The Clean Energy Regulator received an unqualified audit report from the Australian National Audit Office for its 2019–20 financial statements.

The Clean Energy Regulator’s 2019–20 financial statements follow the independent auditor’s report and statement by the Accountable Authority and Chief Financial Officer.

Independent auditor's report

Independent Auditor's Report page 1 of 2

Independent Auditor's Report page 2 of 2

Statement of Accountable Authority and Chief Financial Officer

Statement by the Accountable Authority and Chief Financial Officer

Statement of comprehensive income, for period ended 30 June 2020

Statement of financial position, as at 30 June 2020

Statement of changes in equity, for the period ended 30 June 2020

Cash flow statement, for period ended 30 June 2020

Budget variances commentary

The Clean Energy Regulator (CER) has disclosed major departmental variances against budget where the variance is greater than 10 per cent and $0.250 million of an individual line item.

Statement of Comprehensive Income

Expenses: Suppliers expense

Audit and compliance inspections were significantly impacted by Covid-19 resulting in reduced activity and suppliers expense. Staff training costs were also significantly impacted by Covid-19. On adoption of AASB 16 Leases, the CER recognised lease payments as a reduction of the lease liability and not as suppliers expense. This was not known at the time of preparing the budget.

Expenses: Depreciation and amortisation expense

Depreciation on right-of-use assets was incurred for the first time in 2019-20 as a result of the application of AASB 16 Leases from 1 July 2019. This was not known at the time of preparing the budget.

Revenue: Own-Source Income

The CER receives resources free of charge from the Australian National Audit Office. This item was budgeted against other gains however the actual amount is disclosed in the financial statements as own-source revenue – other revenue.

Statement of Financial Position

Assets: Cash and cash equivalents

The value of cash holdings changes from time to time in the normal course of business.

Assets: Trade and other receivables

Trade and other receivables are under budget by $1.787 million mainly due to differences between the actual and budgeted opening balances for appropriation receivable.

Assets: Leasehold improvements

On adoption of AASB 16 Leases, the CER recognised right-of-use assets and lease liabilities in relation to leases of office space, which had previously been classified as operating leases. This was not known at the time of preparing the budget.

Assets: Plant and equipment

The closing position for plant and equipment was more than the budgeted amount due to the purchase of IT hardware including laptops and telephony headsets that had been initially planned for purchase in a later year.

Assets: Intangibles

The CER received an equity injection later after the original budget to develop Climate Solution Fund software applications. Work was also accelerated to implement cloud-based capabilities.

Assets: Prepayments

With the move to cloud-based capabilities, the CER has reduced spending on software licences and hosting costs for on-premise capabilities.

Liabilities: Suppliers payable & other payables

The CER recognises payables and accrued expenditure at the end of the year for work performed but not yet paid (including salaries). The value of these liabilities changes from time to time in the normal course of business.

Interest Bearing Liabilities: Leases

On adoption of AASB 16 Leases, the CER recognised right-of-use assets and lease liabilities in relation to leases of office space, which had previously been classified as operating leases. This was not known at the time of preparing the budget.

Cash Flow Statement

Operating activities: cash received - Rendering of services and other revenue; cash used – Section 74 receipts transferred to Official Public Account

The budget was prepared net of section 74 receipts as these are highly unpredictable and relate to leave liability transfers and other minor revenues.

Operating activities: cash received - Net GST received

The budget was prepared net of GST whereas the financial statement numbers are GST inclusive.

Investing activities: cash used - purchase of property, plant and equipment and intangibles

The CER budgeted for an increase in intangibles consistent with its known Departmental Capital Budget. Work was accelerated to implement cloud-based capabilities. IT hardware was also purchased during the year that had been initially budgeted for purchase in a later year.

The CER received an equity injection of $1.0 million to develop additional functionality for existing IT applications as part of the climate solutions budget measure. This was not known at the time of preparing the budget.

Financing activities: cash received - Contributed equity

The CER received an equity injection of $1.0 million to develop additional functionality for existing IT applications as part of the climate solutions budget measure. This was not known at the time of preparing the budget.

Financing activities: cash used – Principal payments of lease liabilities

Refer Interest Bearing Liabilities: Leases for explanation.

Statement of Changes in Equity

Opening Balance Adjustment

On transition to AASB 16 Leases, the CER recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. This was not known at the time of preparing the budget.

