Canada: Another Look At Ministerial Discretion In The Renewable Energy Sector

From time to time clients ask what is the scope of a minister's discretion to change course with respect to stated government policies: Absent the passage of new legislation or the promulgation of new regulations to implement a new policy, the short answer is that exercises of ministerial discretion must fall within the four corners of existing legislation, including the four corners of any policy-making authority granted to the minister under that legislation.

In a recent energy@gowlings, we reviewed the Ontario Court of Appeal's decision in Trillium Power Wind Corporation v. Her Majesty the Queen in Right of the Province of Ontario. In that case, the Court of Appeal affirmed a principle of judicial deference towards certain high-level changes in ministerial policy. There, the Court dismissed a challenge to the Ontario government's decision to suspend further offshore wind development, notwithstanding the fact that Trillium had incurred substantial expense in the mistaken belief that a previously announced policy would continue in place. Underlying the Trillium case was a very broad-based policy-making authority reserved to the relevant ministers under the Electricity Act (Ontario) and Environmental Protection Act (Ontario).

A very interesting comparison case, also in the renewable energy sector, is the decision of the English Court of Appeal in The Secretary of State for Energy and Climate Change v. Friends of the Earth and Others [2012] EWCA Civ. 28; [2012] All ER (D) 139. Under the UK Energy Act 2008 (the "Act"), the UK Secretary of State for Energy and Climate Change (the "Minister") was responsible for setting tariff rates for small-scale solar installations ("SSSIs"). By February 2011, the Minister was becoming concerned that too many installations were being pursued and that solar tariff payables might swamp the government's total budget allotment for such projects. In addition, with panel prices rapidly declining, the Minister was concerned that the continued payment of high tariffs would provide new SSSI developers with excessively high rates of return. As a result, the Minister wanted to promptly reduce tariff rates for all future solar development.

Under the UK renewables program, SSSI developers were required to agree to certain "standard conditions" developed by the ministry. The Minister had the right to "modify the standard conditions for the purposes of making arrangements for the administration of a scheme of financial incentives to encourage small-scale low-carbon generation of electricity". On its face, this broad-based statutory discretion appeared to give the Minister considerable flexibility to change the standard conditions and tariffs paid to SSSI developers. Furthermore, the program already contemplated that future reductions would occur as panel prices dropped and that these tariff reductions would be accomplished by modifying the standard conditions.

New SSSI developers became eligible for payment under the 25-year tariff schedules based on accreditation by the UK power authority. Accreditation occurred "as of right", so long as the installation met the small-scale threshold, had been "submitted for registration" as an SSSI to the power authority by a "local electricity supplier" (analogous to an LDC in Ontario), and had otherwise passed all relevant commissioning tests. The 25-year tariff rate assigned to new SSSIs was the rate prevailing in the then applicable annual regulatory period in which the new SSSI was accredited. The annual regulatory period ran from March 31st in one year to April 1st in the next.

On December 23, 2011, after a two-month consultation period, the Minister announced that the tariff rate would be reduced on all SSSIs eligible for payment (i.e., those completed and accredited) on or after April 1, 2012. With more than three months' prior notice, prospective SSSI developers intent on completing their installations after April 1, 2012 did not challenge the Minister's announcement. However, to prevent new SSSI developers from rushing their new installations into operation in the three-month period leading up to April 1, 2012 (to thereby take advantage of the higher tariff rate), the Minister also announced that the tariff rate would be reduced for all new SSSIs completed on or after December 12, 2011 and before April 1, 2012. This ancillary announcement was a marked departure under the program which had envisaged changes in tariff rates becoming effective only at the beginning of the next regulatory period, i.e., after April 1st. Those developers already building SSSIs, or otherwise pursuing SSSIs that could be completed and accredited before April 1, 2012, reacted predictably by bringing an application for judicial review, seeking to have the Minister's ancillary pronouncement set aside.

The developers argued that the Minister had exceeded his statutory authority in making the tariff change mid-regulatory period. A lower court agreed, ruling that the Minister's policy change was unlawful since the Minister had acted ultra vires (i.e., outside his statutory capacity) in changing the tariff rates mid-period. On the government's appeal, the English Court of Appeal undertook a very detailed review of the Act and of the regulatory scheme established under it. The key question was whether under the existing legislation, the Minister had the statutory power to make a policy pronouncement designed to deny the higher tariff rate to SSSIs completed mid-period. The answer to that question depended wholly upon a true construction of the UK Energy Act 2008 and an analysis of the tariff and regulatory scheme instituted under it.

