Ontario’s Divisional Court Dismisses Application Challenge of Changes to the FIT Program

On September 10, 2012 the Ontario Divisional Court released its judicial decision of SkyPower CL I LP et al v Minister of Energy (Ontario) et al.[1] and dismissed the applicants’ challenge with respect to the changes made by the Ontario Power Authority(“OPA”) to its Feed-In Tariff (“FIT”) Program Rules from version 1.0 to 2.0.  

The applicants, of which there were 118 limited partnerships, contended that the Minister of Energy and the OPA acted unreasonably in failing to process applications in accordance with OPA rules and they wanted a declaration that the Minister of Energy’s new directives were unfair, discriminatory and ultra vires the enabling legislation. The applicants sought an order of the Minister to direct the OPA to process all existing FIT applications in accordance with FIT Rules 1.0. All of the applicants’ arguments were dismissed with costs.

Background to the Judicial Challenge

In 2009, new energy legislation from the Ontario government led to changes in the Electricity Act, 1998[2] which created a FIT program, outlined the responsibilities of the OPA and the Ministry of Energy for implementation of the program, and provided directions to be given by the Minister to the OPA in relation to the development of renewable energy generation facilities and systems to support a FIT Program.

By the fall of 2009, the Minister directed the OPA to create a FIT program open to projects that produce electricity from renewable energy sources. The broad policy objectives of the FIT program were to promote clean energy, create jobs, introduce a simpler method to procure and develop generating capacity from renewable energy sources, and encourage community and Aboriginal equity participation in the program. The version 1.0 FIT Rules were released for the purpose of explaining the procedures pursuant to which applications would be received and processed for FIT contracts. All of the rules, pricing, etc. were publicly available on the OPA’s website.

The FIT program created significant interest and received thousands of applications. The applicants in SkyPower submitted a large number of applications under the version 1.0 FIT Rules. However, the significant level of interest in the program indicated a need for a long-term plan for renewable energy supply to ensure capacity within the electrical grid.

In October of 2011, a review was scheduled of the FIT program and there were extensive discussions with interested stakeholders (i.e., industry, municipalities, community groups, etc.). During this review period, FIT applications were not processed and any unprocessed applications would later be assessed based on any amendments to the FIT Rules 1.0. Alternatively, existing applicants could withdraw from the FIT program and receive a refund of their application security deposit and application fees.

Eventually, in August of 2012, the definitive version 2.0 FIT Rules were introduced which changed the way FIT applications would be processed. Specifically, instead of the first-come, first-serve approach used in FIT Rules 1.0, FIT Rules 2.0 adopted a points system to give priority to applications that met various program objectives, including facilitating greater Aboriginal and community participation. (For more information on the prioritization system, see Ontario's Feed-in Tariff Program: Results from the Public Consultation Phase.)

All 6475 applications that were submitted and awaiting review under FIT Rules 1.0 could choose to resubmit their application under the FIT Rules 2.0, including the applicants. The applicants expended significant investments in time and money to be eligible for a FIT contract under FIT Rules 1.0. However, their applications no longer had a chance of securing a FIT contract under FIT Rules 2.0 and the modification of each application would be costly and time consuming.

Thus, the applicants submitted an application for judicial review to determine if the Minister’s directions to the OPA and the resulting changes to the FIT program were unreasonable. The applicants put forward four grounds for the court to conclude that the Ministry and the OPA acted unreasonably. The applicants were unsuccessful on all four grounds as outlined below.

Standard of Review

The court held that the standard of review was reasonableness because the Minister had very broad discretion to direct the OPA and discretionary decisions are entitled to considerable deference by the courts.

Assertion #1: That the application process and the FIT Rules 1.0 were equivalent to a tender process and that certain rights arise as a consequence.

The court rejected the argument that the application process for the FIT program and the contents of the FIT Rules 1.0 are equivalent to a tender process. In a tender process, there are usually fixed specifications for a contract and the main or sole issue is price to be charged for the work to be performed. With a FIT application, there are many variables for an application to be successful and a contracted awarded (i.e., FIT Rules, public policy considerations, etc.) and thus the application process was not deemed to be equivalent to a tender process.

