DESCRIPTIVE RUBRIC

Valuation for rating – Formula valuation – Hydro-electric power station occupied by aluminium company – adjoining smelter closed but power exported under contractual arrangements involving power company supplying power to another smelter – capacity reduced to qualify for ‘Renewables Obligation Certificates’ – whether used ‘wholly or mainly for the purpose of generating electricity by water power wholly or mainly for the manufacture of aluminium’ – Electricity Generators (Aluminium) (Rateable Values) (Scotland) Order 2000.

Alcan Aluminium UK Ltd. v Assessor for Highland and Western Isles Valuation Joint Board
9 July 2004
LTS/VA/2003/62

The appellants 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 (the subjects of appeal). 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 price of the supply from the grid to the remaining smelter against the price of the supply from the subjects to the grid. The appellants also slightly reduced the capacity of the power station to bring it within the permitted size to qualify for substantial payments for ‘Renewables Obligation Certificates’ (ROC’s). The appellants argued that , following these changes, the subjects still satisfied the definition in the Electricity Generators (Aluminium) (Rateable Values) (Scotland) Order 2000 (“ … lands and heritages … used wholly or mainly for the purpose of generating electricity by water power wholly or mainly for the manufacture of aluminium”) and therefore qualified for the lower rate of formula valuation applicable under that Order.

Held, refusing the appeal, the operative part of the definition, ‘for the manufacture of aluminium’, required a reasonably close or direct link with the manufacture of aluminium. The physical picture was of generation for supply to the power company rather than for the manufacture of aluminium. The commercial and economic considerations, which did mean that the generation of electricity at the subjects benefited the smelter business which was retained, were not sufficient to bring the subjects within the definition: the power was generated for the benefit of the operation or for purposes connected with it, but not ‘for the manufacture of aluminium’. This was not a case in which two competing uses were identified. Rather, on a general comparison of two aspects of one use, the commercial and economic aspect did not displace the use to supply the grid. Therefore, the fact that the amount imported by the remaining smelter was more than 50% of the amount exported from the subjects did not enable the subjects to satisfy the ‘mainly’ test. The ROC’s aspect further weakened the appellants’ position, but on its own would not necessarily have taken the subjects outside the definition.

Cases referred to:-

Fawcett Properties Ltd v Buckingham County Council [1961] A.C. 636 (H.L.)
Bromley & Ors. v Tryon & Ors [1952] A.C. 265 (H.L.)


See full decision:  LTS/VA/2003/62