ADVANCED CONSULTATION DRAFT CPSE.6C - CRC enquiries for acquisition of freehold property subject to occupation leases where the Buyer is a CRC Participant

In very general terms, once it acquires the Property, the Buyer will have to include, in its annual CRC report, those supplies of electricity, gas and other fuels to the Property for which it will have responsibility (see notes to Enquiry 1). The Buyer will also have to purchase CRC allowances to cover the carbon dioxide emissions relating to those supplies.

Unlike a freehold property with vacant possession, some or all of the occupation tenants may be responsible for some or all of the energy supplies (particularly if the Property has been let as a whole, or if the tenanted units are separately supplied with energy).

CPSE.6C allows the Buyer to find out, in advance, whether it will be responsible for supplies, and, if so, the likely quantity of supplies which will need to be covered by CRC allowances. It can then decide whether it will need (and can afford) more CRC allowances.

There are further enquiries designed to establish to what extent the occupation tenants contribute to the CRC costs incurred by the Seller, their likely levels of energy consumption and whether they can be required to cooperate in reducing energy consumption.

Under the CRC, if a person:

• "receives a supply" of energy (as described in Paragraphs 1-4 of Section 1 of Schedule 1 to the CRC Order). This is colloquially known as a "direct supply"; or

• supplies itself with energy (within the strict requirements of Paragraph 6 of Section 2 of Schedule 1 to the CRC Order) ("self-supply")

then it (or the group of which it forms part for the purposes of the CRC) must report on that energy supply and buy CRC allowances to cover the carbon dioxide emissions relating to that supply. This is commonly referred to as being "responsible for the energy supply" although that phrase is not defined in the CRC Order.

If the Seller is responsible for the energy supplies to the Property, then the Buyer will inherit that responsibility on completion of the purchase.

Where a freehold property is sold subject to occupation leases, either the Seller or the tenants may be responsible for the energy supplies to the Property.

It should be straightforward to decide who has a "direct supply". For example, where:

• a party is the named customer of the energy supply company

• that party receives the bill direct from that company

• the supply is measured by a main ("fiscal") meter; and

• that party pays the bill direct

this will be powerful evidence that that party receives a "direct supply" of that energy.

However, these factors will not always determine when there is a "direct supply". For example, the Seller may buy its energy through a facilities management company. This is a third party which procures the energy supply on behalf of a number of customers (the end users) and by bulk buying in this way, can secure a better pricing structure for all its customers. The facilities management company is the customer of the energy supply company, and will receive and pay the overall bill. However, the facilities management company uses none of the energy itself. It passes it all down to the Seller. Under the CRC it is the Seller, not the facilities management company, which is responsible for the supply.

In buildings with occupation tenants, some or all of the tenanted parts may have a completely separate direct supply of some fuels (often electricity). For example, on a retail warehouse park or industrial estate, each unit usually receives its own supply of electricity, which supply is measured by a fiscal meter. This will make the tenant "responsible" for that supply. If there is an electricity supply to any common parts (perhaps to communal car park lighting) it is likely to be the landlord that is responsible for that supply.

The position is more complex where there is no separate supply to tenanted parts of the Property. For example, in a retail shopping centre, some units may have their own separate direct supply of electricity (in which case the tenant is responsible for that supply) but other units do not. The landlord is the customer for the supply to those latter units and receives and pays the electricity bill. It distributes the electricity supply to those units and charges each tenant through the service charge for the cost of the electricity supplied to its unit. Under the CRC Order, it is the landlord that will be "responsible" for the electricity supply to these units even though it is the tenants (rather than the landlord) that use the electricity.

For further guidance on the supply rules, see Paragraphs 1-4 of Section 1 of Schedule 1 to the CRC Order and EA Guidance on the CRC Energy Efficiency Scheme: Supply rules (www.practicallaw.com/3-501-8606)

Remember that, since the definition of Property includes both the whole and any part of the Property, this enquiry effectively asks about supplies both to the tenanted parts of the Property and the common parts.

