ENERGY MARKETS B U L L E T I N

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1 ENERGY MARKETS B U L L E T I N November 25, 2002 BILL 210: ELECTRICITY PRICING, CONSERVATION AND SUPPLY ACT MAJOR CHANGES BORDEN LADNER GERVAIS LLP

2 1. INTRODUCTION Today the Province introduced legislation to implement Premier Eves Hydro Action Plan. Bill 210, entitled the Electricity Pricing, Conservation and Supply Act, 2002, is designed to implement the Action Plan, yet the Bill leaves a great many details to be prescribed by regulation. Features of the proposed legislation include: Certain consumers who consume less than 150,000 kwh annually will receive $75 rebates. Certain designated consumers in the MUSH+ sector (municipalities, universities, schools, hospitals, charities, and those prescribed by regulation) may receive a rebate determined by regulation. Other consumers, including large users, may also receive rebates. Distributors will pay rebates (and retailers in some cases) to such consumers, regardless of whether a consumer assigned their rebate or not. The electricity commodity price is frozen at 4.3 cents per kwh for low-volume consumers and designated consumers (MUSH+). The 4.3 cents price freeze, however, may not apply to all such consumers in Ontario. Large consumers will need to apply for the price freeze at a rate and under circumstances to be announced by regulation. Some acknowledgment is made towards compensating retailers and distributors for the cost of making rebate payments and for the difference between contract prices and the frozen price; otherwise, the government has instituted a limitation of its liability for eroding millions of dollars of investment off the balance sheet of retailers, distributors and other persons affected by the legislation. The Independent Electricity Market Operator ( IMO ) appears to have been substantially brought under the wing of the Minister of Energy who now will take on an approval role for changes to the market rules. In turn, the role of the Ontario Energy Board ( OEB ) in reviewing the impact of market rules has been restricted. Municipalities are given the negative option of apparently affirming the status of for profit for their distribution companies or facing severe restrictions on the corporate BORDEN LADNER GERVAIS LLP Page 2

3 powers of the distribution companies coupled with the extinguishment of their return on common equity. The decision must be made within 90 days. A buy-out provision is given for any non-municipal shareholders caught in the crossfire. Distributors cannot apply for new rate orders unless they have the approval of the Minister of Energy and the Minister may require the OEB to amend rate orders. As announced, distributors are prohibited from shutting off supply to property until March 31, Distributors will be required to allow certain generators to connect to the distribution system. Tax incentives to be specified in regulations to promote conservation, use of alternative fuels and support for clean energy production through temporary property tax exemptions; income tax deductions; accelerated tax write-offs; loss carry-forwards; capital cost allowance inclusions; sales tax rebates for generators; and sales tax rebates for consumers who purchase energy efficient appliances and solar panels. 2. RETAIL ISSUES New Classes Of Consumers Bill 210 amends the Ontario Energy Board Act, 1998 ( OEB Act ) to create two new categories of electricity consumers. The first category is a low-volume consumer who uses less than 150,000 kwhs of electricity annually (or other amount prescribed by regulation). The second category is a designated consumer which is not otherwise a low volume consumer and is comprised of the MUSH+ sector (municipality, universities, schools, hospitals, charities and others which may be prescribed by regulation). BORDEN LADNER GERVAIS LLP Page 3