Deficit for the Period

A number of intangible assets under development were moved to production in the year resulting in an increased amortisation expense.

Contributions by Owners: Equity Injections

Refer Financing activities: cash received - Contributed equity for explanation.

Administered schedule of comprehensive income, for the period ended 30 June 2020

Administered schedule of assets and liabilities, as at 30 June 2020

Administered reconciliation schedule, for the period ended 30 June 2020

Administered cash flow statement, for the period ended 30 June 2020

Budget variances commentary - Administered

The CER has disclosed major administered variances against budget where the variance is greater than 10 per cent and $0.500 million of an individual line item.

Emissions Reduction Fund

The CER continued the delivery of the Emissions Reduction Fund (ERF) in 2019-20, including the completion of the ninth and tenth auctions. The budget profile was updated during 2019-20 to better reflect the outcome of the auction results, with the purchase of Australian Carbon Credit Units (ACCUs) largely consistent with revised budget estimates.

Renewable Energy Target (RET)

During 2019-20 a number of entities paid a large-scale generation shortfall charge to meet their large-scale renewable energy target obligations rather than to surrender Renewable Energy Certificates. Entities can receive a refund of their shortfall payments if they meet certain requirements under the legislation within the ‘allowable refund period’. The CER has raised a provision for entities that may become entitled to a repayment of their shortfall payments, subject to satisfying legislative requirements. The budget assumes a low level of non-compliance with obligations to surrender Renewable Energy Certificates. As such, shortfall revenue and corresponding recognition of expense and provision for repayment of shortfall are not reflected in the 2019-20 budget position.

Administered Schedule of Comprehensive Income

Expenses: Suppliers

RET inspections were significantly impacted by Covid-19 resulting in reduced activity and supplier expense.

Expenses: Purchase of Australian Carbon Credit Units

The budget allocation reflects the best estimate for ACCU purchases at the time of preparation. This estimate is then subject to auction results and movement between years of existing contract deliverables (as allowed for in ERF contracts). The estimate has since been updated in line with the known pattern of commitments.

Expenses: RET Refunds

The CER has raised a provision and corresponding expense for entities that may become entitled to a repayment of their shortfall payments, subject to satisfying legislative requirements. As noted in the commentary above, the 2019-20 budget did not reflect this provision and corresponding expense.

Revenue: Other taxes (RET Shortfall Charges and Interest)

The budget assumes a low level of non-compliance with obligations to surrender Renewable Energy Certificates.

In 2019-20 a large number of entities elected to pay a shortfall charge rather than surrender Renewable Energy Certificates.

Revenue: Fees and Fines

Renewable energy revenue is generated through the creation and surrender of renewable energy certificates when the underlying transaction occurs. The number of certificates created and surrendered exceeded the amount used in determining the budget.

Administered Schedule of Assets and Liabilities

Assets: Cash and cash equivalents

The CER operates the small-scale technology certificate clearing house to facilitate the purchase and sale of certificates between liable entities and individuals or agents installing small-scale solar, wind and hydro systems. The budget variance is predominantly due to the difference between the actual and budgeted opening balances for cash and cash equivalents.

Assets: Taxation receivables

The budget variance is due to timing differences between the actual and budgeted collection of outstanding debts.

Assets: Trade and other receivables

The budget variance is predominantly due to the difference between the actual and budgeted opening balances for trade and other receivables.

Liabilities: Other payables

The CER recognises ACCUs issued but not yet delivered and also those delivered but not yet settled as a liability at year end. In contrast, the budget estimate assumed settlement of all deliveries at year end.

Provisions: Other provisions

Refer Expenses: RET Refunds for explanation.

Notes to and forming part of the Financial Statements

Overview

Objectives of the CER

The CER is an Australian Government controlled entity established under the Clean Energy Regulator Act 2011. It is a not-for-profit entity. The Clean Energy Regulator is responsible for the Outcome:

• Contribute to a reduction in Australia's net greenhouse gas emissions, including through the administration of market-based mechanisms that incentivise reduction in emissions and the promotion of additional renewable electricity generation.

The Basis of Preparation

The financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013.

The financial statements have been prepared in accordance with:

a) Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and

b) Australian Accounting Standards and Interpretations – Reduced Disclosure Requirements issued by the
Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position. The financial statements are presented in Australian dollars.

