TORONTO, March 25, 2013 /CNW/ - While provincially appointed panels have
recommended that Ontario force local electricity distribution companies
(LDCs) to merge into a handful of large, regional operations, it is
unclear that this would be a better deal for the people of Ontario,
according to a report from the C.D. Howe Institute. In "Mergers by
Choice, Not Edict: Reforming Ontario's Electricity Distribution
Policy," the authors recommend instead that Ontario government policy
should be neutral towards mergers and acquisitions, permit private
sector participation, and allow individual LDCs and municipalities to
make their own choices.
The authors, Stephen Fyfe, Mark Garner and George Vegh, find that
although many LDCs may be smaller than the optimal size, there is no
evidence to suggest that a few very large, amalgamated LDCs would have
lower costs per customer. The unfortunate experience surrounding forced
amalgamations among municipal governments offers an example of how
mergers do not necessarily lead to realized savings.
A more fundamental question than scale is that of ownership. Ontario tax
policy is neutral toward mergers of publicly owned LDCs, but restricts
private sector participation in the sector. As a consequence, tax
policy seriously inhibits consolidations involving investments by
commercially owned companies. The province should remove barriers to
private sector investment in the distribution sector, which it could
achieve by eliminating taxes on sales of LDCs to private companies,
conclude the authors.
"Government should reform tax policies that currently impose barriers on
private investment," said co-author Stephen Fyfe, "and permit
individual distribution companies to pursue commercially sensible
mergers and to seek the private investment they need to renew their
aging capital stock."
To preserve the provincial tax base, if Ontario were to eliminate taxes
on the sale of LDCs to private companies, the federal government should
enact changes to the Income Tax Act. It should either allow LDCs to remain tax exempt with as much as 49
percent private ownership or, even better, introduce a transfer tax
system in which it remits to the province, at least temporarily, the
corporate taxes it will collect from privatized utilities.
For the report go to: http://www.cdhowe.org/mergers-by-choice-not-edict-reforming-ontarios-electricity-distribution-policy/21091
SOURCE: C.D. Howe Institute
For further information:
Stephen Fyfe, National Practice Group Leader, Tax, Borden Ladner Gervais LLP; Mark Garner, regulatory consultant and former Managing Director of Policy and Applications at the Ontario Energy Board; George Vegh, head of McCarthy Tétrault's Toronto energy regulation practice; Benjamin Dachis, Senior Policy Analyst, C.D. Howe Institute, 416-865-1904, email: firstname.lastname@example.org