TRANSFER OF SCOTTISH RENEWABLE OBLIGATION CONTRACTS - CONSULTATION

Responding to this consultation paper

We are inviting written responses to this consultation paper by 17 June 2005. Please send your response to:

James.thomson.ETLLD@scotland.gsi.gov.uk

or

James P Thomson

Renewables and Consents Policy

Second Floor

Meridian Court

5 Cadogan Street

Glasgow

G2 6AT

If you have any queries contact James P Thomson on 0141 242 5895.

We would be grateful if you would use the consultation questionnaire provided or could clearly indicate in your response which questions or parts of the consultation paper you are responding to as this will aid our analysis of the responses received.

This consultation, and all other Scottish Executive consultation exercises, can be viewed online on the consultation web pages of the Scottish Executive website at http://www.scotland.gov.uk/consultations. You can telephone Freephone 0800 77 1234 to find out where your nearest public internet access point is.

The Scottish Executive now has an email alert system for consultations ( SEconsult: http://www.scotland.gov.uk/consultations/seconsult.aspx). This system allows stakeholder individuals and organisations to register and receive a weekly email containing details of all new consultations (including web links). SEconsult complements, but in no way replaces SE distribution lists, and is designed to allow stakeholders to keep up to date with all SE consultation activity, and therefore be alerted at the earliest opportunity to those of most interest. We would encourage you to register.

Handling your response

We need to know how you wish your response to be handled and, in particular, whether you are happy for your response to be made public. Please complete and return the Respondent Information Form as this will ensure that we treat your response appropriately. If you ask for your response not to be published we will regard it as confidential, and we will treat it accordingly.

All respondents should be aware that the Scottish Executive are subject to the provisions of the Freedom of Information (Scotland) Act 2002 and would therefore have to consider any request made to it under the Act for information relating to responses made to this consultation exercise.

Next steps in the process

Where respondents have given permission for their response to be made public (see the attached Respondent Information Form), these will be made available to the public in the Scottish Executive Library by 15 July 2005 and on the Scottish Executive consultation web pages by the same date. We will check all responses where agreement to publish has been given for any potentially defamatory material before logging them in the library or placing them on the website. You can make arrangements to view responses by contacting the SE Library on 0131 244 4565. Responses can be copied and sent to you, but a charge may be made for this service.

What happens next ?

Following the closing date, all responses will be analysed and considered along with any other available evidence to help us reach a decision on the transfer of the contracts. We aim to issue a report on this consultation process by 8 July 2005.

Comments and complaints

If you have any comments about how this consultation exercise has been conducted, please send them to:

Name: James P Thomson

Address:

Renewables and Consents Policy

Second Floor

Meridian Court

Glasgow

G2 6AT

E-mail: james.thomson.ETLLD@scotland.gsi.gov.uk

RESPONDENT INFORMATION FORM: TRANSFER OF SRO CONTRACTS

Please complete the details below and return it with your response. This will help ensure we handle your response appropriately. Thank you for your help.

Name:

Postal Address:

1. Are you responding: (please tick one box)

(a) as an individual ÿ go to Q2a/b and then Q4

(b) on behalf of a group/organisation ÿ go to Q3 and then Q4

INDIVIDUALS

2a. Do you agree to your response being made available to the public (in Scottish Executive library and/or on the Scottish Executive website)?

Yes (go to 2b below) ÿ

No, not at all ÿ We will treat your response as confidential

2b. Where confidentiality is not requested, we will make your response available to the public on the following basis ( please tick one of the following boxes)

Yes, make my response, name and address all available ÿ

Yes, make my response available, but not my name or address ÿ

Yes, make my response and name available, but not my address ÿ

ON BEHALF OF GROUPS OR ORGANISATIONS:

3 The name and address of your organisation will be made available to the public (in the Scottish Executive library and/or on the Scottish Executive website). Are you also content for your response to be made available?

Yes ÿ

No ÿ We will treat your response as confidential

SHARING RESPONSES/FUTURE ENGAGEMENT

4 We will share your response internally with other Scottish Executive policy teams who may be addressing the issues you discuss. They may wish to contact you again in the future, but we require your permission to do so. Are you content for the Scottish Executive to contact you again in the future in relation to this consultation response?

Yes ÿ

No ÿ

THE SCOTTISH EXECUTIVE CONSULTATION PROCESS

Consultation is an essential and important aspect of Scottish Executive working methods. Given the wide-ranging areas of work of the Scottish Executive, there are many varied types of consultation. However, in general, Scottish Executive consultation exercises aim to provide opportunities for all those who wish to express their opinions on a proposed area of work to do so in ways which will inform and enhance that work.

The Scottish Executive encourages consultation that is thorough, effective and appropriate to the issue under consideration and the nature of the target audience. Consultation exercises take account of a wide range of factors, and no two exercises are likely to be the same.

Typically Scottish Executive consultations involve a written paper inviting answers to specific questions or more general views about the material presented. Written papers are distributed to organisations and individuals with an interest in the issue, and they are also placed on the Scottish Executive web site enabling a wider audience to access the paper and submit their responses [1]. Consultation exercises may also involve seeking views in a number of different ways, such as through public meetings, focus groups or questionnaire exercises. Copies of all the written responses received to a consultation exercise (except those where the individual or organisation requested confidentiality) are placed in the Scottish Executive library at Saughton House, Edinburgh (K Spur, Saughton House, Broomhouse Drive, Edinburgh, EH11 3XD, telephone 0131 244 4565).

All Scottish Executive consultation papers and related publications (e.g., analysis of response reports) can be accessed at: Scottish Executive consultations (http://www.scotland.gov.uk/consultations)

The views and suggestions detailed in consultation responses are analysed and used as part of the decision making process, along with a range of other available information and evidence. Depending on the nature of the consultation exercise the responses received may:

· indicate the need for policy development or review

· inform the development of a particular policy

· help decisions to be made between alternative policy proposals

· be used to finalise legislation before it is implemented

Final decisions on the issues under consideration will also take account of a range of other factors, including other available information and research evidence.

While details of particular circumstances described in a response to a consultation exercise may usefully inform the policy process, consultation exercises cannot address individual concerns and comments, which should be directed to the relevant public body.

CONTENTS

Page

Purpose 7

Why make the changes 7

What we propose 8

Savings Arrangement Order 8

Fossil Fuel Levy Regulations 9

Who will make the changes 9

Conclusion 9

Annex A Draft Savings Arrangement Order 10

Annex B Draft Fossil Fuel Levy Regulations 16

Annex C Draft Savings Arrangement Order RIA 33

Annex D Draft Fossil Fuel Levy Regulations RIA 38

TRANSFER OF SCOTTISH RENEWABLE OBLIGATION (SRO) CONTRACTS UNDER BETTA

CONSULTATION PAPER

Purpose

1. The purpose of this document is to seek views on the transfer of Scottish Renewable Obligation (SRO) contracts. Currently, SRO output, while eligible for Renewable Obligation Certificates (ROCs), income from the sale of which is used to reduce the Fossil Fuel Levy (FFL), is not available on the open market. We wish to replicate the system in place in England and Wales where the equivalent output is auctioned to electricity suppliers by a neutral nominated organisation. This has not been possible before now in Scotland; however, the introduction of the British Electricity Transmission and Trading Arrangements (BETTA) has changed this.

Why make the changes?

2. The Scottish Executive has an aspirational target that 40% of electricity generated in Scotland must come from renewable sources by 2020. To help achieve this, the market for renewable electricity and associated benefits should be as open, transparent and liquid as possible.

3. The current arrangements in place for dealing with SRO output are regarded as unsatisfactory by a range of organisations. Although the ROCs are available to all suppliers via a quarterly auction, the Climate Change Levy Exemption Certificates, or LECs, must accompany the electricity and thus accrue to the supply successor companies, ScottishPower (SP) and Scottish and Southern Energy (SSE). These arrangements, which prohibit SRO output and the associated LECs from being auctioned, are out of step with those in place in England and Wales, and this is something that the Executive wishes to remedy.

4. In doing so, the Scottish Fossil Fuel Levy (FFL) Regulations will also require updating. This is especially pressing as our FFL regulations still retain a complex formula for calculating the Levy, and do not deduct Climate Change Levy from the final calculation. Amongst the other changes required to accommodate the full auction of SRO output, we intend to simplify and bring our FFL regulations into line with England and Wales.

Background to the changes

5. During the drafting of the Renewables Obligation Scotland (ROS) Order in 2001 it was decided that SRO output should be eligible for ROCs. There were two key reasons for this. Firstly, it was hoped that SRO output would help provide liquidity in the early development of the ROC market. Secondly, it was intended that the value of the associated ROCs be used to reduce the FFL which pays above market costs of the SRO contracts.

6. We initially looked at the Non-Fossil Fuel Purchasing Agency (NFPA) model. The NFPA was set up in 1990 by the 12 suppliers of electricity in England and Wales as their agent for the purpose of enabling them to discharge their obligations under the Non-Fossil Fuel Obligations (NFFO). Since March 2001, output generated under NFFO contract has been auctioned to all GB suppliers by the NFPA, along with the associated ROCs and LECs. The Scottish Executive's intention was to replicate this procedure in Scotland through an order under section 67 of the Utilities Act. However, it emerged that the separate trading arrangements which existed in Scotland prevented the SRO output being sold by or contracted to anyone except SP and SSE. As a short term measure, legislation was put in place which obliged SP and SSE to realise the value of the SRO ROCs and to use the income to pay the higher costs associated with SRO electricity. This income currently eliminates the need for a fossil fuel levy.

7. The legislation referred to above was intended as a 'stop-gap' solution. We want to ensure that the physical output, along with the associated LECs can also be auctioned along with the ROCs. With BETTA now established, this can be done.

