Court File and Parties

2024 ONSC 2130

Court File Nos.: CV-22-00678681-00CL, CV-22-00686544-00CL, CV-23-00704955-00CL Date: 20240412 Superior Court of Justice – Ontario (Commercial List)

Re: 1797472 ONTARIO INC. Applicant (Respondent by Counter-Application)

And:

INDEPENDENT ELECTRICITY SYSTEM OPERATOR Respondent (Applicant by Counter-Application)

Re: INDEPENDENT ELECTRICITY SYSTEM OPERATOR Applicant (Respondent by Counter-Application)

And:

SOLAR SKY FARMS INC. Respondent (Applicant by Counter-Application)

Re: 2323953 ONTARIO INC., BRIGHTPROOF SOLAR LIMITED PARTNERSHIP, GS 2013 LP, MOM SOLAR LIMITED PARTNERSHIP, MOM V LIMITED PARTNERSHIP, OSPS (00227-3673 MCBEAN) LIMITED PARTNERSHIP, OSPS (002281-150 ABBEYHILL) LIMITED PARTNERSHIP, OSPS (002334-159 LORRY GREENBERG) LIMITED PARTNERSHIP, POTENTIA SOLAR 14 LIIMITED PARTNERSHIP, PRI RT SOLAR LIMITED PARTNERSHIP, PSI SOLAR FINANCE 1 LIMITED PARTERNSHIP, SE 2011 LP and SUNE NEWBORO 4 LP and SUNE WELLAND RIDGE LP Applicants

And:

INDEPENDENT ELECTRICITY SYSTEM OPERATOR Respondent

Before: KIMMEL J.

Counsel: Sandra Barton, Adam Bazak and Cristina Borbely, for 1797472 Ontario Inc. and Solar Sky Farms Inc. Luis Sarabia and Rui Gao, for 2323953 Ontario Inc. et al Monique J. Jilesen, Andrea Wheeler, Jonathan McDaniel and Bhreagh Ross, for the Independent Electricity System Operator

Heard: March 7 and 8, 2024

Endorsement on three applications (Interpretation of FIT 1.3 and 1.5 contracts)

The “Feed-in-Tariff” (FIT) Program

[1] These three applications/counter-applications all concern the interpretation of the standard form feed-in-tariff (“FIT”) contract (FIT contract versions 1.3 and 1.5 or “FIT 1 Contracts”)) that the Independent Electricity System Operator (“IESO”) [1] offered starting in 2011 under a government procurement program to attract new entrants (suppliers) into the green, renewable energy market in Ontario.

[2] The energy suppliers who were offered, accepted and signed FIT 1 Contracts were guaranteed pricing over the 20-year term of their contracts. According to the IESO press release issued when the FIT program was first announced in March 2009: “The proposed FIT prices were developed based on experience here in Ontario and in other jurisdictions. Prices differ based on project size and type of renewable energy technology. They cover capital, operating and maintenance costs and allow for a reasonable rate of return on investment over an approximate 20-year period. They also provide special categories for community-based projects.”

[3] The guaranteed pricing over these long-term contracts was offered in exchange for the upfront commitment to design, build and bring renewable energy projects onto the Ontario electricity grid and operate them. These FIT contracts covered energy generated from a variety of renewable sources, including on-shore and off-shore wind, hydroelectric, solar, biogas, biomass and landfill gas. The suppliers were required to meet “minimum domestic content requirements” for their projects, with respect to minimum volumes of products manufactured in Ontario, intended to create jobs, attract investment capital and enhance Ontario’s green energy resources.

[4] The FIT program was introduced for the stated and dual purposes of stimulating the economy and jump starting a renewable energy program in Ontario. According to the then Deputy Premier and Minister of Energy and Infrastructure, George Smitherman, quoted in a March 12, 2009 press release: “The proposed feed-in tariff program would help spark new investment in renewable energy generation and create a new generation of green jobs,” and “It would give communities and homeowners the power and tools they need to participate in the energy business in the new green economy.”

[5] Section 2.1(b) of the FIT 1 Contract is the “Contract Facility Amendment” clause. It requires a supplier to give notice and obtain IESO’s consent before modifying, varying or amending in any material respect any of the features or specifications of their Contract Facility or their Facility as outlined in the Application or the FIT Contract Cover Page (“Contract Facility Amendment”). [2]

[6] The issue to be decided on these applications is whether the “Optimizations” or “Upsizing” undertaken by the solar energy suppliers who are party to these applications, as described below, are Contract Facility Amendments within the meaning of s. 2.1(b) of the FIT 1 Contracts.

The Optimizations or Upsizing Giving Rise to the Dispute

[7] Several years into the 20-year term of the FIT 1 Contracts, each of the solar suppliers involved in these applications (individually, a “Supplier” and collectively, “Suppliers”) replaced some or all of the solar panels and/or added additional solar panels, thereby increasing their “DC Capacity” (i.e., the capacity to capture and deliver direct current or “DC” energy from their solar panels). The electricity delivered to the grid must first be converted from DC energy to alternate current or “AC” energy. It is the AC energy delivered to the grid that is metered and that the Suppliers are paid for under the FIT 1 Contracts.

[8] The FIT 1 Contracts impose limits on electricity production, through the prescribed “Gross Nameplate Capacity” and “Contract Capacity” of each Facility. These two capacity limits in the FIT 1 Contracts are based on the “AC Capacity” of the Facility, i.e., the maximum amount of converted “AC” energy that can be output from the Facility and fed into Ontario’s electrical grid.

[9] Increasing or enhancing the DC Capacity in turn increases AC energy output and the revenues earned by the Suppliers under their FIT 1 Contracts. When this is done within the contractually prescribed AC Capacity limits (Gross Nameplate Capacity and Contract Capacity), the Suppliers refer to these enhancements as “Optimizations”. The IESO refers to them as “Upsizing”.

[10] If the solar panels collect too much DC, it is “clipped” when it is converted to AC and before it is fed into the electricity grid. There is a meter at each Facility that only allows delivery of the maximum AC Capacity limit at any given point in time. Any clipped excess DC energy collected is lost. It is standard for solar energy facilities to have DC capacity that exceeds AC Capacity. As the Suppliers’ expert AJ Goulding explains in his expert report:

When all the panels are using their full capability (i.e. during the periods with the highest amount of sunlight), this means a portion of the production from the panels will not be injected into the grid, because it exceeds the AC limit on the inverter. This phenomenon is sometimes referred to in the industry as “clipping”. However, during periods of lower insolation, the additional DC capacity means that although each individual panel may be unable to reach maximum output, the higher DC rating means that the facility can operate closer to the AC limit.

[11] With a higher ratio of DC to AC, the AC Capacity is more likely to be consistently achieved over the course of a day resulting in increased overall energy outputs. The AC Capacity limit has never been exceeded in the case of any of the Suppliers, either before or after the Optimizations.

[12] The Optimizations were promoted by former IESO (OPA) employees who were involved with the design and implementation of the FIT Program and who are now consultants. Compass Energy Consulting (“Compass”) is a regulatory consulting firm founded in 2011 by a former OPA employee, Jim MacDougall (described as the “architect” of the FIT Program), and later sold to another former OPA employee, Jonathan Cheszes. Otter Energy Inc. (“Otter”) is an engineering, procurement and construction firm that designs and builds solar facilities.

[13] In 2019, Otter and Compass (the “Consultants”) joined together to promote “repowering” to FIT 1 Contract holders. In the fall of 2019, Otter posted on its website that FIT 1 Contract holders had a “golden ticket ... to drastically increase their power output over the course of the day and maximize returns,” while Compass published articles about the rapidly declining cost of solar panels. Their marketing materials emphasized that FIT 1 Contract suppliers with a 250 kW system could earn an additional $100,000 per year for the rest of their FIT 1 Contract by upgrading their solar panels.

[14] Each of the Suppliers was contacted by the Consultants and eventually retained them.