Assertion #2: That the doctrine of legitimate expectations gives rise to certain rights on the part of the applicants.

The Divisional Court rejected the argument that the applicants had a legitimate expectation that the FIT program criteria or application process would not change based on statements of the Minister. The statements referenced by the applicants did not constitute a representation that was “clear, unambiguous and unqualified” which would give rise to a legitimate expectation that a particular procedure would be followed. Furthermore, the representations were not made specifically to the applicants but were instead statements of general application.

The applicants also argued that the “time is of the essence” provision in FIT Rules 1.0 (i.e., s. 12.4(k)) gave rise to a legitimate expectation in terms of the process that had to be followed which the OPA failed to do. The court disagreed with the applicants and said that the FIT rules were fluid which makes processes variable or moveable. As well, the OPA had legitimate reasons not to continue with their original reviews because they were overwhelmed with applications and then plans were revised.

Assertion #3: That the applicants gained certain vested rights through the FIT Rules 1.0 process that were engaged and that the Ministry and OPA could not interfere with those rights.

The applicants argued that they gained vested rights when they made their application and thus the FIT Rules 1.0 should continue to apply to those applications. The court stated that based on the facts, “… the applicants did not acquire any vested rights of a type that are tangible, concrete and distinctive. At most, the applicants had the prospect of obtaining one or more contracts to provide renewable energy to the Province. A prospect cannot be equated to a contract or a right.”[3] Thus, the applicant’s third assertion based on vested rights was rejected.

Assertion #4: That applying FIT Rules 2.0 to the existing applications by the applicants’ offends the principle against the retroactive application of legislation and is fundamentally unfair to the applicants.

At the time of the changes to the FIT Rules, the applicants had applications that were waiting for review and applications that had been accepted for FIT contracts. Applications that had been accepted for FIT contracts prior to the implementation of the FIT Rules 2.0 are being honoured under the FIT 1.0 Rules and are not affected by FIT Rules 2.0. The court noted that the majority of the applicants’ applications were not completed contractual arrangements. Thus, the only rights’ arising for the unprocessed applications is a right for those applications to be considered by the OPA. However, the court stated that when the applications were considered they would be considered based on the rules that were in effect at the current time (i.e., FIT Rules 2.0).

With respect to the argument that applying FIT Rules 2.0 to the existing applications is unfair, the court noted that it is untenable for the government to be precluded from making changes to government programs particularly when there are changes in government policies and priorities. The court stated, “while it may sometimes seem unfair when rules are changed in the middle of a game, that is the nature of the game when one is dealing with government programs.”[4]

Implications

It is clear from the Divisional Court’s decision that the Minister has very broad discretion in his directions to the OPA to carry out the public policy directives for renewable energy strategies in the Province of Ontario. Furthermore, the FIT Rules give the OPA an almost unlimited discretion to run the FIT Program as it deems appropriate. Thus, when dealing with a public entity with such broad discretion, the individual should be aware that these entities have broad flexibility and can make changes on an ongoing basis.

Furthermore, the court in SkyPower remained cognizant at all times that this situation was not one solely revolving around a commercial matter; rather, the FIT Program’s foundation is based on social and public policies. Particularly when dealing with future government programs that are so steeped in social and public policy, individuals and businesses need to remain conscious that the government of the day has the right and discretion to change policies and programs in order to meet their policy objectives, which may require the participant in the government program to have adaptable plans.

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Sven Walker is a Partner at Dale & Lessmann LLP, a Toronto, Ontario, Canada-based full service law firm specializing in renewable energy law and in particular solar, wind and biogas energy law. Sven is legal counsel to a number of industry leading equipment and technology manufacturers, suppliers and installers, as well as investors, developers, purchasers, contractors, consultants and financing entities. To speak with Sven, please call 416-369-7848 or e-mail him at swalker@dalelessmann.com.

Prepared with the assistance of Farah Rohoman, student-at-law at Dale & Lessmann LLP.

[1] 2012 ONSC 4979 [SkyPower].

[2] SO 1998 c 15.

[3] SkyPower, supra note 1 at para 77.

[4] Ibid at para 84.