What we propose

8. The Executive proposes that two orders be made which will allow SRO legislation to be auctioned by a third party, and also gives this third party the right to administer fossil fuel levy payments. As stated in paragraph 4, we also plan to make other changes to the Fossil Fuel Levy (Scotland) Regulations 1996 to bring them in line with the equivalent England and Wales regulations.

9. We propose to amend the Scottish Regulations to change the role of Climate Change Levy (CCL) deductions. Currently, under the Scottish Regulations CCL payments are deducted from the total amount subject to levy charges. This does not happen under the English Regulations meaning that Scottish companies are required to pay more in fossil fuel levy charges than their counterparts in England and Wales. We propose to amend the Scottish Regulations in line with England and Wales.

10. We also propose to amend the Scottish Regulations to repeal the formula for calculating the fossil fuel levy, set out in schedule 2 of the Scottish Regulations. This will be replaced by a simplified method of calculation introduced by the

Fossil Fuel Levy (Amendment) (No. 2) Regulations 2001 in England and Wales.

11. We propose to move the payment cycle of the Scottish Regulations from an annual to a monthly basis. Again, this will bring the Scottish Regulations into line with England and Wales legislation.

Savings Arrangement Order

12. We propose that an amendment order be made to the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2001. The draft Order will enable renewables output, and the associated benefits such as ROCs or LECs coupled to the electricity, to be openly auctioned. The Scottish successor supply companies will be required to appoint a nominated person, who will be required to enter into replacement contracts with the SRO generators; the nominated person will subsequently be required to make further arrangements. A draft copy of the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangement Order 2005 is contained in annex A for comments.

13. Views are sought on the proposals to select a nominated person to take over the duties performed by the Scottish supply successor companies.

Fossil Fuel Levy (Scotland) Amendment Order

14. We also propose that changes be made to the Fossil Fuel Levy (Scotland) Regulations 1996. These changes include:

• Allowing the nominated person to make and collect fossil fuel levy payments;
• Further changes to the Scottish Regulations to bring them in line with the equivalent England and Wales regulations.

15. A draft copy of The Fossil Fuel Levy (Scotland) Amendment Regulations 2005 can be found in annex B.

16. Views are sought on the proposal for the nominated person to administer the fossil fuel levy, and the additional changes mentioned in paragraph 4.

17. Views are sought on the proposed changes to the Fossil Fuel Levy (Scotland) Regulations 1996.

Who will the changes affect?

18. The proposed changes will affect the two supply successor companies - Scottish Power and Scottish and Southern Energy. Both companies will lose the right to have SRO outputs sold to and contracted by them exclusively. This output will be transferred to the nominated person for auction.

19. Of course, this means generators of SRO output will also be affected as their contracts will no longer be with the supply successor companies but with the nominated person. However, the proposed Order will ensure that the Generator remains in substantially the same position as regards the price for his output and the duration of his contract, so the impact should be broadly neutral.

Conclusion

20. We welcome written responses on the questions above returned to us no later than Friday 17 June 2005. Attached to the consultation paper are the draft Scottish Savings Arrangement Order, Scottish Fossil Fuel Levy Regulations and the associated RIAs. We would also appreciate comments on their content.

DRAFT SCOTTISH SAVINGS ARRANGEMENT ORDER ANNEX A

Scottish Statutory Instruments

The Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005

Made - - - - August 2005

Laid before the Scottish Parliament August 2005

Coming into force - -

1st October 2005

The Scottish Ministers, in exercise of the powers conferred by section 67 of the Utilities Act 2000

( [2]) and all other powers enabling them in that behalf, hereby make the following Order-

Citation, commencement and extent

· This Order may be cited as the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005 and shall come into force on 1st October 2005.

(1) This Order extends to Scotland only.

2.Definitions

· In this Order-

"adapted condition" has the meaning given in article 4(3);

"the Authority" has the meaning given in section 1 of the Utilities Act

2000;

"generator" means any operator of a non-fossil fuel generating station described in any of SRO Orders 1, 2 & 3 who, immediately before the commencement of the order period, was party to any original arrangements;

"licensed electricity suppliers" means persons authorised by a licence under the Electricity Act 1989( [3]) to supply electricity;

"new arrangements" means arrangements made by the nominated person which comply with all the requirements of article 4(1)(a), (b) and (e);

"SRO Orders 1, 2&3 means the following statutory instruments: the Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1994

( [4]); the Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1997 ( [5]); and the Electricity (Non-Fossil Fuel Sources) (Scotland) Order 199 9( [6]);

"SRO Order 2" means the Electricity (Non-Fossil Fuel Sources) (Scotland) Order 1997;

"order period" means the period starting on the date when trading commences under the new electricity trading arrangements implemented pursuant to section 15A of the Electricity Act 1989 (as inserted by section 68 of the Utilities Act 2000) until 30th November 2018;

"original arrangements" means the additional arrangements referred to in section 32 of the Electricity Act 1989 which have been entered into by supply successor company in compliance with their obligations under SRO Orders 1, 2&3;

"owner" means any person who either directly or indirectly owns or has any interest in the nominated person; and the term "ownership" shall be construed accordingly;

"public electricity supplier" means a person who, prior to 1st October 2001, was authorised by a licence to supply electricity under section 6(1)(c) of the Electricity Act 1989 (as that provision had effect immediately before the coming into force of section 30 of the Utilities Act 2000) and whose "authorised area" (as defined in section 6(9) of the Electricity Act 1989 as that provision had effect immediately before the coming into force of section 30 of the Utilities Act 2000) was situated wholly or mainly in Scotland;

"Requirements" means the requirements listed in article 4(1); and

"supply successor company " means a person who became the holder of a supply licence under section 6(1)(d) of the Electricity Act 1989 on 1st October 2001 by virtue of a licensing scheme made in relation to a public electricity supplier under Part II of Schedule 7 to the Utilities Act 2000.

(1) Except where otherwise provided in this Order, expressions which are used both in this Order and in section 32 or 33 of the Electricity Act 1989 shall in relation to this Order have the meanings given to them in that Act.

(2) References in this Order to section 32 or 33 of the Electricity Act 1989 are references to those sections as they continue to have effect in Scotland by virtue of this Order or any Order made under section 67 of the Utilities Act 2000 (notwithstanding the substitution of section 32 by section 62 of the Utilities Act 2000 and the repeal of section 33 by section 66 of the Utilities Act 2000).

4.Obligations of supply successor companies

· Each supply successor company shall ensure that before the 30th day following the commencement of the order period it has produced evidence to the Authority that it has made arrangements jointly with all other supply successor companies to secure that a person nominated by them ("the nominated person") has made arrangements to secure the Requirements are complied with.

(1) Each supply successor company shall be under a duty at all times during the order period to secure that the Requirements are complied with and shall not by any act or omission of its prevent any new arrangements from securing the result mentioned in article 4(1)(b).

(2) Each supply successor company shall supply the Authority with such information, or with information of a particular kind, requested by the Authority and which in its opinion is relevant to the question whether the supply successor company (either acting individually or jointly with other supply successor companies) is discharging, or has discharged, its obligations in this Order.

(3) Information requested by the Authority under paragraph (3) above must be given to the Authority in whatever form it requires.

(4) No person shall be required by virtue of this article to provide any information which they could not be compelled to give in evidence in civil proceedings in the Court of Session.

6.The Requirements - duties of the nominated person

· The Requirements are that-

(a) the nominated person must by the commencement of the order period have made arrangements ("the new arrangements") which replace (in so far as it is necessary to comply with this Order) the original arrangements but with the nominated person replacing the relevant supply successor company as contracting party to those arrangements in each case;

(b) subject to paragraph (2) below, the new arrangements must secure that there is available to the nominated person from the non-fossil fuel generating stations described in SRO Orders 1, 2&3 the aggregate amount of generating capacity which, immediately before the commencement of the order period, was required by those Orders to have been available to supply successor companies during the order period;

(c) having entered into the new arrangements, the nominated person must not by any act or omission of theirs prevent those arrangements made by him from securing the result mentioned in sub-paragraph (b) above;

(d) the nominated person must produce evidence to the Authority of having made the new arrangements within 30 days after the commencement of the order period;

(e) the new arrangements must be on terms such that generators who are party to them are in substantially the same economic position as regards matters relating to contract price, indexation and term under those new arrangements as they had been in as party to the original arrangements;

(f) all electricity made available to the nominated person under the new arrangements must be offered for sale to persons who shall include all licensed electricity suppliers;

(g) the nominated person must use reasonable endeavours to receive the best price reasonably attainable for such electricity;

(h) the nominated person must conduct himself or herself at all times in relation to his or her operations in general and in particular in relation to the selling of such electricity in a manner so as to ensure and satisfy the Authority that he or she does not show any undue preference or exercise any undue discrimination in relation to any licensed electricity supplier or class of licensed electricity supplier; and

(i) any owner must not gain any advantage from their ownership (save that expressly permitted under either this Order or regulations made under section 33 of the Electricity Act 1989) in relation to the purchase or sale by the nominated person of electricity which has been made available to them under the new arrangements and arrangements must be in place so as to ensure at all times that any owner does not gain such advantage.

(2) The amount of generating capacity required by article 4(1)(b) to be available to the nominated person shall be reduced in the same manner that article 4 of the SRO Order 2 reduced the amount of generating capacity required to be made available to supply successor companies by that Order, but the reduction in generating capacity provided for in this paragraph shall be calculated by reference to any adapted conditions instead of by reference to the conditions precedent and termination events set out in Schedules 2 and 3 to the SRO Order 2.

(3) For the purposes of this article an "adapted condition" means a condition set out in the new arrangements which has broadly equivalent effect to a provision contained in Schedule 2 or 3 to the SRO Order 2 taking into account the existence of any new electricity trading arrangements and the fact that it is the nominated person, not a supply successor company, who enters into the new arrangements.

