Tretton Review Group minutes: November 2018

Attendees and apologies

Attendees

Membership

• David Tretton, Chair
• Kenny Hunter, Hydro Sector
• Fiona Grant, Heriot-Watt
• Alistair Kirkwood, Assessor
• Stephen Hutt, Hydro Sector
• Bill Gillies, Assessor

Secretariat

• Ian Storrie, Scottish Government
• James Messis, Scottish Government

Items and actions

1. Purpose and remit of the group

The group agree to review the areas of agreement and disagreement within the group. 

The chair stressed the importance of thoroughness for the benefit of the final report.

The group read the original remit of the group set by the then Cabinet Secretary for Finance and Constitution, Derek Mackay.

The chair acknowledged that the group believed that this was a narrow remit, but the remit did not include the instruction to make recommendations. The purpose of the group being to identify the different options but not to make any formal recommendations. The group agreed that this was the established purpose of the Hydro Review.

The chair of the group opened up the discussion of the recent news that the ‘Old Faskally’ case was to be heard on the 15th of January 2019. He expressed concerns that any review might prejudice formal litigation which is ongoing. The group discussed this issue and agreed to continue talk around the case, but that any publishing of the report should factor in the date of the hearing.

2. Rating application

The group agree that the rating application employed by the assessor is correct (i.e that the regulations are being applied correctly). The group also agree that while the application is being applied accurately, it is producing adverse outcomes for some members of the Hydro Sector.

The group discuss comparisons between Hydro schemes and hotels. The assessors explained that the comparators principle uses antecedent rents, which are not available for Hydro and therefore Receipts and Expenditure is the most appropriate approach. 

Hydro Sector request that another approach be taken. Assessors explain that this is not possible as there is not sufficient rent-to-turnover evidence.

The group discuss the ‘stand back approach’ taken by assessors.

The hydro sector contend that the ‘stand back approach’  should correct for perceived anomalies. The assessors respond to explain that rating is not based on the business economics, which is how they perceive the Hydro Sector to be determining reasonableness.

The Hydro sector state that they are apprehensive that a further percentage could be added to the divisible balance.

The Hydro sector re-state their concerns. They accept that the approach is being applied accurately but is producing anomalies and adverse outcomes for Hydro.

The group are aware that this aspect of the discussion may, or may not, be made clearer by the decision of the ‘Old faskally’ case.

3. ROCs and FITs

The group agree that ROCs are not generating the problem, but that FITs are.

The group agree that the rating and rateable values for FIT scheme creates outcomes that are problematic for the Hydro Sector. An area of disagreement is the magnitude of that problem.

The group agree that the high level of rates is contributed to by a Government subsidy.

The group agree that the nature of Hydro schemes means that the immovable parts, that are rateable, contribute to the higher rateable values.

The group discuss the need to manage the problem that tone dates are based on previous, more generous, FIT schemes. It is agreed that this will be taken forward by assessors.

4. Exemption

The Hydro sector request that the details of all options are explored, including exemption.

It is asserted that the final report will include details of all of the options, with associated benefits and potential risks.

The group discuss exemption and specifically the informal legal advice provided to the group and the role that it has played in the favourableness of this option to the group. For much of the group the advice did not factor into their opinion of exemption. The assessors highlight the risk of exemption to other Plant and Machinery. However, the Hydro sector contend that for them the advice played an important role.

The group discuss whether the exemption would capture the nuisance or if it is too blunt - exemption would apply to everything and would not distinguish between ROC and FIT scheme.

However, the hydro sector state that from their view exemption would chiefly assist FITs and not ROCs. They claim that ROCs and FITs would be brought to the same level. 

The Hydro sector claim that exemption would mean that the schemes would fall under the contractors principle, rather than the receipts and expenditure. The reason being that all that would be rateable would be the powerhouse and the water rights and this would bring FITs and ROCs to the same level. 

The Hydro sector clarify that if only the powerhouse and the water rights are that is left to be rateable, then they theorise that the Hydro schemes would move away from Receipts and Expenditure approach and would rely on the Contractors principle.

The assessors disagree that would be the case. They claim that exemption cannot be applied and then dis-applied

The group disagree as to whether the exemption is useful to solve what some in the group deem to be an impermanent problem

The group agree that a relief may not give investors’ confidence.

The group agree that doing nothing is not a viable option if you want a sustainable renewables sector.

The group acknowledges that any decision could have ripple effects.

The group agree that assessors will look at methodology and the degression following the tone date.

The group agree that the problems within the sector are FIT schemes and these need to be looked at.

The group agree that it will be recorded that the Hydro sector feel that that exemption is the best option. The sector are keen to see some adjustment to the valuation approach – subject to the ‘Old Faskally’ case.

The group discuss the need to determine whether exemption is considered state aid.

The group discuss that the budget process is such that the Hydro relief will continue for another year and that that any recommendation would be introduced for 1 April 2020.

The group discuss the need for a further meeting following the conclusion of the ‘Old Faskally’ case.

The group agree that a formal letter should go to the Minister setting out an update or interim report and explaining that it may be appropriate to wait for the judicial proceedings to conclude.

The group agree that late January or earlier February would be appropriate for the next meeting.

The group agree that the review has been a collegiate and objective in its analysis.