When preparing its annual report (and calculating how many CRC allowances it will need), a CRC participant must take into account its electricity supplies if they fall into one of four varieties ("core supplies"). Other types of electricity supply are treated very differently as part of the regime set out in articles 42-45 of the CRC Order (the "residual supplies" regime).

The Buyer therefore needs to know the type of electricity supply to the Property. This is determined by the variety of meter that measures it. Whilst the Buyer's surveyor may be able to classify the meters, from visual inspection, when doing the survey, this will not always be the case. The physical appearance of a meter is not always an accurate guide to its variety ("profile class"). Sometimes the meter is not even visible (it may be underground or in an inaccessible part of the Property).

It is therefore necessary to ask the Seller what type of meters are used in or relate to the Property. The Seller should be able to work much of this out from looking at the Meter Point Administration Number (MPAN) number which appears on both the meter and the bill. It may need to supplement this information by looking at the meter itself and the method of connection, or by asking its electricity supply company.

Settled Half Hourly Meters

A settled half hourly meter is defined in Paragraph 2 of Schedule 2 of the CRC Order. It is one for which both the following tests are satisfied:

• The meter records, every half hour, how much electricity was used in the previous half hour. The data produced is referred to as half-hourly data.

• The half hourly data is both used by

  • the electricity supplier to work out the cost of that electricity to the Seller; and

  • the electricity supplier (for example, Scottish Power) and the transmitter of the electricity (for example, the power station) for the purposes of the Balancing and Settlement Code, to monitor, on a half hourly basis, the balance between electricity generated and consumed and any consequent payment due between the electricity supplier and the transmitter. This is the distinguishing feature of a settled half hourly meter (as opposed to a non-settled half hourly meter).

A settled half hourly meter will always have an MPAN number that starts 00. It will also always have either a telephone line or an internet connection but this may not be readily apparent on physical inspection. Since non-settled half hourly meters also have an MPAN number starting 00, and other types of meter may also have a telephone/internet line, neither method is a wholly reliable way to identify a settled half hourly meter. Indeed, there seems to be no other reliable method. As a result, the Seller may find it difficult to answer this enquiry.

The practical solution is for the Seller to ask the electricity supply company what type of meters relate to the Property. We do not yet know whether they will be prepared to respond, or how quickly.

At the start of the CRC, the Environment Agency (EA) wrote (based on information given to them by the electricity supply companies) to those people it believed had a supply through a settled half hourly meter. The EA has already said that there will be some such meters for which no customer can be identified, and others where the customer will have been wrongly identified. If the Seller has received such a letter, whilst it should be able to check that that particular meter is on its property, it may well be unable to cross-check that the classification of the meter is correct. It will have to accept that information at face value.

Therefore, if the Seller (or a superior company in its group) has received such a letter (or letters - there was no obligation on the EA to consolidate all the relevant meters onto one letter to the same addressee), it should retain it/them as an important reference document. When answering this enquiry, the Seller could choose to copy the letter(s) for production to the Buyer to demonstrate which settled half hourly meters it believes relate to the Property. It seems unlikely that the EA would take enforcement action where the Buyer acted in good faith on the basis of such a letter.

In addition to this initial letter, the supply company can be asked to provide an annual statement listing the MPAN numbers of any meters covered by the supply contract, and the annual energy consumption measured by each such meter (article 63 of the CRC Order as expanded advice in the DECC User Guide (www.practicallaw.com/5-501-2745)). It is not clear that that statement will (or could be required) to identify whether the meters are settled, non-settled, or half hourly meters. The request for such a statement must be made before the end of the relevant CRC compliance year, and the supply company must reply within six weeks of the end of that CRC compliance year.

Non-settled Half Hourly Meters

A non-settled half hourly meter is defined in Paragraph 3 of Schedule 2 of the CRC Order. It is one which can measure electricity used on a half-hourly basis, and uses that data to work out the cost of that electricity to the Seller, but does not use that half hourly data for the purposes of the Balancing and Settlement Code.

To qualify as a non-settled half hourly meter, both the following tests must be satisfied:

• The meter is able to measure the electricity at least every half hour. It may measure it more frequently.