(4) Any case of dispute as to whether a condition in the new arrangements is an "adapted condition" may be referred to and determined by the Scottish Ministers on application by either the nominated person or a generator who is party to those new arrangements.

8.The nominated person

· A person may only become or continue to be a nominated person if that person is registered under the Companies Act 1985 ( [7]) as a company limited by shares and is approved by the Scottish Ministers.

(1) Without prejudice to article 8, if any of the Requirements are not being met at any time, the Scottish Ministers may withdraw their approval of the nominated person at any time on such notice as is reasonable in the circumstances. Where the Scottish Ministers withdraw their approval they may either nominate one or more persons to be the nominated person or they may request that the supply successor companies nominate a replacement.

(2) Where the Scottish Ministers has withdrawn their approval of the nominated person in accordance with paragraph (2) above, the supply successor companies shall jointly bear the administrative costs incurred as a result of this change in proportions to be determined by the Scottish Ministers.

(3) Where there is a change in the person who is nominated to be the nominated person (either at the instigation of the supply successor companies or the Scottish Ministers) the Scottish Ministers' approval of the person so nominated may be conditional on new arrangements having been entered into by a specified date. In such circumstances the dates referred to in articles 3, 4 and 6 shall be replaced with the dates specified by the Scottish Ministers.

(4) Where requested in writing to approve a person nominated for the purposes of this Order, the Scottish Ministers shall decide whether to so approve or not and shall notify the supply successor companies in writing of that decision within 30 days of receipt of such request.

10.Deemed imposition of new arrangements

11.-·

(a) have entered into an agreement with the nominated person on and with effect from the first day of the order period on those terms last offered to it in writing by the nominated person prior to the commencement of the order period, to the extent that those terms comply with all requirements of this Order in relation to new arrangements; and

(b) have terminated the original arrangements to which it was a party (without prejudice to any rights or liabilities existing prior to such termination), with termination having effect immediately before it is deemed to have entered into the agreement referred to in this article.

(2) Where paragraph (1) above applies, the nominated person shall notify the generator in writing within 14 days after the commencement of the order period of the terms of the agreement which are deemed to apply to him or her.

(3) Any dispute as to whether the terms of the agreement referred to above comply with the requirements of this Order in relation to the new arrangements may be referred to and determined by the Scottish Ministers where application to the Scottish Ministers has been made in writing within two months after the commencement of the order period. In making their determination under this article the Scottish Ministers may give such directions to the nominated person or the generator as appear to them to be appropriate for varying the terms of the agreement so that they comply with the requirements of this Order in relation to the new arrangements.

12.Release from obligations under section 32

· Within 45 days after the commencement of the order period (or at such later or additional dates as the Scottish Ministers may consider necessary) the Authority shall report to the Scottish Ministers the extent to which it is satisfied that supply successor companies have complied with their obligation in article 3(1).

(1) When the Scottish Ministers have declared that they are satisfied that a supply successor company supplier has complied with its obligation in article 3(1) the supply successor company shall thereupon be released from its obligations under section 32 of the Electricity Act 1989 and SRO Orders 1, 2&3 and the Scottish Ministers shall notify the supply successor company in writing of such declaration specifying the date (which may not be earlier than the commencement of the order period) on which such release took effect

14.Enforcement of this Order

15.

16.Continuation and Modification of section 33

17. From the commencement of the order period section 33 of the Electricity Act 1989 shall be modified as follows-

(a) in subsection (1) replace the words from and including "Where" to "provide -" with "The Scottish Ministers may by regulations provide -";

(b) in subsection (1)(a) replace the words "such suppliers" with "supply successor companies";

(c) in subsection (1)(c) replace the words "such suppliers" with "the nominated person";

(d) delete subsections (3) and (4);

(e) replace subsection (5) with the following-

(5) The amount of any payment required to be made to the nominated person by regulations under this section shall be the difference between-

(a) the total cost to the nominated person during the qualifying month of purchasing electricity which was generated in pursuance of qualifying arrangements; and

(b) the amount received during the qualifying month by the nominated person for the sale of such electricity,

calculated (in each case) by such method as may be specified by regulations under this section and including such costs as are reasonably incurred by the nominated person in relation to the sale and purchase of such electricity and any advance or deferred payments.;

(f) after subsection (5) insert the following new subsection-

(5A) Where the amount referred to in subsection (5)(b) is greater than the cost referred to in subsection (5)(a) the difference (after any deductions for the costs of the nominated person referred to in subsection (5) and any advance or deferred payments) shall be paid by the nominated person to the prescribed person referred to in subsection (1)(b), such sum being calculated by such method as may be specified by regulations under this section.;

(g) in subsection (6)(a) after the words "meters or otherwise)" insert "on the nominated person and";

(h) in subsection (6)(b) replace the words "public electricity suppliers" with "or by the nominated person";

(i) in subsection (7) replace the words "each public electricity supplier" with "the nominated person";

(j) replace subsection (7A) with the following-

(7A) In this section, references to qualifying arrangements in relation to the nominated person are to any arrangements in respect of which each of the following is the case-

(a) they are new arrangements, as defined in the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005( [8]); and

(b) they satisfy such other requirements as may be specified in regulations made under this section.;

(k) delete subsection (7B);

(l) in subsection (8) after the definition of "leviable electricity" insert the following-

"nominated person" has the meaning given in the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005;;

(m) in subsection (8) at the end of the definition of qualifying month insert the following words "and in relation to the nominated person the meaning shall be specified in regulations made under this section; and

(n) after subsection (9) insert the following-

(10) Regulations under this section may include transitional measures making provision for payments of levy to continue to be made to supply successor companies in relation to entitlement to payments accrued under this section before this subsection came into effect..

18.Revocation

19. The Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2001( [9]) and the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements (Modification) Order 2002( [10]) are hereby revoked.

A member of the Scottish Executive

St Andrew's House,

Edinburgh

2005

DRAFT FOSSIL FUEL LEVY (SCOTLAND) AMENDMENT REGULATIONS ANNEX B

Scottish Statutory Instruments

2005 No.

ELECTRICITY

The Fossil Fuel Levy (Scotland) Amendment Regulations 2005

Made - - - - September 2005

Laid before the Scottish Parliament September 2005

Coming into force - - 1st October 2005

The Scottish Ministers, in exercise of the powers conferred by sections 33 and 60 of the Electricity Act 1989( [11]), and of all other powers enabling them in that behalf, hereby make the following Regulations:-

20.Citation and commencement

21. These Regulations may be cited as the Fossil Fuel Levy (Scotland) Amendment Regulations 2005 and shall come into force on 1st October 2005.

22.Interpretation

23. In these Regulations "the Principal Regulations" means the Fossil Fuel Levy (Scotland) Regulations 1996( [12]).

24.Amendment

25.-· The Principal Regulations are amended in accordance with this regulation.

(1) Regulations 2 to 8 shall be replaced with the following-

26.Interpretation

2.-(1) In these Regulations, unless the context otherwise requires-

"the Act" means the Electricity Act 1989;

"Amount" has the meaning given in regulation 5;

"auditor's certificate" means a statement given by-

(a) in relation to a company within the meaning of the Companies Act 1985( [13]), the auditor or auditors (as holding office for the time being in accordance with that Act) of the person furnishing the information; and

(b) in relation to any other description of person, a person who is a member of one or more of the following bodies-

(i) the Institute of Chartered Accountants in England and Wales;

(ii) the Institute of Chartered Accountants of Scotland;

(iii) the Chartered Association of Certified Accountants;

(iv) the Institute of Chartered Accountants in Ireland;

"banking day" means a day on which banks are generally open in the City of Edinburgh excluding Saturdays or Sundays;

"business" means the activities of the nominated person which are carried out pursuant to the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005( [14]);

"climate change levy" means the climate change levy as defined in section 30 of the Finance Act 2000( [15]);

"costs cap" for the period from 1st October 2005 to 31st October 2005 means £[ ] and for each subsequent twelve month period beginning on 1st April means the figure for the costs cap in the immediately preceding period multiplied by the ratio of the arithmetic mean of the Retail Price Indices (all items) published in respect of each of the months in the last calendar year ending before 1st April and the arithmetic mean of the Retail Price Indices (all items) published in respect of each of the months in the year prior to such last calendar year;

"data", except in regulation 32, includes assumptions and estimates;

"debt recovery procedure" means a procedure established in accordance with regulation 5A with the aim of ensuring the prompt collection of debts owed to the nominated person in relation to the business;

"levy" means the levy imposed by these Regulations;

"levy payment date" in relation to any month after [ ] 2005 means the fifth banking day of each qualifying month and the first levy payment date shall be [ ] 2005;

"licensed distributor" means an electricity distributor as defined in section 6(9) of the Act (as inserted by section 30 of the Utilities Act 2000( [16]));

"licensed generator" means a person authorised by a licence to generate electricity;

"licensed electricity supplier" has the same meaning in these Regulations as is given to it in the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005;

"licensed transmitter" means a person authorised by a licence to transmit electricity;

"nominated person" has the same meaning in these Regulations as is given to it in the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005;

"prescribed interest rate" means a rate which is 4 per centum per annum above the base rate of Bank plc current from time to time;

"public electricity supplier" has the same meaning in these Regulations as is given to it in the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005;

"qualifying month" in relation to the nominated person means the period from 1st October 2005 to 31st October 2005 and thereafter it means a month beginning on or after 1st November 2005;

"rate of levy" means the precentage figure from time to time produced by the method set out in regulation 6;

"relevant interest payments" means-

(a) interest payments made pursuant to regulation 24(1); and

(b) interest payments in respect of money invested pursuant to regulation 25;

"relevant period" in regulation 5 means-

(a) in relation to the symbol "C", the qualifying month in which the levy payment date falls;

(b) in relation to the symbol "A", the period commencing on and including the second banking day prior to the previous levy payment date and ending on and including the third banking day prior to the levy payment date in relation to which the calculation of the Amount is being made; and

(c) in relation to the symbols "a", "ii" and "io", the qualifying month preceding the month in which the levy payment date falls;

"supply successor company" has the same meaning in these Regulations as is given to it in the Electricity from Non-Fossil Sources (Scotland) Saving Arrangements Order 2005;

"unit" means a measure of electrical energy equal to one kilowatt-hour,

and expressions which are used in section 33 of the Act (as it extends to Scotland) shall have the same meanings in these Regulations as in that section save where the context requires otherwise and any reference to section 32 of the Act is a reference to that section as saved and modified by Order made under section 67 of the Utilities Act 2000.