The Court of Appeal ruled that the statutory scheme indeed fixed the 25-year tariff rate for new installations based on the tariff in place in the regulatory period of accreditation, such that all developers achieving accreditation in the regulatory period were entitled (under the standard conditions) to the same tariff rate for the regulatory period. Any attempted reduction of the tariff rate prior to the typical April 1st reset date was, in the Court's view, an attempted retrospective modification of otherwise vested rights. While the Court readily conceded that ministerial announcements can sometimes be given retrospective effect and can even alter previously vested rights, so long as the governing legislation is drafted clearly enough to permit this, there was nevertheless a general presumption against permitting ministerial announcements to be given retrospective effect without sufficiently express wording in the governing legislation.

The English Court of Appeal held that the UK Energy Act 2008 did not expressly afford the Minister the right to change the tariff rate within a regulatory period, prior to the next reset date. The Minister had therefore acted outside his statutory capacity. Accordingly, the Court ruled that SSSI developers who were able to complete their installations and become accredited before April 1, 2012 were eligible for payment at the higher tariff rate. Thus, even though the Minister had been given seemingly broad-based powers to administer the tariff scheme under the Act, the details of the scheme, as actually implemented by the regulations and various supporting orders, did not expressly give the Minister the right to make retrospective changes to the program or to otherwise affect vested rights.

It is worth repeating all three of the English Court of Appeal's cautionary notes. Firstly, the Court of Appeal was not concerned with the merits of the Minister's policy objective. Indeed, the Court felt that the Minister had legitimate reasons for wanting to accelerate the proposed tariff reductions. The difficulty was that the regulatory scheme simply did not expressly authorize the Minister to make retrospective changes. Secondly, the Court was not "concerned with the legitimate expectation of [developers] either committed to or contemplating installation prior to April 1, 2012". In other words, the Court was not concerned with the expectancy interests of developers which were contemplating installations that could not reasonably have been completed prior to April 1, 2012, nor was the Court concerned with the expectancy interests of developers which may have entered into commitments relating to proposed SSSIs prior to that date. Rather, the Court was concerned only with those developers who had actually installed, or who actively planned to complete the installation of, their SSSIs between December 12, 2011 and April 1, 2012. The group of developers entitled to relief under the application was therefore more limited than might have first appeared.

Lastly, the Court noted that the question was not whether or not the ministerial announcement would have significant adverse effects on affected developers, but rather whether the statute expressly conferred upon the Minister the power to make modifications to the standard conditions with retrospective effect and thereby to take away vested entitlements. If the legislation had been more clearly expressed, then the Minister's pronouncement would have been upheld, regardless of its adverse affects. Notably, the government attempted to appeal the Court of Appeal's decision here to the Supreme Court of the United Kingdom (formerly the House of Lords), but leave to appeal was denied, thereby giving the decision greater jurisprudential weight.

The Friends of the Earth case does not appear to have been considered by either court level in the Trillium decision. Nevertheless, by reading the two cases together, it may be possible to derive certain general principles that may apply to future exercises of ministerial discretion in the renewable energy sector in Ontario. They are:

  1. First and foremost, any review of ministerial discretion will be highly fact-specific and necessarily involve a difficult and detailed review of both the relevant statute and the regulatory scheme established under it. The outcome of this analysis will be difficult to predict in advance, and therefore litigation impugning a ministerial decision is likely to be protracted and costly.
  2. The principle of judicial deference suggests that high-level ministerial policy pronouncements largely having prospective effect upon proponents who have not yet achieved "as of right" status under the applicable legislative scheme are likely to be immune from court review. This is particularly so where it appears that the ministerial decision is apparently within the four corners of the existing legislation and where the legislation reserves broad-based, policy-making authority in favour of the minister.
  3. Lower-level ministerial policy pronouncements having largely retrospective effect upon proponents who have already achieved "as of right" entitlements (or who could achieve "as of right" entitlements within a short period) under the applicable legislative scheme are more prone to court review and less subject to judicial deference. In other words, there is a chance that such pronouncements will be found to be outside the Minister's statutory authority under the relevant legislation.
  4. Considerations such as the challenger's expectancy interest in the continuance of the now-reversed government policy and the degree of impact upon the challenger and its business do not appear to be central considerations to any review of ministerial discretion. Rather, the exercise will essentially be one of statutory interpretation, largely unaffected by these considerations.

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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