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Financial statements

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 Outlines the auditor's opinion and basis for opinion.

Independent Auditor's Report page 2 of 2 Outlines the auditor's responsibilities for the audit of financial statements Signed by ANAO Audit Principal on 25 September 2020

Statement of Accountable Authority and Chief Financial Officer

Statement by the Accountable Authority and Chief Financial Officer Statement signed by Accountable Authority and Chief Financial Officer on 25 September 2020

Statement of comprehensive income, for period ended 30 June 2020

Clean Energy Regulator Statement of Comprehensive Income for the period ended 30 June 2020

Notes

2020

$'000

2019

$'000

Original Budget

$'000

NET COST OF SERVICES

Expenses

Employee Benefits

1.1A

39,835

40,205

39,457

Suppliers

1.1B

26,780

30,230

31,021

Depreciation and Amortisation

3.2A

7,631

5,806

3,382

Finance Costs

78

-

-

Impairment Loss Allowance on Financial Instruments

-

19

-

Write-Down and Impairment of Other Assets

1.1C

195

-

-

Total expenses

74,519

76,260

73,860

Own-Source Income

Own-Source Revenue

Revenue from Contracts with Customers

-

19

-

Other Revenue

1.2A

466

967

-

Total own-source revenue

466

986

-

Gains

Other Gains

7.2B

7

-

385

Total gains

7

-

385

Total own-source income

473

986

385

Net cost of services

(74,046)

(75,274)

(73,475)

Revenue from Government

1.2B

69,737

69,879

70,093

Deficit on continuing operations

(4,309)

(5,395)

(3,382)

OTHER COMPREHENSIVE LOSS

Items not subject to subsequent reclassification to net cost of services

Changes in Asset Revaluation Reserve

(25)

-

-

Total Other Comprehensive Loss

(25)

Total comprehensive loss

(4,334)

(5,395)

(3,382)

The above statement should be read in conjunction with the accompanying notes.

Statement of financial position, as at 30 June 2020

Statement of financial position, as at 30 June 2020

Notes

2020

$'000

2019

$'000

Original Budget

$'000

ASSETS

Financial Assets

Cash and Cash Equivalents

3.1A

391

558

117

Trade and Other Receivables

3.1B

19,600

19,592

21,387

Accured Revenue

-

-

129

Total financial assets

19,991

20,150

21,633

Non-financial assets1

Leasehold Improvements

3.2A

8,856

3,272

2,149

Plant and Equipment

3.2A

929

634

118

Intangibles

3.2A

5,052

5,821

3,425

Prepayments

642

1,343

1,189

Total non-financial assets

15,479

11,070

6,881

Assets Held for Sale

140

-

-

Total Assets

35,610

31,220

28,514

LIABILITIES

Payables

Suppliers

3.3A

2,366

3,928

7,278

Other Payables

3.3B

653

2,381

390

Total payables

3,019

6,309

7,668

Interest bearing liabilities

Leases

3.4A

6,556

-

-

Total interest bearing liabilities

6,556

-

-

Provisions

Employee Provisions

6.1A

12,368

11,099

10,564

Total provisions

12,368

11,099

10,564

Total liabilities

21,943

17,408

18,232

Net assets

13,667

13,812

10,282

EQUITY

Contributed Equity

84,416

82,288

83,449

Reserves

9,598

9,623

9,622

Retained Accumulated Deficit

(80,347)

(78,099)

(82,789)

Total equity

13,667

13,812

10,282

The above statement should be read in conjunction with the accompanying notes.

1 Right-of-use assets are included in Leasehold Improvements.

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

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

Retained Deficit

Asset Revaluation Reserve

Contributed Equity

Total Equity

2020

$'000

2019

$'000

Original Budget

2020 $'000

2020

$'000

2019

$'000

Original Budget

2020 $'000

2020

$'000

2019

$'000

Original Budget 2020 $'000

2020

$'000

2019

$'000

Opening balance

(78,099)

(72,704)

(79,407)

9,623

9,623

9,622

82,288

81,127

82,288

13,812

18,046

Adjustment on initial application of AASB16

2,061

-

-

-

-

-

-

-

-

2,061

-

Adjusted opening balance

(76,038)

(72,704)

(79,407)

9,623

9,623

9,622

82,288

81,127

82,288

15,873

18,046

Comprehensive loss

Deficit for the period

(4,309)