(2) In these Regulations, unless the context otherwise requires-

(a) any reference to a numbered regulation is a reference to the regulation bearing that number in these Regulations;

(b) any reference to a numbered paragraph is a reference to the paragraph bearing that number in the regulation or Schedule in which the reference occurs;

(c) any reference to the Schedule is a reference to the Schedule to these Regulations;

(d) any reference to the manner in which an amount has been calculated is a reference to-

(i) the data used in calculating the amount in question;

(ii) the manner in which the data has been used in the calculations;

(iii) the source from which that data has been derived; and

(iv) the arithmetical processes of the calculation; and

(e) any reference to leviable electricity is to leviable electricity supplied to customers in Scotland.

IMPOSITION OF LEVY

27.Imposition of levy

3. Each supply successor company shall pay a levy in respect of each qualifying month in accordance with the following provisions of these Regulations.

PRESCRIBED PERSON AND METHODS

28.Collector etc of levy: prescribed person

4. The Authority is hereby prescribed as the person to collect payments from supply successor companies in respect of the levy and to make payments to the nominated person and it shall also collect payments from the nominated person pursuant to section 33(5A) of the Act.

29.Payments in respect of levy etc: prescribed methods

5.-(1) In relation to a levy payment date the method of calculating the amount of the payment required to be made by either section 33(5) or 33(5A) of the Act ("the Amount") is as described in this regulation.

(2) The Amount is the number which results from applying the formula in paragraph (3) together with any modification to that number which is made pursuant to paragraph (5).

(3) The formula is-

C - A + a - ii + io - x + y + z

where-

"C" is the aggregate payments paid or due to be paid by the nominated person in the relevant period pursuant to or otherwise arising from qualifying arrangements (to the extent not already taken into account in the calculation of the Amount for a previous levy payment date);

"A" is the aggregate payments received by the nominated person during the relevant period in relation to sales of electricity or rights relating to electricity generated pursuant to qualifying arrangements;

"a" is, subject to paragraph (4), the costs (other than interest) reasonably incurred by the nominated person in relation to the business in the relevant period;

"ii" is interest received by the nominated person in the relevant period on any sums held by it in relation to the business;

"io" is interest paid by the nominated person in the relevant period on borrowings made by it in order to enable it to conduct the business efficiently provided that the interest rate with reference to which such interest is calculated does not exceed the prescribed interest rate;

"x" is zero unless the Authority has determined an amount in accordance with paragraph (6), in which case "x" is that amount;

"y" is zero unless an amount is due to be paid on the levy payment date pursuant to regulation 23(4) and (5), in which case "y" is that amount; and

"z" is zero unless the Authority has determined any amount in accordance with paragraph (7), in which case "z" is the aggregate of any such amounts.

(4) The costs of the nominated person may only be included in item "a" above to the extent that those costs in the relevant period when added to the sum included as item "a" in the above calculation in each of the eleven months prior to the relevant period do not exceed the costs cap. Having so calculated, such costs incurred in the relevant period in excess of the costs cap may not be included in "a" in calculations of the Amount in relation to any future levy payment date.

(5) Additions to or subtractions from the number resulting from the application of the formula in paragraph (3) may be made to reflect-

(a) sums received or paid by the nominated person in relation to the items listed in paragraph (3) in order to correct or update figures given for payments or receipts in relation to those items in relation to any previous levy payment date; or

(b) over or underpayments where the procedures in regulation 37 have been followed.

(6) Where the Authority reasonably considers that the nominated person has not complied with the debt recovery procedure established in accordance with regulation 5A to a material extent in respect of a debt or debts, it may determine that an amount representing interest on any such outstanding debt or debts may be used as the figure for "x" in the formula in paragraph (3) for the purpose of calculating the Amount in relation to a particular levy payment date.

(7) Where, in relation to any previous levy payment date in calculating the Amount the Authority has determined that "x" should include a figure in connection with a particular debt owing to the nominated person, and the said debt has since been recovered by the nominated person in full, for the purposes of calculating the Amount on the levy payment date following such recovery of the debt the Authority shall determine an amount for inclusion in "z" which is equivalent to the aggregate of any figures included in "x" in relation to that debt in the calculation of the Amount on any previous levy payment date.

(8) Where the Amount is a positive number that number represents the amount which is required to be paid to the nominated person by section 33(5) of the Act in accordance with regulation 23.

(9) Where the Amount is a negative number that number represents the amount which is required to be paid by the nominated person to the prescribed person by section 33(5A) of the Act in accordance with regulation 36.

30.Debt Recovery Procedure

5A.-(1) The Authority shall, by [ ] 2005 and having first consulted the nominated person and the Scottish Ministers, determine a procedure with the aim of ensuring the prompt collection by the nominated person of debts owing to it in relation to the business.

(2) The debt recovery procedure shall include provisions to the following effect-

(a) that the nominated person and the Scottish Ministers shall be consulted prior to any determination by the Authority being made under regulation 5(6);

(b) that the interval between the making of the determination referred to in regulation 5(6) and the application of that determination on a levy payment date shall be at least one month;

(c) that the sum representing interest referred to in regulation 5(6) in respect of any outstanding debt shall be calculated in respect of the period from the date on which the Authority reasonably considers that the nominated person failed to comply with the debt recovery procedure in relation to the debt to a material extent until the earliest of the following events-

(i) the debt is collected;

(ii) such time as the Authority reasonably considers that the nominated person has done all that is reasonable in order to comply with the procedure in relation to the debt; or

(iii) such time as the Authority reasonably considers that the nominated person has done all that is reasonable to seek to recover the debt;

(d) that the interest rate to be applied in the calculation of the figure for "x" in regulation 5 shall not exceed (but where the Authority considers it appropriate it may be less than) the base rate of Barclays Bank plc current from time to time;

(e) that the procedure may be amended at any time by agreement in writing of the Authority and the nominated person provided that the Scottish Ministers have been consulted before any such amendment takes affect.

(3) The Authority and the nominated person shall comply with the debt recovery procedure.

(4) In the event that there is a change in the identity of the nominated person, any new nominated person shall comply with the debt recovery procedure in the form it exists at the time the Scottish Ministers approve of such new nominated person until such time as that procedure is amended under paragraph (2)(e).

CALCULATION ETC OF RATE OF LEVY

31.Calculation and notification of rate of levy

6.-(1) From time to time the Authority shall calculate the rate of the levy in accordance with the method set out in paragraph (2). The rate of the levy must be reviewed by the Authority according to that method at least once in any period of 12 months.

(2) In calculating or reviewing the rate of the levy the Authority shall take the following matters into account in relation to a period of time defined by it (which shall not exceed 12 months):

(a) the likely amount required by regulation 5 to be paid by or to the nominated person;

(b) the likely aggregate amount of all interest payments to be paid pursuant to regulation 24(1) less the likely aggregate amount of all interest payments to be paid pursuant to regulation 24(2);

(c) the amount of the administrative expenses of the Authority likely to be deducted and retained by it in accordance with regulation 23(2);

(d) the aggregate amount of all interest payments likely to be received pursuant to regulation 25;

(e) the aggregate amount of any money likely to be held or invested by the Authority having been received pursuant to these regulations; and

(f) the aggregate amount (exclusive of the levy, value added tax and climate change levy) likely to be charged (whether or not a bill or invoice has been delivered to a customer) by supply successor companies for leviable electricity supplied by them.

(3) At least 14 days before any notification under paragraph (4) is issued, the Authority shall consult the Scottish Ministers on the calculation or review of the levy rate and shall provide the Scottish Ministers with all assumptions, information and data upon which the calculation or review is based. The Scottish Ministers may make representations to the Authority in relation to the intended rate of the levy and the Authority shall take account of any such representations before issuing the notification referred to in paragraph (4).

(4) Having calculated or reviewed the rate of the levy the Authority shall notify the rate of the levy to the Scottish Ministers, the nominated person and each supply successor company. Any change in the rate of the levy shall be notified to the above persons at least 3 months before the commencement of the qualifying month, or the first of the qualifying months, to which it applies.

(5) The Authority shall also notify the rate of the levy to the applicant for a licence under section 6(1)(d) of the Act at the time the licence is granted.

32.Publication of rate of levy

7. The Authority shall arrange for the publication of the rate of levy calculated by him in accordance with regulation 6 in such form and such manner as he considers appropriate for bringing it to the attention of consumers of electricity supplied by supply successor companies.

CALCULATION OF QUANTITIES OF ELECTRICITY SUPPLIED

33.Contractual entitlements to electricity

8.-(1)

(a) a direction is given by or on behalf of the supply successor company in or pursuant to that agreement requiring the delivery during a qualifying month of a quantity (specified in or calculated in accordance with the direction and being either the whole or a part less than the whole) of the electricity generated by that station;

(b) the specified quantity of electricity is so generated and is delivered in accordance with such direction;

(c) at the time of delivery it is not physically impossible for an amount of electricity equal to the specified quantity of electricity to have been conveyed from the station to the point of delivery or, as the case may be, in the aggregate to the points of supply; and

(d) the supply successor company supplies in the same qualifying month a quantity of electricity at least equal to the quantity specified in or calculated in accordance with his direction,

then, and subject to evidence of the above-mentioned matters being provided to the reasonable satisfaction of the Authority, and subject to regulations 9 and 10, for the purposes of these Regulations the supply successor company shall be regarded as having supplied during that qualifying month a quantity of electricity other than leviable electricity generated by the generating station mentioned in paragraph (a) of this regulation equal to whichever is the lesser of the quantity mentioned in that paragraph and the quantity of electricity generated and delivered as mentioned in paragraph (b) of this regulation.

