Lands Tribunal for Scotland

OPINION

Alcan Aluminium UK Ltd.
v
Assessor for Highland and Western Isles
Valuation Joint Board

Summary

1. The appellant ratepayers occupied sites at two locations in the Highland area. At each location, they previously operated both a smelter for the manufacture of aluminium and a hydro-electric power station which enabled them to provide cheap power for the smelter. They closed the smelter at one of the sites but retained the power station there. They converted this power station to enable it to ‘export’ power, and made certain contractual arrangements with a power company relating to the supply of power to the grid. These arrangements included offsetting the supply from the grid to the remaining smelter at the other site against the supply to the grid. Power station subjects are valued by formula under certain statutory instruments. The issue in this appeal is whether in the changed circumstances the subjects of appeal still satisfied the definition in the Electricity Generators (Aluminium) (Rateable Values) (Scotland) Order 2000 so as to qualify for the lower rate of formula valuation applicable under that Order. The Tribunal has reached the conclusion in all the circumstances that the subjects of appeal do not fall within that definition as it is worded and that the appeal fails.

The Issue

2. The subjects of appeal are the hydro-electric power station at Kinlochleven, Argyll. The ratepayers appealed against an entry in the Valuation Roll for 2002/03, on the ground that the Assessor had valued the subjects under the Electricity Generators (Rateable Values) (Scotland) Order 2000 (“the Generators Order”) rather than the Electricity Generators (Aluminium) (Rateable Values) (Scotland) Order 2000 (“the Aluminium Order”). The Tribunal allowed an appeal under Section 1(3A) of the Lands Tribunal Act 1949 against a decision of the Valuation Appeal Committee not to refer the appeal to the Tribunal. The appellants are a ‘Company’ within the meaning of the Aluminium Order.

3. Article 3 of the Aluminium Order prescribes the lands and heritages to which it applies as:-

“… any lands and heritages situated in the area of The Highland Council which are occupied by a Company and used wholly or mainly for the purpose of generating electricity by water power wholly or mainly for the manufacture of aluminium.”

The appellants contended that the subjects of appeal fell within that definition. The Assessor disputes this.

4. The valuation formula is under reference to ‘declared net capacity’, as defined. It was agreed that the declared net capacity of the subjects of appeal was 19.6 megawatts and therefore that the net annual value on the basis that the Aluminium Order applied would be £137,200. It was further agreed that if the subjects were not prescribed under the Order, they fell under the Electricity Generators (Rateable Values) (Scotland) Order 2000 (“the Generators Order”) and would then be valued at £196,000 N.A.V. There is therefore no issue of valuation.

Procedure

5. The appeal was heard at an oral hearing on 25 and 26 May 2004. The appellants were represented by Neil Davidson, Q.C., instructed by Messrs Gillespie MacAndrew, Solicitors. The Assessor was represented by Raymond Doherty, Q.C., instructed by the Assessor for the Highland and Western Isles Valuation Joint Board. The appellants called three witnesses, viz. Allan McLean, Project Director, Angus Matthew McDonald, Accountant and Ian Robertson, Engineering Manager, all in the employment of Alcan Smelting and Power U. K. Ltd. Douglas James Gillespie, F.R.I.C.S., the Assessor, gave evidence. Both sides lodged a number of productions. The Tribunal did not carry out any site inspection.

The Facts

6. There was no real dispute about the primary facts, and on the oral and documentary evidence we have made the following findings of fact.

The Subjects

7. The subjects comprise Alcan’s hydro-electric works at Kinlochleven, Argyll. The works originally supplied electricity to Alcan’s Kinlochleven aluminium smelter but that smelter became ‘non-viable in production terms’ and closed in June 2000. That closure followed a review by Alcan in 1994 of their worldwide operations. This concluded that production of aluminium at Kinlochleven was uneconomic, being in the region of 20,000 tonnes per annum. The review concluded that production should be transferred to Alcan’s Lochaber smelter at Fort William where, with investment, the anticipated output could be increased to 40,000 tonnes, which was still relatively small compared with other UK smelters.