(5,395)

(3,382)

-

-

-

-

-

-

(4,309)

(5,395)

Other comprehensive loss

-

-

-

(25)

-

-

-

-

-

(25)

-

Total comprehensive loss

(4,309)

(5,395)

(3,382)

(25)

-

-

-

-

-

(4,334)

(5,395)

Transactions with owners

Contributions by owners

Equity injection - Appropriations

-

-

-

-

-

-

1,000

-

-

1,000

-

Departmental capital budget

-

-

-

-

-

-

1,155

1,161

1,161

1,155

1,161

Lapsing appropriation1

-

-

-

-

-

-

(27)

-

-

(27)

-

Total transactions with owners

-

-

-

-

-

-

2,128

1,161

1,161

2,128

1,161

Closing balance as at 30 June

(80,347)

(78,099)

(82,789)

9,598

9,623

9,622

84,416

82,288

83,449

13,667

13,812

The above statement should be read in conjunction with the accompanying notes.

1 Appropriation Act (No. 2) 2016-17 appropriation of $0.027m lapsed in 2019-20. This appropriation was part of the opening balance of 2018-19. The CER has no legal control of this appropriation and removed it from the available appropriations in 2019-20.

Accounting Policy

Equity Injections

Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) and Departmental Capital Budgets are recognised directly in contributed equity in that year.