(2) In relation to supplies of leviable electricity, paragraph (1) shall apply as if it referred to leviable electricity instead of to electricity other than leviable electricity with the exception that evidence of the matters mentioned in sub-paragraphs (a) to (d) of paragraph (1) only need be provided to the Authority if it so requests..

(1) Regulations 11 and 12 shall be replaced with the following-

34.Principal payments in respect of levy

11.-(1)

(2) In respect of each qualifying month, the supply successor company shall calculate (and, in doing so, shall take into account any deductions which it may make in accordance with these Regulations) the amount of the payment due from it by applying the rate of levy notified to it by the Authority in accordance with regulation 6 to the aggregate amount (exclusive of the levy, value added tax and climate change levy) charged (whether or not a bill or invoice has been delivered to a customer) by it for leviable electricity supplied by him.

(3) Not more than one month after the end of each qualifying month the supply successor company shall make the payment which it has calculated to be due from it in respect of that month to the Authority.

(4) If the supply successor company makes the payment mentioned in paragraph (3) later than one month after the end of the qualifying month in question but before any notice has been served on it under paragraph (1) of regulation 16 or 17, the supply successor company shall also pay an amount in respect of interest in accordance with regulation 24(1).

35.Statements etc to accompany principal payments in respect of levy

12.-(1)

(2) A statement in accordance with this regulation shall-

(a) set out the manner in which the supply successor company has calculated the amount of the payment mentioned in paragraph (1); and

(b) without prejudice to the generality of sub-paragraph (a) of this paragraph, include the best estimate the supply successor company can make (after taking into account the effect in relation to it of regulations 8 to 10 during the qualifying month in question) of the quantities (expressed in kilowatt hours) of-

(i) leviable electricity;

(ii) electricity other than leviable electricity;

supplied by it during the qualifying month in question; and

(c) set out the price per kilowatt hour at which the supply successor company purchased the supplies of leviable electricity supplied by it during the qualifying month in question.

(3) With each statement in accordance with this regulation the supply successor company shall also furnish to the Authority such evidence as may be available to it to justify the estimate mentioned in sub-paragraph (b) of paragraph (2) including (but without prejudice to the generality of the foregoing) evidence of the effect in relation to it of regulations 8 to 10 during the qualifying month..

(1) Regulations 15 and 19 shall be omitted.

(2) Regulations 20 and 21 shall be replaced with the following-

SUPPLY BELOW PURCHASE PRICE

36.Supply below purchase price: additional statements to be furnished to prescribed person

20.-(1)

(a) any price below the purchase price which the supply successor company is charging for leviable electricity;

(b) the manner in which that price has been calculated; and

(c) any reasons which the supply successor company may have to justify a belief on its part that it is appropriate in all the circumstances for amounts payable by it in respect of the levy to be calculated by reference to that lower price.

(2) The statement mentioned in paragraph (1) shall be furnished to the Authority at the same time as the supply successor company furnishes it with the statement in accordance with regulation 12.

(3) The supply successor company shall furnish the Authority with a further statement on each occasion when there is a change in any matter set out in the statement mentioned in paragraph (1).

(4) A statement under paragraph (3) shall set out the change which has taken place, and the reasons for that change.

37.Supply below purchase price: action by prescribed person

21.-(1)

(a) any price is set out in such statement; and

(b) the manner in which that price has been calculated,

have been fairly stated and properly compiled.

(2) The Authority may also serve notice on the supply successor company requiring it to provide further reasons justifying any price below the purchase price for electricity which the supply successor company has set out in a statement under regulation 20.

(3) If the Authority does not accept that it is appropriate in all the circumstances for amounts payable by the supply successor company in respect of the levy to be calculated by reference to any price being charged for electricity it shall, within 28 days of the date upon which it received the statement or (if requested) the auditor's certificate or further reasons, serve on the supply successor company a notice under regulation 22A.

(4) The Authority may also by notice served on the supply successor company require the supply successor company to furnish it with a statement setting out-

(a) any price which the supply successor company is charging for any electricity;

(b) the manner in which that price has been calculated; and

(c) any reasons which the supply successor company may have to justify a belief on its part that it is appropriate in all the circumstances for amounts payable by it in respect of the levy to be calculated by reference to that price,

and the Authority may also in like manner require the supply successor company to provide an auditor's certificate that any calculation so furnished is fairly stated and properly compiled.

(5) If, after having regard to any statement furnished under paragraph (4), and to any auditor's certificate provided under that paragraph, the Authority considers that any price charged by the supply successor company is less than the price which the Authority thinks it would be appropriate to charge for electricity, it shall serve on the supply successor company a notice under regulation 22A.

(6) Any auditor's certificate required to be provided under this regulation shall be provided as quickly as is reasonably practicable and in any event not more than 60 days after the date of the Authority's request..

(1) After regulation 21 insert-

38.Supply below purchase price: prescribed person's notice

22A.-(1) Subject to paragraphs (2) to (4) a notice served by the Authority on a supply successor company under this regulation shall set out-

(a) the Authority's reasons for not accepting that it is appropriate in all the circumstances for amounts payable by the supply successor company in respect of the levy to be calculated by reference to any price charged during the qualifying month or months in question for electricity; and

(b) the price which the Authority thinks it would be appropriate to charge for that purpose.

(2) When deciding what price to set out pursuant to sub-paragraph (b) of paragraph (1) in a notice under this regulation the Authority shall in particular have regard to-

(a) the quantities of electricity being supplied by the supply successor company;

(b) load factors;

(c) the voltage at which any supply is given;

(d) the time of year and the time of the day at which any supply is given;

(e) any conditions according to which a supply may be interrupted;

(f) the location of customers receiving a supply from the supply successor company;

(g) the date and duration of any agreement under which any customer is receiving a supply from the supply successor company.

(3) Any price set out pursuant to sub-paragraph (b) of paragraph (1) in a notice under this regulation served on a supply successor company shall not be so high as to cause the average charge per unit treated as charged by that supply successor company to exceed the maximum average charge per unit which he could make under the terms of his licence.

(4) No notice under this regulation in respect of a particular qualifying month may be served after the expiry of a period of 3 years commencing on the last day of the month in question.

39.Supply below purchase price: balancing payments in respect of levy

22B.-(1) Upon receipt of a notice under regulation 22A, the supply successor company shall as quickly as practicable calculate the amount which would have been payable in respect of the relevant qualifying month, or each of the relevant qualifying months, if that amount had been calculated by reference to the price set out in that notice.

(2) As soon as he has completed the calculation mentioned in paragraph (1), the supply successor company shall pay to the Authority an amount equal to the difference between-

(a) the amount produced by that calculation; and

(b) the amount already due in respect of the levy in respect of the relevant qualifying month, or each of the relevant qualifying months,

(together with an amount in respect of interest in accordance with regulation 24(1)).

(3) At the same time as he makes a payment in accordance with paragraph (2) the supply successor company shall furnish to the Authority a statement of the manner in which it has calculated that payment.

(4) In this regulation "relevant qualifying month" means a qualifying month in respect of which the supply successor company was due to make a payment pursuant to regulation 11 and in relation to which the Authority has served a notice under regulation 22A.

OVER-PAYMENTS IN RESPECT OF LEVY

40.Over-payments in respect of levy: action by supply successor company

22C.-(1) If at any time any supply successor company has reason to believe that the payment, or the aggregate of the payments, made in respect of the levy by him in respect of a qualifying month pursuant to these Regulations is greater than it should have been, he may serve notice on the Authority setting out-

(a) his reason or reasons for the belief; and

(b) the amount which he believes he should have paid and the manner in which that amount has been calculated.

(2) If the Authority wishes to question any matter set out in a notice served on him under paragraph (1), he shall do so by notice served on the supply successor company within 28 days of receiving the notice served under paragraph (1).

(3) Any notice served under paragraph (2) shall set out in full the Authority's reasons for wishing to question any matter in the notice served on him under paragraph (1).

(4) If the Authority fails to serve a notice under paragraph (2) within the period mentioned in that paragraph, it shall be deemed to have accepted the notice served on it under paragraph (1) without question as to the amount (but without prejudice to the ability of the Authority subsequently to serve notice on the supply successor company in accordance with regulation 17 in respect of the qualifying month in question) and the supply successor company may then deduct the difference between the amount which it has paid and the amount set out in that notice (together with an amount in respect of interest in accordance with regulation 24(2)) from the next payment due from it under paragraph (3) of regulation 11.

(5) No notice under paragraph (1) may be served after the expiry of a period of 3 years commencing on the last day of the qualifying month in question.

41.Over-payments in respect of levy: action by prescribed person

22D.-(1) If at any time the Authority has reason to believe that the payment, or the aggregate of the payments, made in respect of the levy by a supply successor company in respect of a qualifying month pursuant to these Regulations is greater than it should have been, it shall serve notice on the supply successor company setting out-

(a) its reason or reasons for the belief; and

(b) after having regard to the information relating to the supply successor company available to him at the time, the amount which it believes that the supply successor company should have paid and the manner in which that amount has been calculated.

(2) If the supply successor company wishes to question any matter set out in a notice served on it under paragraph (1), it shall do so by notice served on the Authority within 28 days of receiving the notice served under paragraph (1).

(3) Any notice served under paragraph (2) shall set out in full the supply successor company's reasons for wishing to question any matter in the notice served on it under paragraph (1).