The Suppliers

[15] Each of the Suppliers operate rooftop mounted solar power facilities (individually, “Facility” and together, “Facilities” [3] ). The Suppliers have each undertaken the following Optimizations:

a. 1797472 Ontario Inc. (“Prism”) is a family owned solar business on a farm in Leamington, Ontario. Its FIT 1 Contract was originally signed on July 15, 2010. It commenced commercial operation on November 28, 2011. It suffered a catastrophic fire in March 2019, requiring their solar Facility to be rebuilt with new solar panels that had enhanced DC capacity. This project entered commercial operation with an inverter capacity of 250 kW AC and a solar panel capacity of 275 kW DC. After a fire destroyed the previous installation, the Facility was rebuilt and resumed generation on July 9, 2021, with an inverter capacity of 250 kW AC and solar panel capacity of 500 kW DC. The DC/AC ratio for this Facility increased from 112% to 200%.

b. Solar Sky Farms Inc. (“Solar Sky”) is a solar business operated by a couple from their farm in Palmerston, Ontario. They have a foreign investor/partner in their business. They signed their FIT 1 Contracts (Northern Sky and Southern Sky) on June 29, 2010 and July 13, 2010 respectively. They commenced commercial operation on October 3, 2011. After experiencing degradation in their solar panels at the Northern Sky Facility, Solar Sky decided in November 2021 to replace solar panels and an inverter at the Northern Sky Facility and add solar panels to the Southern Sky Facility. The Solar Sky Facilities commenced operations with an inverter capacity of 250 kW and installed panel capacity of 261.36 kW DC. After the Optimizations, the total installed panel capacity at Northern Sky and Southern Sky has nearly doubled (i.e., from 261.36 kW DC to roughly 500 kW DC). The DC/AC ratio increased from 105% to 198% in the case of Northern Sky and 105% to 202% in the case of Southern Sky.

c. Fourteen entities (the “Potentia Entities”) associated with Potentia Renewables Inc., a fully integrated developer, owner and operator of renewable energy assets with the largest solar rooftop portfolio in Canada, are parties to 190 FIT 1 Contracts. In the interests of expediency, four of the Potentia Entities’ contracts were selected to participate in these proceedings (the “Potentia Sample FIT 1 Contracts”). [4] These contracts were signed between March 25, 2010 and June 6, 2011 and they commenced commercial operation between October 1, 2012 and May 6, 2014. The Potentia Entities have replaced solar panels and related equipment at various of their Facilities, including those associated with the Potentia Sample FIT 1 Contracts. They did not have operational reasons that required these replacements.

i. SKY OZZ International Inc. entered a standard form FIT version 1.3 contract with the OPA, referred to as the “273 Contract”. This is a rooftop solar power Facility located in Toronto. It entered commercial operation on October 1, 2012 with an inverter capacity of 450 kW AC and a solar panel capacity of 489.44 kW DC. This Facility was Optimized in 2020 to now have a solar panel capacity of 630 kW DC. The DC/AC ratio increased from 109% to 140%.

ii. SKY OZZ International Inc. entered a standard form FIT version 1.3 contract with the OPA, referred to as the “776 Contract”. This is a rooftop solar power Facility located in Waterloo. It entered commercial operation on May 6, 2014 with an inverter capacity of 250 kW AC and a solar panel capacity of 364 kW DC. This Facility was Optimized in 2021 to now have a solar panel capacity of 518.4 kW DC. The DC/AC ratio increased from 146% to 207%.

iii. SKY OZZ International Inc. entered a standard form FIT version 1.3 contract with the OPA, referred to as the “1275 Contract”. This is a rooftop solar power Facility located in Markham. It entered commercial operation on January 13, 2014 with an inverter capacity of 400 kW AC and a solar panel capacity of 435.5 kW DC. This Facility was Optimized in 2021 to now have a solar panel capacity of 810 kW DC. The DC/AC ratio increased from 109% to 203%.

iv. Canadian Tire Corporation, Limited entered a standard form FIT version 1.5 contract with the OPA, referred to as the “1665 Contract”. This is a rooftop solar power Facility located in Rockland. It entered commercial operation on September 3, 2013 with an inverter capacity of 200 kW AC and a solar panel capacity of 228.75 kW DC. This Facility was Optimized in 2021 to now have a solar panel capacity of 374.4 kW DC. The DC/AC ratio increased from 114% to 187%.

Positions of the Parties

a) The Position of the IESO

[16] The IESO maintains that its consent was required for these Optimizations because they constitute Contract Facility Amendments. The IESO is not prepared to grant consent because these Optimizations have increased (or will increase, once implemented) the overall solar energy (AC) outputs that the Suppliers seek to be paid for under the FIT 1 Contracts at the favourable contract price.

[17] In the case of Prism, the IESO implemented a “settlement mechanism” which pays Prism at the FIT 1 Contract price for the proportion of energy produced by the newly built Prism Facility that was equivalent to the amount of energy produced at the original Prism Facility, with the excess energy being paid at the Hourly Ontario Energy Price (“HOEP”), the market rate for energy in the province. The IESO estimates that had it paid Prism at the FIT 1 Contract price for the entirety of the Prism’s new Facility's increased AC outputs, it would result in additional payments to Prism, and additional cost to Ontario ratepayers, of approximately $147,434.14 per year.

[18] The IESO estimates that between the Northern Sky and Southern Sky Facilities, the Optimizations at those Facilities and corresponding increased AC outputs will result in additional payments to Solar Sky, and additional cost to Ontario ratepayers, of approximately $350,000 per year.

[19] The IESO estimates that the Optimizations at the four Sample Potentia FIT 1 Contract Facilities and corresponding increased AC outputs will result in increased payments to Potentia Entities, and increased cost to Ontario ratepayers, as follows:

a. 273: $110,382.05 per year. b. 776: $86,978.16 per year. c. 1275: $223,255.84 per year. d. 1665: $104,299.07 per year.

[20] In terms of overall market impacts, Goulding (the Suppliers’ expert) initially estimated (conservatively) that the cost impact of the increased outputs from the Optimizations undertaken by these Suppliers if they are paid the FIT 1 Contract price to be $0.26/month per Ontario ratepayer. He later updated his estimated impact to be $.053/month per Ontario ratepayer.

b. The Position of the Suppliers

[21] The Suppliers maintain that since the Optimizations have not modified, varied or changed the AC Capacity of the Suppliers’ Facilities or any other feature or specification outlined on their Applications or the Fit Contract Cover Pages, the Optimizations are not Contract Facility Amendments within the meaning of s. 2.1(b) of the FIT 1 Contracts and IESO notice and consent are not required. The Optimizations are concerned with DC Capacity. The FIT 1 Contracts do not specify the DC Capacity or the DC/AC ratio. The only capacity restrictions are in respect of AC Capacity, which is specified in the Suppliers’ FIT 1 Contracts to be 250 kW, and the Optimizations do not affect that. In fact, the inverter and metering at the Facilities prevents any excess of AC Capacity through “clipping” (described earlier in this endorsement).

[22] The Suppliers also argue that, even if their Optimizations are Contract Facility Amendments, the IESO is unreasonably withholding its consent for a cost saving purpose that does not come within the prescribed reasons for withholding consent under s. 2.1(b). Rather, they contend that the withholding of consent is arbitrary and not consistent with the policy objectives of the legislative framework in which the FIT 1 Contracts were entered into or the stated purposes of the FIT 1 Contract.

The Issues Raised in the Applications

[23] The court must analyze and interpret the words of the Contract Facility Amendment provision of the FIT 1 Contract (s. 2.1(b) of the Standard Terms and Conditions) to determine whether the Optimizations, all involving increases to DC Capacity at the Suppliers’ Facilities, are Contract Facility Amendments, having regard to the following specific questions identified by the parties:

a. Does s. 2.1(b) require the IESO’s consent for a modification, variation or change in any material respect (“material change”) to any feature or specification of a Contract Facility, or only for a material change to a feature or specification expressly outlined in the Application or on the Cover Page of the FIT 1 Contract? b. Does an increase in DC Capacity amount to such a material change? c. Was the IESO’s consent reasonably withheld? d. What is the appropriate remedy?

Summary of Outcome

[24] For the reasons that follow, I find that the Optimizations undertaken by these Suppliers are not Contract Facility Amendments for which IESO notice and consent are required under the FIT 1 Contracts. Accordingly, the Suppliers’ applications/counter-applications are granted insofar as they seek declarations to that effect. The IESO applications/counter-applications are dismissed.

The Applicable Principles of Contract Interpretation

[25] The FIT 1 Contracts are standard-form 20-year commercial contracts drafted by the IESO. They were developed in a generic form to be used for six different types of renewable energy, not just solar energy.

[26] Interpreting a standard form contract, like any other contract, requires determining the objective, mutual intentions of the parties in light of the contract as a whole and the surrounding factual matrix at the time of formation of the contract. See Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 47–48; Prism Resources Inc. v. Detour Gold Corporation, 2022 ONCA 326, 162 O.R. (3d) 200, at para. 16; Geoff Hall, Canadian Contractual Interpretation Law, 4th edition (Markham, ON: LexisNexis Canada, 2020) at §8.3.1.