8. Aluminium production in the Highlands requires low cost electrical power for production to be economic since the raw materials have to be transported north to Fort William and the finished product transported south. This low cost electricity has been provided by hydro power. The Kinlochleven works originally housed two direct current (DC) generators producing 22 megawatts for the aluminium smelting process there. Alcan envisaged hydro-electricity production continuing at Kinlochleven even although that smelter had closed. They concluded that increased production could not be realised economically at Lochaber unless Lochaber could receive the benefit of the cheap power generated at Kinlochleven. This necessitated the upgrading of the Scottish and Southern Electricity (“SSE”) transmission lines between Kinlochleven and Lochaber, which expenditure became part of Alcan’s investment programme designed to increase production at Lochaber. It is not practical to transmit DC electricity and this had to be converted to alternating current (AC) by a rectifier located on site prior to connection to the transmission lines.

9. In 1996 the first 10 MW AC generator was installed. The DC generators were decommissioned. In June 2000 and during 2001 two further 10 MW AC generators were installed and these were commissioned in 2002. The combined installed capacity of the three AC generators was estimated, depending on annual rainfall, at 22 MW plus or minus 10% but in practice the optimum output was typically 21 MW. The level of output could vary from year to year and was particularly influenced by precipitation levels within the catchment area. The power output could be restricted by fitting fixed vanes which control the flow of water to the turbines. For a reason explained later, the three generators, as commissioned, have a ‘declared net capacity’, as defined in the Aluminium and Generators Orders, of 19.6 MW. The Kinlochleven generators are remotely controlled from Lochaber power station.

Transmission and Distribution

10. SSE has a statutory responsibility for the network, which is controlled by their Central Despatch. All power generators are in contact with Central Despatch who advise when and how much power is to be generated at any point in time. The power lines between Kinlochleven and Lochaber have a total length of about 20 kilometres though the distance as the crow flies is about 15 kilometres. The line of the route is roughly westwards from Kinlochleven, approximately parallel to the west Highland Way as far as Lundavra and thereafter approximately north north east, by way of Glen Nevis, down to Lochaber and Fort William. The Mamore mountain range prevents a straight line connection. During the planning stages, Alcan explored various options including the possibility of a dedicated line, owned by Alcan, linking Kinlochleven to Lochaber. After considering issues of efficiency of power transmission, the environmental impact and overall costs, they concluded that the use of the SSE power lines after upgrading was the favoured option. SSE carried out transmission studies in connection with the proposed supply from Kinlochleven and concluded that the route from Kinlochleven to Lundavra would require the installation of new double pole transmission lines replacing an existing single pole line and that on the route from Lundavra to Fort William an additional power line could be fitted to the existing line of pylons.

11. The electricity generated at Kinlochleven leaves the plant by way of a 33 KV line and this is connected to the SSE transformer/sub-station which is located close to the Kinlochleven plant. From there a 132 KV line goes to Lundavra and two separate lines also leave the sub-station, one an 11 KV line to serve the local community and the other a 33 KV line which goes south to Glencoe and Rannoch Moor. The new double pole 132 KV line runs to a ‘junction’ at Lundavra where the lines change from being carried on wooden poles to being connected to a new line fitted to one side of a long established pylon line. At Lundavra two 33 KV lines provide connections to Corran and Glensanda. After about 9 kilometres the pylon enters another SSE transformer/sub-station at Fort William, approximately 1 kilometre from the Lochaber smelter. This transformer/sub-station also has connections to a number of other lines including a 132 KV line from Fort Augustus. Two 33 KV lines connect this transformer/sub-station to the Lochaber smelter. SSE receive their electrical power in this area not only from Kinlochleven but also inter alia from Fort Augustus and from the Invergarry Power Station.