4 Payments of Rebates to Consumers Low Volume Consumers Low-volume consumers are entitled to a $75 rebate if they had an account with a distributor on November 25, Distributors are the party responsible for making the payment (a retailer is responsible for making the payment if the retailer used retailer consolidated billing ). If a lowvolume consumer has more than one account with a distributor, they are entitled to the $75 rebate for each account. Similarly, if the low-volume consumer has more than one contract with a retailer, they are entitled to the $75 rebate for each contract. Note that the rebate is to be paid to the low-volume consumer, not the property this raises issues for consumers who have moved. The payment shall be made by December 31, 2002 (or as soon as possible) and must be made by a cheque that is either hand-delivered or mailed. Bill 210 provides for further payments if prescribed by regulation. Designated Consumers Essentially, the mechanics for paying a rebate to designated consumers are the same; however, the actual amount and timing of the rebate is to be left to regulation. Other Consumers Bill 210 introduces a regulation-making power that could see distributors or retailers making a payment to a person who is neither a low-volume consumer or a designated consumer. Equal Billing Accounts and PPVA Low-volume consumers with equal billing plan accounts may receive their refunds as credits on future bills. Consumers owing an amount to an LDC under an equal billing plan will not receive a refund, but the portion of the account that relates to the commodity price for electricity will be BORDEN LADNER GERVAIS LLP Page 4

5 reduced by the interest accrued and the lesser of $75 or the principal of the account. The proposed Bill provides that the above reduction shall be made by December 31, 2002 or as soon as possible thereafter. In addition, every distributor providing a reduction to an equal billing plan account is required to make the calculations to be prescribed by the regulations and shall make a further reduction to the account as required. Low-volume consumers of distributors that do not charge the market price but maintain a Purchased Power Variance Account ( PPVA ) will not receive refunds. Under this arrangement, some distributors were charging customers a constant rate of 4.3 cents per kwh. The difference between the actual market cost of the electricity used by the consumers and the constant price of 4.3 cents would be recorded in the PPVA and eventually added (if the market cost was greater than the fixed rate) to the consumers bill. Therefore, in lieu of a refund, the PPVA attributable to the customer will be cancelled under the proposed Bill 210. The Bill provides for regulations to compensate distributors for refund payments made by them; for reductions made to PPVA and equal billing plan accounts; and to offset differences between the wholesale commodity price and the 4.3 cent price fixed by the Province for certain customers. Retail settlement variance accounts, and certain other amounts will be treated as regulatory assets under s of the Bill, until the OEB addresses the disposition of the amounts in a rate order under s.78 of the OEB Act. Status of Rebate Assignments If a consumer assigned his or her rebate to a retailer (either before or after Bill 210 comes into force), such assignment does not apply to the rebate paid out under this Bill 210. Purpose of Payments Bill 210 states that the purpose of the payments by distributors and retailers is to reimburse consumers for part of the commodity price they paid for electricity. Query whether this gives rise to a requirement to reimburse the consumer for any GST paid on such price of electricity. BORDEN LADNER GERVAIS LLP Page 5

6 Commodity Price Freeze for Low-Volume Consumers and Designated Consumers Bill 210 freezes the commodity price of electricity at 4.3 cents per kwh for low-volume consumers and designated consumers or such lower price as may be designated by regulation for electricity used on or after December 1, Exceptions A consumer (i.e. broadly defined to include all consumers) may opt out of the price freeze by filing a written statement with either the distributor or the IMO (as applicable) if a regulation is in force at the time stating the circumstances under which the consumer can opt out. The price freeze also does not apply to consumers of distributors who have not had their rates fixed by the OEB or who are served by a distribution system not connected to the IMO- Controlled Grid. The price freeze does not apply if, after this section comes into force, a consumer renews or enters into a contract where the retailer has filed a service transaction request. Finally, the price freeze does not apply where a customer enters into a contract after this section comes into force. Commodity Price Freeze for Other Consumers For a person who is not a low-volume consumer or a designated consumer, despite any agreement to the contrary, such person shall pay a price prescribed by regulation if such person files a written statement with a distributor or the IMO (as applicable) indicating they wish to have this section apply to themselves and if such person meets certain qualifying criteria to be prescribed by regulation. Compensation of Retailers and Distributors Bill 210 provides for the Lieutenant Governor to make such financial arrangements it considers appropriate to compensate retailers and distributors for making payments (it is not clear if this is BORDEN LADNER GERVAIS LLP Page 6