Impact of Covid-19 on Going Concern

Management has assessed the impact on the financial statements including the potential for movements in the fair value of non-current assets. Covid-19 is not expected to have a significant impact on transactions and balances recorded in the financial statements.

Based on the key assumptions of continued appropriation funding from Government as the primary funding source of CER, management expects to continue operations as a going concern for the foreseeable future.

New Accounting Standards

AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-For-Profit Entities are applicable to the current reporting period. Both standards did not have a material impact on the CER’s financial statements on initial application.

AASB 16 Leases

AASB 16 became effective on 1 July 2019. This new standard has replaced AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases - Incentives and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

AASB 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, together with options to exclude leases where the lease term is 12 months or less, or where the underlying asset is of low value. AASB 16 substantially carries forward the lessor accounting in AASB 117, with the distinction between operating leases and finance leases being retained. The details of the changes in accounting policies, transitional provisions and adjustments are disclosed in the relevant notes to the financial statements.

Application of AASB 16 Leases

The CER adopted AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019 is not restated, that is, it is presented as previously reported under AASB 17 and related interpretations.

The CER elected to apply the practical expedient to not reassess whether a contract is, or contains a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under AASB 117 were not reassessed. The definition of a lease under AASB 16 was applied only to contracts entered into or changed on or are after 1 July 2019.

As a lessee, the CER previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under AASB 16, the CER recognises right-of-use assets and lease liabilities for most leases. However, the CER has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying assets when new or for short-term leases with a lease term of 12 months or less.

On adoption of AASB 16, the CER recognised right-of-use assets and lease liabilities in relation to leases of office space, which had previously been classified as operating leases. The lease liabilities were measured at the present value of the remaining lease payments, discounted using the CER's incremental borrowing rate at 1 July 2019. The CER's incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted average rate applied was 0.96%.

Lease finance costs are treated as borrowing costs and are expensed as incurred.

The right-of-use assets for office space were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

Impact on transition

On transition to AASB 16, the CER recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The impact on transition is summarised below:

The following table reconciles the Departmental minimum lease commitments disclosed in the CER's 30 June 2019 annual financial statements to the amount of lease liabilities recognised on 1 July 2019:

Taxation

The CER is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).

Significant Accounting Judgements and Estimates

The CER has made assumptions or estimates in the following areas that have the most significant impact on the amounts recorded in the financial statements:

• Employee leave provisions involve assumptions based on the expected tenure of existing staff, pattern of leave claims and payouts, future salary movements and future discount rates; and

• The fair value of plant and equipment is assessed at market value or depreciated replacement cost as determined by an independent valuer and is subject to management assessment in between formal valuations.

No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next reporting period.

Reporting of Administered activities

Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the administered schedules and related notes.

Except where otherwise stated, administered items are accounted for on the same basis and using the same policies as for departmental items, including the application of Australian Accounting Standards.

Administered significant accounting judgements and estimates

The CER has made assumptions or estimates in the following areas that have the most significant impact on the amounts recorded in the financial statements:

Emissions Reduction Fund (ERF)

The CER implemented the ERF in 2014-15 and has an accounting policy for ERF transactions with the following key elements:

• the CER will recognise a liability under the ERF where it has a present obligation arising from a past event; and

• the obligating event is on all Australian Carbon Credit Unit (ACCU) issuance. A liability and expense is recognised on the issuance of all ACCUs less the ACCUs surrendered under the safeguard and voluntary surrenders.

Following the introduction of the safeguard mechanism on 1 July 2016 the CER has continued to account for the ERF in line with this policy.

Provision for Renewable Energy Target Shortfall refunds

Under the Renewable Energy (Electricity) Act 2000 (REE Act) liable entities that pay a large-scale generation shortfall charge (LGC) may claim a refund for the shortfall charge less an administration fee. To qualify for a refund, liable entities must not have a large-scale generation shortfall in the year immediately before the year in which the refund is claimed, and surrender additional LGCs to cover all or part of the amount of certificate shortfall for which they initially paid the shortfall charge. The refund claim must be made during the allowable refund period (which ends three years after paying the shortfall charge). The CER has no alternative but to refund the shortfall charge, less an administration fee, if the conditions to pay a refund are met by the liability entity.