Cash flow statement, for period ended 30 June 2020

```````````````````````````````
Cash flow statement, for period ended 30 June 2020

2020

$'000

2019

$'000

Original Budget

$'000

OPERATING ACTIVITIES

Cash received

Appropriations

71,231

72,431

70,093

Rendering of services

-

19

-

Other revenue

37

738

-

Net GST received

3,295

3,004

-

Total cash received

74,563

76,192

70,093

Cash used

Employees

37,777

38,976

39,457

Suppliers

30,394

34,276

30,636

Finance costs

78

-

-

GST paid

290

225

-

Section 74 receipts transferred to OPA

1,702

1,189

-

Total cash used

70,241

74,666

70,093

Net cash from operating activities

4,322

1,526

-

INVESTING ACTIVITIES

Cash used

Purchase of property, plant and equipment and intangibles

2,898

2,246

1,161

Total cash used

2,898

2,246

1,161

Net cash used by investing activities

(2,898)

(2,246)

(1,161)

FINANCING ACTIVITIES

Cash received

Contributed equity

1,775

1,161

1,161

Total cash received

1,775

1,161

1,161

Cash used

Principal payments of lease liabilities

3,366

-

-

Total cash used

3,366

-

-

Net cash (used by)/from financing activities

(1,591)

1,161

1,161

Net (decrease)/increase in cash held

(167)

441

-

Cash and cash equivalents at the beginning of the reporting period

558

117

117

Cash and cash equivalents at the end of the reporting period1

391

558

117

  1. As shown in the Statement of Financial Position.

The above statement should be read in conjunction with the accompanying notes.

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 comprehensive income, for the period ended 30 June 2020

Notes

2020

$'000

2019

$'000

Original Budget

$'000

NET COST OF SERVICES

Expenses

Suppliers

3,077

3,719

4,219

Purchase of Australian Carbon Credit Units

2.1A

183,653

158,498

252,861

RET Refunds

2.1B

396,328

273,434

Remission of Prior Year Carbon Pricing Mechanism Surplus Surrender

29

-

Impairment Loss Allowance on Financial Instrument

-

433

-

Total expenses

583,058

436,113

257,080

Income

Revenue

Taxation Revenue

Other taxes (RET Shortfall Charges and Interests)

2.2A

411,891

219,927

824

Total taxation revenue

411,891

219,927

824

Non-taxation revenue

Fees and Fines

2.2B

25,743

20,390

17,432

Other Revenue

4

-

-

Total non-taxation revenue

25,747

20,390

17,432

Total revenue

437,638

240,317

18,256

Gains

Other Gains

95

-

-

Total gains

95

-

-

Total income

437,733

240,317

18,256

Net cost of services and comprehensive loss

(145,325)

(195,796)

(238,824)

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

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

Notes

2020

$'000

2019

$'000

Original Budget

$'000

ASSETS

Financial assets

Cash and Cash Equivalents

4.1A

167

144

1,129

Taxation Receivables

4.1B

394

152

-

Trade and Other Receivables

4.1C

114

34

6,983

Total financial assets

675

330

8,112

Total assets administered on behalf of Government

675

330

8,112

LIABILITIES

Payables

Suppliers

4.2A

781

201

831

Other payables

4.2B

91,553

78,153

46,367

Total payables

92,334

78,354

47,198

Provisions

Other provisions

4.3A

699,969

421,884

245,372

Total provisions

699,969

421,884

245,372

Total liabilities administered on behalf of Government

792,303

500,238

292,570

Net liabilities

(791,628)

(499,908)

(284,458)

The above schedule should be read in conjunction with the accompanying notes.

Administered reconciliation schedule, for the period ended 30 June 2020

Administered reconciliation schedule, for the period ended 30 June 2020

Notes

2020

$'000

2019

$'000

Opening assets less liabilities as at 1 July

(499,908)

(222,807)

Net cost of services

Income

437,733

240,317

Expenses

Payments to entities other than corporate Commonwealth entities

(583,058)

(436,113)

Transfer (to) / from the Australian Government

Appropriation transfers from Official Public Account

Annual appropriations

Payment to entities other than corporate Commonwealth entities

173,027

131,393

Special appropriations (unlimited)

Renewable Energy (Electricity) Act 2000, section 157 refunds

118,999

35,272

Refund of administered receipts - section 77 PGPA Act

237

186

Appropriation transfers to OPA

Transfers to OPA

(438,658)

(248,156)

Closing assets less liabilities as at 30 June

(791,628)

(499,908)

The above schedule should be read in conjunction with the accompanying notes.

Accounting Policy

Administered cash transfers to and from the Official Public Account

Revenue collected by the CER for use by the Government rather than the CER is administered revenue. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriation on behalf of Government. These transfers to and from the OPA are adjustments to the administered cash held by the CER on behalf of the Government and reported as such in the schedule of administered cash flows and in the administered reconciliation schedule.

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

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

Notes

2020

$'000

2019

$'000

OPERATING ACTIVITIES

Cash received

Taxes (RET shortfall Charges)

411,744

225,449

Fees and Fines

25,799

21,245

Other

4

-

Net GST received

159

396

Total cash received

437,706

247,090

Cash used

Suppliers

2,708

4,776

Purchase of Australian Carbon Credit Units

170,309

126,722

RET Refunds

118,271

35,272

Total cash used

291,288

166,770

Net cash from / (used by) operating activities

146,418

80,320

Cash and cash equivalents at the beginning of the reporting period

144

1,129

Cash from Official Public Account

Appropriations

292,263

166,851

Total cash from official public account

292,263

166,851

Cash to Official Public Account

Appropriations

(438,658)

(248,156)

Total cash to official public account

(438,658)

(248,156)

Cash and cash equivalents at the end of the reporting period1

4.1A

167

144

1 As shown in the Administered Schedule of Assets and Liabilities.

This schedule should be read in conjunction with the accompanying notes.

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:

Impact on transition

Departmental

1 July 2019

$'000

Right-of-use assets - leasehold improvements

10,203

Lease liabilities

9,917

Retained earnings

2,061

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:

Lease liabilities recognised at 1 July 2019

1 July 2019

$'00

Minimum operating lease commitments (undiscounted lease payments) at 30 June 2019