[27] The Supreme Court of Canada has clarified that in interpreting standard form agreements, the surrounding “factual matrix” specific to the contracting parties is unlikely to assist in the interpretive exercise, as the contract is not the product of negotiations between those specific parties. However, more general contextual information still forms part of the relevant factual matrix. See Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at paras. 31–32.

[28] In particular, Courts can examine “factors such as the purpose of the contract, the nature of the relationship it creates, and the market or industry in which it operates”. See EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange, 2022 ONCA 514, at para. 55, quoting Ledcor, at para. 31.

[29] This court has had the occasion to interpret the FIT 1 Contract in another context. See Grasshopper Solar Corporation v. Independent Electricity System Operator, 2019 ONSC 6397, at para. 27, quoting Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, at para. 24, in which the court held, consistent with the principles enunciated above, that the FIT 1 Contracts should be interpreted:

a. as whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective; b. by determining the intention of the parties in accordance with the language they used, based upon the cardinal presumption that they have intended what they have said; c. with regard to objective evidence of the factual matrix, but without reference to the subjective intention of the parties; and d. in a fashion that accords with sound commercial principles and good business sense, and that avoids commercial absurdity.

[30] The specific provision of the FIT 1 Contract at issue must not be read in isolation and must be considered in harmony with the rest of the contract in light of its purposes and commercial context. See Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at para. 64. Further, the court’s interpretation should strive to give meaning and effect to all of a contract’s terms (or in this case, the entire clause) and avoid rendering portions of it meaningless and ineffective. See Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 65 (ii).

[31] The relevant surrounding context is generally considered to be that which was present at the time the contract was made, not subsequently. See Prism Resources, at para. 16(iii). The parties’ conduct subsequent to entering into the FIT 1 Contracts will generally not be admissible to interpret them, except insofar as it sheds light on the parties’ intention at the time of contracting. See Sattva, at para. 58; Kilitzoglou v. Curé, 2018 ONCA 891, 143 O.R. (3d) 385, at para. 40; Hall, at §2.8; Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512, at paras. 40–46.

[32] These are the principles that have been applied in the analysis that follows.

The Relevant FIT 1 Contract Provisions

[33] FIT Contracts consist of a cover page (the “Cover Page”), general terms and conditions (the “Terms and Conditions”), and standard definitions (the “Standard Definitions”). Each FIT Contract incorporates the applicable version of the FIT Rules.

[34] The focus of these proceedings is on s. 2.1(b) of the Standard Terms and Conditions of the FIT 1 Contract:

(b) The Supplier shall at no time after the date of this Agreement modify, vary or amend in any material respect any of the features or specifications of the Contract Facility or the Facility as outlined in the Application or the FIT Contract Cover Page (including for greater certainty, the Site) or make any change as to the Facility's status as a Registered Facility (a “Contract Facility Amendment”), without first notifying the OPA in writing and obtaining the OPA's consent in writing, which consent shall not be unreasonably withheld. For the purpose of this Section 2.1(b), it shall not be unreasonable for the OPA to withhold its consent to any modification, variation or amendment which would, or would be likely to,

(i) materially adversely affect the ability of the Supplier to comply with its obligations under this Agreement;

(ii) increase the Gross Nameplate Capacity of the Facility or otherwise cause Electricity generated by another facility to affect the Facility's meter reading, until such time as the Supplier and the OPA agree, acting reasonably, on any changes to the metering configuration or Exhibit B that are necessary to ensure that payments under this Agreement reflect only Delivered Electricity from the Contract Facility prior to any such Contract Facility Amendment; or

(iii) increase the Gross Nameplate Capacity of the Facility such that a lower Contract Price would have applied to the Contract Facility if, at the time of the original Application, the Contract Facility had an increased Contract Capacity corresponding to such increased Gross Nameplate Capacity.

[35] The Standard Definitions (found in Appendix 1 to the FIT 1 Contract General Terms and Conditions) include the following: [5]

FIT Program: means the Renewable Energy Feed-In Tariff Program established by the OPA pursuant to the FIT Rules and any prior or subsequent version of the FIT Rules.

FIT Contract: means the agreement entered into between a Supplier and the OPA in accordance with the FIT Rules, comprised of the FIT Contract Cover Page, the general terms and conditions, any applicable special terms and conditions, these Standard Definitions, and the other Exhibits that are attached, as amended, restated or replaced from time to time.

FIT Contract Cover Page: means the front page of the FIT Contract setting out specific features of the Facility, including its classification as an Automatic NTP Facility (as applicable), its Connection Point, Renewable Fuel, Contract Capacity, Contract Price, Escalation Percentage, applicability of the Peak Performance Factor and the applicable versions of Exhibits A and B.

Contract Facility: means: (a) with respect to a Project that is not an Incremental Project, for the purpose of the FIT Rules, the Renewable Generating Facility described in the Application, and for the purpose of the FIT Contract, the Renewable Generating Facility described on the FIT Contract Cover Page.

Facility: means a Renewable Generating Facility constructed, developed and operated by the Supplier or by an Applicant Related Person of the Supplier, which is comprised either partially or completely by the Contract Facility.

Contract Capacity: means: (a) for Incremental Projects, the total Gross Nameplate Capacity of the Facility, less the highest documented manufacturer’s total installed rated capacity of the Existing Generating Facility to generate Electricity; and (b) for all other Contract Facilities, the Gross Nameplate Capacity of the Contract Facility.

Gross Nameplate Capacity: [6]

In FIT 1.3 Contract: means the manufacturer’s total installed rated capacity of the Facility to generate Electricity. Under the FIT Rules s. 13.1(j) Nameplate Capacity means the rated, continuous load-carrying capability net of parasitic or station service loads, expressed in KW, of a generating facility to generate and deliver electricity at a given time.

In FIT 1.5 Contract: means the manufacturer’s total installed rated capacity of the Facility to generate Electricity. For greater clarity, for solar (PV) Facilities, the Gross Nameplate Capacity is determined by taking the lesser of: (a) the sum of the manufacturer's capacity ratings (in DC KW) for normal operation (e.g., continuous output ratings) of the installed solar modules (i.e. panels) of the Facility; and (b) the sum of the manufacturer’s capacity ratings (in AC KW) for normal operation (e.g., continuous output ratings) of the installed inverters of the Facility.

[36] The FIT 1 Contract Cover Page has 22 items indicated, including information about the Supplier, the Contract Date, Gross Nameplate Capacity (in kW), Contract Capacity (in kW), Contract Price (cents/kWh), Minimum Domestic Content Level (%), Renewable Fuel (type), Location, Connection Point (to the grid), and the applicable version of FIT Rules. The incorporated schedules, appendices and exhibits are listed as:

FIT Contract Offer Notice Schedule I - General Terms and Conditions Exhibit A - Technology-Specific Provisions, Type 5: Solar (PV) Rooftop Exhibit B - Metering and Settlement, Type 3 B Exhibit C - Form of Irrevocable Standby Letter of Credit Exhibit D - Domestic Content Exhibit E - Arbitration Provisions Applicable to Sections 1.7, 1.8, 2.10 & 12.2 Exhibit F - Form of Supplier Certificate re: Commercial Operation Exhibit G - Form of Independent Engineer Certificate re: Commercial Operation Exhibit H - Form of Secured Lender Consent and Acknowledgement Schedule 2 - Special Terms and Conditions Appendix I - Standard Definitions, Anticipated Notice To Proceed (NTP) Request Date Form

[37] Section 1.13 of the FIT 1 Contract Standard Terms and Conditions specifies: Each of the exhibits set out in item 22 on the FIT Contract Cover Page are referenced in and form part of this Agreement.

[38] FIT Contracts were offered to approved suppliers who had submitted an Application in the required form, accompanied by their Application Fee, Application Security (if applicable), schedules, attachments and other documents specified in the FIT Application. The Application form included information about the applicant, project eligibility requirements (including type of renewable energy and Gross Nameplate Capacity) and project connection requirements.

The Factual Matrix

[39] Given the nature of the FIT 1 Contracts, the factual matrix is predominantly derived from the legislative context that created and supported them, and statements made by the government and in the legislature about them and their intended purposes and objectives. These are where the court can ascertain "factors such as the purpose of the contract, the nature of the relationship it creates, and the market or industry in which it operates" (the factual matrix of standard form contracts: See EPCOR at para. 55 citing Ledcor at para. 31).

