price index, the CER will use an alternative price index. If this proves necessary, the CER will publish a notification to this effect on the CER website. The CER will use the simple arithmetic average of the actual daily spot prices published by Bluenext over the levy period concerned. In other words, the average for the quarter will be equal to the sum of all the daily prices published by Bluenext in respect of that quarter divided by the number of prices published. Days where no price is published by Bluenext will not be considered when arriving at a quarterly carbon price. Form of Returns Generators will make quarterly returns to the CER in electronic format, sent to an email address that will be notified to generators before the end of the first levy period. The CER will also send a soft copy of the template cover sheet for returns to generators before the end of the first levy period. The template is included in Appendix A. Also, the CER will send the carbon revenue levy bank account details to generators before the end of the first levy period. Following further consideration in coming to a final decision on the form of returns the CER has decided to require generators to include the quarterly fuel usage on which the return is based as part of the return. Gas usage should be reported in kwhs while heavy fuel oil and gas oil should be reported in tonnes. 5

Certification of Returns The CER requires that quarterly returns are certified by a Duly Authorised Officer of the licensee. This Duly Authorised Officer may be any person who is duly designated by the relevant company authority to certify a return to the CER, by or on behalf of the licensee. Prior to submission of the first return confirmation should be provided to the CER by the licensee that the person or persons certifying quarterly returns is or are authorised by the company. A soft copy of the certification template will be sent to generators before the end of the first levy period and is also included in Appendix B. Verification of Returns Quarterly returns should be compiled in accordance with Schedule 4 of the European Communities (Greenhouse Gas Emissions Trading) Regulations 2004 (S.I. 437 of 2004). Quarterly returns will not require independent verification but will be required to be certified by a Duly Authorised Officer of the licensee. Under Section 40G (3) of the Act, the CER has powers to request such evidence it may reasonably require to verify any information, particulars or documents in relation to the returns. End of Year Reconciliation Section 40G (2)(d) of the Act allows the CER make regulations providing for such matters as the Commission considers appropriate relating to the making of returns. The CER considers it appropriate to allow for a reconciliation after the end of each calendar year to ensure that any errors or discrepancies in the reported quarterly emissions are accounted for. The CER considers this necessary as it will not be possible to verify accurately quarterly returns owing to the unavailability of information within 10 working days of the end of the quarter end, e.g., on gas volumes burnt or on the properties of specific deliveries of coal or gas. This annual reconciliation exercise proposal was supported by generators in their discussions and responses to the CER. Three months after the end of the calendar year the CER will compare the four quarterly returns with the Annual Reportable Emissions submitted to the Environmental Protection Agency ( the EPA ) and carry out a reconciliation. The reconciliation cannot be made any earlier than the end of the first quarter because generators do not report verified annual emissions to the EPA until 31 st March of the year after the calendar year to which the returns relate. For the last six months of 2010 a full reconciliation with figures submitted to the EPA is not possible. Returns in respect of 2010 will be verified by the CER using fuel consumption data for the generating stations. In addition, for coal, a methodology will be agreed with the verification body 1 to estimate quarterly fuel usage. Where the CER has 1 Verification body as accredited by the Irish National Accreditation Board (INAB). Verification bodies from other EU member states will need to be accredited to EN45011 and the associated guidance documents by another member of the accreditation body The European co-operation for Accreditation (EA) 6

