UK: PFI - CRCEES Guidance Launched

Last Updated: 9 September 2010
Article by Olivia Quaid, Natalya Beam, Sarah King and Paul Smith

Compliance With The Obligations Imposed By The Carbon Reduction Commitment Energy Efficiency Scheme ("CRCEES") Is Now Inescapably An Important Issue For The PFI Sector.  Since The Coming Into Force Of The CRC Order In March 2010, The Sector Has Been Lacking Clarity On Administrative And Financial Aspects Of The CRCEEES And Its Impact On Risk Allocation In PFI Deals.

On 3 September 2010 The Environment Agency Issued Guidance On The Application Of The CRCEES To The PFI Sector (The "Guidance"). The Guidance Has Been Launched Following Input From The Environment Agency, DECC And The Treasury.

The Guidance Is Long Overdue And Key Reading For The Sector. It Clarifies The Tests For Determining Which Party Is Responsible For The Energy Supply As A "Participant" In A PFI Context Providing An Explanation On The Application Of Accountability Principles And Energy Efficiency Risk Sharing Mechanisms.

Many Organisations May Have Made CRCEES Assessments In Order To Register Or Disaggregate In Advance Of Its Launch. For Those In The Sector Yet To Make Any CRCEES Assessment The Guidance Should Be Carefully Considered And Projects Evaluated. For Those Who Have Been Waiting For The Guidance In Order To Fully Determine Their CRCEES Obligations It Should Be Reviewed Promptly. Organisations Which Have To Register As A Participant In The CRCEES Must Do So Via The Online Registry By 30 September 2010. Others May Be Obliged To Make An Information Disclosure. However, Registration Is A 2 Stage Process Involving Certain Checks By The Environment Agency And Cannot Be Started And Completed On 30 September Therefore The Process Should Be Started As Soon As Possible.

Those Who Have Registered But In Light Of The Guidance, Consider That The Information Submitted On Registration Should Alter, Should Contact The Environment Agency As Registration Details May Be Amended.

To Access The Guidance Please Click Here

The Key Points Arising Are Outlined Below.

1. Project Company As A "Landlord"

The Guidance Confirms General Principles Prior To Dealing With Specific Scenarios Arising In PFI Arrangements. In Particular The Guidance Clarifies That Where The Project Company Has Granted The Authority A Lease Or Sub-Lease Of The Land And Buildings (As Is The Case With Many Early PFI Projects, Which Utilised The Lease Structure Rather Than Licence Arrangements Used In The Majority Of Recent Projects) And Where The Project Company Has Entered Into Energy Supply Arrangements Procuring Energy For The Authority, The Project Company Will Not Be Able To Rely On The Unconsumed Supply Exclusion And Will Be Responsible To Account For All Of The Supplies Under The CRC Rules.

2.  Energy Efficiency Risk Sharing

Many PFI Contracts Incorporate Mechanisms For The Sharing Of Risk In Relation To Energy Price And Volume Fluctuations Or Energy Efficiency Targets.  Importantly, The Guidance States That The Effect Of These Contractual Provisions Should Be Ignored For The Purposes Of Evaluating Responsibility For Energy Supplies In CRC.

3.   "Shared" Energy Use

Where A Certain Proportion Of The Charges For Energy Use Is Borne By The Project Company And/Or Its Supply Chain, The Project Company And/Or Relevant Supply Chain Entity Will Need To Account For That Proportion.   For Example, Where The Project Company Is Reimbursed By The Authority For 90% Of The Energy Supplies, It Should Then Account For 10% Of The Supplies Under The CRC Rules).  However, When The Authority Makes A Reimbursement To The Project Company In Respect Of 100% Of The Energy Supplies, It Will Be Deemed To Have Received 100% Of The Energy Supply And Therefore The Project Company Will Not Have To Account For Any Of The Supply For The Purposes Of The Scheme.

4. Liability For Compliance
 Members Of A CRCEES Organisation Group Are Jointly And Severally Liable For Compliance With Scheme Obligations Unless Disaggregation Has Taken Place. Therefore Any Company Within The Group (Including Project Companies) May Incur Potential Liability For Administrative Fines For Non-Compliance Or May Have Details Of Non-Compliance Published. The Company Nominated As The Primary Member Will Be Initially Responsible For Providing Information (And Practically The Starting Point For The Audit Process) But May Along With Funders Have A Limited Ability To Identify Any Discrepancies. In The Context Of Funding Arrangements, Investors May Wish To Review Existing Indemnities Or Warranties As To Compliance To Ensure That Any Administrative Fines May Be Recovered.   

For Other Information Please Click Here

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 08/09/2010.

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