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UTILITY Week 11th September 2015

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UTILITY WEEK | 11TH -17TH SEPTEMBER 2015 | 15 Policy & Regulation Legal view Lis Blunson I t is not entirely surprising that judicial review pro- ceedings have been issued against HM Treasury in relation to the announcement in the summer budget that the exemption from Climate Change Levy (CCL) for electricity generated from renewable sources was to be removed. Clearly, governments are entitled to make whatever changes they see fit to the tax regime, and there have been changes to the CCL exemption arrange- ments before, most notably the removal of the exemp- tion for combined heat and power plants, but in this case just 24 days elapsed between the budget announce- ment and the change coming into force on 1 August 2015. The proceedings have been initiated by Drax Group and Infinis Energy on the grounds that the renewable electricity CCL exemption was removed without an appropriate notice period, and the court is asked to consider "what a reasonable and proportionate notice period would be". This is, of course, couched in the lan- guage of administrative law, which can seem somewhat arcane, relating as it does to things procedural rather than substantive, but this distinction is at the heart of the application by Drax and Infinis. Their claim is not that the decision to remove the CCL exemption is wrong in any way. Instead it relates to whether or not the Treas- ury has acted legally in the way in which the decision was taken and implemented. Public bodies are supposed to act fairly when tak- ing decisions, and that includes allowing appropriate periods of time when implementing their decisions. Levy exemption certificates income has been an important part of the financial models of many renewable projects and the impact of removing it is likely to be significant in many cases. No-one is immune to change in law risk, but there is a general assumption that changes in law will occur aer due process. While the formal judicial review application is not yet publicly available, it seems that Drax and Infinis are arguing that this due process has not been followed. Judicial review is not an easy, or cheap, process for the applicant. There are many complicated procedural hoops that must be leapt through just to get the case to court, and assuming that the application is allowed and the challenge is upheld, the remedies available to the successful applicant are limited, and would not include financial damages in this case. What Drax and Infinis seem to be seeking is the determination of what longer notice period for the withdrawal of the exemp- tion removal is appropriate. Assuming the court finds in their favour and issues a declaration in those terms, whether or not that would offer any practical relief for the renewables industry is not at all clear. Lis Blunson, of counsel, Orrick & Herrington & Sutcliffe LLP "Public bodies are supposed to allow appropriate periods of time when implementing their decisions" Analysis Drax challenges the Treasury Generator is going to court over changes to the exemption notice period. Lois Vallely reports. A mid a swathe of cuts to renewables subsidies by the government, the sector has begun to show its teeth, with Drax last week beginning legal action over changes to Climate Change Levy (CCL) exemptions. The generating giant, in consort with renewables group Infinis Energy, is challenging the Treasury's sum- mer budget decision to bring a swi end to climate change levey exemptions for renewable energy, on the basis that the 24-day notice period is "not appropriate". The companies are not seeking to challenge the removal of the CCL exemption itself, but are asking the court to "consider a reasonable and proportionate notice period for withdrawal of such renewable support", and the two- year notice period granted to combined heat and power plants when subsidies were removed. The release of the summer budget was a dark day for Drax, whose share price nosedived 30 per cent in three hours. The firm slammed the Treasury's decision, claim- ing it stands to lose £90 million in earnings over the next two years. It was already under pressure as low gas market prices squeezed profitability of its coal generat- ing units. Chief executive Dorothy Thompson said at the time: "We are surprised and disappointed at this retro- spective change to a support regime which has been in place since 2001 specifically to encourage green energy and support renewable investment decisions." Angelos Anastasiou, utilities analyst at Whit- man Howard, says the decision to take the govern- ment to court seems a "sensible move", with "virtually no downside". But the Treasury says it will "robustly defend against the challenge" because it is "confident in its reforms". It argues the value renewable generators receive from the exemption was expected to be "neg- ligible" by the early 2020s, as the supply of renewable electricity exceeded demand. What is more, any loss gen- erators face from the decision will be "small" compared with other government financial support they receive, which will total around £4.3 billion in 2015/16 alone. £90m Expected earnings loss for Drax over next two years because of CCL exemption removal 30% Amount Drax shares dropped on day of CCL announcement 24 Drax says 24-day notice period for changes to CCL is not appropriate 10% Amount Drax shares bounced back on the back of good interim results KEY NUMBERS DRAX SHARE PRICE 1 Sep 2014 1 Dec 2014 1 Mar 2015 1 Jun 2015 1 Sep 2015 700 600 500 400 300 200

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