11,370

Less: effect of discounting using the incremental borrowing rate as the date of initial application

(1,453)

Lease liabilities recognised at 1 July 2019

9,917

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
1.1A: Employee Benefits

2020

$'000

2019

$'000

Wages and salaries

30,399

29,256

Superannuation

Defined contribution plans

3,546

3,297

Defined benefit plans

1,924

2,133

Leave and other entitlements

3,684

5,071

Separation and redundancies

230

371

Other

52

77

Total employee benefits

39,835

40,205

Accounting Policy

Accounting policies for employee related expenses are contained in the People and Relationships section.

1.1B: Suppliers

2020

$'000

2019

$'000

Goods and services supplied or rendered

Information technology services

9,473

9,342

Contractors

8,360

6,794

Consultants

2,451

3,148

Audit and compliance

1,611

2,385

Staff related expenses

1,408

1,866

Property operating expenses

1,189

1,235

Industry contributions

770

512

Travel and accommodation

432

578

Remuneration of auditors

445

405

Legal expenses

212

336

Other goods and services

254

618

Total goods and services supplied or rendered

26,605

27,219

Goods supplied

150

236

Services rendered

26,455

26,983

Total goods and services supplied or rendered

26,605

27,219

Other suppliers

Operating lease rentals1

-

2,889

Workers compensation expenses

175

122

Total other suppliers

175

3,011

Total suppliers

26,780

30,230

1 The CER has applied AASB 16 Leases using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under AASB 117.

The CER had no short-term lease commitments or leases of low-value assets (less than $10,000) as at 30 June 2020.

The above lease disclosures should be read in conjunction with the accompanying notes 3.2A and 3.4A.

Accounting Policy

Short-term leases and leases of low-value assets

The CER has elected not to recognise right-of-use assets and lease liabilities for short-term leases of assets that have a lease term of 12 months or less and leases of low-value assets (less than $10,000). The CER recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

1.1C: Write-Down and Impairment of Other Assets

2020

$'000

2019

$'000

1.1C: Write-Down and Impairment of Other Assets

Impairment on intangible assets

195

-

Total write-down and impairment of other assets

195

-

1.2 Own-Source Revenue and gains
1.2A: Other Revenue

2020

$'000

2019

$'000

Own-Source Revenue

1.2A: Other Revenue

Resources received free of charge

Remuneration of auditors

445

405

Solar program inspection services

-

372

Data integration partnership for Australia

21

190

Total other revenue

466

967

Accounting Policy

Resources Received Free of Charge

Resources received free of charge are recognised as revenue when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense. Resources received free of charge are recorded as either revenue or gains depending on their nature.

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.

2.1 Administered - Expenses
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.
2.2 Administered - Income
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

2.2B: Fees and fines

2020

$'000

2019

$'000

Renewable energy fees

25,676

20,311

Other

67

79

Total fees and fines

25,743

20,390

Accounting Policy

Renewable energy revenue is generated through the creation and surrender of Renewable Energy Certificates when the underlying transaction occurs. Shortfall charges and interest penalties are recognised at the time they are imposed

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.

3.1 Financial Assets
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).
3.1B: Trade and Other Receivables

2020

$'000

2019

$'000

Services receivables

Services

90

506

Total services receivables

90

506

Appropriations receivables

Appropriation receivable

19,298

18,737

Total appropriations receivables

19,298

18,737

Other receivables

Statutory receivables

224

368

Total other receivables

224

368

Total trade and other receivables (gross)

19,612

19,611

Less impairment loss allowance

(12)

(19)

Total trade and other receivables (net)

19,600

19,592

Credit terms for goods and services were within 30 days (2019: 30 days).

Accounting Policy

Financial assets

Trade and other receivables that are held for the purpose of collecting the contractual cash flows where the cash flows are solely payments of principal and interest, that are not provided at below-market interest rates, are subsequently measured at amortised cost using the effective interest method adjusted for any loss allowance.

3.2 Non-Financial Assets
3.2A: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Intangibles

Leasehold improvements

$'000

Plant and equipment

$'000

Intangibles (Internally developed software)

$'000

Total

$'000

As at 1 July 2019

Gross book value

5,514

1,706

49,819

57,039

Accumulated depreciation, amortisation and impairment

(2,242)

(1,072)

(43,998)

(47,312)

Total as at 1 July 2019

3,272

634

5,821

9,727

Additions

Purchase

-

737

-

737

Internally developed

-

-

2,161

2,161

Right-of-use asset

10,203

-

-

10,203

Revaluations and impairments recognised in other comprehensive income

-

(25)

-

(25)

Impairments recognised in net cost of services

-

-

(195)

(195)

Transfer of assets held for sale

-

(140)

-

(140)

Depreciation and amortisation

(1,121)

(277)

(2,735)

(4,133)

Depreciation on right-of-use-assets

(3,498)

-

-

(3,498)

Total as at 30 June 2020

8,856

929

5,052

14,837

Total as at 30 June 2020 represented by

Gross book value

15,716

2,278

35,732

53,726

Accumulated depreciation, amortisation and impairment

(6,860)

(1,349)

(30,680)

(38,889)

Total as at 30 June 2020

8,856

929

5,052

14,837

Carrying amount of right-of-use assets

6,705

-

-

6,705

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:

Depreciation

2020

2019

Leasehold improvements

lease term

lease term

Plant and equipment

2 to 9 years

2 to 9 years

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.

3.3 Payables
3.3A: Suppliers

Settlement of supplier payables is usually made within 30 days.

3.3B: Other Payables

2020

$'000

2019

$'000

Salaries and wages

568

279

Superannuation

85

41

Lease liability

-

2,061

Total other payables

653

2,381

Accounting Policy

Refer to the Overview section for the accounting policy on the application of AASB 16 Leases.

