Third Party Auditor s Report

Transcription

1 Third Party Auditor s Report Summary of Verification EPCOR Carbon Reduction Offset Project Report: Report Title: CROP Data for Verification_ xls Report Date: March 2009

2 Table of Contents Abbreviations Introduction Project Identification Information Project Information Verification Procedures Summary Limitation of Liability Scope Verification Process Verification Criteria Verification Schedule Verification Process Planning...5 We design our samples to meet the following criteria: Execution Completion Deliverables Working Paper Files Verification Findings Conclusion...11 Appendix A GHG Verification Team Members...12 Appendix B Statement of Verification...13 Appendix C Conflict of Interest Checklist...14 Appendix D Statement of Qualifications...15 PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

3 Abbreviations AENV BEI CH4 C CO 2 CO 2 e DUNS EPC EPEA EUB FC GJ GWP h HFC HHV IP kg kj kt LHV MWh N 2 O N/A NEI NEIL NGCC NAICS NPRI OC P PFC RT SF 6 SoC SoQ SoV TDE TAE THYE THYP Alberta Environment Baseline Emissions Intensity Methane Credits Carbon Dioxide Carbon Dioxide Equivalent Data Universal Numbering System Emission Performance Credit Environmental Protection and Enhancement Act Energy and Utilities Board Fund Credit Gigajoule Global Warming Potential Hour Hydrofluorocarbons Higher Heating Value Industrial Process Emissions Kilogram Kilojoule Kilotonne Lower Heating Value Megawatt-hour Nitrous Oxide Not Applicable Net Emissions Intensity Net Emissions Intensity Limit Natural Gas Combined Cycle North American Industry Classification System National Pollutant Release Inventory Offset Credit Production Perfluorocarbons Reduction Target Sulphur Hexafluoride Statement of Certification Statement of Qualification Statement of Verification Total Direct Emissions Total Annual Emissions Total Half Year Emissions Total Half Year Production (1)

4 1. Introduction The purpose of this report is to summarise the verification procedures and results of these procedures for the following project in accordance with the requirements of Alberta Environment s approved quantification methodology (Quantification Protocol for Tillage System Management dated February 2008); the Specified Gas Emitters Regulation Section 7, the Offset Credit Verification Guidance Document dated September 2007, and the Offset Credit Project Guidance Document dated February Project Identification Information Project: Carbon Reduction Offset Projects Ltd. Carbon Reduction Offsets Project CROP s Report: Report Title: CROP Data for Verification_ xls Report Date: March Project Information The Carbon Reduction Offsets Project is a collaborative effort between Parkland Agri-Services Corp. and EPCOR to create permanent, real, measurable and verifiable greenhouse gas offsets from changes in tillage practices on a year-by-year basis. Individually, farms can only create small reductions in GHG emissions, which is why the Carbon Reduction Offsets Project intends to aggregate the emission reductions realized from individual farms located throughout Alberta. Figure 1 shows a schematic of the Carbon Reduction Offsets Project. The project comprises firstly Carbon Offset Reduction Projects Ltd. (CROP), a company that collects information on tillage practices from participating farms, calculates (quantifies) emission reductions, and prepares these reductions for sale; and secondly, EPCOR, which then markets the emission reductions. EPCOR is given the first right of refusal for all generated offsets and CROP transfers at least 70% of the income from the sale of the offsets back to the farmers. (2)

5 Farmer Farmer Farmer C.R.O.P. CROP Transfer of carbon offsets Payment for carbon offsets EPCOR BUYER Figure 1: Carbon Reduction Offsets Project schematic 1.3 Verification Procedures Summary Sample and Analysis High level analytical testing; Understanding of data trail and controls; Detailed testing of selected data parameters; Follow-up procedures for anomalous data or areas of weak control. (3)

6 1.4 Limitation of Liability This report was prepared by PricewaterhouseCoopers ( PwC ) at the request of Epcor Utilities Inc ( Epcor ). The material in it reflects PricewaterhouseCoopers' best judgment in light of the information available at the time of preparation, and is intended solely for the information of Alberta Environment, Epcor and CROP. PricewaterhouseCoopers does not accept any responsibility to any other party to whom it may be shown or into whose hands it may come including any individuals or organisations who may obtain access to this report through applications under the Freedom of Information Act. 1.5 Scope Temporal scope: January 1 st, 2002 to December 31 st, 2008 crop years Topic Scope: GHG offsets 2 Verification Process 2.1 Verification Criteria Our review criteria for this facility were drawn from the following: Alberta Environment s Climate Change and Emissions Management Act. The Act sets up the framework for the regulation. There are no specific clauses that we include in our review criteria but we note that without the Act the regulatory framework would not exist Alberta Environment s approved quantification methodology (Quantification Protocol for Tillage System Management dated February 2008); the Specified Gas Emitters Regulation Section 7; the Offset Credit Verification Guidance Document dated September 2007; and the Offset Credit Project Guidance Document dated February Verification Schedule Sample and Analysis February 9, 2009 to March 6, Analytical and detailed testing February 9, 2009 to March 6, Projected Verification Statement March 6, (4)