[40] The Green Energy and Green Economy Act, 2009 S.O. 2009, c. 12 Schedule A (Green Energy Act) and Schedule B (amendments to the Electricity Act, S.O. 1998, c. 15) received royal assent on May 14, 2009. [7]

[41] The preamble to the Green Energy Act reflects the commitment of the Ontario Government at that time to fostering the growth of renewable energy projects, removing barriers to and promoting opportunities for renewable energy projects, and promoting a green economy.

[42] In his report, Adonis Yatchew (the IESO’s expert) describes the energy policy trilemma facing the legislators at the time as follows (at paragraph 12 of his report):

In setting electricity industry policies and formulating legislation, decision-makers face what is often referred to as the ‘energy policy trilemma.’ The trilemma consists of three categories of considerations; economic, environmental and security/reliability. The objective is to find a balance between economic efficiency and the ultimate prices paid by customers as well as broader economic effects, impacts on the environment, and the reliability and security of service.

[43] This trilemma is reflected in the stated purposes of the Electricity Act (as at 2009), which include:

(a) to ensure the adequacy, safety, sustainability and reliability of electricity supply in Ontario through responsible planning and management of electricity resources, supply and demand; (d) to promote the use of cleaner energy sources... (f) to protect the interest of consumers with respect to prices... (g) to protect economic efficiency… (i) to facilitate the maintenance of a financially viable electricity industry.

[44] Section 25.35 (1) of the Electricity Act (as at 2009) provided: The Minister may direct the OPA to develop a feed-in tariff program that is designed to procure energy from renewable energy sources under such circumstances and conditions, in consideration of such factors and within such period as the Minister may require. 2009, c. 12, Sched. B, s. 7.

[45] The OPA was directed to develop the FIT Program by the Ontario Deputy Premier on September 24, 2009. That directive specified:

In setting and re-setting prices in accordance with program rules, the OPA should generally be guided by the principle that the prices should seek to cover the [capital, operating and maintenance] costs that projects of a particular type and size category are generally expected to experience, plus a reasonable return on investment.

The [FIT] contract should require the developer to design, build and operate a renewable generating facility and in exchange should provide for guaranteed, long-term pricing for the output of the renewable generating facility.

[46] The IESO acknowledges that the FIT Program was intended to kickstart interest in renewable energy generation. The cost of renewable energy under the FIT Program was recognized to be higher than other means of obtaining renewable energy. Section 7.1(a) of the FIT 1.3 Rules under the FIT 1 Contract states: “... The prices in the Price Schedule Affidavit are intended to cover development costs plus a reasonable rate of return for Projects meeting certain assumptions relating to cost and efficiency.”

[47] According to the IESO, cost was determined based on estimated capital and operating and maintenance costs at the time. The IESO was prepared to pay a higher price to the early adopters to entice them to build or adopt existing facilities to deliver renewable energy, and wanted to set them up for a reasonable rate of return (from the government’s perspective, that was estimated, by Mr. MacDougall, to be 11%, although that was not a shared or contractually agreed upon figure). The pricing varied between different Contract Facilities based on different assumed costs, such that higher prices were paid to smaller Facilities that did not have the same economies of scale as larger Facilities.

[48] In its general response to the 2011 Annual Report of the Office of the Auditor General regarding the “Electricity Sector - Renewable Energy Initiatives” the Ministry of Energy described the three policy objectives of the FIT Program to be i) reducing the environmental footprint by bringing online more renewable energy; ii) protecting Ontarians from harmful emissions; and iii) creating green energy jobs and attracting investment capital amidst the global recession.

[49] In its response, the Ministry attributed its success in achieving these goals to the decision to set attractive FIT prices and not to reduce them or make any major policy or program changes prior to the mandatory two-year review so as to instill confidence and stability. The two-year review was noted to be the opportunity to recognize the evolving technology and markets and make appropriate adjustments.

Program Review and Amendments

[50] The FIT Rules provides for a Program Review and Amendments. Section 10.1(a) indicates:

The OPA intends to review and Amend as necessary the FIT Program, the FIT Rules, the form of FIT Contract (which, for greater certainty, shall not affect any executed FIT Contracts) and the Price Schedule at regular two-year intervals, with the first scheduled review to take place two years after the Program Launch (each, a “Scheduled Program Review”). The OPA may make an Amendment outside of a Scheduled Program Review in response to ministerial directions, changes in Laws and Regulations, significant changes in market conditions or other circumstances as required.

[51] After the first Scheduled Program Review, one of the changes made to the Standard FIT Contract 2.1 Schedule 1 General Terms and Conditions was the addition of the following clause 2.1(g):

In the case of a Solar (PV) Facility, the Supplier must design the Facility such that: (i) the sum of the manufacturer’s capacity ratings (in DC kW) for normal operation (e.g. continuous output ratings) of the installed solar modules (i.e. panels) of the Facility; may not exceed 120% of: (ii) the sum of the manufacturer’s capacity ratings (in AC KW) for normal operation (e.g. continuous output ratings) of the installed inverters of the Facility.

[52] A similar addition was made to s. 2.6(a)(iv) regarding the requirements for Commercial Operation, that the OPA has received an IE Certificate in the Prescribed Form directly from the Independent Engineer, confirming:

(D) in the case of a Solar (PV) Facility: (1) the sum of the manufacturer’s capacity ratings (in DC KW) for normal operation (e.g. continuous output ratings) of the installed solar modules (i.e. panels) of the Facility; does not exceed 120% of: (2) the sum of the manufacturer's capacity ratings (in AC KW) for normal operation (e.g. continuous output ratings) of the installed inverters of the Facility.

[53] These and other amendments to the standard form FIT Contract were reflected in the FIT Contract version 2.1.1 released on March 22, 2013. The FIT 1 Contracts were never amended.

IESO Default Notices and Denial of Consent

[54] Failure to perform any material covenant or obligation set forth in the FIT 1 that is not remedied within 15 Business Days after written notice of such failure from the OPA, is a “Supplier Event of Default” under s. 9.1.

[55] On July 31, 2020, the IESO sent a notice to suppliers (the “Notice to Suppliers”) said to be a reminder that any material alterations (including to a project’s total installed panel capacity) required the IESO’s written consent. The IESO says this Notice to Suppliers was sent in response to the Consultants’ 2019 marketing campaign promoting Optimizations that the IESO was not prepared to consent to at an additional cost to Ontario ratepayers. The IESO denies that this was done as a result of the mandate of the newly elected provincial government or any directives that had been issued by that government.

[56] Notwithstanding the threat of termination, the IESO has stated that it does not intend to terminate any of the FIT 1 Contracts due to Optimizations that it has not consented to. However, the IESO position is that it will only pay the contract rate for AC energy output equivalent to what would have been produced pre-Optimization, and any AC energy output beyond that will be paid at the lower applicable HOEP rate.

Analysis

[57] The specific issues identified (above) will be addressed in turn.

a. Does s. 2.1(b) require the IESO’s consent for any material changes to the features or specifications of a Contract Facility or only those features or specifications outlined in the Application or on the FIT 1 Contract Cover Page?

[58] The Optimizations involve changes to the type and number of the solar panels used, to the DC Capacity and to the DC/AC ratio. The Suppliers place rely in their interpretation of the Contract Facility Amendment clause of the FIT 1 Contract (s. 2.1 (b)) on the fact that there is no mention of DC Capacity or the DC/AC ratio in the FIT Application or on the Cover Page of (or anywhere else in) the FIT 1 Contracts. They say that this clause only applies where there is a material change to a feature or specification outlined in the Application or on the Cover Page, based on the wording of the clause.

[59] The IESO argues that clause 2.1(b) requires the Suppliers to notify the IESO and seek its consent to modify, vary or amend in any material respect (e.g., make a “material change” to) any of the features or specifications of the Contract Facility, full stop, without regard to the features or specifications outlined in the Application or the Cover Page. The IESO relies upon the placement of two disjunctive “or’s” in s. 2.1(b) shown by the bold and underlining in the extract below to support its contention that the Suppliers were required to notify the IESO and obtain their consent for the Optimizations they have undertaken:

The Supplier shall at no time after the date of this Agreement modify, vary or amend in any material respect any of the features or specifications of the Contract Facility or the Facility as outlined in the Application or the FIT Contract Cover Page (including for greater certainty, the Site) or make any change as to the Facility’s status as a Registered Facility (a “Contract Facility Amendment”),

[60] The IESO argues that the disjunctive nature of this provision creates three categories of Contract Facility Amendments that require notice to be given by the Suppliers and IESO’s consent:

a. those that modify, vary or amend in any material respect any of the features or specifications of the Contract Facility; or b. those that modify, vary or amend in any material respect any of the features or specifications of ... the Facility as outlined in the Application or the FIT Contract Cover Page (including for greater certainty, the Site); or c. those that make any change as to the Facility’s status as a Registered Facility. [8]

[61] The Suppliers argue that only the second “or” introduces a disjunctive, creating two categories of Contract Facility Amendments for which notice to the IESO and its consent are required:

a. those that modify, vary or amend in any material respect any of the features or specifications of the Contract Facility or the Facility as outlined in the Application or the FIT Contract Cover Page (including for greater certainty, the Site); or b. those that make any change as to the Facility’s status as a Registered Facility

[62] The difference between the two approaches lies in whether the phrase “as outlined in the Application or the FIT Contract Cover Page” is to be read in relation to both a Contract Facility and a Facility, or just a Facility.

