Canada: Challenge To Changes In The Feed-in Tariff Program Dismissed By Divisional Court

Introduction

In its recent decision in SkyPower CL I LP et al v Minister of Energy issued on September 10, 2012,1the Divisional Court dismissed the Applicants' assertions that the Minister of Energy and the Ontario Power Authority (the OPA) had acted unreasonably in failing to process applications in accordance with the Feed-in Tariff (the FIT) rules and that the changes to the FIT rules were unfair, discriminatory, and ultra vires the enabling legislation.2 The application for judicial review, brought by 118 affiliated limited partnerships (the Applicants) that had submitted applications under the FIT program, was dismissed in its entirety.

Background

In May 2009, the Ontario government brought into force the Green Energy Act, 2009 (GEA) and amendments to the Electricity Act, 1998 to allow for the development of a Feed-in Tariff (FIT) program for the streamlined approval and contracting of renewable energy projects such as wind and solar farms. Under the amended Electricity Act, 1998, the Minister was given a broad discretion to direct the OPA as to the goals and content of the FIT program.

In September 2009, the OPA, acting on directions from the Minister that set out specific public policy goals to be included by the OPA in the design of the FIT program, issued FIT Rules 1.0.  These rules set out the specific procedures and criteria according to which FIT program applications would be received and processed for FIT contracts. 

The FIT program created significant interest.  There were over 2,300 applications submitted between September 24, 2009 and June 4, 2010.  Nearly 250 FIT contracts were offered for large projects (i.e. Capacity Allocation Required projects) and 1,675 FIT contracts were offered for small projects (i.e. Capacity Allocation Exempt projects).

A scheduled review of the FIT program began in October 2011.  At that time, the OPA announced that FIT applications would not be processed during the review, and that any amendments to the FIT program would apply to all applications that had not received a FIT contract.  A new version of the rules, the FIT Rules 2.0, was posted on August 10, 2012. Applications developed under the FIT Rules 1.0 could be resubmitted under the FIT Rules 2.0, but would not be automatically eligible to participate.

The Applicants brought an application for judicial review claiming that significant time and investment had been wasted in putting together applications under FIT Rules 1.0, and that the new rules governing the eligibility restrictions on ground mounted solar projects based on municipal zoning, coupled with transition provisions which prohibited changing project lands on resubmission, effectively meant that even with withdrawal and resubmission under FIT Rules 2.0, none of their outstanding applications would be eligible under the new rules.

The Divisional Court Dismisses SkyPower's Arguments

Standard of Review and Deference

The Divisional Court held the Minister's exercise of discretion directing the OPA to revise the FIT Program was to be reviewed on a standard of reasonableness.  Moreover, the Minister was to be given considerable deference because the Electricity Act, 1998 conferred a very broad discretion upon the Minister to direct the OPA to develop a FIT program, and the discretion involved matters of public policy.

Not Ultra Vires

The Court rejected the Applicants' argument that the implementation of FIT Rules 2.0 was ultra vires the Electricity Act, 1998.  The Court reasoned that if the Minister had the legislative authority to direct the OPA to implement the FIT Rules 1.0 (which the Applicants did not contest), then he also had authority to direct the OPA to implement any amendments to, or variations of, the program and rules. While FIT Rules 2.0 place more emphasis on certain public policy aspects of the FIT program, those considerations fell within the discretionary policy authority of the Minister pursuant to the Electricity Act, 1998.

The vires of FIT Rules 2.0 was further underscored by FIT Rules 1.0, which gave the OPA almost unlimited discretion as to how the program should be run, and contained provisions for amendments to the Rules in response to ministerial directions, the ultimate right to cancel the FIT Program in its entirety, and the discretion to reject any application, even one properly completed.