Island Running

12. The aluminium smelting process necessitates that manufacturing continues 24 hours per day for 365 days per year. If the smelting process suffers an unplanned interruption of the power supply for a significant period of time – a matter of hours – the molten metal will solidify within the plant and severe damage can occur which is very costly to repair. The process therefore relies on a continuous supply of electricity. The electrical circuits and equipment have therefore been designed in such a way that in the event of a failure in the national grid, and conceivably at the Lochaber smelter, the electrical output from Kinlochleven can be transmitted to Lochaber in preference to the national grid (described as ‘island running’). The effect of island running is to ensure that the output of Alcan’s generators at Kinlochleven would be available in an emergency to provide power to Lochaber as a priority over other customers who may be seeking power from the grid. This system is a stand-by arrangement which has not yet been tested in a real incident, and the precise emergency operating procedure has not yet been finalised, but the system is essentially in place. The costs associated with setting it up were met by Alcan.

Agreements

13. The arrangements between Alcan and SSE are set out in a series of agreements. First, by letter dated 2 November 1999, SSE. offered to “provide an increased electricity capacity connection (the ‘Connection’) … to (Alcan’s) premises at Kinlochleven for the export of generation and advance works (the ‘Advance Works’) at Lochaber Smelter, Fort William in preparation for the import of energy”. The offer described the capacity of the generation connection, which was to include the island running capability, and referred to the Advance Works as “works necessary to support a future load connection to Lochaber Smelter”, again with a description of the capacity. Alcan was to pay £4,729,700 for the works, to include the acquisition, erection, laying, installation and commissioning by SSE of the plant and equipment necessary for the Connection. Alcan’s generation equipment at Kinlochleven was to be operated by them “in accordance with the terms of the SSE Grid and Distribution Code … and will therefore be subject to central despatch”.

14. That offer was accepted by Alcan on 3 November 1999 but was conditional on certain other agreements. A Supplemental Agreement dated 8 November 1999 described the Connection in more detail and also detailed various other technical arrangements including sub-station plant, protection, metering, cabling, technical considerations, etc. In a Memorandum of Understanding dated 19 December 2002 the parties agreed that until a formal ‘Generation Connection Agreement and Generator Use of System Agreement’ was entered into a draft ‘Transmission Generator Connection Agreement’ dated 6 December 2000 would form the basis of the interim connection agreements between the parties and the relevant ‘Transmission Use of System’ charges would be payable. This was in order to expedite the commissioning programme and the commencement of generation at Kinlochleven pending resolution of a dispute over the applicability of transmission or embedded connection agreements. The draft Transmission Generator Connection Agreement, which has not yet been signed, stated that Scottish Hydro-Electric (the predecessor company of SSE) was “authorised by a licence granted under the Electricity Act 1989 to carry on the business of the transmission and distribution of electricity, and under the terms of that licence is required (except in certain circumstances specified in that licence) to offer to enter into an agreement for connection to Scottish Hydro-Electric’s Transmission and/or Distribution System by any person requesting the same for that person’s electrical equipment … ”, and thereafter provided details of the company’s Schedule of General Conditions for Connection.

15. The supply agreements are contained in an Electricity Supply Agreement between SSE and Alcan dated 26 September 2002 (but with a commencement date of 1 January 2002). This narrates that “SSE has agreed to supply electricity to the Customer (Alcan) and the Customer (Alcan) has agreed to supply and thereafter purchase electricity from SSE” subject to various terms and conditions. Essentially, this agreement provides that where the output from Alcan’s generator plants, i.e. at both Kinlochleven and Lochaber, is greater than that consumed at Lochaber, SSE. pay Alcan for the net amount of electricity exported. If the output generated by Alcan is less than that consumed by them, Alcan pays SSE for the net amount imported. The basic price is calculated in both circumstances at the rate of 1.4p per KWh (kilowatt hour). SSE may ask Alcan to schedule their output and/or input in a particular way in order to satisfy the generators portfolio requirements. Alcan also pays ‘use of system’ charges.

