07/16/2008 Joint statement of APPrO, CanWEA and OWA on grandfathering RESOP projects
July 16, 2008
Entirely apart from how the three organizations feel about other changes to RESOP, short term or long term, the groups are in complete agreement on the need to grandfather existing developers with respect to the new project limits.
1. Without condoning the use of the 50 MW limit on the number of active applications of any one technology type that any one developer can have underway at a given time, we believe this 50 MW limit should only apply to projects that have submitted applications for CIAs (i.e. submission of initial Form B and all relevant documentation) on May 13 2008 or later.
2. Without condoning the use of the 10 MW limit per developer per transformer station, we believe this limit should only apply to projects that have submitted applications for CIAs (i.e. submission of initial Form B and all relevant documentation) on May 13 2008 or later.
3. Any project that submitted applications for CIAs (i.e. submission of initial Form B and all relevant documentation) and was prevented from obtaining a RESOP contract solely because of the original Huron-Georgian Bay Orange Zone should be grandfathered from the 10MW limit per transformer station.
4. All projects with a signed CCRA should be accorded a RESOP contract regardless of their zone.
These four refinements would ensure that all developers operating in Ontario are on a level playing field from May 13 forward, and that none would be disadvantaged compared to others by virtue of having done development work before May 13.
The explanation for the third item is in principle the same as the others: If someone had a project that was perfectly viable before May 13 and couldn’t be submitted as a RESOP application to the OPA through no fault of the developer - purely because of the creation of the orange zone - that shouldn’t be counted against the project in terms of being subjected to the new 10 and 50 MW limits if and when the orange zone restrictions are lifted. This is intended to apply equally to all orange zones in the province.
Rationale for the use of the proposed new grandfathering rules
When you need to make changes to any program like the Renewable Energy Standard Offer program, it makes perfect sense to use a declared date to create a dividing line between projects that will be processed under the new rules and those that will be processed under the old rules. However the techniques used to categorize projects for such purposes should be chosen carefully to be as fair and efficient as possible.
The key principle being recommended is to create classes of projects or classes of applications that are similar and treat all members of each class in the same way.
The central problem at the moment is with the way the classes are defined for the purposes of the new 10 MW and 50 MW limits. The proposed changes have the unintended effect of grouping applicants into two classes, based on the volume of applications in existence under certain owners as of May 13, rather than grouping projects or applications into classes according to whether they had reached a certain point of development by a certain date and then applying the rules related to ownership.
If you are going to use a date as a dividing line between those that qualify under the old rules and those which qualify under the new rules, the dividing line is most effective if applied first on a project-by-project basis, using standard criteria as to whether each project had reached a certain point by the stated date. After grouping projects in this way, it is then more effective to apply limits based on the total volumes under any one developer or owner.
Without applying standard criteria to identify which projects are captured under the 10 MW and 50 MW limits, you create exposure to a host of problems including the following:
- Stringent limits are placed on every developer who has invested in the RESOP process early and been successful, regardless of the quality of their new applications or their stage of development
- A potentially large number of new applicants with non-viable or placeholder projects have unencumbered use of the 10 MW and 50 MW “allowances” per developer, using up OPA administrative resources and possibly creating phantom connection demands on the system.
- The net effect as you’ve heard would be to systematically hold back those developers who have had early successes, while leaving a wide open door for others who may or may or may not be able to bring their projects to fruition. As a result the OPA will probably waste time reviewing non-viable applications while in effect penalizing the developers who have done the most effective work in Ontario, purely on the basis of their record of early success.
- The OPA loses the ability to create distinctions in the applications it processes between highly developed, well matched, good quality applications, or speculative placeholders entered experimentally by inexperienced developers.
- Applicants have an incentive to sell or trade projects, merely to get around the limits by changing the ownership status of projects.
- Significant volumes of good-faith investment could be placed at risk in favour of much more speculative projects.
It’s quite simple to avoid the bulk of these problems, simply by applying a standard date-based criterion on a project-by-project basis, before applying the 10 MW and 50 MW limits per developer.
If the principle of applying standard criteria to all applications as of May 13 is agreed upon, then the question becomes a rather simple one - merely a matter of determining which standard criteria should be used to create the dividing line.
The three associations are proposing the submission of Form B and related documents as the dividing line for two primary reasons:
- It represents the point at which most of the investment has been made in developing a proposal
- The timing of subsequent steps in development are out of the developer’s control as Hydro One or other LDCs can take more time in some cases and less in others, to complete the CIA.
Related information on the context for these proposals
These proposals are by no means the only important concern held by the Associations on RESOP or the sum-total of the issues the groups feel the OPA will need to address with RESOP. These are merely some short term adjustments that we think are relatively easy to make and which will be beneficial in the short and longer term.
A guiding principle in this work has been the belief that it is far more fair and effective to group projects for the purpose of determining eligibility by their actual stage of development, according to common, objective, and standardized measures, rather than primarily by ownership without any reference to stage of development. Once projects are classified by stage of development, it’s then much easier and fairer to apply rules related to ownership going forward from a given date.
This approach is administratively simpler because projects are relatively stable identifiable entities in the OPA’s managerial systems, whereas developers can buy and sell projects, merge and change ownership at any time. The project-based approach has the added benefit of treating all developers equally as of May 13, and not putting large amounts of good-faith investments at risk.
A small aside on other exemptions: None of what we are saying needs to affect the exemptions contemplated in the May 13 changes for farm-based biomass, community-based projects and so on.
Please note that the associations are not necessarily recommending grandfathering as appropriate in all situations. We are proposing grandfathering in this case because there are viable projects with sizable investments that could be de-priorized in an almost systematic way, in favour of less viable projects with relatively little investment behind them. It’s important to send a strong signal to the investment community that capital invested in pursuit of the RESOP objectives can continue to be placed in Ontario with confidence. We are not saying that the same principle should apply to the connection queues.
There needs to be a separate discussion as to whether people who are holding positions on queues should be grandfathered with respect to new milestones. Milestones are intended to reduce the number of people holding positions on queues unnecessarily and grandfathering in such cases could actually perpetuate a long-term problem.
For more information on the positions of APPrO, CanWEA and the OWA on this matter, please see the following:
APPrO (Jake Brooks): http://www.appro.org
CanWEA (Sean Whittaker): http://www.canwea.ca
OWA (Paul Norris): http://www.owa.ca