The Supreme Court has dismissed an appeal by Viridian Power Limited and Huntstown Power Company Limited over whether they could include a carbon revenue levy in electricity bids submitted to the Single Electricity Market.
The companies had sought to overturn Commission for Energy Regulation directions dated 8 October 2010 that barred them from including the levy in the price components of their Commercial Offer Data. The High Court refused their judicial review application in June 2011. The companies appealed that decision and order.
The appellants argued that the levy was a cost attributable to operating their generating plants and should therefore be included under their electricity generation licences’ cost-reflective bidding requirements. They submitted that excluding it prevented recovery of a significant generation cost. The Commission argued that the levy was an expenditure arising from production, rather than an opportunity cost that could be included in bids. The Attorney General submitted that the levy applied to windfall revenues associated with emissions allowances allocated free to generators.
Delivering judgment on 23 February 2012, Chief Justice Denham focused on the wording of Condition 15 of the licences and the Bidding Code of Practice. The licence required bids to be cost-reflective, calculated by reference to short-run marginal cost. It also required relevant cost items to be treated as opportunity costs, with that term defined by the code.
The code defined an opportunity cost as the value of a benefit a generator foregoes by using a cost item for electricity generation, measured against its most valuable realisable alternative use outside electricity generation. The Court concluded that the levy did not meet that definition: it arose from the products of generation and had no realisable alternative use. The Court said the appeal concerned construction of the licence and code on the documents before it.
The Supreme Court dismissed the appeal. The High Court’s refusal of relief therefore remained in place. The Supreme Court did not grant the requested orders quashing the Commission’s directions or a declaration that the levy could lawfully be included in bids.