• The meter has been read remotely by the Seller (or someone acting on its behalf) at some point during the current CRC phase.

It is not clear whether, having been read remotely once during the CRC phase, the meter will only continue to qualify as a non-settled half hourly meter if it is read remotely in each of the succeeding years of that CRC phase. Paragraph 3(3) of Schedule 2 of the CRC Order, and its interrelationship with Paragraph 3(1)(b), is ambiguous. Since the broad intention behind the CRC Order is to bring within the CRC as many energy supplies as possible, it would seem more likely that the definition would capture meters that had been read remotely once, even if they were not (for whatever reason) read remotely regularly after that first reading.

Remote reading may be by telephone or on-line, rather than by standing in front of the meter identifying the reading from the display. Such meters are therefore likely to have a phone or internet line attached to them, though this may not be readily apparent on a physical inspection. Sometimes these meters are linked to a building management system and their readings feed directly into that system.

A half hourly meter (whether settled or non-settled) always has an MPAN number (visible on the meter itself, and on the bill) starting 00. Thus it is not possible to distinguish a non-settled half hourly meter from a settled half hourly meter by the MPAN number or by looking at the meter itself or the method of connection.

Nor can the Seller rely on the initial letter from the EA to identify this type of meter, because that letter will have listed only settled half hourly meters. The only other option will be to ask the electricity supply company to provide information on the number and nature of the meters. They may provide this information voluntarily, in response to a request from the Seller, but we do not know within what time scale they will reply, nor whether the information provided will be comprehensive. Alternatively the Seller may be able to wait and rely on the requested list from the electricity supplier under article 63 of the CRC Order (see Settled Half Hourly Meters).

It is necessary to distinguish non-settled half hourly meters or devices from other types of "automatic" meters that can be used to monitor the electricity usage by different parts of a property. These may have been fitted by the Seller, they do produce data to show the energy usage pattern and that data may be collected remotely. However, that data is not used by the supplier to determine the bill for the electricity. Their readings are simply used for internal purposes (perhaps to see how heavy a user one occupation tenant is in relation to another). These are often called "check meters".

Non-domestic meters

A non-domestic meter is defined in Paragraph 4 of Schedule 2 of the CRC Order. It is a meter which is designed to (and does) measure electricity supplies to non-domestic premises and is capable of measuring maximum electricity demand. It does not measure the electricity on a half hourly basis at all. It merely has an internal register that records the highest demand for electricity over a set period. It may be capable of being automatically read or not.

Non-domestic meters will fall into Profile Classes 5, 6, 7 or 8 and this will show as the first two digits of their MPAN number (05, 06, 07 and 08). Typically, this type of meter monitor supplies under 100KW.

Dynamic supply

A dynamic supply is defined in Paragraph 5 of Schedule 2 of the CRC Order. It is a relatively unusual variety of electricity supply. Instead of the whole supply being metered, a device (not necessarily a meter) records daily when electricity is supplied to one piece of equipment on the Property. The other similar pieces of equipment are neither metered nor monitored by such a device. From the reading on the first device, the supplier works out (on a half hourly basis) the total electricity supplied to all the pieces of equipment.

The most common example is street lighting, where one lamp standard is monitored and the supplier knows that there were, say, 20 lamp standards on the circuit, all on at the same time. It multiplies the metered supply to the one lamp by 20 and charges for that total supply. Other examples might be a set of phone masts or traffic lights.

For more information on meters and the CRC, see EA Guidance on the CRC Energy Efficiency Scheme: Meters and metering (www.practicallaw.com/5-501-8605).

When preparing its annual report (and calculating how many CRC allowances it will need), a CRC participant must take into account its gas supplies to the Property if they fall into one of three varieties ("core supplies"). Other types of gas supply are treated very differently as part of the regime set out in articles 42-45 of the CRC Order (the "residual supplies" regime).

The Buyer therefore needs to know the type of gas supply to the Property. Whilst the Buyer's surveyor may be able to tell, from looking at the meters when doing the survey, which type of supply it is likely to be, this is not always the case. The physical appearance of a meter is not always an accurate guide to its type. Sometimes the meter is not even visible (it may be underground or in an inaccessible part of the Property).