[63] The parties agree that the last “or” in the clause is clearly used to distinguish what follows as an alternative or different scenario, in which the supplier might “make any change as to the Facility’s status as a Registered Facility” (the “Registered Facility Scenario”). This is an example of the use of the word “or” in the common understanding of an alternative scenario. See Zaki v. Ontario (Director, Disability Support Program), 2017 ONSC 1324, 137 O.R. (3d) 538, at para. 50; Francis v. AIG Insurance Company of Canada, 2016 ONSC 2064, at para. 28.

[64] This alternative Registered Facility Scenario is clearly not intended to be modified by the earlier modifiers in the clause, either:

a. the preceding phrase: to “modify, vary or amend in any material respect any of the features or specifications of”; or b. the subsequent phrase: “as outlined in the Application or the FIT Contract Cover Page (including for greater certainty, the Site)”.

The Registered Facility Scenario is governed by its own preceding and antecedent modifiers: “any change” to the Facility’s “status as a Registered Facility”.

[65] The parties also agree that the first preceding qualifying phrase, to “modify, vary or amend in any material respect any of the features or specifications”, is to be read in relation to both a Contract Facility and a Facility.

[66] To adopt the IESO’s interpretation of the clause with grammatical precision would suggest that one read into the clause a repetition of this preceding phrase after the first “or”, so that the first “or” can be read as creating a second alternative to which the preceding modifying phrase also applies but that singularly engages the subsequent modifying phrase “as outlined in the Application or the FIT Contract Cover Page (including for greater certainty, the Site)” that only applies to a Facility (and not a Contract Facility). This interpretation leads to a strained and awkward reading of the clause when compared to the simpler and clear reading that has the preceding modifier in front of “the Contract Facility or the Facility” and the subsequent modifier after “the Contract Facility or the Facility” and both modifying phrases read as applying to either a Contract Facility or a Facility. The phrase “the Contract Facility or the Facility” is the sandwich phrase between the two modifying phrases at either end of it.

[67] This reading, which applies the subsequent modifier “as outlined in the Application or the FIT Contract Cover Page (including for greater certainty, the Site)” to both Contract Facility and Facility, also enhances the clarity of which “features or specifications” the notice and consent requirements apply to: they must be outlined in the Application or the Cover Page. In the case of a standard form contract such as this, direction as to where to look for the “features and specifications” that will trigger the notice and consent requirements is important so that these requirements are readily understandable to all suppliers who must abide by them.

[68] It is unquestionably important to give meaning and effect to the contractually defined difference between a Contract Facility and a Facility. Even though each of the Suppliers in this case have a Contract Facility that is one and the same as their Facility, it is possible for a supplier to have a Contract Facility that is within an existing Facility but that does not comprise the entire Facility. The IESO contends that the Suppliers’ interpretation of the Contract Facility Amendment clause fails to give meaning and effect to this distinction. I disagree. While there are aspects of the FIT 1 Contracts in which the difference between Contract Facility and Facility matters, this is not one of them. This is an example where the "or" is used to signify that the the same preceding and subsequent modifying clauses apply whether the project is just the Contract Facility or it is a Contract Facility within a larger Facility.

[69] Both sides agree that, according to the direction of the Supreme Court of Canada in Tercon, at para. 64, “[t]he key principle of contractual interpretation ... is that the words of one provision must not be read in isolation but should be considered in harmony with the rest of the contract and in light of its purposes and commercial context.” Examples where the distinction between Contract Facility and Facility is important include the provisions dealing with pricing and metering, which are concerned with the total AC Capacity of a Facility (Gross Nameplate Capacity) and the Contract Capacity, so as to ensure that a supplier only gets paid the FIT 1 Contract price for output generated by the Contract Facility, and not the entire Facility when they are not the same.

[70] In contrast, distinguishing between Contract Facility and Facility when it comes to the feature and specifications outlined in the Application and FIT 1 Contract Cover Page is not consistent with the definitions. A Facility “is comprised either partially or completely by the Contract Facility”. For purposes of a FIT Contract, a Contract Facility means “the Renewable Generating Facility described on the FIT Contract Cover Page.” The Fit Contract Cover Page is described to set out “specific features” of the Facility, one of which is the Contract Capacity. These definitions clearly contemplate the features or specifications outlined on the Contract Cover Page applying to both the Contract Facility and the Facility.

[71] In the context of standardized FIT Contracts that were used for all six of the renewable energy fuel types, it makes sense that the material features and specifications that are specific to the particular Contract Facility (whether a stand-alone or within a larger existing Facility) are to be set out in the FIT Contract Cover Page, while everything else remains standardized across all FIT Contracts and all types of renewable energy projects.

[72] Nor does the strained distinction that the IESO seeks to read into the Contract Facility Amendment clause necessarily lend itself to the outcome that the IESO seeks. It only works if the court also accepts the IESO’s assertion that, where the Contract Facility and Facility are one and the same (as here), the court must assume that the Optimizations were undertaken in relation to the Contract Facility (to which, according to the IESO’s interpretation, the antecedent modifier does not apply) and not in relation to the Facility (to which, according to the IESOs interpretation, the antecedent modifier does apply). However, the IESO offers no justification for why that would necessarily be the case, aside from the outcome that it seeks.

[73] Reading clause 2.1(b) harmoniously with the entirety of the FIT 1 Contract and its purposes and the context in which the FIT Program was created from a policy perspective, I am not persuaded by the IESO’s submission that the objective intention of the parties at the time these Suppliers entered into their FIT 1 Contracts was to differentiate between Contract Facilities and Facilities when determining when the Suppliers were required to give notice of, and obtain consent from, the IESO for any material change.

[74] A contextual and harmonious reading, consistent with the trilemma of interests being balanced at the time the form of FIT 1 Contracts were created (economics, environment and stability/reliability) leads me to conclude that IESO notice and consent is only required for a material change to the features or specifications outlined in the Application or the FIT 1 Contract Cover Page in either a Contract Facility or a Facility.

b. Is an increase in DC Capacity a material change to a feature or specification outlined in the FIT Application or Cover Page?

[75] The FIT 1 Contract Cover Page outlines the AC Capacity (Gross Nameplate Capacity) and the Contract Capacity of each of the Suppliers’ Contract Facilities. Typically, this is 250 kW. The Optimizations have not resulted in any Supplier exceeding these specified capacities.

[76] The IESO’s July 31, 2020 Notice to Suppliers stating that “the FIT Contract does not permit any material alterations [which may include the replacement of solar panels] to the Contract Facility without the IESO’s prior written consent,” was based on its interpretation of clause 2.1(b) that the court has not accepted (for reasons indicated in the previous section of this endorsement). For that Notice to Suppliers to have still been correct, the court would need to be satisfied that the replacement of solar panels (and/or other aspects of the Optimizations) materially changed a feature or specification outlined in the Application or the FIT 1 Contract Cover Page.

[77] This requires a determination of:

i. whether the DC capacity of each Facility is a “feature or specification ... outlined in the Application or the FIT Contract Cover Page” within the meaning of section 2.1(b) of the FIT 1 Contracts, such that a change to the DC capacity might require the IESO’s consent? ii. If the answer to (i) is “yes”, does an increase in DC capacity of the Suppliers’ Facilities amount to a modification, variation or change “in a material respect” (“material change”), such that it requires the IESO’s consent?

i) DC Capacity: is it an outlined feature or specification in the Application or the FIT 1 Contract Cover Page?

[78] The words “feature” and “specification” are not defined in the FIT Contracts and must be interpreted according to their plain and ordinary meaning. A commonly accepted definition of “feature” is “a prominent part or characteristic.” See Merriam-Webster Dictionary, “feature,” https://www.merriam-webster.com/dictionary/feature. A “specification” is “a detailed description of the particulars of some projected work in building, engineering, or the like.” See QQR Mechanical Contracting Ltd. v. Panther Controls Ltd, 2005 ABQB 58, 375 A.R. 44, at para. 19, citing The Oxford Dictionary, 2d ed..