7 to be beyond compensation of mere incidental expenses of making the payments) and compensation to offset the differences between the commodity price in the retail contract and the commodity price in the IMO-administered markets. The Ontario Electricity Financial Corporation (or a subsidiary) is designated by Bill 210 as the entity which may be responsible for making the payments. The Minister of Finance is empowered with a variety of tools to investigate and audit payment requirements. Limitation of Compensation of Retailers and Distributors Bill 210 limits any person from commencing a proceeding to claim compensation against the Crown or its agents. Bill 210 also provides for an extensive and comprehensive list of losses, damages and costs which may not be claimed against the Crown and its Agents, the most significant of which would appear to be a claim for lost business profits, opportunity and costs whether direct or from the claims of third parties. 3. SHAREHOLDER MUNICIPALITIES AND THEIR LOCAL DISTRIBUTION COMPANIES Councils must reaffirm OBCA corporation or completely extinguish LDC return on common equity Council Approved Resolution Required Bill 210 requires shareholder municipal councils to confirm their original decisions to commercialize their respective LDCs or face the prospect of the complete elimination of the LDC return on equity. Within 90 days of section (1) coming into force, municipalities which own or control electricity distribution corporations, either directly or through holding companies, may pass a council resolution (and deliver a certificate of the approved resolution to the Minister of Energy) affirming that their distribution corporations continue as Ontario Business Corporation Act companies. BORDEN LADNER GERVAIS LLP Page 7

8 If the distribution corporation has multiple municipal shareholders, it appears that at least the controlling municipal shareholder(s) must pass their own resolutions to maintain the LDC s commercial status. Province to draft form of council resolution Bill 210 also indicates that the form of resolution to be affirmed by council is to be provided for in the regulations (s (4)). The language and wording provided by the Province with respect to content and form of the resolution will be interesting. Note that the requirement to pass a confirming resolution does not apply to for-profit privately owned LDCs or to the Province with respect to Hydro One Inc. or the 89 municipal electric utilities purchased by Hydro One. Finally, councils will not be required to pass affirming resolutions regarding OBCA corporations which generate, transmit, or retail electricity. Severe erosion of shareholder value for failure to pass affirming council resolution Bill 210 indicates that the requirement to pass a council resolution is optional. However, if a council resolution is not passed within the 90-day timeline the following consequences occur: No dividends shall be paid for the benefit of any person. The corporations shall not sell, lease, or otherwise dispose of all or substantially all of its assets, liabilities, and shall not dismiss all or substantially of its employees. Many stakeholders will be disappointed that the Bill makes no mention of a renewed period of Transfer Tax relief in order to facilitate further consolidation of the LDC sector. The LDC shall not increase its debt obligation either through creating a new debt or amending existing debt done after November 25, BORDEN LADNER GERVAIS LLP Page 8

9 This would appear, among other implications, to hinder or eliminate the possibility of a LDC or its municipal owner monetizing LDC debt. LDCs will also need to consider the implications on long-term financial sustainability on the prohibition on amending existing debt to, for example, finance new capital infrastructure. The LDC shall not enter into agreement for goods or services with an affiliate, a shareholder of the LDC or a municipality other than in the ordinary course of business for fair value of the goods and services provided. Any such agreement entered into after November 25, 2002 is void. Accordingly, unless an affirming council resolution is passed no further commercial goods and services agreements between LDC and its affiliates or shareholder will be permitted (e.g. joint electricity-water billings arrangements, etc). Deemed 0% OEB Rate Application If the Minister receives no affirming council resolution an LDC rate application will be deemed to be made to the OEB based upon a projected revenue requirement that incorporates a 0 percent return on common equity (s (9)). The OEB is required to approve such order, without holding a hearing, and shall not increase any other revenue requirement component or increase rates. This requirement effectively transforms the OEB s ratemaking process into a rubber stamp administrative function for this purpose. Interestingly, the OEB used 1999 as the base year for determining LDC rates for the first generation of Performance Based Regulation originally intended to run from March 2001 to February 2004, then extended to February While essentially operating on a not-for-profit basis prior to restructuring, many hydro commissions made modest returns in some cases up to 2 or 3%. The deemed rate applications would remove even these pre-restructuring returns. BORDEN LADNER GERVAIS LLP Page 9

