The NGER scheme

The National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) creates a national scheme for reporting and publishing information about the greenhouse gas emissions, energy production and energy consumption of companies in Australia for each financial year.

Under the NGER scheme, if the facilities under the operational control of the members of a controlling corporation's group meet any of the thresholds under the NGER Act relating to greenhouse gas emissions, energy production or energy consumption for a financial year, then that controlling corporation must report to the Clean Energy Regulator each financial year. Generally, the key issue will be energy consumption. However, for some clients, greenhouse gas emissions and energy production will be relevant. 

In simple terms, a "controlling corporation" is an ultimate holding company incorporated in Australia and the members of that controlling corporation's "group" are its subsidiaries.

The term "facility" under the NGER Act does not have its ordinary meaning as it is not necessarily co-extensive with a particular premises, building or property. Essentially, a "facility" is an activity or series of activities (including ancillary activities) that form a single undertaking or enterprise. Therefore, what constitutes a facility for the purposes of the NGER Act will depend on the circumstances of each case. For example, a property with multiple tenants may constitute several facilities.

The 1 July 2014 changes

On 1 July 2014, amendments made to the NGER Act by the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 (Cth) came into force.

One important amendment made to the NGER Act was a change in the test for ascertaining the person who has "operational control" over a facility for the purposes of determining reporting obligations under the NGER Act.

Previously, it had been possible for a person other than the owner of a facility (e.g. a property manager appointed by the owner) to have operational control over that facility. Under the amended NGER Act, from 1 July 2014 that possibility is no longer available.

This will have significant implications for controlling corporations of groups whose members own commercial, industrial and/or retail properties as it may mean that though a controlling corporation did not previously have reporting obligations under the NGER Act for past financial years, following the recent amendments, that same controlling corporation may now have such reporting obligations in coming financial years.

Operational control

Before 1 July 2014, the NGER Act provided that a person had operational control over a facility if that person had the authority to introduce and implement operating policies, health and safety policies and/or environmental policies over that facility.

As this former test for operational control was framed generally in relation to a "person", a person other than the owner of a facility, for example a property manager engaged by that owner to manage the facility, could have operational control over that facility.

Such a possibility was facilitated by the NGER Act before its most recent amendment as it had provided that where more than one person had authority to introduce and implement the above policies over a facility, then the person with the greatest authority to introduce and implement operating and environmental policies (but not health and safety policies) would have operational control.

Thus, for example, where the owner of a facility appointed a property manager for that facility and both the owner and property manager had some authority to introduce the relevant policies, if the property management agreement gave the property manager greater authority than the owner to introduce and implement operating and environmental policies over that facility, then the property manager and not the owner would be considered to have operational control of that facility. Consequently, that facility would not be included in the calculations to determine whether the controlling corporation of the group to which the owner belonged had any reporting obligations.

However, under the current amended NGER Act, the test for operational control is no longer framed generally in terms of a "person" but has instead been amended to refer specifically to a "group entity".

Section 11 of the NGER Act now provides that "For the purposes of this Act, a group entity has operational control over a facility if…the group entity has the authority to introduce and implement any or all" of the relevant policies.

"Group entity" is defined to mean a corporation that is a member of a controlling corporation's group.

This new test for operational control seems to indicate that only a group entity can have operational control of a facility. As a property manager of a facility will frequently be part of a different corporate group to the owner, it will no longer be possible for such a property manager, as a non-group entity, to be considered to have operational control over that facility.

Further, as between owner and property manager, it seems that as long as an owner has some authority to introduce and implement the relevant policies over a facility, then it will be considered to have operational control over that facility. The test does not involve any degree of authority so far as owner and property manager are concerned. 

An owner will have operational control where it has engaged a property manager even if the two persons share authority to introduce and implement the relevant policies, and even where the property manager has greater authority than the owner to introduce and implement such policies. 

The greatest authority test is no longer framed in terms of a "person" but has also been amended to refer to "group entities". Therefore, the NGER Act as amended no longer contemplates any competing authority between an owner and a property manager, or between a group entity and a non-group entity. It only makes provision for competition between two or more group entities, which may share ownership of and/or authority over a facility, for the purposes of determining which entity bears any reporting obligations.

Implications

These amendments to the test for operational control will impact on whether all the facilities which are under the operational control of a controlling corporation's group members will meet any of the relevant thresholds. They will therefore impact on whether that controlling corporation will have reporting obligations under the amended NGER Act.

Previously, property managers could have operational control over facilities. As a result, such facilities were disregarded when calculating whether the energy consumption, greenhouse gas emissions or energy production of all facilities under the operational control of the members of the group, when aggregated, met or exceeded the relevant reporting thresholds.

However, now that only members of a group can have operational control, and non-group entities such as property managers cannot have operational control, facilities which were previously excluded from the calculations will now be required to be taken into account.

This may mean that even though the energy consumption, greenhouse gas emissions or energy production of a controlling corporation's group had not previously met a relevant threshold, following the amendment of the NGER Act and even without the members of its group acquiring new properties since the amendment, that same controlling corporation may now have reporting obligations. This is because there may now be, by virtue of the change in legislation, more facilities under the "operational control" of group members which, when aggregated, may now meet a relevant threshold.