(4) If the supply successor company fails to serve a notice under paragraph (2) within the period mentioned in that paragraph, it shall be deemed to have accepted the notice served on it under paragraph (2) without question as to the amount (but without prejudice to the ability of the Director subsequently to serve notice on the supply successor company in accordance with regulation 17 in respect of the qualifying month in question) and it may then deduct the difference between the amount set out in that notice and the amount which it has paid (together with an amount in respect of interest in accordance with regulation 24(2)) from the next payment due from it under paragraph (3) of regulation 11.

(5) No notice under paragraph (1) may be served after the expiry of a period of 3 years commencing on the last day of the qualifying month in question.

42.Over-payments in respect of levy: adjustments

22E.-(1) When any question arising from a notice served under paragraph (2) of regulation 22C or 22D has been resolved (whether by agreement between the Authority and the supply successor company or otherwise)-

(a) any payment found to be due from the supply successor company in respect of the levy shall be made by it at the same time as it makes the next payment due from it under paragraph (3) of regulation 11; and

(b) any amount found to be in excess of the proper amount of a payment made by the supply successor company in respect of the levy may be deducted by it from the next payment due from it under paragraph (3) of regulation 11,

(together, in each case, with an amount in respect of interest in accordance with regulation 22D)..

(1) Regulation 22(1)(b) shall be omitted.

(2) Regulation 23 shall be replaced with the following-

43.Application and distribution of levy

23.-(1)

(2) The Authority shall deduct and retain from the payments mentioned in paragraph (1) the amount of the administrative expenses incurred by it in respect of the qualifying month as the person prescribed by these Regulations for the purposes of section 33(1)(b) and (c) of the Act and in respect of its collection of payments from the nominated person pursuant to section 33(5A) of the Act.

(3) Where in relation to the levy payment date immediately after the end of the qualifying month mentioned in paragraph (1), the Authority has received a statement from the nominated person in accordance with regulation 36(1) and (2) which states that payment is due to be made to the nominated person pursuant to regulation 5(8), the payments mentioned in paragraph (1) less the amounts deducted under paragraph (2) shall, subject to paragraphs (4) and (5), be applied to the making of such payment on the levy payment date in relation to which such statement has been prepared.

(4) If any of the payments mentioned in paragraph (1) are not received by the Authority in time to be applied and distributed in accordance with the preceding provisions of this regulation, such payments shall, as soon as practicable after the payment mentioned in paragraph (3) has been made, be added in the appropriate amounts to the next payment due to be made under this regulation to the nominated person.

(5) For the purposes of paragraph (4), the appropriate amount as regards the payment mentioned in that paragraph in relation to the nominated person is an amount equal to the difference between-

(a) the amount due to be paid to the nominated person under paragraph (5)(8); and

(b) the payment actually made to the nominated person under paragraph (3)..

(1) Regulation 24(2)(b) shall be omitted.

(2) In regulation 25(2) the words ", until they are required for the making of payments pursuant to regulation 27," shall be omitted.

(3) Regulation 26 shall be replaced with the following-

44.Prescribed person's records and accounts

26.-(1)

(a) all payments received by it pursuant to any of the preceding provisions (except regulations 24 and 25) of these Regulations;

(b) all relevant interest payments received by it; and

(c) all administrative expenses incurred by it in connection with the levy.

(2) The Authority shall maintain one or more bank accounts for all payments received by it pursuant to these Regulations, and shall keep such account or accounts separate from all other bank accounts maintained by it.

(3) The Authority shall send a statement of the amount standing for the time being to the credit of any such account as is mentioned in paragraph (2) to the Scottish Ministers and the nominated person at monthly intervals.

(4) The Authority shall also send a statement of the administrative expenses incurred by it in connection with the levy and of the costs of the nominated person (defined as "a" in regulation 5) to the supply successor companies and the nominated person at intervals of not more than 6 months.

(5) Within 10 banking days of the end of each month the Authority shall also send to the Scottish Ministers a statement of aggregate levy receipts, relevant interest payments, the Authority's administrative expenses and payments made to or received from the nominated person during that month..

(1) Regulation 27 shall be omitted.

(2) Regulation 28 shall be replaced with the following-

45.Provision of information to prescribed person

28.-(1)

(a) a supply successor company;

(b) a licensed transmitter;

(c) a licensed generator;

(d) the nominated person, or

(e) a licensed distributor,

require that person to furnish, at such reasonable time and place as may be, and in the form and manner, specified in the notice, to the Authority such information of a description contained in the Schedule as may be specified in the notice.

(2) No person shall be required, when complying with a notice under paragraph (1), to give any information which he could not be compelled to give in evidence in civil proceedings in the Court of Session.

(3) Any person furnishing information to the Authority in accordance with a notice under paragraph (1) shall, if the notice so requires, provide an auditor's certificate that such information, or any such part of that information as may be specified in the notice, is fairly stated and properly compiled..

(1) In regulation 30 all references to "Schedule 4" shall be replaced with references to "the Schedule".

(2) In regulation 32-

(a) paragraph (1) shall be replaced with the following-

(1) The nominated person, each supply successor company, each licensed transmitter and each licensed generator shall retain for the prescribed period any relevant records.;

(b) in paragraph (b) of the definition of "relevant records" after the words "a licensed transmitter" insert the words ", licensed distributor";

(c) in paragraphs (1) and (2) after the words "licensed transmitter" insert "each licensed distributor";

(d) in paragraph (2), after the words "the prescribed period" the words "the nominated person," shall be inserted;

(e) in paragraph (3)(b) after the words "a licensed transmitter" insert "; a licensed distributor";

(f) in paragraph (3)-

(i) in sub-paragraph (b) of the definition of "prescribed period", after the words "in the case of" the words "the nominated person" shall be inserted; and

(ii) in sub-paragraph (b) of the definition of "relevant records", before the words "a supply successor company" there shall be inserted the words "the nominated person,".

(3) In regulation 34(1) after the words "each licensed transmitter" insert the words ", each licensed distributor" and in regulation 34(2)9a) after the words "licensed transmitter" insert the words ", licensed distributor".

(4) Regulation 35(3)(b) and Schedules 1, 2 and 3 shall be omitted.

(5) After regulation 35 insert the following-

CALCULATIONS AND PAYMENTS BY THE NOMINATED PERSON

46.Calculations and payments to be made by the nominated person

36.-(1)

(2) The nominated person shall provide the Authority with the statement referred to in paragraph (1) on the banking day prior to the relevant levy payment date.

(3) Where in relation to any levy payment date the Amount is a negative number the nominated person shall pay that sum to the Authority on the fifth banking day after the levy payment date immediately following the date on which the statement referred to in paragraph (2) has been provided.

(4) If the nominated person makes the payment referred to in paragraph (3) later than the next levy payment date, at the discretion of the Authority, it may also be required to pay interest on that sum at a rate not exceeding the prescribed rate from the levy payment date on which such payment should have been made until such payment is actually made.

(5) In any case where the Authority determines that interest is payable under paragraph (4), the amount of such interest may not be included under any item listed in regulation 5 for the purposes of calculating the Amount on any levy payment date.

47.Over and under payments by the nominated person

37.-(1)

(a) payments under regulation 36 (instead of regulation 11);

(b) payments by the nominated person (instead of by supply successor companies); and

(c) interest payments under regulation 36(4) (instead of under regulation 25(1)).

(2) In relation to any payments required to be made to the nominated person in accordance with regulation 23, regulations 22C, 22D and 22E shall apply as if-

(a) they referred to payments under regulation 23 (instead of regulation 11);

(b) they referred to payments to the nominated person (instead of to supply successor companies); and

(c) there were no reference to interest under regulation 24(2).

TRANSITIONAL ARRANGEMENTS

48.Transitional arrangements for supply successor companies

38.-(1)

(2) These Regulations shall also continue to have effect as they did on 30th September 2005 in relation to any interest payments to be made to or from supply successor companies (save any interest payments relating to payments due to be made under regulation 11) where the entitlement to such interest accrued after 1st October 2005 provided that such interest payments relate to payments the entitlement to which accrued prior to 1st October 2005.

(3) Where payment is required to be made to or from a supply successor company under this regulation, such payment shall instead be made to or by the relevant supply successor company..

(1) Replace the title of "Schedule 4" with "The Schedule".

(2) In the Schedule-

(a) at the end of paragraph 1(b) delete the word "and";

(b) at the end of paragraph 1 insert the following-

; and

(d) aggregate payments received or due to be received by the nominated person in relation to sales of electricity or rights relating to electricity generated pursuant to qualifying arrangements.;

(c) in paragraph 3(f) after the words "value added tax" insert the words ", climate change levy";

(d) in paragraph 3(g) after the words "value added tax" insert the words "and climate change levy";

(e) paragraph 7 shall be replaced with the following-

7. In the case of a licence under section 6(1)(d) of the Act granted after the coming into force of these Regulations, the date upon which the licence holder intends to start undertaking the activities authorised by the licence.;

(f) in paragraph 8 after each reference to "a transmission system" insert "or a distribution system";

(g) at the end of paragraph 14 insert the following-

PART IV

(a) each of the items defined in regulation 5 as "C", "A", "a", "ii", "io", "y" and the Amount and any sums included under paragraph (5) of that regulation in the calculation of the Amount;

(b) total quantities of electricity made available to the nominated person under qualifying arrangements and total quantities made available under each individual qualifying arrangement, measured by a meter installed for the purpose and expressed in kilowatt hours;

(c) the price per kilowatt hour at which the nominated person purchases electricity under each individual qualifying arrangement and the price at which he sells rights to such electricity; and

(d) information which the Authority may reasonably require in order to assess compliance by the nominated person with the debt recovery procedure, the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2005 and these Regulations.

.