concerns over the verification of 2010 figures an auditor may be appointed by the CER to carry out a validation exercise. Where there is a difference between the annual figure in the EPA submission and the sum of the four quarterly returns submitted to CER, the following will apply: If the difference can be clearly explained and apportioned to a particular quarter (or quarters) as a result of a change to some part of the EPA methodology, the CER will allow the difference be apportioned to the applicable quarter (or quarters). This will also apply where more up-to-date information for a quarter becomes available that was not available at the time of compiling the individual quarterly return. If the difference cannot be apportioned to a particular quarter and is the result of issues such as rounding, the CER will apportion the difference (between the annual EPA amount and four quarterly amounts) across the relevant levy periods pro rata to the metered generation from the plant (s). The CER will contact generators once the reconciliation has been carried out and will seek their comments on its findings. Following this process, the CER will inform generators of the results of the reconciliation and of the amounts by which they have under or over-paid the Carbon Revenue Levy. Any credit will be applied to the following carbon revenue levy period; and under-payments will be collected as part of the next levy period. The final reconciliation will take place in April 2013 once verified annual emissions for 2012 have been reported to the EPA. Once the final reconciliation has taken place the CER will issue rebates for over-payments and invoices for under payments to the generators. Any monies owed by generators to the CER should be paid within 15 working days after the receipt of invoice from the CER. Given that quarterly returns are required to be compiled in the same format as the annual submission to the EPA it is not expected that there would be significant differences between the annual verified figure and the sum of the four quarterly figures. Treatment of CADA Generators For generators with a CADA contract the carbon revenue levy will be applicable to the portion of the plants exported energy that is not contracted under the CADA contract. The methodology for isolating the CADA and non-cada portions of the exported energy for the two CADA plants is different given their specific configurations. The CADA plants have both submitted methodologies for isolating non-cada portions to the CER. Following consideration of the proposals and discussions with the affected generators the CER has approved the proposals from the two generators. The CER believes that the methodologies proposed by the generators best satisfy the requirements of the Act. These methodologies are summarised in Appendix C. 7

3.0 Responses Received The CER received public responses to the Consultation Paper from the following generators. Endesa Ireland Tynagh Energy Viridian Power and Energy The responses are published with the Decision Paper. 4.0 Next Steps The CER will make Regulations as per Section 40G (2) of the Act before the end of September 2010 to give effect to the Decisions made in this paper. 8

Appendix A Quarterly Returns Cover Sheet Template Carbon Revenue Levy Return to CER Company Name: Generation Station(s) covered: Period Covered: Total Carbon Emissions: (in tonnes of carbon dioxide equivalent) Total Fuel Usage upon which Return is based: Natural Gas: kwh Coal: Tonnes Gas Oil: Tonnes Heavy Fuel Oil: Tonnes Others: Fuel: Tonnes Signed: Print Name: Title: 9

Appendix B Duly Authorised Officer Certification Template Levy Period Returns Duly Authorised Officer Certification As [Insert title here] of [Insert Company name here] and as required by the Commission for Energy Regulation as per the Electricity Regulation (Amendment) (Carbon Revenue Levy) Act 2010, I certify that the attached Levy Period Return(s) for [Insert Levy Period] are prepared in accordance with the formula for the calculation of emissions set out in Schedule 4 to the European Communities (Greenhouse Gas Emissions Trading) Regulations 2004 (SI No 437 of 2004) and the information in the return is properly extracted from [Insert Company name here] records. Installations (Generating Units) Covered by this Return Unit A Unit B Unit C I am aware that as per Section 40G(5) of the Electricity Regulation (Amendment) (Carbon Revenue Levy) Act 2010 it is an offence to knowingly give information which is false or misleading in a material respect to the CER when making returns to the CER under said Act. Signed: Print Name: Title: Date: Email Address: 10

Appendix C CADA Generator Methodologies Aughinish Alumina The applicable carbon emissions for Aughinish Alumina under the Act will be established as follows. Non CADA Electricity Total Metered Generation from Sealrock 3 & 4 (1) Total Metered Aughinish Alumina Site Demand (2) Quarterly CADA Obligation (3) Applicable Levy Volume = (1) (2) (3) (4) Non CADA Emissions Gas Usage/MWh (Total Gas Usage in Power Generation/Total MWh produced) (5) Non CADA Gas Usage = (4)*(5) (6) Non CADA Emissions = (6)* Gas/Carbon Emission Factor (7) Tynagh Energy The applicable carbon emissions for Tynagh Energy under the Act will be established as follows. Total Carbon Emissions Total carbon emissions for the plant will be calculated as per Schedule 4 of the European Communities (Greenhouse Gas Emissions Trading) Regulations 2004 (S.I. 437 of 2004). This will be the same methodology as used by non CADA generators. The split between CADA and non CADA emissions will be calculated as the total carbon emissions from the plant minus the carbon allocations passed back to the PSO through the CADA. Carbon allowances are passed back through the CADA to the PSO on the basis of SEM MSQ and not on the basis of actual generation. CADA generation will be calculated on a half hourly trading period level. CADA generation will be considered to be equal to the CADA MSQ where total plant generation exceeds CADA MSQ. Where the total plant generation is less than CADA MSQ, CADA generation will be considered to be equal to total plant generation. Total emissions for the plant will be split between CADA and Non CADA (Levy applicable) in the proportions established above. 11