It is therefore necessary to ask the Seller what type of meters are used in the Property. The Seller may be able to work this out, either from their bill, or by looking at the meter (in some cases) or by asking their gas supply company. There is no equivalent to an MPAN number for gas meters.

Daily Meters

A daily meter is defined in Paragraph 7 of Schedule 2 of the CRC Order. It is one for which both the following tests are satisfied:

• The meter is able to measure gas supplied at least daily (it could be more frequent).

• The meter is read in Great Britain by an authorised supplier or transporter of gas. They will do so under the Uniform Network Code which requires gas suppliers to read the meters for high volume gas users on a daily basis. Those readings are used to settle the supply on the gas market.

Hourly meters

An hourly meter is defined in Paragraph 8 of Schedule 2 of the CRC Order. To qualify as an hourly meter, all of the following tests must be satisfied:

• The meter is able to measure the gas at least every hour. It may measure it more frequently.

• The meter has been read remotely by the Seller (or someone acting on its behalf) at some point during the current CRC phase.

It is not clear whether, having been read remotely once during the CRC phase, the meter will only continue to qualify as an hourly meter if it is read remotely in each of the succeeding years of that CRC phase. Paragraph 8(3) of Schedule 2 of the CRC Order, and its interrelationship with Paragraph 8(1)(b), is ambiguous. Since the broad intention behind the CRC Order is to bring within the CRC as many energy supplies as possible, it would seem more likely that the definition would capture meters that had been read remotely once, even if they were not (for whatever reason) read remotely regularly after that first reading.

Remote reading may be by telephone or on-line, rather than by standing in front of the meter identifying the reading from the display. Such meters are therefore likely to have a phone or internet line attached to them, though this may not be readily apparent on a physical inspection. Sometimes these meters are linked to a building management system and their readings feed directly into that system.

It is necessary to distinguish this type of hourly meter from other types of "automatic" meters that can be used to monitor the gas usage by different parts of a property. These may have been fitted by the Seller, they do produce data to show the energy usage pattern and that data may be collected remotely. However, that data is not used by the supplier to determine the bill for the gas. Their readings are simply used for internal purposes (perhaps to see how heavy a user one occupation tenant is in relation to another). These are often called "check meters".

Large gas point meters

A large gas point meter is defined in Paragraph 9 of Schedule 2 of the CRC Order. It is a meter through which a supply of more than 73200 kWh of gas was supplied in the relevant year. This type of meter will not be read daily or hourly. It may only be read (and billed) by the gas supplier monthly or quarterly.

The Buyer will want to know the past level of core supplies (these will relate only to electricity and gas) and the other fuels supplied to the Seller. Such information will enable the Buyer to estimate whether it will need additional CRC allowances to cover the CO2 emissions relating to those supplies.

This enquiry is confined to questions about electricity and gas. If the Buyer establishes that the Property uses other fuels (perhaps from the survey, or from inspection, or from replies to other CPSE documents) the Buyer may want to raise additional enquiries about past usage figures for those fuels (in order to estimate any likely increase in what it will need to declare as its "residual supplies" and/or how many CRC allowances may be needed to cover CO2 emissions relating to those supplies).

This enquiry only asks for information on gas and electricity consumption in the last two years or (if shorter) the period that the Seller has owned the Property. No questions are asked about the consumption by the previous owner (if the Seller has not owned the Property for two years), as it seems unlikely (at least in the early stages of the CRC) that the Seller will have any information about its predecessor in title's consumption. This may change as awareness of the CRC increases, and it becomes more commonplace for sellers to pass on this information when a property is sold.

Where the Seller is a CRC participant, it is asked to supply the information by using the figures for core supplies that it will have reported in its annual CRC report. For this reason the question asks for the figures for the last two annual reporting years, not the 24 months immediately preceding the date of the enquiries.

Where the Seller is not a CRC participant (and therefore has no duty to file an annual CRC report) or where, despite being a CRC participant, the Seller does not have the figures for core supplies, then the enquiry asks for copy energy bills for the 24 months immediately preceding the date of the enquiries (or if less, the period that the Seller has owned the Property).