10 Compensation scheme for non-municipal equity holders If the LDC is owned by someone, in whole or in part, other than a municipality, and the municipality does not pass a resolution, the private shareholder is entitled to be paid by the municipality for the fair market value of the private shareholders voting securities. However, Bill 210 does not address the situation where the original investment was made by the private sector investor in the LDC on the expectation of a stable regulatory regime based on PBR the full 9.88% return on equity was approved by the OEB as the designated rate making authority pursuant to the Energy Competition Act. A component of Bill 210 that concerns part of this implication is the prohibition against commencing a lawsuit against the Province, which is discussed above. 4. RATE ORDERS IN EFFECT ON NOVEMBER 11, 2002 TO CONTINUE IN FORCE UNLESS AMENDED OR REPLACED BY THE MINISTER OF ENERGY By a proposed new Section 79.3 of the OEB Act, OEB rate orders for electricity transmission and distribution made under Section 78 that were in effect on November 11, 2002, would apply to electricity used on or after December 1, The exception to this would be Hydro One's distribution charges for large users (>5 MW) of its "low voltage" facilities the rates set out in the OEB's rate order of August 30, 2002, will not apply to electricity used on or after December 1, 2002, although the Bill would permit Hydro One to establish a deferral account to record the amounts that it would have collected if those charges were collectible. Bill 210 would also deem interim orders in effect on November 11, 2002 to be final orders. In many cases, particularly where Hydro One had acquired close to 90 LDCs, the OEB had not yet issued final rate orders. Instead, interim orders were issued in December of 2001 in order that Hydro One would have "unbundled" rates for market opening. This would "lock in" Hydro One's proposed rates even though, in a number of cases, those proposed rates were being disputed before the OEB on the grounds that Hydro One was not honouring rate guarantees that were set out in the agreements by which Hydro One acquired the utilities. BORDEN LADNER GERVAIS LLP Page 10

11 Under the proposed s.79.6, an application for a new rate order could only proceed to the OEB with the written approval of the Minister of Energy. The OEB would not be permitted to commence a rate proceeding on its own motion. The Minister, in turn, could only grant his approval for the submission of a rate application where: (a) (b) (c) (d) the proposed rates are lower than those in effect at the time of the approval request; there is no rate order in effect at the time the Minister's approval is sought (although given the proposed treatment of interim orders, it is unlikely that this situation would arise with any frequency); the applicant has incurred extraordinary costs; or the Minister is of the opinion that other circumstances justify the giving of approval. In considering a request, the Minister must "consider the interests of consumers with respect to prices and the reliability and quality of electricity service." Bill 210 would strip the OEB of its authority to review its own decisions on transmission and distribution rate-related matters, and would remove a party's rights under the OEB Act to appeal a rate order that was in effect on November 11, 2002 to the Divisional Court, and to make a petition to the Lieutenant Governor in Council in respect of such an order. The Minister of Energy would have the authority to direct the OEB to review a rate order, including those orders and interim orders in effect on November 11, 2002 (s.79.9). The Minister would have the power to require the OEB to amend a rate order, including orders or interim orders in effect on November 11, Any rate orders made after November 11, 2002 and before the coming into force of s.79.3 would be void, as would any orders made before November 11, 2002 but not in effect on that date. The Bill would also discontinue certain proceedings commenced before s.79.3 comes into force. BORDEN LADNER GERVAIS LLP Page 11