FIT Program Not a Tendering Process

The Court also rejected the argument that the application process for the FIT program was akin to a tendering process (which would have imposed contractual obligations upon the OPA to process the Applicants' applications in accordance with FIT Rules 1.0).  Per the Court, there is little in the FIT Program which mirrors a typical tendering process.  The FIT Program's objectives are matters of public policy, not matters of a strictly commercial nature.  Unlike a tendering process where price is largely determinative, the FIT program has numerous variables to the success of any application and the awarding of a contract, including variables outside an applicant's or the OPA's control. Further, the OPA expressly reserved the right not to enter into a contract with any compliant bidder, and the FIT Program made it clear that a contract award was contingent on grid availability and connectivity.  The FIT Rules clearly established that there was no intention by the OPA or the Minister to create contractual obligations through submissions under the FIT Program, and the Applicants' attempt to characterize the program in this manner was not accepted.

No Legitimate Expectations

The Court further rejected the argument that public statements made by two different Ministers of Energy – to the effect that amendments to the FIT Program would not affect existing applications, and would only change pricing and streamlining – had created legitimate expectations that SkyPower's applications would not be affected.  The doctrine of legitimate expectations can only arise where representations made are "clear, unambiguous, and unqualified".  The Minister's statements did not meet this standard.  Moreover, they were not made to SkyPower directly; rather, they were general statements made to the public, and had to be understood in the context of the detailed requirements and conditions of the FIT Program.

Equally, the Applicants did not have a legitimate expectation that their applications would be processed within six months. Although OPA announcements suggested a six month processing period, and a FIT Rule stating that "time is of the essence", the totality of the FIT Rules 1.0 made it clear that applications could be delayed beyond six months for any number of reasons.  Moreover, the applications were in fact delayed beyond six months, and the Applicants failed to challenge the delay in a timely manner, thereby waiving this argument.

No Interference with Vested Rights

The Applicants' argument that they had gained vested rights through the FIT Program when they submitted their applications for various projects (with the result that FIT Rules 1.0 continued to apply to those applications despite the creation of FIT Rules 2.0) was also rejected by the Court. First, the doctrine of vested rights applies to changes in statutes and perhaps regulations, but not a government program. In any event, the Applicants had not acquired any vested rights that were "tangible, concrete and distinctive", as required under the law of vested rights.  At most, the Applicants had acquired the prospect of obtaining one or more contracts to provide renewable energy with the Province, which could not rise to the standard of a vested right.

No Retroactive Application of Legislation

The last argument rejected by the Court was that the FIT Rules 2.0 offended the principle against retroactive application of legislation. The Court held that, as with the argument pertaining to vested rights, the Applicants did not have any existing rights under FIT Rules 1.0 which could be impacted retroactively by the new Rules.  At its highest, they had the opportunity to have an application considered by the OPA. The Court refused to give effect to the Applicants' implicit position that, once a government program has been announced, governments are precluded from making any program changes that affect unapproved applications.   Indeed, the Court states that "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".

As a result, the Court rejected the arguments that FIT Rules 2.0 were ultra vires or that the Minister or OPA had made unreasonable decisions in respect of the Applicants' unapproved FIT applications.

Application of the Decision

The decision highlights the broad discretion afforded to the Minister of Energy and the OPA to amend and revise the FIT Program to reflect changes in government policy, despite any prejudice this may cause to FIT applications that have not yet received contracts. 

More generally, the decision operates as a caution those who find themselves on the losing end of revisions to any government policies, rules or programs.  Where those policies, rules or programs are based upon a broad statutory discretion to create policy, and they expressly give notice to persons applying for government benefits pursuant to them that they may be amended or revised at any time, any amendments or revisions may be extremely difficult to challenge.  

Programs setting out application processes for discretionary government benefits do not necessarily set out contractual tendering processes, create legitimate expectations, or create vested or accrued rights which the government may not interfere with retroactively.  Depending upon the program content, they may only afford applicants a conditional opportunity to apply for the benefit, and this opportunity may be "revoked" or withdrawn as a result of program amendments.

Courts will be loathe to interfere with such discretionary programs, and will afford them a high level of deference when assessing whether they have been administered reasonably.  That is particularly true where, as in SkyPower, the program is clearly intended to be a flexible vehicle for government policy.

Footnotes

1 2012 ONSC 4979

2 For more information concerning the FIT Program, please see Jacob A. Sadikman, David Hanick, Elliot A. Smith, Micah Vernon,  OPA Announces Revised FIT Program (Osler Update: August 17, 2012).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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