16. Invoices covering the period from 2002 to February 2004 showed the value of electricity exported from Kinlochleven and Lochaber and the amounts imported into Lochaber, calculated on the net amount of electricity imported or exported. Further invoices raised by SSE cover administration charges, an availability charge and a ‘system pass through’ charge. Some of the invoices show a situation where Kinlochleven’s exports exceed Lochaber’s imports and others show Lochaber’s imports exceeding Kinlochleven’s exports. In the year 1 April 2002 to 31 March 2003 Lochaber’s imported electricity was equivalent to 73% of Kinlochleven’s electrical output. This figure exceeded 50% in every year, and in 2003 amounted to 134%.

Renewables Obligations Certificates

17. The UK government seeks to reduce carbon dioxide emissions and as part of this objective has set a target that 10% of the nation’s energy should be met from renewable energy sources by 2010. The Renewable Energy Strategy in the form of the Renewables Obligation came into effect in April 2002 through the Renewables Obligation (Scotland) Order 2002 (S.S.I. No. 163). This required licensed electricity suppliers either to produce a specified percentage of their energy from renewable sources or notionally to buy a percentage of their supply from eligible renewable sources. They do this by buying Renewables Obligation Certificates (‘ROCs’) from accredited generators of renewable power and presenting them to the U.K. Energy regulator as proof of having met their obligation. It is a condition of the Order that the main components of the generating station have been renewed since 31 December 1989. The Order allows generating plant to be modified so that the designed output is reduced to meet the 20 MW capacity limit set by the Government. It was for this reason that the declared net capacity at the subjects was reduced to 19.6 MW. Alcan at Kinlochleven has accordingly become a provider of ROCs which can be sold in the market, provided they sell to an electricity supplier in the prescribed circumstances. The financial benefit which Alcan currently receives from ROCs is more than double the value of the electricity supplied to SSE.

Appellants’ Submissions

18. Mr Davidson made submissions first on the proper interpretation of the Aluminium Order, particularly the critical part of Article 3 (“used wholly or mainly … ”), in its context. There was no direct authority. He drew attention to the way in which the definition was developed. It referred to the purpose of generating electricity. It was necessarily implied that electricity was generated as part of the appellants’ purpose of manufacturing aluminium. The issue was broader than the technical question whether electricity was generated minute-by-minute and directly employed in the manufacture. It was necessary to look more broadly at the company’s purpose, which was the manufacture of aluminium not the business of generating electricity. The Order referred to the company’s operations in the Kinlochleven/Lochaber area. Mr Davidson pointed out that the decision to close the smelter at Kinlochleven was known in 2000, when the Order was made.

19.Mr Davidson then referred to the uncontradicted evidence of the company’s purpose in the use of Kinlochleven, deriving from the 1994 strategic view, out of which the clear strategy of continuing with the Lochaber smelter, closing the Kinlochleven smelter, and employing the Kinlochleven power station for the benefit of the Lochaber smelter had developed. The reasons were the company’s needs for cheap electricity and secure electricity. Support for this analysis of the strategy was to be found in the importation of the first new generator in 1996. The change from AC to DC was simply a part of the strategy, something which would still have been required even if a dedicated line had been created. The appellants were doing nothing other than developing their core business by a substantial investment in Lochaber, Kinlochleven and the new transmission line. They were keeping the Kinlochleven power generation to serve and provide greater security to Lochaber. If they had intended to go into the business of power generation, they would not have invested in island running, nor in the expense of the power line to Lochaber, and would simply have fed into the grid. Given that the Kinlochleven/Lochaber area was a net importer, it would be an odd way of getting into the business of exporting electricity.

20. Mr Davidson referred to the actual outturn in the rating year, when Lochaber had imported 73% of the power produced at Kinlochleven. The traded surplus did not alter the company’s purposes. In 2003, Lochaber had required 134%, illustrating that the system had not been set up specifically for trading.

21. Mr Davidson emphasised the bespoke nature of the Order, with the twofold qualification – power generation, and manufacture of aluminium: there were no other aluminium manufacturers in Scotland.

22. ROCs, Mr Davidson said, were a diversion in the assessor’s thinking. The evidence had wholly excluded this as playing any part in the appellants’ motive or purpose, which was to supply electricity to Lochaber. They might anyway turn out to be short term. If anything, they reinforced the long-term purpose.