[79] The uncontroverted evidence of the IESO’s engineering expert is that “[s]olar modules are essential pieces of equipment to solar generation facilities.” The Suppliers acknowledge that solar facilities are comprised of “two critical pieces of equipment: a) solar panels and b) the inverter.” The existence of solar panels and an inverter are, broadly speaking, features of any solar generation facility.

[80] However, the Application and the FIT 1 Contract Cover Page (or Schedules, Appendices or Exhibits referenced therein) were standardized for use across all types of renewable energy and were, by necessity, selective about the features and specifications that had to be outlined. They identify the type of renewable fuel to be, in the case of each of the Suppliers, Solar PV Rooftop. However, they do not contain any description of the specifications or details about the solar panels, such as the make, model or capacity of the particular solar panels to be used. Lastly, and importantly because this could have been incorporated generically across all fuel types, they contain no express reference to DC Capacity specifically, or any general reference to the amount of renewable energy source generation (as opposed to the amount of electricity put into the grid which is specified in the Gross Nameplate Capacity and Contract Capacity).

[81] While both parties tendered some evidence about their subjective intentions or understandings regarding DC Capacity, those are generally not helpful or relevant to the contract interpretation process:

a. The IESO relies upon the evidence of Mr. MacDougall about internal assumptions that were made by the OPA at the time the pricing tariffs were modelled and developed based on the solar panel (or DC) capacity available in the market at the time (“Assumed Capacity Factor” was 14% for rooftop solar according to the IESO). However, this is not something that was shared with the supplier counter-parties to the FIT 1 Contracts. b. Similarly, while some of the Suppliers now say that they had intended to eventually optimize as the technology for solar panels improved over time, there is no evidence that this was discussed with the OPA at the time the FIT 1 Contracts were entered into. Even though certain former employees of the IESO acknowledged in their testimony that it was generally expected in the industry (including by them) that there would be improvements in the solar panel technology and opportunities for enhanced capacity and efficiency, they did not go so far as to say that they expected or anticipated that such improvements would be undertaken during the 20-year term of the FIT 1 Contracts within the standard 25-year life span of solar panels.

[82] The evidence does not support a conclusion that there was any expectation or understanding about Optimizations involving increased DC Capacity under the FIT 1 Contracts, one way or the other.

[83] Some reference was made during the written and oral submissions to the “absent words” principle. The Suppliers argued that reference could have been made to the DC Capacity and DC/AC ratio and the court should infer from the fact that these specifications were not mentioned that there was no intention to restrict them and, ergo, the Optimizations that increased them are not prohibited. The IESO refers to commentary from Geoff Hall in Canadian Contractual Interpretation Law, at §3.4 about the skepticism that this principle should be subjected to in the interpretive process.

[84] The court does not need to resort to the absent words principle in this case. The absence of any reference to DC Capacity or to DC/AC ratios is significant in this case because of the contractual requirement that a material change be in respect of a feature or specification outlined in the Application or FIT 1 Cover Page. For it to be outlined, it would need to be mentioned, and it is not.

[85] The FIT 1 Contract Cover Page refers to various Exhibits, some of which were required to be completed before a Contract Facility can commence commercial operation under the general terms and conditions for commercial operation in ss. 2.5 and 2.6 of the FIT 1 Contract, even though they were not finalized until after the FIT 1 Contract was signed, such as:

a. The Supplier’s Certificate at Exhibit F, which requires the Supplier to certify that it has provided, or caused the Independent Engineer to provide, the Engineer’s Certificate (Exhibit G) and an as-built single line diagram in accordance with Section 2.6(a)(iii) of the Agreement (“SLD”). b. The Engineer’s Certificate at Exhibit G includes a certification that the Supplier has provided a SLD schematic of the as-built electrical system at the Contract Facility. A metering plan (that includes the total installed STC rated capacity of the modules) may also be required and, if so, must be reviewed and certified by the Independent Engineer.

[86] It is not these Certificates, but rather the SLD or Metering Plan provided before these Certificates are signed, that include, among many other things, a description of the specifications or details about the number and type (make, model, and capacity) of modules, in the case of solar energy, solar panels. They do not specify the DC Capacity as one of the required inclusions, although the IESO’s position is that these documents would contain all of the information that is needed to understand the DC Capacity of the Contract Facility and the DC/AC ratio

[87] While these Certificates were not completed and provided to the OPA until after the FIT 1 Contracts were signed, they are required to be provided under the FIT 1 Contracts for a Facility to achieve commercial operation and the Exhibits to which they correspond (F and G) are listed on the Cover Page and expressly stated to form part of the FIT 1 Contracts. However, the IESO seeks to rely not upon specifications contained in these Exhibits (Certificates) but upon specifications that might be found in documents that they contemplate will be provided by the Suppliers before the Certificates are signed, namely the SLD and the Metering Plan.

[88] The interpretation that the IESO urges upon the court, that the DC Capacity and/or DC/AC ratio is a feature or specification outlined in the FIT 1 Contract Cover Page, is too far removed. The detailed description of the solar panels, that would in turn enable the determination of DC Capacity and a DC/AC ratio, is found in documents that are contemplated to be delivered in the future in advance of the completion of the Certificates that are Exhibits to the Cover Page of the FIT 1 Contract. These features or specifications are not described on the FIT 1 Contract Cover Page or in the Exhibits themselves.

[89] Detailed descriptions provided in other documents contemplated to be delivered in the future cannot be equated with outlining them as a feature or specification on the Application or Cover Page. Nor does the fact that the FIT Contract Cover Page outlines the type of renewable fuel (in the case of the Suppliers, to be Solar PV Rooftop) translate into the make, model, type, capacity and number of solar panels becoming features or specifications when that is not part of what is outlined on the FIT 1 Contract Application or Cover Page.

[90] The IESO is asking the court to adopt a strained and interpretation of what can be said to be outlined in the FIT Application or FIT 1 Contract Cover Page through inference or implication of features and specifications described elsewhere. The IESO suggests that this interpretation is consistent with the legislative purpose and goal of protecting ratepayers (see Tercon) and would avoid the commercial absurdity of more lucrative than intended contracts for the FIT 1 Contract Suppliers. However, the legislative purpose and goals were multi-faceted and the alleged commercial absurdity is being considered now in hindsight and with regard to the subjective intention of the IESO.

[91] The ratepayer protection was, by the OPA’s own acknowledgment at the time, and by the IESO’s expert’s opinion in this case, a balancing exercise, which was primarily to be achieved through reconsideration at the Scheduled Program Reviews. The overarching purpose and commercial context of these FIT 1 Contracts was to kick start local green energy development and production. The favourable pricing was intended to incentivize Ontarians to become suppliers with long-term contracts with “reasonable profits” (a concept that was neither defined nor capped). Cost containment was built into the pricing tariffs but not into the Contract Facility Amendment clause, except to ensure that the favourable FIT 1 Contract price was only paid for AC generated from the Contract Facility.

[92] The former IESO employees who testified admitted that there was no budgeting or modelling done for cost containment purposes. The cost protection was internally at the OPA said to be based on Assumed Capacity Factor of 14%, which was in hindsight said to be consistent with the Certificates filed and supported by a SLD later submitted by the Suppliers. However, the suggestion that the court adopt a strained interpretation of the Contract Facility Amendment clause to help the IESO achieve that objective in hindsight is not consistent with basic contract interpretation principles.

[93] The court will not adopt a strained interpretation to assist IESO in getting out of an undesirable bargain under a long-term contract to purchase electricity at a fixed rate that has proven to be more lucrative to the Suppliers than the IESO had internally contemplated would be reasonable at the time the FIT 1 Contracts were signed. See Churchill Falls (Labrador) Corp. v. Hydro-Quebec, 2018 SCC 46, [2018] 3 S.C.R. 101.

[94] On a plain reading, neither the details about the make, model, type, capacity and number of the particular solar panels nor the DC Capacity and DC/AC ratio (both of which have been increased as a result of the Optimizations) are outlined or listed features or specifications on the FIT Application or the FIT 1 Contract Cover Page to which the Contract Facility Amendment clause applies. Reading the clause in the manner propounded by the Suppliers is consistent with all of the stated objectives and the commercial context of the FIT Program.