This enquiry will only be relevant once trading of CRC allowances begins (after 1st April 2011). Where the Buyer thinks that it will need additional CRC allowances to cover the CO2 emissions relating to its likely supplies in relation to the Property, it may prefer to buy these from the Seller, rather than from the Government or on the "secondary" market (from other CRC participants who have a surplus, such as the Seller, or from intermediaries). This may be because:

• CRC allowances may be cheaper if bought on the secondary market than if they are bought from the Government (either in the fixed price sales, during the first CRC phase, or in the annual CRC auction, in the second and subsequent CRC phases).

• It is too late to buy them from the Government because the fixed price sale or auction window for that CRC compliance year has closed or the Buyer fears that insufficient CRC allowances will be available to it through that auction.

With the exception of any bought in the first CRC phase (the "Introductory Phase"), surplus CRC allowances during one CRC compliance year can be rolled forward by a CRC participant for use in the next CRC compliance year. So, if the Seller is willing to sell some CRC allowances for an attractive price, the Buyer may wish to buy them and "bank" them, either for use in future CRC compliance years for the emissions from this Property, or for use to cover emissions from other properties in its portfolio.

Where the Buyer will become responsible for some or all of the energy supplies to the Property, it will want to know whether the Seller has established a practice of charging the occupation tenants any CRC costs (including the cost of CRC allowances needed to cover emissions from energy supplies to the Property). If the Seller is not a CRC participant (so will not itself be trying to recover CRC costs) the Buyer will want to know whether the Seller's predecessor in title has established such a practice.

Such a practice may be set out in the occupation leases, but often it will arise by virtue of an informal procedure (a side letter, memorandum of understanding or just ad-hoc practice). No details of this may have yet been supplied to the Buyer with the copy occupation leases, so this enquiry is needed to flush out the information.

The Buyer needs to know what previous practice has been so that it can decide

• whether it will be able to recover its CRC costs (and if so, which costs)

• whether it will be required to credit to its occupation tenants some of its recycling payment

• whether implementing the agreed practice will involve it in a significant amount of time or expense.

A Buyer will want to know whether the Seller has agreed with the occupation tenants any measures or practices for reduction of energy consumption or any mechanism for consultation or collaboration on introducing such measures or practices. This is because reducing energy consumption will have a direct impact on the level of energy supplies needed and thus on the number of CRC allowances needed to cover the emissions relating to those supplies. This will particularly important if the Buyer will not be able to recover its CRC costs from those occupation tenants (see, Billing CRC Costs to occupation tenants).

The measures or practices may not appear in the occupation leases supplied to the Buyer. Instead, they may be included in tenant regulations or an even more informal memorandum of understanding. They may, for example, require the landlord and the tenants to participate in a building management committee that will discuss energy saving measures (amongst other things).

The Buyer will need to know whether these measures or practices impose obligations which will bind the Buyer (many informal arrangements do not bind successors in title) or which the Buyer may like to implement.

If the Buyer will be responsible for the energy supply to tenanted parts of the Property, it may want to know which units are heavier users than others, and whether their consumption is going up, down or is static. The Seller should be able to supply this information if there are check meters or sub-meters monitoring how much each tenant uses.

The Buyer will want to know the user profile of individual occupation tenants because their failure to cooperate in reducing emissions will affect the overall energy efficiency of the Property. In turn this could affect the Buyer's position in the CRC league table and thus the size of the recycling payment it receives.

The Buyer may be able to judge, from the user profile of individual occupation tenants, how much leeway there may be to help them reduce their energy consumption. This information may also explain why some occupation tenants may be unhappy with the current mechanism for dividing up CRC costs (perhaps because they are more environmentally aware than their fellow tenants, yet receive no recognition for this in the division of the CRC costs between the tenants, or the distribution of the recycling payment between them).

The enquiry requests consumption history over the 24 months immediately preceding the date of the enquiries (or, if less, the period that the Seller has owned the Property).