23. Finally, Mr Davidson made submissions on ‘wholly or mainly’. The manufacturing purpose could be considered either as the proportion of Lochaber import to Kinlochleven export, 73% in the relevant year, or simply on a broader view of the main purpose. He referred to Fawcett Properties Ltd v Buckingham County Council [1961] A. C. 636 (H.L.), and Bromley & Ors v Tryon & Ors [1952] A. C. 265 (H.L.).

Respondent’s Submissions

24. Mr Doherty first questioned Mr Davidson’s assertion that if the appellants’ purpose had been simply to supply the grid they would not have incurred the expense of the power line to Lochaber, although he accepted that island running would not then have been required.

25. Mr Doherty submitted that the final part of the definition in Article 3 of the Aluminium Order (“… generating electricity … wholly or mainly for the manufacture of aluminium”) was not satisfied. The Article was perfectly comprehensible and sensible without inserting the suggested words about the appellants’ purposes. Electricity was being generated for supply to SSE for import to the National Grid, and also produced the further commercial benefit which accrued to ‘renewables’. It was not being generated for transfer to Lochaber for use in manufacturing aluminium.

26. Mr Doherty accepted that the company’s subjective strategy, loosely put, involved transfer to Lochaber, but whatever the strategy, the result was not generation wholly or mainly for the manufacture of aluminium. The evidence clearly identified commercial arrangements which did not involve actual transfer of electricity for that use. Quantities were sold by the appellants to SSE and vice versa. This was clear from the Supply Agreement. That was the commercial agreement, and in practice also the electricity generated at Kinlochleven was supplied to the grid and quantities then supplied by SSE to the appellants at Lochaber. The tabulation of power imports and exports simply showed the quantities supplied to SSE at Kinlochleven and separate quantities supplied at Lochaber. There were numerous outlets in between the two, and also other imports.

27. Mr Doherty pointed out that island running had never happened, and the evidence had varied as to the circumstances in which it would happen. It was also not clear that the system for operating the procedure was in place. In any case, a possibility did not result in the definition being satisfied.

28. The intervention of the grid would always make it more difficult to say that electricity was being generated wholly or mainly for the manufacture of aluminium, but Mr Doherty did concede that there might be extreme cases where despite this it might be possible to identify a clearly direct connection. This was not such a case.

29. The Renewables Obligation provided the second commercial aspect. Mr Doherty referred to Article 8 of the Renewables Obligation (Scotland) Order 2002. ‘Large’ existing hydro stations were excluded and there was also a requirement for the main components to have been renewed since 1989. Mr McLean had clearly been aware from 1999 of the proposed Order and while the strategy of using Kinlochleven for the benefit of Lochaber was pre-determined, this was seen as a business opportunity which was taken. It was clear on the evidence that one of the purposes for which electricity was generated was to enable ROCs to be obtained. This was clearly a lucrative element. It was clearly not the case that there was no economic justification, without Lochaber, for generating electricity at Kinlochleven. Mr McLean had candidly said that if Lochaber were to close, the company would be likely to retain this power station and pass on the benefit to one or more of its other plants.

30. In conclusion, Mr Doherty submitted that the lands and heritages were not used at all for generation of electricity for the manufacture of aluminium. Even on the broader construction of the definition, given the evidence about the commercial arrangements, electricity was not being generated wholly or mainly for the company’s purpose of manufacturing aluminium. There was still a qualification in the definition which was based on an activity.

Tribunal’s Consideration

31. We are required to interpret the definition in the Aluminium Order without the benefit of any previous authoritative interpretation and without having been referred to decisions on other definitions of ‘prescribed’ subjects, which tend to take at least slightly different forms. It is clear that the subjects are used for generating electricity by water power. It was not suggested that there is actual physical ‘transfer’ of electricity from the subjects at Kinlochleven to the smelter at Lochaber, nor that the electricity was generated wholly for the manufacture of aluminium. The question is whether, in all the circumstances, it can be said that the subjects of appeal were ‘used wholly or mainly for the purposes of generating electricity … mainly for the manufacture of aluminium’.