49.Revocation

50. The Fossil Fuel Levy (Scotland) Amendment Regulations 2002( [17]) are hereby revoked.

A member of the Scottish Executive

St Andrew's House,

Edinburgh

2005

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Fossil Fuel Levy Regulations 1996 ("the Principal Regulations") (S.I. 1996/293). They come into force on 1st October 2005. Any reference in this note to a numbered regulation is a reference to the regulation bearing that number in the Principal Regulations. These Regulations also revoke the Fossil Fuel Levy (Scotland) Amendment Regulations 2002.

There are a various minor and consequential changes, however the main changes of substance are to adapt the Principal Regulations following the introduction of the British Electricity Trading and Transmission Arrangements on 1st April 2005 and to make provision for payments out of levy to be made to the nominated person (as defined in the Electricity from Non-Fossil Fuel Sources Saving Arrangements Order 2005 (S.I. 2005/?) instead of to the supply successor companies.

Regulation 5 sets out the method of calculating the amounts to be paid to or by the nominated person pursuant to section 33(5) and (5A) of the Electricity Act 1989. This includes provision for the nominated person to be reimbursed its costs which are reasonably incurred in relation to the sale and purchase of electricity which has been generated pursuant to qualifying arrangements. Regulation 5A provides that the Authority is to determine a debt recovery procedure with the aim of ensuring the prompt collection of debts owed to the nominated person.

Regulation 6 re-expresses the method to be used by the Authority in calculating the rate of levy - the method is now set out in a narrative rather than formulaic manner, with the result that Schedules 1, 2 and 3 have been omitted. The method has also been modified to take into account the fact that payments out of levy are to be paid to (or may be received from) the nominated person.

Regulation 6 also includes a requirement on the Authority to calculate or review the levy rate at least once every 12 months. The Authority no longer has to calculate the rate of the levy with reference to a specific levy year (which previously commenced on 1st October each year). Before notifying supply successor companies and the nominated person of the levy rate the Authority must consult the Scottish Ministers.

Regulations 15 and 19 have been omitted. Regulations 20 and 21 have been amended to remove the concept of supply below market price as this was reliant on the existence of the electricity pool. These regulations now refer to supply below purchase price.

Regulation 23 has been amended to make provision for payments to be made to the nominated person and for these payments to be made on the fifth banking day of each qualifying month.

Regulations 28, 34 and the Schedule (which was previously Schedule 4) have been amended to impose information provision and retention requirements on the nominated person.

The original regulations 36 and 37 have been omitted. New regulation 36 makes provision for payments to be made by the nominated person to the Authority. New regulation 37 make provision for the correction of over and under-payments made to or by the nominated person.

Regulation 38 makes transitional provision for the Principal Regulations to be treated as not having been amended by these Regulations in relation to payments to public electricity suppliers where entitlement to those payments accrued to prior to 30th September 2005.

EXPLANATORY NOTE

(This note is not part of the Order)

This Order makes provision for the saving and modification of arrangements which have been made by supply successor companies in compliance with section 32 of the Electricity Act 1989 ("the Electricity Act") to be put in place after the commencement of trading under the British Electricity Trading and Transmission Arrangements ("BETTA") on 1st April 2005. The Order also removes the temporary arrangements contained in the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements Order 2001 and the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements (Modification) Order 2002 by revoking both Orders.

Articles 1 and 2 provide for the citation, commencement, extent and interpretation of the Order.

Articles 3 and 4 oblige supply successor companies in Scotland to ensure that a person nominated by them makes arrangements which replace arrangements which were made in the past by them in compliance with section 32 of the Electricity Act and which secure the availability of a certain amount of generating capacity from non-fossil fuel generating stations. The amount of generating capacity which is to be made available to the nominated person is the same as that which was required to be made available to the supply successor companies. The arrangements made by the supply successor companies and the nominated person must be in place after the date on which trading commences under BETTA. The nominated person is also obliged to offer for sale the electricity made available to him under the arrangements to all supply successor companies and licensed electricity suppliers (without any undue discrimination) and to use his reasonable endeavours to receive the best price reasonably attainable for it. The owners of the nominated person or those with an interest in him, must not gain any advantage from such ownership.

Article 5 provides that the nominated person must be approved by the Scottish Ministers. There is also provision for withdrawal of the approval and changes in the identity of the nominated person.

Article 6 imposes agreements on operators of non-fossil fuel generating stations who had an arrangement making electricity available to supply successor companies in compliance with certain orders under section 32 of the Electricity Act, but who have not entered into replacement arrangements with the nominated person. There is provision for the Scottish Ministers to resolve disputes as to the terms of such imposed agreements.

Article 7 provides that where Ofgem - The Office of Gas and Electricity Markets ("the Authority") considers that a supply successor company has complied with its obligations under article 3, then the Scottish Ministers may declare that it shall be released from its obligations under section 32 of the Electricity Act.

Article 8 of the Order provides that the obligations of supply successor companies in Scotland in article 3 of the Order are relevant requirements for the purposes of Part I of the Electricity Act, thus enabling the Authority to take enforcement action.

DRAFT SAVINGS ARRANGEMENT ORDER R.I.A. ANNEX C

Regulatory Impact Assessment - Savings Arrangement Order

Title of Proposal

21. Regulatory Impact Assessment (RIA) for the Electricity from Non-Fossil Fuel Sources Saving Arrangements (Amendment) (Scotland) Order (2005).

Purpose and Intended Effect of Proposals

Objective

22. The legislation will allow SRO output to be auctioned by a third party. Currently, SRO output in Scotland is contracted to the two Scottish supply successor companies, Scottish Power and Scottish and Southern Energy. The implementation of the British Electricity Trading and Transmission Arrangements (BETTA) on 1 April 2005 introduced a GB wide trading system for and removed the barriers which prevented Scottish renewables output being auctioned on a GB wide basis.

23. Through these changes the Scottish Executive seeks to:

a) Replicate the system which currently exists in relation to Non Fossil Fuel Orders (NFFO) in England and Wales;

b) Allow for a full auction of SRO electricity and all associated benefits.

Background

24. During the development of the Renewables Obligation Scotland (ROS) Order it was decided, following public consultation, that the SRO output should be eligible for Renewables Obligation Certificates (ROCs). There were two reasons for this; firstly, to secure liquidity in the ROC market during the early years of the ROS, and secondly, to use the value of the associated ROCs to reduce the Fossil Fuel Levy (FFL), which pays the above market costs of the SRO contracts.

25. At this time, the Executive intended that the SRO output and the associated certificates should be openly auctioned to GB suppliers. However, the existing electricity arrangements for Scotland precluded SRO output being contracted to, or sold by, anyone other than SP and SSE. Therefore, as an alternative, legislation was laid obliging SP and SSE to put in place "arrangements" to realise the value of (i.e. auction) the SRO ROCs, and to use the income thus gained to pay the higher costs associated with SRO electricity.

26. This was always viewed as a stopgap solution. A significant problem is that SRO output also qualifies (under the Climate Change Levy) for certificates known as LECs which have a value. Because LECs can't be sold separately from the electricity to which they relate, the SRO LECs, like the associated output, have not thus far been available for auction. Allowing SRO output to be auctioned will also allow the LECs to be auctioned alongside.

27. The implementation of BETTA on 1 April eliminated the market obstacles that currently prevent the full auction of output and certificates. Following initial discussions with key stakeholders, we now propose that we should move to the full auction system envisaged throughout.

Risk Assessment

28. Scottish Ministers have an aspirational target that 40% of the electricity generated in Scotland by 2020 should come from renewable resources. Progress towards this target will be aided by a system which allows generators of renewable electricity, as well as suppliers with an obligation to supply renewable electricity, access to a competitive and well regulated market.

29. Now that the barriers to a full auction have been removed, it would be inequitable to persist with the current arrangements, which do not allow the wider supply community full access to SRO output and benefits.

Options

30. The options for the proposed change are outlined below, along with the intended effect, benefit and costs of each option:

31. Option 1 is to do nothing. With BETTA now in place, we believe that there should now be open and transparent access to the electricity and benefits associated with the SRO contracts.

32. Option 2 is to make changes to the existing legislation which will allow renewables output and benefits such as ROCs and LECs to be openly auctioned. These changes include an amendment order which will have similar effect to the England and Wales Electricity from Non-Fossil Fuel Sources Savings Arrangements Order (2000). This will require the Scottish supply successor companies to appoint a nominated person and for this nominated person to make arrangements to comply with the relevant requirements set out in the order.

Costs and Benefits

33. The impact upon SRO generators is likely to be neutral, as the Order will require the replacement contract terms (to be entered into with the nominated person) to be on terms such that generators who are party to them are in substantially the same economic position as regards matters relating to contract price, indexation and term as they are in as a party to their current SRO contracts. We believe that the proposed structure, where the nominated person auction renewables output, represents a more economically efficient market solution than that currently in place.

34. The current arrangements also place an administrative burden on both supply successor companies. The proposed arrangements will transfer the costs in administering SRO output to the nominated person.

35. There will be benefits to the supply industry as a whole. Under the existing arrangements only the supply successor companies have access to SRO output. The new system will mean that suppliers across GB have access to this output.

36. Replicating the system that exists in England and Wales will ensure greater consistency for all renewable generators. This will allow for a more transparent and consistent administration of the renewable energy market.

37. The legislation does not raise any issues of finance for the Scottish Ministers.

Equity and Fairness

38. The Scottish Executive is committed to generating 40% of electricity from renewables resources by 2020. The provision of a stronger, transparent and more liquid market in renewable power and ROCs is an important part of this, and ensures that access to SRO output and benefits is available on a fair and transparent basis. We do not believe the proposals will disproportionately affect any of the key groups.

Small Firms Impact Test

39. The structure of the electricity market is characterised by large companies involved in the generation, supply and distribution of electricity. However, small generating companies do exist in the renewables sector and it is likely the proposals will impact on their business.