7 2.3 Verification Process Our review process can be divided into three phases: planning, execution, and completion. Each phase consists of several steps, and consists of a process and/or a series of procedures. We have provided a description and explanation of the steps in the body of this document. The verification process described herein represents our minimum internal requirements for a GHG verification. More complicated or problematic GHG verifications will have additional steps and procedures. Planning Execution Completion 1. Client/Engagement Acceptance 2. Contract 3. Review Plan Impact Assessment Risk Assessment Materiality Assessment Preliminary Analytical Testing Sample plan 1. Anomaly Investigation 2. Sample Analysis 3. Interviews 4. Data Management System and Controls Assessment 5. Conformance to the Assurance Criteria 6. Appropriate Disclosure 7. Consistency Assessment 1. QA/QC Process 2. Deliverables Statement of Verification Third Party Auditor s Report Conflict of Interest Checklist Statement of Qualifications 3. Working Paper Files Figure 1: Our Verification Process 2.4 Planning Client/Engagement Acceptance Before we commence a GHG verification project, we ascertain whether the client and the engagement meet certain internal requirements. For client acceptance, we perform the following steps: 1. We research the firm s existing and previous contacts with the client and, where appropriate, with third parties impacted by our work and consider independence issues through researching Independence List, which is our global database of all of our financial audit clients and seek appropriate approvals. 2. We create a written record of: enquiries made, conflict or independence issues, and how all concerns have been resolved. 3. We document the potential risks associated with the client and the engagement. 4. Higher high risk projects are reviewed with our Project Acceptance Committee (PAC) Upon successful completion of these steps, we can enter into a contract with the client. (5)

8 Contract Our contract specifies the terms of our engagement. In our contracts we describe the scope of the engagement, the specific services we are supplying, our review criteria, schedule, personnel, fees, responsibilities of the client and ourselves, and confidentiality requirements. The contract must be signed by both parties before the work commences. GHG Verification Objectives The objectives of our GHG verifications are to obtain and evaluate evidence at a level consistent with the assurance being provided that support the notice of creation of offsets made by the client. The notice of creation of offset can be broken into the following categories of assertions: 1) GHG sources and sinks exist and the reduction occurred. (Existence or Occurrence) 2) Emissions and Removals that should be in the submission are included. (Completeness) 3) Quantities of emissions reported are the client s legal obligation, and quantities of reduction reported are the client s rights. (Rights and Obligations) 4) Reductions have been appropriately quantified (this is closely linked to the appropriate application of the approved quantification methodologies). (Quantification) 5) The Alberta Environment act, regulations and guidance documents have been appropriately applied and whether disclosures are adequate. (Presentation and Disclosure) Review Plan Our review plan documents the scope of the GHG verification (temporal and physical), what we use as criteria to assess the notice of creation of offets, including: Quantification Protocol for Tillage System Management dated February 2008; the Specified Gas Emitters Regulation Section 7, the Offset Credit Verification Guidance Document dated September 2007, the Offset Credit Project Guidance Document dated February 2008, contact information, working and reporting languages, reference documents, the schedule, high level procedures, the assurance team, confidentiality requirements, the report content and format, and document retention requirements. An overview of the components of our review plan is illustrated in Figure 3. We use a risk based approach in designing our GHG verification procedures In our plan, we consider the relative contribution of GHG reductions to the notice of creation of offsets (impact assessment); the inherent, detection and control risks associated with systems and processes (risk assessment); and what would be considered material to Alberta Environment (materiality assessment). We recognize that there are qualitative and quantitative aspects to materiality and that Alberta Environment has specified that any quantitative misreporting that is above 5% is considered material. (6)

9 Impact Assessment Risk Assessment Review Plan Materiality Assessment Preliminary Analytical Procedures Figure 2: Assessment Contributing to a Review Plan In addition to the impact, risk, and materiality assessments, we conduct preliminary analytical procedures to guide the direction of further areas of investigation. Our analytical procedures fall into the categories of historical, correlation, profile, ratio, and benchmarking analysis. Historical analysis examines trends (e.g. CO 2 E offsets) over a specified time period. (e.g., 3 years) It allows us to become familiar with the operations and what has occurred historically. Correlation analysis is used to test the strength of the relationship between two variables that should be related in the operations. An example of a correlation is to compare field area and number of fields over time. Profile analysis normalizes related variables to determine whether changes in one variable are similar to changes in the related variable in the same time period. Historical, correlation and profile analyses are also useful in determining consistency in reporting from period to period. Ratio analysis is used to determine if the magnitude of the reported numbers are approximately in the correct range based on our understanding of the operating scenarios onsite. An example of a ratio we examined is Field area over Field count and Tonnes of GHG Offsets over land area. Our expectations and the results of the analytical testing are recorded. Any significant anomalies that are detected are documented and placed in the review plan for further investigation. (7)

