There are lots of things we can’t know about the future, but, in broad strokes, the energy transition that’s already underway has a knowable endpoint: the vast majority of personal fossil-fuel use on a daily basis will be replaced by electricity — cars will become EVs, and home heating and cooking will be done electrically. This is a matter of physics and economics, since the alternatives amount to continuing to use fossil fuels that are cooking the planet or allowing ourselves to be distracted by expensive non-solutions like hydrogen in a desperate attempt to find something for the oil and gas industry to do.
How quickly we get to that endpoint is another matter entirely, and it’ll depend largely on how quickly we’re willing to build the future we want. Ontario faces a problem, though: critical investment choices are in the hands of local utilities — the people responsible for literally building and maintaining the wires that run into your home and mine. Those local distribution companies (LDCs, in the parlance of the acronym-adoring electricity sector) need to find anywhere from $2 billion to $8 billion between now and 2040 to finance the expanded power grid needed to meet increased demand.
LDCs owned by local municipalities are in a bind: They can raise that money by raising power rates, although they’re constrained by the rules of the Ontario Energy Board. They can, in some cases, reduce or eliminate the dividends they share with their municipal owners, but local councils rely on those funds to offset property-tax increases.
A new report from the climate-policy organization Clean Prosperity suggests an alternative: changing provincial and federal tax rules to allow more private investment in what are currently publicly owned power companies.
“This isn’t a solvable problem if municipal councils want to keep their dividends flowing, keep their ownership stakes, and keep rates low,” says report author Ben Dachis. “Local councils have to choose. Are they committed to a net-zero future? We need a massive amount of electrification, and that means an increase in investment.”
A pair of rules currently sharply limits how much of a power company can be owned by private investors to 10 per cent or less. A provincial transfer tax applies to any LDC that sells an ownership share to private investors. Federal rules currently exempt municipal corporations like LDCs from taxation, but that exemption similarly ends if private ownership exceeds 10 per cent. Dachis argues that both rules should be revisited in light of the need for new electrical investment.
“These issues are going to be even more present in a world where we’re trying to invest more in electrification, so let’s give our municipal councils more options,” Dachis says.
In the absence of these rule changes, cities still have options, but they can end up working at cross purposes with other goals. As Dachis details in his report, Toronto city council has adopted a plan to support Toronto Hydro’s investments while promising to offset the lost tax revenues through “maximized use of all growth-related funding such as development charges.” That is, Toronto council voted to control the cost of electricity by increasing the cost of new housing — a choice that neither the provincial nor federal governments would advocate for but one that their rules are partly responsible for.
Dachis’s report also calls for the province to commit unequivocally to electrifying home heating and transportation to guarantee investor confidence: potential investors need to know not just that it will be possible to invest in utilities but also that the long-term demand for electricity will be there.
Spurring private investment and removing red tape are the kinds of solutions that could be well received by the current Progressive Conservative government at Queen’s Park (Dachis is a former member of Doug Ford’s staff, though he left the Premier’s Office in 2019) and perhaps by a prospective Conservative government in Ottawa as well. Other parties may be less inclined to support what is admittedly a form of partial privatization of publicly owned infrastructure: the opposition New Democrats have long opposed these ideas on principle, and even the Liberals arguably still feel burned by how their decision to sell part of Hydro One under Premier Kathleen Wynne hurt the party for years afterward. Even by Dachis’s estimation, the need for investment by LDCs would be trivial for the provincial government to cover with tax dollars — at the low end of his estimate, it’s less than the province will be spending on politically convenient rebate cheques to voters early next year.
Nevertheless, Dachis says the energy transition is so large and expensive that we won’t be able to cover the whole project using tax dollars. He notes that Ontario already has substantial private investment in the energy sector, both in terms of transmission (the aforementioned case of Hydro One) and power generation (privately owned Bruce Power operates the province’s largest nuclear station, and much of the province’s renewable sector is privately owned).
“If we apply that logic to every single element of the energy transition, we’re never going to be able to afford it,” Dachis says. “This is just one element of the transition — if we tried to pay for every piece out of public financing, we’re not going to be able to afford it.”
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