40. The order will alter the trading arrangements for small generators of SRO output. It will require the existing SRO contracts with the supply successor companies to be replaced with new contracts with the nominated person. However, the order will require that the replacement contract terms are on terms such that generators who are party to them are in substantially the same economic position as regards matters relating to contract price, indexation and term as they are in as a party to their current SRO contracts, and the transition will be financially neutral for these generators.

Competition Assessment

41. The realisation of SRO benefits using a nominated person will allow for the more transparent and consistent administration of the renewable energy market and should have a positive effect on competition. We do not believe the proposed change will affect the structure of the electricity market or the competitive basis of the businesses which operate in the market.

Environmental Assessment

42. The regulations will have no direct impact on the environment but may have an indirect beneficial effect through creating a more efficient route for renewable energy to enter the GB market.

Enforcement and Sanctions

43. The proposal is designed to transfer SRO contracts from the SSC's to the nominated person. Scottish Ministers will have responsibility for enforcing certain license conditions under the order, including the removal of the nomination. Enforcement of other aspects of the order will be a matter for Ofgem, including determining whether contracts remain as qualifying arrangements and processing requests for economic termination of contracts.

Monitoring and Review

44. This will be a matter for the nominated person in conjunction with Ofgem.

Consultation

Within Government

45. The proposal has been developed by Scottish Executive officials in Energy Division and Legal Services. Officials have also worked closely with colleagues in Ofgem.

Public Consultation

46. The proposals have been under discussion for the past two years with the SRO Action Group which meets on a regular basis. The Action Group consists of civil servants, representatives from SP and SSE, the NFPA, lawyers from Herbert Smith law firm, the Scottish Renewables Forum and other representatives of the electricity industry. They are supportive of the process and are keen to see it advanced.

47. A wider public consultation has also taken place.

Summary

48. The proposed Savings Arrangements Order will provide the necessary legal framework for the nominated person to discharge their authority to auction renewable electricity created by SRO generators.

49. The Scottish Executive believes this proposal, as set out in option 2, will provide the correct solution for generators of renewable electricity in Scotland. The proposals will bring the system in Scotland into line with that which already exists in England and Wales, ensuring consistency across Great Britain for renewable energy generators. The new system will allow for a full auction of renewable electricity and all associated benefits. This will allow for the more transparent and consistent administration of the renewable energy market.

50. The Scottish Executive intends that the Savings Arrangement Order to which this document relates will come into force on 1 October 2005.

Contact

51. Any queries relating to this Regulatory Impact Assessment should be addresses to:

James P Thomson

Renewables and Consents Policy

Energy Division

Meridian Court

5 Cadogan Street

Glasgow

G2 6AT

Tel: 0141 242 5895

E-mail: james.thomson.ETLLD@scotland.gsi.gov.uk

Declaration I have read the Regulatory Impact Assessment and I am satisfied that the benefits justify the costs. Signed by the responsible Minister: Date:

DRAFT FOSSIL FUEL LEVY REGULATIONS R.I.A. ANNEX D

Regulatory Impact Assessment - Fossil Fuel Levy Changes

Title of Proposal

52. Regulatory Impact Assessment (RIA) for the Fossil Fuel Levy (Scotland) Amendment Regulations 2005.

Purpose and Intended Effect of Proposals

Objective

53. The legislation will amend the Fossil Fuel Levy (Scotland) Regulations 1996 (the original Regulations) to allow for a nominated person to administer fossil fuel levy payments. Currently, payments from the Scottish fossil fuel levy fund can only be made to and distributed by the two Scottish supply successor companies (SSCs) - Scottish Power and Scottish and Southern Energy. The Scottish Regulations also require some additional amendments to bring them in line with changes that have been made to the equivalent England and Wales Regulations.

Background

54. During the development of the Renewables Obligation Scotland (ROS) Order it was decided, following public consultation, that the output from Scottish Renewable Obligation (SRO) contracts should be eligible for Renewables Obligation Certificates (ROCs). There were two reasons for this; firstly, to secure liquidity in the ROC market during the early years of the ROS, and secondly, to use the value of the associated ROCs to reduce the Fossil Fuel Levy (FFL), which pays the above market costs of the SRO contracts.

55. The Executive's intention had been that the SRO output and the associated certificates should be available for auction to GB suppliers. However, the existing electricity arrangements for Scotland precluded the SRO output being contracted to, or sold by, anyone other than the SSCs. Therefore, as an alternative, legislation was laid obliging the SSCs to put in place "arrangements" to realise the value of (i.e. auction) the SRO ROCs, and to use the income thus gained to pay the higher costs associated with SRO electricity.

56. This was always viewed as a stopgap solution. A significant problem is that SRO output also qualifies (under the Climate Change Levy) for certificates known as LECs. These also have a value; however, unlike ROCs, LECs can't be sold separately from the electricity to which they relate.

57. Now that the barriers to a full auction have been removed by the introduction of BETTA (British Electricity Transmission and Trading Arrangements), an order is being made requiring the SSCs to appoint a nominated person and for this nominated person to make arrangements to comply with the relevant requirements set out in the order. In order for this to happen, a number of parallel amendments will also need to be made to the original Regulations, allowing payments to be made to the nominated person.

58. Apart from introducing the concept of the nominated person, the amending Order will also make other consequential changes to the original Regulations to bring them into line with the equivalent England and Wales regulations.

59. It will amend a disparity which has arisen between the Scottish and English regulations in terms of the deduction of Climate Change Levy (CCL) payments from the total amount subject to levy charges. Currently, the SSCs are required to pay more in fossil fuel levy than equivalent companies in England and Wales as the CCL is not deducted. We will amend the original Regulations to bring them into line with England and Wales on this point.

60. In addition, the England and Wales Regulations originally contained a lengthy and complex formula for calculating the levy. This has since been substituted with a simpler and more transparent method. However, the Scottish Regulations still retain the original formula - we propose that our amending Order should replace this and bring the original Regulations into line with England and Wales.

61. We also intend to transfer the payment cycle of the Scottish Regulations to a monthly rather than annual basis.

Risk Assessment

62. As stated, the main amendment to the original Regulations, i.e. the introduction of the nominated person, is essential in terms of parallel changes being made to the ownership and operation of SRO contracts. Not to do so would mean that SRO output and benefits would not be available openly and transparently to suppliers across GB.

Options

63. The options for the proposed changes are set out below, along with the intended effect, benefits and costs of each option.

64. Option 1 is to do nothing. As paragraph 11 states, we do not believe that this would be defensible.

65. Option 2 is to amend the original Regulations. Our amending Order will have a similar effect to the England and Wales Fossil Fuel Levy (Amendment) Regulations 2001. This will allow the prescribed person (Ofgem) to make and receive levy payments to and from the nominated person instead of the SSCs. Further amendments will be made as outlined in paragraphs 8-10.

Costs and Benefits

66. The impact of the amendment on SRO contract holders will be neutral, as the existing contract terms will remain unchanged as regards the Fossil Fuel Levy. There should be no change in administrative costs - these will simply transfer from the SSCs to the nominated person. There will be no cost to business overall.

Equity and Fairness

67. These proposals will help ensure that SRO output and benefits can be made available openly and transparently to all licensed electricity suppliers, and represent an improvement on the current system. We do not envision any group being disproportionately affected by the proposal.

Small Firms Impact Test

68. The structure of the electricity market is characterised by large companies involved in the generation, supply and distribution of electricity. The proposals will mostly affect these large supply companies. We do not foresee the proposals having a negative impact on small businesses.

Competition Assessment

69. The introduction of a nominated person to replace the SSCs in the administering of fossil fuel levy payments is part of a wider plan to introduce greater competition and transparency to the market for renewable electricity.

Environmental Assessment

70. The regulations have no direct impact upon the environment but may have an indirect effect through providing a more efficient and less costly route for renewable electricity to enter the market.

Enforcement and Sanctions

71. The key change is designed to allow the nominated person to make and collect fossil fuel levy payments. The other proposals will update the original Regulations to provide consistency with the equivalent system in England and Wales. Enforcement will remain a matter for Ofgem and other parties involved in the process.

Monitoring and Review

72. This will remain a matter for Ofgem in tandem with the nominated person. We will carry out a formal review of the legislation within 10 years of it coming into force.

Consultation

Within Government

73. The proposals have been developed by Scottish Executive officials in Energy Division and Legal Services. Officials have worked closely with colleagues in Ofgem.

Public Consultation

74. The proposals have been under discussion for the past two years by an internal SRO Steering Group. A formal public consultation has also taken place.

Summary

75. The proposed amending Order will provide the necessary legal framework for fossil fuel levy payments to be made by, and to, the nominated person.

76. The order will also require that a series of consequential changes be made to the original Regulations. These include changing the formula which sets levy charges, changes which reduce the amount Scottish companies pay in levy charges, and changing the payment cycle to a monthly basis.

77. The Scottish Executive believes the proposals, as set out in paragraphs 6-10, represent a fair and robust solution for the sale and administration of SRO contracts and fossil fuel levy payments in Scotland. The proposals will also bring the system in Scotland into line with that which already exists in England and Wales, ensuring consistency across Great Britain for renewable energy suppliers.

78. The Scottish Executive intends that the amending Order to which this document relates will come into force on 1 October 2005.

Contact

79. Any queries relating to this Regulatory Impact Assessment should be addresses to:

James P Thomson

Renewables and Consents Policy

Energy Division

Meridian Court

5 Cadogan Street

Glasgow

G2 6AT

Tel: 0141 242 5895

E-mail: james.thomson.ETLLD@scotland.gsi.gov.uk

Declaration I have read the Regulatory Impact Assessment and I am satisfied that the benefits justify the costs. Signed by the responsible Minister: Date:

[1]http://www.scotland.gov.uk/consultations

([2]) 2000 c.27. The functions of the Secretary of S