Department's lawyer admits 'catastrophic error' in RHI scheme

Andrew Trimble and Tom Forgrave, executive chairman and director of the Renewable Heat Association NI, outside the High Court in Belfast
Andrew Trimble and Tom Forgrave, executive chairman and director of the Renewable Heat Association NI, outside the High Court in Belfast

A lawyer for the Stormont department responsible for the RHI scandal has admitted in court to a "catastrophic error" in how it set up the scheme.

Speaking for the first time today on the fourth day of a judicial review case which RHI claimants have taken against the department, Tony McGleenan QC set out the Department for the Economy's version of how its supposedly environmentally friendly scheme led to a "perverse incentive to use heat".

A RHI boiler

A RHI boiler

He argued that the scale of its error meant that it was justified in taking a highly unusual legal route to retrospectively alter the agreement which it had with RHI claimants.

A huge sum of public money is riding on the outcome of the case, which is an attempt to overturn Stormont's retrospective change to the tariffs which boiler owners were promised would be set for 20 years.

This morning in Belfast High Court the lawyer for the boiler owners, Gerry Simpson QC, warned that if the retrospective change to the tariffs was allowed to stand there would be far-reaching implications far beyond this which will directly impact on his clients.

He set out how the minister who set up the scheme, the now DUP leader Arlene Foster, had written to banks promising that the tarrifs would be "grandfathered", a legal term meaning that they were guaranteed for the 20 years and could not be altered.

That 2013 letter, revealed by the News Letter in December, had said: "Tariffs are 'grandfathered' providing certainty for investors by setting a guaranteed support level for projects for their lifetime in a scheme, regardless of future reviews".

Mr Simpson said that if the overturning of that guarantee was allowed to stand it was "difficult to imagine any subsequent scheme which is attractive for participants who could have the rug pulled from under their feet" and said that it would be similarly difficult to see why banks would lend to people on the basis of supposed government guarantees in other schemes.

He said that "if the department is permitted to effectively resile from" its explicit commitments, "who is going to rely on government promises ever again [if the retrospective change stands]?"

Presenting the department's case, Mr McGleenan told the judge, Mr Justice Colton, that he was not required to conduct a public inquiry into the running of the RHI scheme nor to apportion blame.

He accepted that some of the criticisms of the department by Mr Simpson had been "well made" and that the department "agreed there have been shortcomings in this process" and "failures in cost control" of the scheme, adding: "Obviously mistakes have been made."

However, Mr McGleenan argued that once those mistakes had been identified it was then right that the department, the Assembly and the Stormont Executive attempt to undo them.

And, referring to how Mr Simpson had point out multiple departmental flaws, he said that he had "made a skillful and compelling case for amending the regulations".

He said that the applicants' case was effectively that despite agreeing on the problem "we should not suffer any detriment as a result".

Mr McGleenan also drew attention to the fact that the retrospective regulations - passed by DUP MLAs in the Assembly with all other MLAsabstaining in January at the height of public fury at the handling of the scheme - had not solely been the work of the department but had been approved by the legislature.

He said that the court should "afford an appropriate margin" to the legislature in assessing how it had weighted the competing elements of the public interest.

Referring to departmental failures, Mr McGleenan said that "it was clear from an early stage that there were budgetary constraints" on the scheme. He said that in April 2011, long before the RHI scheme began in late 2012, the Treasury had written to the department to say that the Northern Ireland scheme would only receive 3% of the budget of the GB scheme, "in other words, anything over 3% would be paid from the block grant".

And he rejected arguments about the impact which the retrospective regulations will have on claimants, saying: "Listening to my learned friend, one might have thought the purpose of the scheme was to subsidise poultry farming or mushroom growth. Clearly, it was not."

Mr McGleenan also rejected arguments by the RHI claimants that the actual over-spend on the scheme was far short of the £490 million claimed by the department and may be as low as £60 million.

He said that in arriving at its lower figures, the claimants had argued that the intended 12% rate of return from the scheme had not included the cost of servicing loans when in fact that had been part of the calculation built into that figure from the start.

He set out how consultants Cambridge Economic Policy Associates (CEPA) - hired by the department to help it design the scheme - had considered the issue of cost controls but decided they were unnecessary because the cost of fuel was lower than the rate of the subsidy.

However, as the cost of fuel and the rate of subsidy changed prior to the RHIscheme opening, it was not realised that "that core assumption is wrong, and from that flows the difficulty".

He said that "fundamental, catastrophic error" had led to a situation where "the level of subsidy far exceeds that for which approval was sought and approved" from the European Commission under state aid rules.

For that reason, he argued, the retrospective regulations were required to rectify the situation.

Among those present in court were several RHI claimants, John McBurney, the solicitor representing key DUP figures including Arlene Foster at the RHIpublic inquiry, and Mrs Foster's former key Spad, Richard Bullick.

The case continues.