3.4 Interest Bearing Liabilities
3.4A: Leases

2020

$'000

2019

$'000

Lease liability

6,556

-

Total other payables

6,556

-

Total cash outflow for leases for the year ended 30 June 2020 was $3,366,000.

Accounting Policy

Refer to the Overview section for the accounting policy on the application of AASB 16 Leases. The above lease disclosures should be read in conjunction with the accompanying notes 1.1B and 3.2A.

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
4.1A: Cash and Cash Equivalents

2020

$'000

2019

$'000

Cash in special accounts

82

74

Cash on hand or on deposit

85

70

Total cash and cash equivalents

167

144

4.1B: Taxation Receivables

2020

$'000

2019

$'000

Other taxes

Carbon price revenue - shortfall charges and penalties

3,261

3,261

Renewable energy - shortfall charges and interest

2,161

3,998

Total taxation receivables (gross)

5,422

7,259

Less Impairment loss allowance

(5,028)

(7,107)

Total taxation receivables (net)

394

152

4.1C: Trade and Other Receivables

2020

$'000

2019

$'000

Other receivables

Fines and Fees

2

1

Statutory receivables

112

33

Total other receivables

114

34

Less impairment loss allowance

-

-

Total trade and other receivables (net)

114

34

Trade and other receivables (net) are expected to be recovered in no more than 12 months. Credit terms for goods and services were within 30 days (2019: 30 days).

4.1D: Reconciliation of the Impairment Allowance

Movements in relation to 2020

Taxation Receivables

$'000

As at 1 July 2019

7,107

Amounts recovered and reversed

(2,079)

Increase recognised in net cost of services

-

Total as at 30 June 2020

5,028

Accounting Policy

Receivables are carried at amortised cost using the effective interest method. Gains and losses due to impairment, derecognition and amortisation are recognised through profit or loss.

4.2 Administered - Payables
4.2A: Suppliers

2020

$'000

2019

$'000

Trade creditors and accruals

781

201

Total Suppliers

781

201

Settlement of supplier payables is usually made within 30 days.

4.2B: Other Payables

2020

$'000

2019

$'000

Purchase of Australian Carbon Credit Units

91,481

78,138

Other

72

15

Total Other Payables

91,553

78,153

4.3 Administered - Other Provisions
4.3A: Other Provisions

Provision for renewable energy target shortfalls

$'000

As at 1 July 2019

421,884

Additional provisions made

396,328

Amounts used

(118,243)

Total as at 30 June 2020

699,969

Funding

This section identifies the CER’s funding structure.

5.1 Appropriations
5.1A: Annual Appropriations ('Recoverable GST exclusive')

Annual Appropriations for 2020

Annual Appropriation

$'000

Adjustments to appropriation

$'000

Total appropriation

$'000

Appropriation applied in 2020 (current and prior years)

$'000

Variance

$'000

Departmental

Ordinary annual service1

69,737

1,702

71,439

71,455

(16)

Capital Budget2

1,155

-

1,155

1,155

-

Other services

Equity Injections

1,000

-

1,000

620

380

Total departmental

71,892

1,702

73,594

73,230

364

Administered

Ordinary annual services

Administered items3,4

256,678

-

256,678

172,678

84,000

Total administered

256,678

-

256,678

172,678

84,000

Annual Appropriations for 2019

Annual Appropriation

$'000

Adjustments to appropriation

$'000

Total appropriation

$'000

Appropriation applied in 2019

$'000

Variance

$'000

Departmental

Ordinary annual services5

69,879

1,189

71,068

71,998

(930)

Capital Budget6

1,161

-

1,161

1,161

-

Total departmental

71,040

1,189

72,229

73,159

(930)

Administered

Ordinary annual services

Administered items7

205,425

-

205,425

131,165

74,260

Total administered

205,425

-

205,425

131,165

74,260

1 The variance of ($0.016m) reflects prior year appropriations applied.

2 Departmental Capital Budgets are appropriated through Appropriation Acts (No.1,3,5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts.

3 The variance of $84.000m reflects changes in the profile of contracted payments under the Emissions Reduction Fund.

4 The administered annual appropriation includes $6.647m that has been withheld under section 51 of the PGPA Act as a result of a movement of these funds into future budget years.

5 The variance of ($0.930m) reflects prior year appropriations applied.

6 Departmental Capital Budget are appropriated through Appropriation Acts (No.1,3,5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts.

7 The variance of $74.260m reflects changes in the profile of contracted payments under the Emissions Reduction Fund.

5.1B: Unspent Annual Appropriations ('Recoverable GST exclusive')

2020

$'000

2019

$'000

Departmental

Appropriation Act (No. 2) 2016-17

-

27

Appropriation Act (No. 1) 2018-19

-

19,268

Appropriation Act (No. 1) 2019-20

19,309

-

Appropriation Act (No. 4) 2019-20

380

-

Total departmental

19,689

19,295

Administered

Appropriation Act (No. 1) 2017-18

-

10,811

Appropriation Act (No. 1) 2018-19

79

137,096

Supply Act (No. 1) 2019-20

12,504

-

Appropriation Act (No. 1) 2019-20

143,074

-

Total administered

155,657

147,907

5.1C: Special Appropriations ('Recoverable GST exclusive')

Appropriation applied

Authority

2020

$'000

2019

$'000

Renewable Energy (Electricity) Act 2000, section 157, Administered, Unlimited amount

To enable payments in respect of:
a) section 50 refunds of overpaid amounts
b) section 98 refund of charge where certificates are surrendered
c) section 121 compensation from damage to electronic equipment.

118,999

35,272

Public Governance, Performance and Accountability Act 2013, section 77, Administered, Refund

To provide an appropriation where an Act or other law requires or permits the repayment of an amount received by the Commonwealth and the Finance Minister is satisfied that, apart from this section, there is no specific appropriation for the repayment.

237

186

Clean Energy Act 2011, section 116, Administered, Unlimited amount

To provide an appropriation for the buy-back of certain free carbon units specified by section 116 of the Clean Energy Act 2011.

-

-

Clean Energy Act 2011, section 132, Administered, Unlimited amount

To provide an appropriation for the refund of surplus surrender specified by section 132 of the Clean Energy Act 2011.

-

-

Total special appropriations applied

119,236

35,458

5.2 Special Accounts
```````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````
5.2 Special Accounts