32. Our task is to look for the ordinary and reasonable meaning of the words in their present context. This includes considering whether there is some necessary implication regarding the appellant company’s purpose of manufacturing aluminium, as Mr Davidson submitted. We must consider the position as at the relevant date, 1 April 2002, although consideration of the appellants’ earlier development of their strategic plan of investing in various ways to enable them to expand their production at Lochaber is relevant to that consideration.

33. Although the crucial part of the definition is the closing reference to generation of power for the manufacture of aluminium, we note that the definition is in two stages. The first requirement (shared with, although not expressed in the same words as, the wider Generators Order) is for the subjects to be used wholly or mainly to generate hydro-electricity, as to which there is no doubt. The second, further, requirement, which could only possibly apply to one or both of the power stations at Kinlochleven and Lochaber, requires a link with the manufacture of aluminium. However, the definition should be read as a whole, and it should be remembered that it can only be directed at the operations of the appellants or their associated power company, the Lochaber Power Company. The framers of the definition must be taken to have known the actual physical situations of the two power stations and smelters, and it may reasonably be inferred from the evidence which we heard about the development of the appellants’ plans that it was known when this Order was made that the Kinlochleven smelter was to close but the power station to be retained. This does not, however, help us to know whether the definition was directed at the new situation at Kinlochleven as well as the continuing situation of the power station at Lochaber and we are not in a position to know of how much detail the framer of the definition was aware.

34. Two things are clear to us about the definition. Firstly, the required link with the electricity generation is with a particular activity, the manufacture of aluminium, and not more generally with the appellants’ business or undertaking. Secondly, the link must be reasonably close or direct : the electricity must be generated (at least mainly) ‘for’ the manufacture of aluminium, not ‘in connection with’, ‘for purposes ancillary to’, ‘to benefit’, or any such expression. However, there is no requirement for the manufacturing process in question to be located at the same subjects.

35. We accepted without difficulty the appellants’ evidence that, at least in the Highlands of Scotland, where transport costs both of the raw material and of the product are significantly higher, cheap power is an economic necessity for this industry. It is therefore not difficult to discern in the Order, which specifically applies only to power stations in the Highland region, a purpose of supporting this industry by reducing the costs associated with the generation of hydro-electricity. The definition, however, having already limited itself to Alcan’s two hydro power stations, also requires the power generation to be wholly or mainly for the manufacture of aluminium. If these further words are to have any effect, they must involve a further requirement, and the question for us is what is the extent of that requirement.

36. With these considerations in mind, we turn to consider the circumstances at the relevant date. AC power generated at Kinlochleven is connected to the grid. Between Kinlochleven and Lochaber there are a number of other connections, either taking a supply to other users or connecting up with other power sources. The grid supplies power to Lochaber, where the appellants ‘rectify’ it to DC, which is necessary for the smelter process, and use it to power the smelters, i.e. the manufacture of aluminium. The same power company as takes the supply from Kinlochleven provides the supply to Lochaber, and arrangements involving both supplies are combined in one commercial agreement which describes the two supplies as sales (at the same price), with one being offset against the other, but also makes reference to ‘transfer’ and administrative charges. There was also an agreement about the extent of contribution by the appellants to the upgrading of the transmission lines, sub-stations, etc. As we have already mentioned, without cheap power this industry is uneconomic in the Highlands, and the arrangements described enable operation of Lochaber at an increased capacity. We accept that there is also in place an arrangement, ‘island running’, which could be used to shut out connections to other users in a power emergency, so as to provide that the electricity generated at Kinlochleven only benefits Lochaber and thus averts a seriously costly interruption of the process there. The appellants also derive the benefit of ROCs, presently worth around twice the contractual value of the electricity generated, from their operation of the Kinlochleven power station. In order to qualify to obtain this benefit at the relevant time, the appellants actually reduced the generating capacity which would otherwise have been provided at Kinlochleven by around 10%.

