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Information Notice - Classification of Privately Owned Operators in the SEM

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The Central Statistics Office (CSO) is responsible for the official reporting of Ireland’s Government Finance Statistics. Part of this work requires the CSO to define the scope of the public sector in Ireland and to identify any organisations that may be considered under public control according to the relevant statistical legislation. In this document the CSO has reviewed the operation of the Single Electricity Market (SEM) in Ireland and the role played by privately owned operators. The criteria for deciding if a company is part of the public sector for statistical purposes are set out in the European System of Accounts Manual (ESA 2010) with further guidance given in the Manual on Government Deficit and Debt (MGDD 2016).

The Commission for Regulation of Utilities (CRU) is Ireland’s independent energy and water regulator. The Single Electricity Market (SEM) is the wholesale electricity market for the island of Ireland, regulated jointly by the CRU and its counterpart in Northern Ireland, the Utility Regulator, since 1st November 2007. The SEM is designed to provide for the least cost source of electricity generation to meet customer demand at any one time across the island, while also maximising long-term sustainability and reliability. The SEM design consists of a centralised and mandatory all-island wholesale pool (or spot) market, through which generators and suppliers trade electricity.
Operators who generate electricity for supply to the market include Private Companies Limited by shares and registered with the Companies Registration Office, whose principal activity is the production and distribution of electricity.


The institutional unit test
ESA 2010 (paragraph 2.12) and MGDD 2016 (paragraph defines an institutional unit as an economic entity which has “decision-making autonomy and either keeps a complete set of accounts, or is able to compile a complete set of accounts”.
A privately owned operator, registered as a private company limited by shares at the Companies Registration Office, is an institutional unit as it meets the four criteria outlined below:
1. The unit is entitled to own goods or assets in its own right.
2. The unit is able to take economic decisions and engage in economic activities for which it is responsible and accountable at law.
3. The unit is able to incur liabilities on its own behalf, to take on other obligations or further commitments and to enter into contracts.
4. The unit is able to draw up a complete set of accounts.

The control test
ESA 2010 para 20.18 defines control as “the ability to determine the general policy or programme” of a unit. A set of nine indicators of control are provided in ESA 2010 para 20.309. Three key areas of control are important when examining the role played by privately owned operators in the SEM as follows:
• ESA 2010 para 20.309 (f) Right to control via contractual arrangements.
Generators bid into the pool their own short-run costs for each half hour of the following day. Based on the set of generator costs and on customer demand for electricity, the System Marginal Price (SMP) for each half hour trading period is determined by SEMO using a stack of the cheapest all-island generator cost bids necessary to meet all-island demand. Prices are in effect determined purely by the market, by supply and demand.
• ESA 2010 para 20.309 (h) Control via excessive regulation: Public authorities can in some cases have powerful regulatory involvement, particularly in areas such as monopolies and privatised utilities where there is a public service element. It is possible for regulatory involvement to exist in important areas, such as price setting, without an entity ceding control of general policy. Choosing to enter into or operate in a highly regulated environment is similarly an indicator the entity is not subject to control.
A company must sell their generated electricity into the Single Electricity Market (SEM) – this is the wholesale electricity market for the island of Ireland. The SEM design consists of a centralised and mandatory all island wholesale pool or spot market, through which generators and suppliers trade electricity. These regulations apply to all generators and suppliers in the market. The company may choose to enter or exit the market without public sector approval.
• ESA 2010 para 20.309 (i) Public sector approval for important decisions - such as the development or abandonment of activities.
A Private Company Limited by shares chooses to enter and operate in the Single Electricity Market. The company may choose to enter or exit the market without public sector approval.

Having reviewed the role played by privately owned operators who participate in the Single Electricity Market on the island of Ireland, they are deemed not to be subject to public sector control under the criteria of ESA 2010 paragraph 20.309, sub-paragraphs (f), (h) and (i), namely, excessive regulation, contractual agreements or other mechanisms. In the absence of other indicators of control as set out in ESA 2010 20.309 they would therefore not be deemed to be under public control.