ROC Sugar: keep the swings and ignore the roundabouts?

3 June 2011 by David Hart KC

Tate and Lyle Sugars Ltd v Secretary of State for Energy and Climate Change & Anor [2011] EWCA Civ 664 – Read judgment

You depend on a subsidy for developing a new technology. You say that Government is not giving you a big enough subsidy. You sue Government who says, er, yes we worked it out wrong – but now, doing it right, we come up with the answer we came up with in the first place. A lawful or unlawful decision by Government?

This was the conundrum facing the Court of Appeal in Tate & Lyle v. Department of Energy & Climate Change.

Tate & Lyle was developing a new plant known as Co-firing of biomass with Combined Heat and Power (CoCHP). This burns fossil fuels with wheat husks (Co-firing) to drive a generator, which produces both heat and electricity (CHP).  Tate & Lyle, like other electricity suppliers, has to produce a given number of valuable Renewable Obligation Certificates every year to its regulator, Ofgem. The other part of the deal is governmental subsidies for renewable energy administered by reference to these ROCs . At first, every type of qualifying renewable technology got the same subsidy from DECC – assessed by reference to 1 ROC per megawatt hour of renewable energy. In 2009, the rules changed, and DECC started “banding” technologies, i.e. varying the subsidy from 0.25 of a ROC/MWh for the least favoured to 2 ROCs/MWh for the most favoured.  As a result of this process, Tate & Lyle was given 1 ROC/MWh by DECC.

Tate & Lyle was aggrieved, and rightly so – because when it sought judicial review of  DECC’s decision, DECC number-crunched again, and found that it had gone wrong first time round in assessing the costs of a CoCHP. Tate & Lyle said that the effect of the error should have been to give it 1.5 ROC/MWh; DECC disagreed, though both the judge and the Court of Appeal agreed with Tate & Lyle on this point.

However, cue DECC’s secret weapon. It implemented a re-assessment by completing a statutory “early review” of Tate & Lyle’s banding under reg. 33 of the Renewables Obligations Order 2009. And it said, electricity prices have gone up since we gave you 1 ROC/MWh, so you are earning more from your power generation than we thought you would. So, what you lost on the swings of CoCHP costs, you gained on the roundabouts of  its revenue. So, net result still 1 ROC/MWh.

Why then did Tate & Lyle say that this further decision was unlawful? They said that the “early review” should only have corrected the effects of the error, i.e. increased the subsidy to 1.5 ROCs/MWh. And its bull point was that all the other generators continued to be banded on the basis of the original calculations (carried out correctly in their cases) but including lower electricity prices than they were in fact receiving. So, but for the Government’s unlawfulness, Tate & Lyle would have had 1.5 ROCs/MWh from the start.

If relations between Tate & Lyle and DECC were governed by a contract, or if DECC’s error was tortious, Tate & Lyle would be right; it would be entitled to be put in a position which it would have been but for the breach of contract or tort – it would have been the recipient of 1.5 ROCs/MWh. But relations between subsidy-donor and recipient are not like that. They are governed by the statutory background coupled with the general principles of public law. And it is the latter that which led to the failure of this challenge. NB there is no principle of public law that unlawful action by government is tortious.

The public law principle is that in the normal way a decision-maker reconsidering a decision will do so in the light of the circumstances prevailing at the date of the fresh decision: Zeqiri. It was therefore for Tate & Lyle to show that there was particular unfairness in doing so. Its best supporting case was Rashid in which the Court of Appeal found an abuse of power in refusing asylum where proper and timely application of previous policies would have led to the grant of asylum prior to a change of policy adverse to applicants.

The Court of Appeal  did not find such unfairness here. On the contrary, Tate & Lyle were simply receiving the actual value of the subsidy which its technology deserved, rather than the “windfall” enjoyed by the other generators consequent upon the rise in electricity revenues. The CA drew an interesting distinction between the individual unfair treatment of the asylum seeker in Rashid and the decision in play here –

what is being assessed is the appropriate band for determining the subsidy appropriate for a particular technology; it is not determining the payment appropriate to the particular person or body which operates it.

One sees its general point, though I am not sure there is any great logical difference between the two cases – in both Rashid and Tate & Lyle the decision was reached by applying a particular policy to an individual or class of individuals. The question was simply whether the application of a newly changed policy to a class of individuals (whether asylum-seekers whose claims were badly handled or generators whose costs and revenues were both under-estimated) was or was not fair.  Put another way, DECC could have made an exception for Tate & Lyle without distorting energy policy as a whole for CoCHP – even though I agree with the Court of Appeal that the policy reasons for doing so were by no means as strong as those operating in Rashid’s case.

So beneath all the abstruse facts of subsidies for renewables, the decision is a good old-fashioned application of the broad contours of public law, involving deciding just how unfair the outcome was in the circumstances.

Endnote: nice to be writing about renewables (even if the plant burns only part-renewables) after all those fossil fuel power stations in the Netherlands and Germany troubling the CJEU.

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