Renewable Energy Special Account (Administered)1

(Recoverable GST exclusive)

2020

$'000

2019

$'000

Balance brought forward from previous period

69

32

Opening balance adjustment2

-

38

Adjusted balance brought forward from previous period

69

70

Increases - receipts from buyers

19,686

954

Available for payments

19,755

1,024

Decreases - payments to sellers

(19,673)

(955)

Total balance carried to the next period3

82

69

Balance represented by:

Cash held in the CER bank accounts

82

69

Cash held in the Official Public Account

-

-

Total balance carried to the next period

82

69

1 Appropriation: Public Governance, Performance and Accountability Act 2013 section 80. Establishing Instrument: Renewable Energy (Electricity) Act 2000, section 30R.

The purposes of the Renewable Energy Special Account are as follows:

(a) paying amounts under paragraph 30N(3)(b) in relation to the transfer of certificates;

(b) paying amounts under subparagraph 30P(4)(b)(ii) in relation to the transfer of certificates;

(c) refunding amounts under regulations made for the purpose of paragraph 30U(2)(i); and

(d) paying amounts of GST for which the Regulator is liable because of the creation of certificates for

purchasers under section 30P.

Transactions related to the small-scale technology certificates (STC) Clearing House are reported in the Administered Schedule of Assets and Liabilities as Cash and cash equivalents and Supplier payables. This is because the CER is facilitating transactions between buyers and sellers through the STC Clearing House and any net cash resulting is not revenue for Government.

2 The 2018-19 opening balance adjustment relates to the restatement of the 30 June 2018 balance to reflect the correct reclassification of cash available to purchase STCs from householders and registered agents through the STC Clearing House.

