(Another) legal opinion on cancelling FIT contracts
Here from law firm Gowling Lafleur Henderson an opinion on whether FIT contracts can be cancelled, following a change of government. The answer? It depends. If a contract is at the stage where the Notice To Proceed or NTP has not been issued, then a contract may well not be fulfilled.
Read the full article here, and an excerpt follows.
“A perhaps somewhat overlooked section of the form of FIT Contract deals with the consequences of “discriminatory actions” by the Legislative Assembly of Ontario. Non-discriminatory action clauses, developed and refined over the past three decades by project sponsors working on projects reliant upon concessions from government counterparties somewhat less reputable than Ontario, seek to provide project sponsors with some form of protection should the government take action to unilaterally amend the terms of the concession contract or affect an increase to the taxes, regulatory burden or other costs associated with the project in a way that could not have been reasonably expected under the terms of the original concession.
Ontario’s FIT contracts all contain a short-form version of a non-discriminatory action clause which, though protective of the supplier, is subject to key exceptions, including the passage of laws that are of “general application” and new regulations created under theGreen Energy and Green Economy Act, 2009. It is also worth noting that, unlike project finance concession agreements designed for use in emerging markets, which might provide for dispute resolution outside of the jurisdiction, the FIT contract is subject to dispute resolution provisions contemplating arbitration in Toronto.
The non-discriminatory action clause contained in Ontario’s FIT contracts is less than perfect from a sponsor’s viewpoint; however, it does provide some basic protection.
The possibility exists of new laws or regulations coming into force after the election that would have an adverse effect on suppliers who are in a post-NTP or post-commercial operation position under an existing FIT Contract. Given Ontario’s long history of carefully honouring electricity sector concession holder’s contractual rights, it seems unlikely that a new government would seek to use regulatory or legislative change to indirectly penalize electricity sector investors – particularly given the clear pre-NTP cancellation rights already existing in the FIT contracts. If unilateral legislative or regulatory change is promulgated, the challenge for suppliers will be to demonstrate that a specific law is not of general application or to challenge the scope of a regulation under the Green Energy and Green Economy Act, 2009. A government seeking to table unilateral changes of a material nature to the FIT program would presumably be made cognizant of the potential impact that such changes would have on the province’s reputation, as a contracting party and its credit rating by the Ministry of Finance.
In summary, we see parties holding FIT contracts which are pre-NTP as being most at risk from a possible change in government in Ontario and view post-NTP and, particularly, currently operating projects as being less at risk.”