The CER records a provision for the refund of shortfall charges where it is satisfied that:

• a present obligation exists for a refund to be made where a liable entity meets the requirements of the three-year rule as detailed in sections 95-97 of the REE Act;

• it is more likely than less likely that sufficient certificates will be available in future years to allow entities to meet their current year obligations and seek refund of shortfall charges; and

• the price of certificates is anticipated to be less than the tax effective cost of the shortfall charge.

Events After the Reporting Period

Departmental

There were no subsequent events between balance date and signing of the financial statements that had the potential to significantly affect the ongoing structure and financial activities of the CER.

Administered

There were no subsequent events between balance date and signing of the financial statements that had the potential to significantly affect the ongoing structure and financial activities of the CER.

Financial performance

This section analyses the financial performance of the CER for the year ended 2020.

1.1 Expenses

1.2 Own-Source Revenue and gains

1.2B: Revenue from Government

Accounting Policy

Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when the CER gains control of the appropriation, except for certain amounts that relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned. Appropriations receivable are recognised at their nominal amounts.

Income and Expenses Administered on Behalf of the Government

This section analyses the activities that the CER does not control but administers on behalf of the Government. Unless otherwise noted, the accounting policies adopted are consistent with those applied for departmental reporting.

2.1A: Purchase of Australian Carbon Credit Units

Accounting Policy

The CER implemented the Emissions Reduction Fund (ERF) in 2014-15 which is a voluntary scheme that aims to provide incentives for a range of organisations and individuals to reduce their emissions. The scheme is currently implemented through a carbon abatement auction process where the CER contracts with successful participants to purchase ACCUs.

ACCUs are earned by participants through eligible projects for each tonne of carbon dioxide equivalent (tCO2-e) stored or avoided.

The CER's accounting policy for ERF transactions is:

• the CER will recognise a liability under the ERF where it has a present obligation arising from a past event; and
• the obligating event is on all ACCU issuance. A liability and expense is recognised on the issuance of all ACCUs less the ACCUs surrendered under the safeguard and voluntary surrenders.

2.1B: RET Refunds

Accounting Policy

The Large-scale Renewable Energy Target creates a financial incentive for the establishment and growth of renewable energy power stations through the creation of large-scale generation certificates.

Refunds are made to external providers on the basis of:

• surrender of large-scale generation certificates during the ‘allowable refund period’; and/or
• a downward reassessment of a liable entity’s certificate liability resulting in an overpayment.

The CER records a provision for the refund of shortfall charges where it is satisfied that:

• a present obligation exists for a refund to be made where a liable entity meets the requirements of the three-year rule as detailed in sections 95-97 of the REE Act;
• it is more likely than less likely that sufficient certificates will be available in future years to allow entities to meet their current year obligations and seek refund of shortfall charges; and
• the price of certificates is anticipated to be less than the tax effective cost of the shortfall charge.

2.2A: Revenue

Accounting Policy

All administered revenues are revenues relating to ordinary activities performed by the CER on behalf of the Government. As such, administered appropriations are not revenues of the individual entity that oversees distribution or expenditure of the funds as directed.

Taxation Revenue

Carbon price revenue is recognised when liable entities' emissions occur, under the economic transaction method, where it is possible that future economic benefits will occur and can be reliably measured. Unit shortfall charges and other penalties are recognised at the time they are imposed.

Non-taxation revenue

Financial Position

This section analyses the CER's assets used to conduct its operations and the operating liabilities incurred as a result. Employee related information is disclosed in the People and relationships section.

3.1A: Cash and cash equivalents

Accounting Policy

Cash is recognised at its nominal amount. Cash and cash equivalents include:

1. cash on hand;
2. demand deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value; and
3. cash in special accounts (administered only).

3.2 Non-Financial Assets

Revaluations of non-financial assets

There were no revaluations conducted in 2019-20. On 30 June 2020, the independent valuer (Preston Rowe Paterson) undertook a desktop assessment and confirmed that net fair value of CER assets approximated their carrying value and required no adjustment.

Accounting Policy - Property, plant and equipment

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at fair value plus transaction costs where appropriate.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition.

Asset recognition threshold

Purchases of plant and equipment are recognised initially at cost in the statement of financial position, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total). The asset capitalisation threshold for Leasehold Improvements is $50,000.