12 It would appear that the only way to revive a rate application or the OEB's review of a rate decision would be to satisfy the Minister that it would be appropriate to allow the application or review to proceed to the OEB. The provisions of the proposed sections 79.3 to would be repealed on a day to be proclaimed by the Lieutenant Governor that is not earlier than May 1, Will Transition Costs be Recoverable? Bill 210 provides distributors with some limited hope of recovering the hundreds of millions of dollars that they have spent in preparing for the new electricity market. Proposed section provides that the following amounts shall be deemed to be "regulatory assets" (presumably remaining on distributors' books and accruing interest) until the OEB addresses the disposition of the amounts in a rate order: 1. An amount recorded by a distributor in Account 1570 established in accordance with the OEB's Accounting Procedures Handbook as it read on the day s comes into force (this is the account for transition costs); 2. An amount recorded in a Retail Settlement Variance Account established in accordance with the OEB's Electricity Distribution Rate Handbook as it read on the day this section comes into force; 3. An amount recorded in a deferral account established under section (for Hydro One's low voltage charges); and 4. An amount recorded in an account prescribed by the regulations. There is no indication as to when these accounts might be addressed in rate orders. We would not expect that the Province would be anxious to allow for universal rate adjustments to recover these amounts through increased distribution rates in the near future. Finally, proposed section would permit the Minister to require that electricity invoices issued to low-volume or "designated" consumers be in a form approved by the Minister. BORDEN LADNER GERVAIS LLP Page 12

13 5. PROVINCE PROHIBITS CUSTOMER DISCONNECTION Proposed Sections 31(4) and (5) Bill 210 amends section 31 of the Electricity Act, 1998 (the Electricity Act ) to prohibit a distributor from shutting off the distribution of electricity to a property until after March 31, 2003 or during such periods prescribed by regulation. The proposed legislation continues to provide that, if a distributor disconnects a property after November 11, 2002 and before April 1, 2003, or during such periods prescribed by regulation, the distributor shall, as soon as possible, (a) restore the distribution of electricity without charge and (b) compensate any person who suffered a loss as a result of the disconnection. Some issues raised by sections 31(4) and (5), as proposed, include: What happens to properties disconnected on November 10, 2002 and earlier? Is there a formula or limit for determining the compensation to be awarded under this section? What are the standards for identifying the parties that suffered a loss as a result of a disconnection? Who makes such determinations? 6. IMPLICATIONS WITH RESPECT TO THE IMO Bill 210 contains implications for the IMO with respect to the IMO s Fee Submission to the Ontario Energy Board (OEB), its rule-making authority and finally possible payments it will be required to make or will receive pursuant to regulation. IMO Fee Submission Bill 210 now requires that the IMO receive approval of its Fee Submission from the Minister prior to submitting it to the OEB. The Minister in deciding whether to give approval to the Fee Submission shall consider the interests of consumers with respect to prices and the reliability and quality of electricity service. If the Minister refuses to give approval to the Fee Submission, the BORDEN LADNER GERVAIS LLP Page 13

14 expenditure and revenue requirements and fees applicable to the current fiscal year will continue to apply to the next fiscal year. Bill 210 also provides that upon this provision coming into effect, the OEB is to take no further action with respect to the IMO s current Fee Submission for the year 2003 (filed with the OEB October 29, 2002) and that the expenditure and revenue requirements and fees that applied to the 2002 fiscal year shall be deemed to apply for the 2003 year. Market Rule Authority Bill 210 also increases the Minister s authority with respect to market rule-making. On or before the IMO publishes a market rule amendment, it must now provide the Minister with a copy of the market rule amendment and any other material so described in a future regulation. If the Minister is of the opinion that the amendments will unduly and adversely affect the interests of consumers with respect to prices, or the reliability or quality of electricity service and the Minister objects to the market rule amendment, the Minister may revoke it provided he does so within 15 days of the amendment being published and he can send the amendment back to the IMO for reconsideration. If the Minister revokes the amendment, the OEB shall not do a review of the amendment if requested, as was formerly contemplated by Bill 210. Bill 210 amends subsections 34(3) [Urgent Rule Amendments] and 35(1) [Other Review of Market Rules] of the Electricity Act to provide that the OEB may review a provision of the market rules only on application by a person who is directly affected by the amendment, as opposed to the previous general language, which did not contain such a restriction. Bill 210 also states that a future regulation will prescribe further reasons why a market rule amendment would be deemed to be urgent. Future Regulations Related to Payment There are provisions in Bill 210 to repeal these new sections dealing with the Fee Submission and market rule authority at a date to be proclaimed by the Lieutenant Governor, perhaps indicating that these measures are in fact temporary. BORDEN LADNER GERVAIS LLP Page 14