[95] There is no ambiguity and thus no need to resort to other interpretive tools, such as subsequent conduct. When a contract is ambiguous, the court may properly consider the parties’ subsequent conduct to assess their evidence about the intended scope of their contract at the time it was made. See Shewchuk, at para. 48. If there were any ambiguity here, the changes that were made to the FIT 2 Contracts following the first two-year Scheduled Program Review under the FIT 1.3 Rules would be consistent with the Suppliers’ position that the FIT 1 Contracts did not contain a feature or specification regarding the DC Capacity or the DC/AC ratio, since a maximum 120% DC/AC ratio was subsequently expressly incorporated into the FIT 2 (and later) Contracts. The inclusion of this prohibition after the Scheduled Program Review could support an inference that exceeding this maximum was not understood at the time the FIT 1 Contracts were entered into to have been precluded by the Contract Facility Amendment clause or otherwise.

[96] Evidence of subsequent conduct will be more reliable if it shows acts of both parties. See Shewchuk, at para. 53. The amendment in FIT 2 Contracts was made unilaterally by the IESO. But it was made to a standard form contract that the IESO created and expressly contemplated would be reviewed and tweaked after two years. These circumstances mitigate the concerns about the unreliability of subsequent conduct that is not mutually engaged in by the parties. While the IESO says that this was a different term incorporated into a different contract at a different time, given the context in which it arose, as part of the Scheduled Program Review, a reasonable link can be drawn between the evolution of the wording of these standard form contracts. However, all of this is simply corroborative of the court's interpretation of the Contract Facility Amendment clause (above), rather than determinative of it.

[97] In light of the above findings, there is no need to answer the remaining questions that were identified, as these findings lead to the conclusion that the Optimizations do not come within the Contract Facility Amendment clause and IESO notice and consent is not required for them. However, for completeness I will briefly address the remaining questions.

ii. Did the increase in DC Capacity from the Optimizations amount to a material change?

[98] If the IESO’s position that the any material change to a feature or specification requires its consent (not just those outlined in the Application or the Cover Page) required IESO Notice and consent, or if the court had found that the number and type of solar panels, DC Capacity and/or DC/AC ratio was a feature or specification outlined on the FIT Application or FIT 1 Contract Cover Page, then the court would have had to consider what constitutes a “material change”. The focus of the parties submissions was on whether the change in DC Capacity was material.

[99] It is agreed that increasing the DC Capacity through the addition of more solar panels or higher powered solar panels will result in the capture of more sunlight and, even though there is an AC Capacity limit at any given point in time that is monitored by the inverter, an increase in DC Capacity will have the overall effect of more electricity being fed into the grid on a daily, monthly and yearly basis. In other words, the Contract Facilities that have been Optimized will feed more electricity into the grid than they could have done based on their original designs.

[100] The IESO proffered the case of 2198572 Ontario Inc. v. First Land (Overlea) Ltd., 2016 ONSC 5587, 78 R.P.R. (5th) 334, at para. 22 on the question of materiality:

Something is material if it is substantial or essential in the context of the particular contract. Black’s Law Dictionary defines material as: “Of such a nature that knowledge of the item would affect a person’s decision-making; significant; essential.” … The contract must be interpreted from the perspective of the parties at the time the contract was entered into.

[101] Materiality is an objective benchmark against which to measure the change before and after the Optimization. In that context, materiality can be considered from the perspective of:

a. The Contract Facility, by comparing gross increases in DC Capacity (in percentages) to previous DC Capacity or to the stated AC Capacity (in other words, by comparing DC/AC ratios before and after). Under s. 13.1 (i) of the FIT Rules, the solar panels and the inverter are considered to be Major Equipment Components of a solar (PV) Project. The replacement of the solar panels as part of the Optimizations in most cases increased the DC Capacity and DC/AC ratios by more than 50%, and in some cases these doubled. b. The Supplier, in terms of rates of return, before and after the Optimization. Mr. Cheszes testified that some Suppliers could earn up to ten years of additional profits (based on profits earned before Optimization), and Otter Energy (the construction company that entered into a collaboration agreement with Compass, the company owned by MacDougall and Cheszes) advertises that suppliers can recoup the cost of Optimization in as few as 2.5 years.

[102] In this case, each of these benchmarks are mathematically exponential and objectively material. Compass Consulting described the prospect of a 50% increase in power output and the prospective profitable return opportunity for the Suppliers to be a “golden ticket” to drastically increase power and maximize returns.

[103] For all of these reasons, I would have found the Optimizations to be material changes.

c. Was the IESO’s consent (un)reasonably withheld?

[104] The Contract Facility Amendment clause provides a list of examples of circumstances in which it would not be unreasonable for the IESO to withhold its consent. The list is not exhaustive. As the Court of Appeal has clarified, where the specific instances or examples follow (rather than precede) the general category (as here), the specific instances or examples do not restrict the scope of the general category. That is, the ejusdem generis principle does not apply. See Hall, Canadian Contractual Interpretation Law, at §3.12.1, 4th ed. (LexisNexis Canada). Rather, “the purpose of providing specific examples from within a broad general category is to remove any ambiguity as to whether those examples are in fact included in the category.” See National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 SCR 1029, at pp. 1040-41.

[105] None of the listed examples in s. 2.1(b) are engaged in this case. The closest one that the IESO relies on by analogy is s. 2.1(b)(ii), deals with increases in the Gross Nameplate Capacity of a Facility or changes that otherwise cause electricity from another facility to affect the Facility’s meter reading, until an agreement is reached between the Supplier and the IESO about changes to metering configuration necessary to ensure payments reflect only delivered electricity from Contract Facility prior to any such Contract Facility Amendment.

[106] The IESO asks the court to treat the Optimizations as, in effect, having created other facilities that are affecting the Facility’s meter reading (so it is as if the electricity is coming from another facility, not the Facility originally built). Even if it cannot fit into first part of this example (e.g., these are not other facilities), the IESO argues that the analogy can still be made to the second part of the example, and that it was not unreasonable for it to have withheld consent pending a price negotiation and agreement upon a metering change so that the Suppliers are only getting paid FIT 1 Contract pricing for the amount of delivered renewable energy at the pre-Optimization level.

[107] One way to approach the example in 2.1(b)(ii) would be to treat it as differentiating between renewable energy being generated at a Facility and being fed into the grid, and energy from other facilities that is not renewable energy that causes increases to the overall output from the Facility. If viewed in that way, the analogy breaks down to some extent in these circumstances since the Optimizations simply increased the solar energy output from the Suppliers’ Contract Facilities. In other words, all of the output is solar generated renewable energy.

[108] However, the IESO's primary reason for withholding consent is to protect against the increased cost to ratepayers and that is said to be rationally connected to at least that legislative purpose. That rational connection exists even if cost containment was not a priority consideration for the legislators at the time the Energy Act was introduced. As discussed earlier in this endorsement, the Optimizations have (or will) lead to an exponential increase in DC Capacity, which in turn increases the AC output (even if it is still within the AC Capacity limit), and leads to a corresponding increase in the cost of this renewable energy for ratepayers (at the higher rates under the FIT 1 Contracts than would be paid at the HOEP).

[109] The IESO’s expert (Mr. Goulding) estimates that the Capacity Factor increased from 14.6% before Optimization to 21.1% after Optimization, with a corresponding monthly increase in the cost of electricity for Ontario ratepayers of 53 cents per month, for an overall impact on Ontario ratepayers of approximately $2–3 million per month. In terms of impact, this is aligned with the figures presented by Mr. Yatchew (the Suppliers’ expert), of an estimated overall potential impact to the end of the 20-year term of each FIT 1 Contract of in excess of $300 million.

[110] On balance, if I had found the Optimizations to be Contract Facility Amendments, the IESO’s withholding of consent pending a price negotiation and agreement on metering changes to protect against the increased cost to ratepayers would not have been considered to be unreasonable. This reason is sufficiently connected to at least one of the purposes of the FIT 1 Contracts, having regard to the factual matrix and legislative context.

[111] A reasonable exercise of discretion under a contract is one that is exercised with regard to a purpose that reflects the parties shared interests and expectations. See Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 SCR 32, at paras. 62-63. While not the sole or even predominant purpose of the FIT Program, cost containment and stability in the electricity market were part of the legislative context and objectives.

d. What is the appropriate remedy?

[112] This issue of remedy was raised by the IESO to address its further allegation that the Suppliers acted in bad faith by going ahead and making Contract Facility Amendments without consent. If they had done so, they would have committed an event of default under s. 9.1(i) for breaching s. 2.1(b). While Prism was forced into the hybrid payment system that the IESO offered, the others were being paid FIT 1 Contract prices for all outputs, including those from Optimization. So the IESO would have sought a monetary remedy.