3 This balance is reflected in the $82,448 cash in special accounts under Note 4.1A and is comprised of the following amounts:

  • $81,916 payable to sellers; and
  • $532 payable to the Official Public Account.
5.3 Regulatory Charging Summary
5.3: Regulatory Charging Summary

2020

$'000

2019

$'000

External Revenue

Administered

25,743

20,390

Total external revenue

25,743

20,390

Regulatory charging activities:

Registration, application, accreditation and renewable energy certificate fees.

5.4 Net Cash Appropriation Arrangements
5.4 Net Cash Appropriation Arrangements

2020

$'000

2019

$'000

Total comprehensive income/(loss) less depreciation/amortisation expenses previously funded through revenue appropriations

(44)

411

Plus: depreciation/amortisation expenses previously funded through revenue appropriation

(4,133)

(5,806)

Plus: depreciation right-of-use assets

(3,498)

-

Less: principal repayments - leased assets

3,366

-

Deficit on continuing operations - as per the Statement of Comprehensive Income

(4,309)

(5,395)

Changes in asset revaluation reserve

(25)

-

Total comprehensive loss - as per the Statement of Comprehensive Income

(4,334)

(5,395)

From 2010-11, the Government introduced net cash appropriation arrangements, where revenue appropriations for depreciation/amortisation expenses ceased. Entities now receive a separate capital budget provided through equity appropriations. Capital budgets are to be appropriated in the period when cash payment for capital expenditure is required.

The inclusion of depreciation/amortisation expenses related to ROU leased assets and the lease liability principle repayment amount reflects the cash impact on implementation of AASB 16 Leases, it does not directly reflect a change in 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
6.1A: Employee Provisions

2020

$'000

2019

$'000

Leave

12,368

10,960

Separations and redundancies

-

139

Total employee provisions

12,368

11,099

Accounting policy

Liabilities for ‘short-term employee benefits and termination benefits expected within twelve months of the end of reporting period are measured at their nominal amount. The nominal amount is calculated on the rates expected to be paid on settlement of the liability.

Leave

The liability for employee benefits includes provision for annual leave and long service leave.

The leave liabilities are calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the CER's employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

The liability for long service leave has been determined using the shorthand method as prescribed in the Financial Reporting Rule 2015. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Separation and Redundancy

Provision is made for separation and redundancy benefit payments. The CER recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.

Superannuation

The CER's staff are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), or the PSS accumulation plan (PSSap), or other superannuation funds held outside the Australian Government.

The CSS and PSS are defined benefit schemes for the Australian Government. The PSSap is a defined contribution scheme.

The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. This liability is reported in the Department of Finance’s administered schedules and notes.

The CER makes employer contributions to the employees' defined benefit superannuation scheme at rates determined by an actuary to be sufficient to meet the current cost to the Government. The CER accounts for the contributions as if they were contributions to defined contribution plans.

The liability for superannuation recognised as at 30 June represents outstanding contributions.

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:

6.2 Key Management Personnel Remuneration

2020

$'000

2019

$'000

Short-term employee benefits

1,827

1,838

Post-employment benefits

276

281

Other long-term employee benefits

122

177

Termination benefits

-

-

Total key management personnel remuneration expenses

2,225

2,296

The total number of key management personnel that are included in the above table are 14 (2019: 11).

Total remuneration is calculated on a pro-rata basis equal to time spent in the role for those staff who acted during the reporting period in the role of a key management personnel.

The above key management personnel remuneration excludes the remuneration and other benefits of the Portfolio and Cabinet Ministers. The Ministerial remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the CER.

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
7.1A: Contingent Assets and Liabilities

Claims for damages or costs

2020

$'000

2019

$'000

Contingent liabilities

Balance from previous period

-

(485)

Obligations expired

-

485

Total contingent liabilities

-

-

Quantifiable Contingencies

In 2019 the contingent liability was in respect of one request for an act of grace payment requested from the Department of Finance relating to the carbon pricing mechanism. The act of grace application was withdrawn in 2018-19.

Unquantifiable Contingencies

There were no unquantifiable contingent assets or liabilities as at 30 June 2020 (2019: Nil).

Accounting Policy

Contingent liabilities and contingent assets are not recognised in the statement of financial position but are reported in the notes. They may arise from uncertainty as to the existence of a liability or asset or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain and contingent liabilities are disclosed when settlement is greater than remote.