15 Finally section 79.2 of the OEB Act states that the IMO will be required to make payment in accordance with regulations to a market participant that is a low volume consumer, designated consumer or other consumer as so described in the regulation, in order to reimburse these consumers for a portion of the commodity price they paid for electricity. It is unclear at this point the mechanics contemplated by this section. Section further states that regulations may be forthcoming requiring the IMO to make payments to the Financial Corporation, governing the calculation of amounts payable by distributors and consumers to the IMO for operation of the IMO-administered markets and the IMO-controlled grid, and authorizing that certain amounts owed to the IMO be set-off. 7. GENERATOR ISSUES Bill 210 contains several provisions to encourage the establishment or expansion of electricity generating facilities in Ontario, namely: Assessment Act Temporary exemption from municipal and school taxes for new electricity generating facilities and additions to existing generation facilities, if the facility or the addition generates electricity from alternative or renewable source of energy. See item 8 below. Corporations Tax Act Tax incentives for generators generating electricity from alternative or renewable sources of energy. See item 8 below. Electricity Act, 1998 Tax exemption for hydro-electric generating stations (section 92.1). See item 8 below. A new section 46.2 to the Electricity Act would permit the use of City of Toronto land in connection with the generation of electricity using a type of fuel prescribed by regulations if such BORDEN LADNER GERVAIS LLP Page 15

16 land was used by Ontario Hydro in connection with the generation of electricity using fossil fuels before March 31, This new section would apply despite the Planning Act or any other Act. Ontario Energy Board Act, 1998 A new section 27.1 of the OEB Act allows the Minister of Energy to issue "conservation directives" requiring the OEB to take steps to promote energy conservation, energy efficiency, load management or the use of cleaner energy sources, including alternative and renewable energy sources. An amendment to section 70 of the Act (to come into force on a day to be named by proclamation of the Lieutenant Governor) requires licences issued to electricity distributors to contain conditions governing the connection of generation facilities to the distribution system. Under the conditions, a distributor will be required to allow certain generators specified by regulation to connect to the distribution system, up to a maximum limit set by the conditions. Retail Sales Tax Act Authority created for tax rebates for tangible personal property incorporated into an electricity generating facility using alternative source of energy. See item 8 below. 8. TAX INCENTIVES AND TAX HOLIDAYS TO PROMOTE CONSERVATION, ENCOURAGE ALTERNATIVE FUELS, AND SUPPORT CLEAN ENERGY PRODUCTION Bill 210 includes proposed amendments to a number of provincial tax statutes in order to implement the government s plans to promote conservation, encourage alternative fuels and support clean energy production through tax incentives and tax holidays. These tax incentives will primarily be of interest to those interested in investing in electricity generation projects in Ontario. Unfortunately, Bill 210 leaves most of the details of these tax incentives to regulations that have yet to be released. BORDEN LADNER GERVAIS LLP Page 16