Lease Right of Use (ROU) Assets

Leased ROU assets are capitalised at the commencement date of the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for by Commonwealth lessees as separate asset classes to corresponding assets owned outright, but included in the same column as where the corresponding underlying assets would be presented if they were owned.

Lease ROU assets continue to be measured at cost after initial recognition in Commonwealth agency, GGS and Whole of Government financial statements.

Following initial application, an impairment review is undertaken for any lease ROU assets that shows indicators of impairment and an impairment loss is recognised against any ROU lease asset that is impaired.

Revaluations

Following initial recognition at cost, plant and equipment (excluding ROU assets) are carried at fair value. Carrying amounts are reviewed every year to determine if an independent valuation is required.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reversed a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reversed a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the CER using, in all cases, the straight-line method of depreciation.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

The depreciation rates for ROU assets are based on the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term.

Impairment

All assets were assessed for impairment at 30 June 2020. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the CER were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition

An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Fair Value

All leasehold improvements (excluding ROU assets), plant and equipment are measured at fair value in the Statement of Financial Position. When estimating fair value, market prices (with adjustment) were used where available. Where market prices were not available, depreciated replacement cost was used (ie level 3).

Level 3 measurements use inputs to estimate fair value where there are no observable market prices for the assets being valued.

The future economic benefits of the CER's plant and equipment and leasehold improvements are not primarily dependent on their ability to generate cash flows. The CER has not disclosed quantitative information about the significant unobservable inputs for the level 3 measurements in these classes.

Revaluations are done with sufficient frequency to ensure that the carrying amounts of assets do not materially differ from the asset's fair values as at reporting date. The CER engaged a qualified consultant, Preston Rowe Paterson, who provided written assurance that the valuation method is in compliance with AASB13 Fair Value Measurement.

Accounting policy - Intangibles

The CER's intangibles comprise internally developed software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

The asset capitalisation threshold for internally developed software is $50,000.

Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of the CER's software are 2 to 10 years (2019: 2 to 5 years).

All software assets were assessed for indications of impairment as at 30 June 2020.

3.3A: Suppliers

Settlement of supplier payables is usually made within 30 days.

3.4 Interest Bearing Liabilities

Assets and Liabilities Administered on Behalf of the Government

This section analyses assets and liabilities that the CER does not control but administers on behalf of the Government. Unless otherwise noted, the accounting policies adopted are consistent with those applied for departmental reporting.

4.1 Administered - Financial Assets

4.2 Administered - Payables

4.3 Administered - Other Provisions

Funding

This section identifies the CER’s funding structure.

5.1 Appropriations

5.2 Special Accounts

5.3 Regulatory Charging Summary

5.4 Net Cash Appropriation Arrangements

People and relationships

This section describes a range of employment and post-employment benefits provided to our people and our relationships with other key people.

6.1 Employee provisions

6.2 Key Management Personnel Remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the CER, directly or indirectly, including any director (whether executive or otherwise) of the CER. The CER has determined the key management personnel to be the Chair, members of the Regulator, and members of the strategic leadership team. Key management personnel remuneration is reported in the table below:

6.3 Related Parties

Related party relationships

The CER is an Australian Government controlled entity. Related parties to the CER are:

• Key Management Personnel of the CER, their close family members, and entities controlled or jointly controlled by either;
• Portfolio and Cabinet Ministers - key management personnel for the consolidated Whole of Government accounts; and
• all other Australian Government entities.

Transactions with related parties

Significant transactions with related parties can include:

• purchase of goods and services;
• asset purchases, sales, transfers or leases;

• selling renewable energy certificates under the renewable energy scheme following the installation of rooftop solar panels; and

• debts forgiven.

Giving consideration to relationships with related entities, and transactions entered into during the reporting period by the CER, it has been determined that there are no related party transactions to be disclosed other than key management personnel remuneration disclosed in 6.2 Key Management Personnel Remuneration.

Managing uncertainties

This section analyses how the CER manages financial risks within its operating environment.

7.1A: Contingent Assets and Liabilities

7.1B Administered - Contingent Assets and Liabilities

7.2 Financial instruments

7.3 Administered - Financial Instruments

8.1 Aggregate Assets and Liabilities