Ontario plans tax breaks to avert power crisis
EDT Wednesday, November 13
The Ontario government will use tax breaks to encourage construction of new electricity-generating stations, but is facing a private sector reluctant to invest after the province backed off its power deregulation plans.
Energy Minister John Baird said Tuesday the province will provide a number of tax breaks for any energy company willing to put up the hundreds of millions of dollars needed to build power plants to help boost electricity production.
Mr. Baird also said the government will direct publicly owned Ontario Power Generation to move ahead on specific projects to try to counter the shortage of electricity that has pushed up prices and brought warnings of brownouts and blackouts. Price of the projects would exceed $1-billion.
Jan Carr, an electricity consultant at Barker Dunn & Rossi in Toronto, said tax incentives are good news but won't be enough to persuade private-sector companies to build power plants in Ontario.
"If you're competing against a dominant supplier owned by the government who is told to hold the price as low as possible .5.5. then that's a pretty tough competitor," Mr. Carr said.
The power industry is absorbing the fallout from Monday's announcement that after seven months with an open market, the price of electricity in Ontario will be frozen at 4.3 cents a kilowatt-hour to counter public anger over escalating power bills.
The decision left companies that sell electricity on fixed-price contracts scrambling to determine whether to stay in business. At least one retailer said he would close.
Consumers will get some relief from high electricity costs. But bills will not drop back to where they were before the electricity market was deregulated in May. The cost of electricity is only one component of bills; there are many other charges, among them transmission costs and debt-repayment levies.
Today Mr. Baird is to make the third in a series of government announcements designed to reassure voters that it is dealing with the electricity price squeeze. The statement will feature measures to encourage conservation and environmentally friendly energy projects.
In yesterday's announcement, Mr. Baird appeared to be attempting to rekindle the dream of Sir Adam Beck, who brought power at cost to Ontario. Mr. Baird travelled to Niagara Falls to set out additional elements in the government's electricity policy. And he called for more power to be extracted from the falls themselves.
But he was swimming against a tide of skepticism among possible investors who want to see some long-term stability in the rules governing the electricity industry.
"We need stability in policy; no question about it," said Peter Budd, chairman of the Ontario Energy Association and one of the energy experts who advised the government when it was setting up the competitive electricity market.
"This is, to some people for sure, a real seesaw. That can't prevail if we are going to have an open, competitive market. There has to be confidence that an investment .5.5. will live through its normal economic cycle."
The proposed tax incentives, which would cost the government money only if an energy company starts a new project, include:
•A corporate income-tax holiday for income from the sale of a new supply of electricity generated from alternative sources.
•A 100-per-cent writeoff for the cost of assets used to generate electricity from alternative and renewable sources.
•An exemption from sales tax on the production of machinery and equipment for manufacturers of electricity and a sales-tax rebate for building materials used to construct those facilities.
Mr. Baird's incentives and encouraging words were not enough for one of the few companies that has taken up Ontario's request for investment in new electricity-generating stations.
TransAlta Corp. said it is not ready to embark on new projects once it completes its existing investments in Ontario, which include a new natural-gas-fuelled plant in Sarnia that is expected to come on line next year.
Nadine Walz, a spokeswoman for TransAlta Corp., said, "Government intervention in what's supposed to be a competitive electricity market causes us concern."
She added that Mr. Baird's announcement yesterday "is another example of creating more questions than answers."
Throughout the industry, participants complain of the government's reversal of its plan to sell Hydro One, which operates the province's transmission grid, the blocking of the sale of two fossil-fuel-burning plants in Northern Ontario, and the review of the rules governing the Ontario Energy Board regulatory agency.
Mr. Baird made another reversal yesterday, backing off a long-standing government policy that called for Ontario Power Generation to reduce its share of the province's electricity-generating industry. Now the government wants OPG to embark on new endeavours.
"While the province has a sufficient supply of electricity to meet current demand, we need more generation to keep prices at reasonable levels," Mr. Baird explained.
Specifically, the government told OPG to expand the existing Sir Adam Beck generating station by building a new tunnel to divert water from the Niagara River at a cost of up to $500-million.
The Energy Ministry will study the feasibility of building a 500-megawatt Beck 3 generating project in Niagara Falls, which also would cost $500-million. In the past, when Liberal Leader Dalton McGuinty has called for a start on Beck 3, the government has dismissed it as unworkable, partly because it would take too much water out of the flow of the Niagara River.
In Toronto, the government told OPG to speed up work toward construction of a major generating station of 500 megawatts on the waterfront site of the old Hearn generating station.
The offer of tax incentives comes after the provincial government repeatedly refused requests to provide special incentives to attract and retain automotive plants in Ontario. |