7.1B Administered - Contingent Assets and Liabilities
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7.1B Administered - Contingent Assets and Liabilities

Claims for damages or costs

2020

$'000

2019

$'000

Contingent assets

Balance from previous period

-

1,771

New contingent assets recognised

-

-

Re-measurement

-

(1,771)

Total contingent assets

-

-

Contingent liabilities

Balance from previous period

-

(51,641)

New contingent liabilities recognised

-

-

Liabilities realised

-

51,641

Total contingent liabilities

-

-

Net contingent liabilities

-

-

Quantifiable Administered Contingencies

The contingent asset in 2018-19 related to a debt owed to the CER by an entity under the Renewable Energy (Electricity) Act 2000. In 2018-19 the contingent asset was re-measured to a nil value as the CER assessed the probability of recovering the debt as remote.

The contingent liabilities in 2018-19 was in respect of large-scale generation shortfall charges incurred under the Renewable Energy (Electricity) Act 2000 which may be refunded to entities if they meet certain conditions under the three-year rule. The estimates are based on the amount of the shortfall charges paid less an administration fee. In 2018-19 a change in market conditions has led to the opening contingent liability being either refunded or recognised as a provision in 2019.

Of the $51,641,000 transferred to the provision for renewable energy target shortfalls (note 4.3A), net refunds of $19,505,000 were made during 2018-19. The remaining $32,136,000 comprised part of the closing provision balance at 30 June 2019.

Unquantifiable Administered Contingencies

There were no unquantifiable contingent assets or liabilities as at 30 June 2020 (2019: Nil).

7.2 Financial instruments
7.2A: Categories of Financial Instruments

2020

$'000

2019

$'000

Financial assets at amortised cost

Cash and cash equivalents

391

558

Trade receivables (gross)

90

506

Total financial assets at amortised cost

481

1,064

Total financial assets

481

1,064

Financial Liabilities

Financial liabilities measured at amortised cost

Trade creditors and accruals

2,366

3,928

Total financial liabilities measured at amortised cost

2,366

3,928

Total financial liabilities

2,366

3,928

Accounting Policy

Financial assets

The CER classifies its financial assets as measured at amortised cost.

The classification depends on both the CER's business model for managing the financial assets and contractual cash flow characteristics at the time of initial recognition.

Financial assets are recognised when the CER becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash and derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.

Financial Assets at Amortised Cost

Financial assets included in this category need to meet two criteria:

1. the financial asset is held in order to collect the contractual cash flows; and

2. the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Effective Interest Method

Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost.

Impairment of Financial Assets

The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a de-recognition event where the write-off directly reduces the gross carrying amount of the financial asset.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

Financial Liabilities at Amortised Cost

Financial liabilities are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

7.2B: Net Gains or Losses on Financial Assets

2020

$'000

2019

$'000

Financial assets at amortised cost

Impairment

7

(19)

Net gains/(losses) on financial assets at amortised cost

7

(19)

7.3 Administered - Financial Instruments
7.3A: Categories of Financial Instruments

2020

$'000

2019

$'000

Financial assets at amortised cost

Cash on hand or on deposit

167

144

Total financial assets at amortised cost

167

144

Total financial assets

167

144

Financial Liabilities

Financial liabilities measured at amortised cost

Supplier payables

781

201

Purchase of Australian Carbon Credit Units

91,481

78,138

Other payables

72

15

Total financial liabilities measured at amortised cost

92,334

78,354

Total financial liabilities

92,334

78,354

8.1 Aggregate Assets and Liabilities
8.1A: Aggregate Assets and Liabilities

2020

$'000

2019

$'000

Assets expected to be recovered in:

No more than 12 months

20,823

22,065

More than 12 months

14,787

9,155

Total assets

35,610

31,220

Liabilities expected to be settled in:

No more than 12 months

11,765

9,657

More than 12 months

10,178

7,751

Total liabilities

21,943

17,408

8.1B: Administered - Aggregate Assets and Liabilities

2020

$'000

2019

$'000

Assets expected to be recovered in:

No more than 12 months

675

330

More than 12 months

-

-

Total assets

675

330

Liabilities expected to be settled in:

No more than 12 months

163,970

205,589

More than 12 months

628,333

294,649

Total liabilities

792,303

500,238