17 Property Tax Holiday Bill 210 proposes to amend the Assessment Act to provide for a 10 year property tax holiday for land that is an electricity generating facility, or that is an addition to an existing electricity generating facility, that generates electricity from an alternative or renewable source of energy. The facility or addition must commence to generate electricity from an alternative or renewable source of energy after November 25, 2002 and before January 1, 2008 or be designated by the Minister of Finance. The property tax holiday is for the first 120 months in which the facility or addition generates electricity from an alternative or renewable source of energy or such other time period as determined by regulation if the facility or addition is designated by the Minister of Finance. The meaning of alternative or renewable source of energy has been left to regulations that have yet to be released. In order to obtain the property tax holiday, the facility or addition will have to meet conditions which will be set out in regulations that have yet to be released. The property tax holiday will apply to land, buildings and structures that are used in connection with the facility or addition and meet prescribed conditions and eligible machinery (again as prescribed by regulation). Regulations are contemplated that will reduce or eliminate the property tax holiday if excess electricity is sold to someone other than the IMO-controlled grid or to a prescribed person or category of persons. BORDEN LADNER GERVAIS LLP Page 17

18 Corporate Income Tax Holiday Bill 210 proposes to amend the Corporations Tax Act to provide for a deduction from business income of an incentive equal to amounts earned in respect of a qualifying electricity generating facility. The rules for determining the amount of the deductible incentive have, for the most part, been left to regulations that have yet to be released. The deductible incentive is to be based on amounts received by the corporation from the sale of electricity to the IMO-controlled grid (or to a prescribed person or category of persons) that is generated by the facility from an alternative or renewable source of energy after November 25, 2002 and on or before the ninth anniversary of the last day of the first taxation year of the corporation in which the corporation first deducted an incentive in respect of the facility. (i.e., a ten year tax holiday) The facility must commence to generate electricity from an alternative or renewable source of energy after November 25, 2002 and before January 1, 2008 or be designated by the Minister of Finance and satisfy prescribed conditions. Capital Tax Exemption Bill 210 proposes to amend the capital tax provisions of the Corporations Tax Act to provide for the deduction of the capital cost of property that is used in generating electricity from an alternative or renewable source of energy. Corporate Tax Write-Off The government s news release of November 12, 2002 refers to a 100% corporate tax write-off for the cost of assets used to generate electricity from alternative and renewable sources. Bill 210 does not specifically deal with this proposal; however, there is an open ended provision which seems to give the Minister of Energy the ability to determine the BORDEN LADNER GERVAIS LLP Page 18

19 class of property for the purpose of capital cost allowance. Presumably, a regulation will address this point and allow for a CCA rate of 100% on the cost of assets used to generate electricity from alternative and renewable sources. In addition, Bill 210 provides the government with the power to make regulations which allow corporations which operate electricity generating facilities that are entitled to the corporate income tax holiday (described above) to carry forward non-capital losses indefinitely rather than being restricted to the normal 7 year loss carry forward rule. Hydro-Electric Generating Stations The Electricity Act imposes a tax on hydro-electric generating facilities calculated by reference to their gross revenue from generating electricity. There is currently a tax holiday on this tax for the first 120 months in which the hydro-electric facility is in service. Bill 210 proposes to allow the government to make regulations extending this tax holiday beyond the 120 month period. Sales Tax Rebates for Generators Bill 210 proposes to amend the Retail Sales Tax Act to allow the government to make regulations providing for a rebate to the owner of an eligible electricity generating facility that generates electricity from an alternative or renewable source of energy or to the owner of an eligible deep lake-water cooling facility of all PST paid in respect of eligible tangible personal property that is purchased and incorporated into the facility after November 25, 2002 and before January 1, The meaning of these terms and the conditions for receiving a rebate are left to regulations that have yet to be released. BORDEN LADNER GERVAIS LLP Page 19