[113] While not seeking a further monetary remedy, the IESO argued that the conduct of the Suppliers amounted to a separate actionable wrong for breach of the duty of good faith in honest performance of the contract, for intentionally not asking for consent, implementing the Optimizations and waiting for the IESO to learn about them through its audit function in the case of all but Prism.

a. The IESO’s consent was sought and refused after the replacement of the solar panels and inverter at the Northern Sky Facility was discovered by the IESO during an audit of the Solar Sky Facilities in April 2022. The replacement of the solar panels at the Southern Sky Facility was undertaken after the audit and without any IESO advance notice or consent. b. The Potentia Entities proceeded with their Optimizations. Prior to these proceedings, the IESO was left to discover which had undertaken Optimizations on its own. c. Prism asked for and was denied consent and still went ahead with its Optimizations and the IESO only learned about it from Hydro One when Prism connected its new facility (built after the fire) to the grid.

[114] The IESO accuses the Suppliers of being less than forthright about their Optimizations.

[115] While the monetary remedy sought would be the same for finding of a breach of this duty of good faith as the monetary remedy sought for the alleged breach of s. 2.1 (b) of the FIT 1 Contracts, the IESO wanted a declaration of a breach of the duty of good faith so that it could be taken into account in other cases. In light of the court’s earlier findings, the Suppliers were in the right; they had properly interpreted the FIT 1 Contracts, and notice and consent were not required and thus there is no foundation for this claim. Even if they had been found to have been in breach of the Contract Facility Amendment clause, it would not be a breach of the duty of good faith for them to have misinterpreted the contract and acted in accordance with their interpretation (even if they had later been found to be in breach). I would not have granted this further declaration sought by the IESO.

[116] The remedy on the Supplier side is for declaratory relief and monetary relief. They ask in their Notices of Application for a declaration that there has been no “Contract Facility Amendment” within the meaning of their respective FIT 1 Contracts and that the Optimizations do not require the IESO’s consent and various other relief, some declaratory and some monetary.

[117] The Suppliers also accuse the IESO of acting in bad faith, although no specific remedy is sought for this. They complain about the Notice to Suppliers and failure to provide timely particulars about the first contract interpretation question raised and considered. They say this was part of an intentional strategy to discourage other FIT 1 Contract Suppliers from Optimizing because the farther into the 20-year contract one gets the less likely they would be to Optimize, even if permitted. This accusation is speculative. There is no evidence of this ulterior motive or from which it can be inferred.

Potentia Metering Plan Consent Question

[118] Metering Plans were not required for all suppliers. Three of the Potentia Entities submitted metering plans to the OPA. The IESO makes a separate argument about the representations and warranties contained in their Metering Plans about the number, location, make, model and DC Capacity of the solar panels at their Contract Facilities. The IESO contends that FIT 1 Contracts require these Potentia Entities (that submitted Metering Plans) to obtain IESO consent to change their metering plans, which they have not asked for, nor has any consent been granted.

[119] Section 2.2(d) states: The Supplier shall not make any material changes to the Metering Plan following approval by the OPA or determination by the Independent Engineer (as applicable) without the prior written approval of the OPA, acting reasonably.

[120] A “Metering Plan”, according to the Standard Definitions:

…is a document provided by the Supplier to the OPA… that (i) verifies that the revenue-quality interval meter(s) conform with Laws and Regulations administered by Measurement Canada with respect to such meter(s), and (ii) provides all required information and equipment specifications needed to permit the OPA to remotely access, verify, estimate and edit for calculation purposes and/or total revenue meter readings in order to accurately determine the output of the Facility at the Connection Point net of any Station Service Loads and auxiliary loads and which is updated promptly…

[121] A change in the type and number of solar panels or the DC Capacity of the Facility does not change the Metering Plan itself, which measures and monitors the AC Capacity or output. The Metering Plan sets out how Hourly Delivered Electricity that is sent out of a Facility and into the electricity grid will be measured, validated, adjusted and calculated for the purpose of the FIT Contract. The metering plan, or the manner in which the electricity output is measured and monitored, is unaffected by the solar panel Optimizations and corresponding increased DC Capacity. The IESO did not tender any evidence about Metering Plans to suggest otherwise.

[122] This issue was not the focus of the written or oral submissions and nothing flows from it in the circumstances of this case.

Final Disposition and Costs

[123] For the foregoing reasons, the following declarations sought by each of the Suppliers in their respective applications/cross-applications as the case may be, are granted: There has been no Contract Facility Amendment within the meaning of their FIT 1 Contracts and their Optimizations did not require them to give notice to, or receive the consent of, the IESO.

[124] The Suppliers seek various monetary relief. Insofar as that relief seeks to make them whole for past and continuing amounts payable under their FIT 1 Contracts in respect of the Optimizations, the court expects that the parties will be able to agree upon the amounts to be ordered. A case conference may be arranged before me if there are any aspects of the monetary relief, or other ancillary relief not addressed in this endorsement, that the parties are not able to agree upon and require further direction from the court.

[125] The parties are reminded that the court has a discretion regarding the granting of declaratory relief, which may be denied for reasons of “standing, delay, mootness, the availability of more appropriate procedures, the absence of affected parties, the theoretical or hypothetical nature of the issue, the inadequacy of the arguments presented, or the fact that the declaration sought is of merely academic importance and has no utility”: Bryton Capital Corp. GP Ltd. v. CIM Bayview Creek Inc., 2023 ONCA 363, at para. 64, citing Gook Country Estates Ltd. v. Quesnel (City of), 2008 BCCA 407, 73 R.P.R. (4th) 241, at para. 10. It appears that some of the declaratory relief sought by the Suppliers may not be justified or necessary, beyond what has been ordered, above. If any of the other declaratory relief set out in the Notices of Motion is sought, the court will require further submissions about that.

[126] In accordance with the court's direction at the conclusion of oral submissions, the parties advised the court on April 2, 2024 that no agreement had been reached on costs following their exchange of their bills of costs after the hearing.

[127] Below is a summary of the total (all inclusive) amounts claimed by each party:

a. The IESO claims partial indemnity costs of $651,402.38 and substantial indemnity costs of $924,061.36, based on actual all-inclusive costs of $1,014,949.55; b. 1797472 Ontario Inc. claims partial indemnity costs of $599,905.60 and substantial indemnity costs of $775,444.78, based on actual all-inclusive costs of $949,481.05; c. Solar Sky Farms Inc. claims partial indemnity costs of $564,298.95 and substantial indemnity costs of $727,693.90, based on actual all-inclusive costs of $891,088.85; d. 2323953 Ontario Inc. et al (the Potentia Entities) claim all-inclusive partial indemnity costs of $988,998.01.

[128] The parties are encouraged to try to reach an agreement on costs now that the outcome is known. They shall advise the court by April 30, 2024 if an agreement is reached, failing which they may arrange for a case conference before me to make their proposals and obtain the court’s directions regarding any cost submissions.

[129] This endorsement and the orders and directions contained in it shall have the immediate effect of a court order without the necessity of a formal order being taken out, although any party may take out a formal order by following the procedure under r. 59.

KIMMEL J. Date: April 12, 2024

Footnotes:

[1] The IESO is the successor entity to the Ontario Power Authority (“OPA”), and became so when the two entities merged in 2015. The IESO is the current counterparty to the FIT 1 Contracts. References to the IESO in respect of any events before 2015 should be read as references to the OPA. The IESO and OPA are referred to interchangeably in this endorsement.

[2] All capitalized terms in this clause are as defined in the FIT 1 Contract and are detailed later in this endorsement.

[3] The contractually defined terms “Facility” and “Contract Facility” are discussed later in this endorsement. In the case of these Suppliers, they are one and the same.

[4] Of the total 190 Potentia projects with FIT 1 Contacts, 16 have been Optimized and 78 others have been identified by Potentia as suitable candidates for Optimization in the future.

[5] Except as otherwise indicated, the following definitions are the same in the FIT 1.3 and FIT 1.5 Contracts.

[6] The parties advised that these definitions of Gross Nameplate Capacity, although worded differently in the FIT 1.3 and FIT 1.5 Contracts, are functionally equivalent for the purposes of the issues to be determined on these applications and both correspond with the AC Capacity of the Facility.

[7] The Green Energy Act was repealed on January 1, 2019. (See: 2018, c. 16, s. 10).

[8] None of the seven Contract Facilities in this case were Registered Facilities and this language is therefore not applicable.