37. We think that without the information about the economic aspects, i.e. the combined agreement with the power company and the economic dependence of the Lochaber manufacturing operation on the benefit of that agreement, the appellants’ argument would not get off the ground. The physical situation is of supply into the grid, transmission controlled by another party and various other connections between the two locations, albeit with an emergency facility for shutting off the other connections to ensure continuity of supply at Lochaber. On that picture, we could not regard the electricity generated at Kinlochleven as being ‘for the manufacture of aluminium’. The appellants indeed did not present their argument on the basis of the physical situation. There might perhaps be cases where, despite some physical connection to the grid, the physical arrangements can be seen as, to all intents and purposes, a ‘transfer’ from the power station to a factory, making it easier to speak of generating electricity for manufacture. In the present case, however, the physical circumstances seem to us far removed from such a direct connection, leaving a strong picture of generation for supply to the power company rather than for the aluminium manufacture at Lochaber. (We would mention that we would not regard distance on its own, or the necessity for AC power for transmission purposes, as fatal : a ‘dedicated’ connection over some distance, requiring AC power and therefore rectification to DC for the smelter, might in our view meet the definition.)

38. The question then appears to us to be how matters are affected by the commercial and economic considerations. Does the nature of the commercial arrangements between the appellants and the power company, or the economic dependence of the Lochaber smelter, as expanded at the relevant time, on the power supply agreement, or both taken together, enable the definition to be satisfied? Again, how does the adaptation (by reduction of its originally planned capacity) of the power station to enable it to obtain the very considerably financial benefit of ROCs, affect the issue? With these matters in mind, can the language of the definition reasonably be interpreted to include the subjects?

39. The commercial aspects do undoubtedly mean that, as planned and as presently used, the generation of electricity benefits the Lochaber smelter business. However, we have reached the view that this is not sufficient to bring the use of the Kinlochleven power station within this definition as it is expressed. It is not difficult to imply into the definition the understanding that the aluminium manufacture is by Alcan – ‘for Alcan’s manufacture of aluminium’ (although the definition does not actually require the smelter to be occupied by Alcan). The electricity must still, however, be generated at least mainly ‘for’ the manufacture. We do not think that a person knowing the commercial arrangements and the economic background as well as the physical position could properly say that the electricity was being generated for the manufacture of aluminium. Such a person might well say that the electricity was being generated for the economic benefit of Alcan’s Lochaber operation, ‘in connection with’ it, ‘for purposes ancillary to’ it, or possibly even ‘for the purposes of’ it. Such words are not, however, in the definition.

40. In reaching this view, we do not overlook the ‘island running’ facility. The existence of that emergency facility does not, however, seem to us to affect the basic picture of generation for supply to the grid.

41. ‘Mainly’ can be approached in two ways. If it is considered that there are two competing uses, it is a matter of determining appropriate criteria with which to measure the comparison, and in that case we accept that anything over 50% would suffice. Alternatively, a general comparison of two aspects of one use may be required, in order to judge which is primary. It seems to us that in the particular circumstances all the electricity generated at Kinlochleven is generated for supply to the grid and we cannot see the commercial and economic aspects relating to Lochaber as displacing this primary use. We are therefore not prepared to determine this matter by making a simple comparison between the amount exported by Kinlochleven and the amount imported by Lochaber on the basis that the latter represents a different use which exceeds the balance of the supply to the grid.

42. We have reached this view without relying on the ROCs aspect, but we think that this also weakens the appellants’ position. We accept that this was not part of the original strategy, but it seems to us that the use at the material time of the power station, at a capacity deliberately, albeit only slightly, reduced, for this extraneous commercial purpose also makes it difficult to satisfy the definition, particularly when the relative value of this use is considered. We are not sure that this aspect on its own would necessarily have taken the subjects outside the definition (for example if the power station at Lochaber had had a small enough capacity to enjoy the benefit of ROCs), but it seems to us to be a relevant consideration in considering what the electricity was being generated for.

43. In these circumstances, we have come to the conclusion that the appellants’ argument fails.