20 Sales Tax Rebates for Consumers Bill 210 proposes to amend the Retail Sales Tax Act to provide for a one year rebate of PST to purchasers of energy-efficient appliances. An appliance means a refrigerator, dishwasher, clothes washer or other household appliance prescribed by regulation. An energy-efficient appliance means an appliance that is listed as Energy Star Qualified in the EnerGuide Appliance Directory published by Natural Resources Canada for 2002 or Bill 210 also proposes to amend the Retail Sales Tax Act to allow the government to make regulations providing for a five year rebate of all or part of the PST paid in respect of a solar energy system that is purchased and incorporated into residential premises after November 25, 2002 and before November 26, It can be seen that Bill 210 introduces a wide range of tax incentives intended to promote conservation, encourage alternative fuels and support clean energy production. It can also be seen that many of the most important features of these tax incentives have been left open to be dealt with by way of regulation. In particular, the meaning of alternative or renewable source of energy and the myriad conditions that we can ultimately expect to be the prerequisites to taking advantage of these tax incentives remain unknown. 9. PROPERTY ISSUES The proposed legislation contains a provision that would allow certain Toronto area generating stations to operate without being required to seek either zoning approval or Planning Act consent. The new provision, aimed at the Hearn site, applies only to occupiers of City of Toronto land that, prior to March 31, 1999, had been occupied and used by Ontario Hydro in connection with the generation of electricity using fossil fuels or for any other ancillary use. Under the proposed provision, occupiers of such property would be permitted to use the land in BORDEN LADNER GERVAIS LLP Page 20

21 question for the purpose of generating electricity using a fuel prescribed by the regulations, transmitting electricity, distributing electricity, or for any other ancillary use. The proposed provision would allow occupiers to undertake such activity despite the provisions of the Planning Act or any other Act, and despite any by-law regulation or order. For further information with respect to Ontario's electricity sector issues, please contact Linda Bertoldi at (416) , or Mark Rodger at (416) This publication has been prepared as a service to clients and friends of Borden Ladner Gervais LLP and other persons involved in energy markets. It is not intended to be an exhaustive statement of law or an opinion on any subject. If you have specific areas of concern or require further details we would be pleased to elaborate on any of the matters set out above. Please contact: Linda L. Bertoldi Tel: (416) lbertoldi@blgcanada.com Co-Chair, Energy Markets Law Group Rick F. Coburn Tel: (416) rcoburn@blgcanada.com Bruce Fowler Tel: (416) bfowler@blgcanada.com W. Paul McCarten Tel: (416) pmccarten@blgcanada.com Michael Shadbolt Tel: (416) mshadbolt@blgcanada.com Christine E. Long Tel: (416) clong@blgcanada.com Kevin F. Fritz J. Mark Rodger Tel: (416) mrodger@blgcanada.com Co-Chair, Energy Markets Law Group Stephen J. Fyfe Tel: (416) sfyfe@blgcanada.com Shane Freitag Tel: (416) sfreitag@blgcanada.com James C. Sidlofsky Tel: (416) jsidlofsky@blgcanada.com Richard J. Morelli Tel: (416) rmorelli@blgcanada.com William R. McLean Tel: (416) wmclean@blgcanada.com Elizabeth A. Jordan BORDEN LADNER GERVAIS LLP Page 21

22 Tel: (416) Danielle Lavallée Tel: (416) Vinay Mehta Tel: (416) Tel: (416) Michael Richmond Tel: (416) Meaghan Bethune Tel: (416) Tyler Moore Tel: (416) FOR MORE INFORMATION ON THE FIRM'S CANADIAN ENERGY MARKETS ISSUES AND OTHER LEGAL SERVICES, CONTACT ONE OF OUR OFFICES BELOW: Vancouver Office: 1200 Waterfront Centre 200 Burrard Street P.O. Box Vancouver, British Columbia V7X 112 Tel: (604) Fax: (604) Toronto Office: Scotia Plaza 40 King Street West Street Toronto, Ontario M5H 3Y4 Tel: (416) Fax: (416) Ottawa Office: World Exchange Plaza 100 Queen Street, Suite 1100 Ottawa, Ontario K1P 1J9 Tel.: (613) Fax: (613) Montreal Office: 1000 de La Gauchetiere Street West Suite 900 Montreal, Quebec H3B 5H4 Tel: (514) Fax: (514) Calgary Office: 1000 Canterra Tower 400 Third Avenue S.W. Calgary, Alberta T2P 4H2 Tel: (403) Fax: (403) BORDEN LADNER GERVAIS LLP Page 22