10 Sample Plan We design our samples to meet the following criteria: We take an independent statistical sample of their data and compare it to satellite imagery, in particular we examine area and tillage practice We take sample that yields 95% confidence interval, which is approximate 52 fields 2.5 Execution Sample and Analysis We perform the following sample analysis to test the data, We subcontract the collection of satellite data and we analyse the data itself We further investigate any anomalies identified in the satellite analysis through interviews All unresolved anomalies are assessed through a materiality and error analysis Anomaly Investigation If a significant anomaly is detected, further investigation is warranted. At the outset, we do not assume that the anomaly is an actual error, omission or misreporting; rather, we treat it as a red flag that requires further and closer review. We use a variety of techniques to investigate an anomaly but the primary technique involves interviews and inspection of operational records to determine if there are historical operations that may explain the anomaly. Other techniques can include further statistical sampling of the data, confirmation from an external party as to a transaction, or re-calculation of a value through alternate means. The resolutions to the anomalies are documented. Any unresolved anomalies undergo a materiality analysis. Data Management System and Controls Assessment An important component of understanding the risk of misreporting is understanding the client s data management system and data controls. We confirm through interviews, inspection and observation, that the data flow maps generated have not changed, and modify them if they have. We assess the data controls to determine whether their objectives, location, and frequency of operation are appropriate given the risk of misreporting at that stage in the data flow. Our assessment of the data management system and the controls can modify the review plan requiring further investigation into areas that appear to be weak. Conformance to the Review Criteria Another step in the GHG verification process is determining whether the client is appropriately applying the review criteria. We conduct this assessment throughout the GHG verification; however, of particular concern is ensuring that the correct quantification methodology is applied. To ensure that the submission uses appropriate quantification methodologies, we record the quantification methodology used, the source of the quantification methodology, and whether the particular quantification methodology is accepted or recognized by Alberta Environment. (8)

11 Consistency Assessment A consistency assessment is comprised of comparing each assertion statement with the evidence collected and assessing whether it meets the review criteria. We record this process by printing out the assertion and having the lead on the review team check the statement against the evidence, annotating whether it is supported and aligned with the review criteria, and signing off on the document. At this point we also evaluate any anomalies that were unexplained and other errors, omissions and misreporting for materiality. We also evaluate the qualitative aspects of the submission to ensure that the text is consistent with the evidence, is not misleading, and contains all material issues or concerns relevant to the submission. If there are any material discrepancies, the client is contacted to resolve these discrepancies through revision of the assertion or the provision of additional evidence. Any material discrepancies that remain are noted in the qualifications to our statement of verification. The connection of our GHG verification procedures to the verification objectives is illustrated in Figure 4. GHG Verification Objectives GHG Verification Procedures Existence or Occurrence Completeness Rights and Obligations Data Management System and Data Controls Preliminary Analytical Procedures Sample and Analysis Quantification Interviews Presentation and Disclosure Anomaly Investigation Conformance with Review Criteria Consistency Assessment Figure 4: Connection between GHG Verification Objective and Procedures (9)

12 2.6 Completion QA/QC Process Our policy for all assurance engagements is to have the complete work reviewed by an objective knowledgeable party within the firm. In the case of GHG verifications, we recognize that these types of engagements require special skills not always found in an individual, so we have constructed a two tiered review process whereby there is a technical review conducted by a Professional Engineer and an assurance review conducted by a senior Chartered Accountant. All of our GHG verifications must go through this process before the statement of verification can be issued. The Chartered Accountant is directly involved in the wording of our statement of verification and controls the release of our signature on that document. 2.7 Deliverables Alberta Environment has four deliverables required from the verifier. These are: Third Party Auditor s Report This document Statement of Verification Appendix B Conflict of Interest Checklist Appendix C Statement of Qualifications Appendix D 3 Working Paper Files Our working paper files are kept in an electronic database. This database has been structured such that each mandatory step in the process is embedded in the system. The system is adaptable in that additional steps may be added if the review team judges that they are required. Each step contains the evidence collected, the analysis, and conclusions that result from that step. Each step is reviewed and approved. Our electronic system documents who and when the file was created, modified, reviewed, and approved. This electronic database is designed such that project documents can only be accessed by the review team. There are security measures (e.g., passwords) to enter the system and each member of the team is assigned certain access requirements (e.g., read only or edit authority, etc.). The information in the database is backed up on a regular basis and destruction of the files occurs after 7 years. 4 Verification Findings All material discrepancies identified during our work have been discussed with our client and if resolved, amended. Any material discrepancies that could not be resolved are identified in our statement of verification, which then becomes a qualified assurance statement. We have listed the non-material discrepancies that we encountered during our review; however, our process was designed to provide a review level of assurance and as such, is not designed to identify all non-material discrepancies. Non-material Discrepancies There were no unresolved non-material discrepancies identified upon completion of our review. (10)

13 5 Conclusion Thank you for engaging us as the external reviewers of your GHG annual application. Please refer to our statement of verification for our conclusion. If you have any questions or comments on the points raised in this report please contact me at Christine Schuh, P.Eng., PhD PricewaterhouseCoopers LLP (11)

14 Appendix A GHG Verification Team Members Alistair Bryden Christine Schuh Keith Lawrence Santiago Bernal (12)

15 Appendix B Statement of Verification (13)

16 Appendix C Conflict of Interest Checklist (14)

17 Appendix D Statement of Qualifications (15)