Thank you, Chair.
Good afternoon. Electricity Canada is the national voice for the electricity sector. Our members generate, transmit and distribute electricity in every province and territory. As the chair said, joining me today is Derek Smith. He's the VP of corporate tax at Emera Inc., and he may be better suited to answer some of your more technical questions because I'm not a tax expert.
Nova Scotia will be impacted by the EIFEL provisions included in Bill C-59.
Since 2005, the electricity sector has cut emissions in half, and today Canada’s grid is over 84% non-emitting. That's among the cleanest in the world. Our sector has been responsible for the majority of emissions reductions in Canada and will be the engine that powers a net-zero economy in 2050. The task to getting there will not be easy. Estimates project that we will need to generate two or three times more electricity than we currently do today. That growth must be done without compromising the reliability of our system or the affordability of energy bills for Canadians.
Bill C-59 is an important piece of legislation that helps enable that balance. In particular, the clean technology and CCUS ITCs in Bill C-59 are essential pieces of the puzzle. To this end, federal investments enable the competitive build-out of electricity infrastructure, while reducing the burden on Canadian ratepayers.
That being said, we've identified a few adjustments to these ITCs that we think would help ensure that they have the maximum intended impact. That includes expanding eligibility to allow commercial trusts to access the clean-tech ITC and ensure the projects held by these trusts are competitive; adjusting the draft definition of SMRs in the clean-tech ITC to those that are no more than 1,200 megawatts of thermal energy per reactor core; and then extending the full 50% value of the CCUS ITC until 2035, recognizing that delays on its deployment and the final clean electricity regulations have impacted project timelines.
It's equally important that other ITCs, including the clean electricity ITC, are moved forward to deployment as quickly as possible. We look forward to more details on that in the very near future. While these are provisions that help enable an affordable, reliable and clean electricity grid, there are provisions that serve as a barrier to these objectives. As outlined in our submitted brief, the excessive interest and financing expenses limitation, EIFEL, will inadvertently impact energy affordability for Canadians in various parts of the country and restrict the capital intended to build projects supporting net zero. The intent of these rules is to align with the OECD’s BEPS project. This is a positive step towards fostering a fair global tax framework and something that we support.
However, as some regulated gas and electric utilities are federally taxable and have some assets outside of Canada, they will be subject to the EIFEL rules while others will not, for example, those that are provincial Crown corporations. Due to this structure and the way rates are set, the utilities impacted by EIFEL will see increased costs passed to customers from interest on all existing and new debt.
We understand that broad sectoral exemptions could run counter to the spirit of the legislation, so we propose a targeted public interest exemption for regulated energy utilities and their holding companies. This approach is consistent with that of our peers, including the United States, Ireland and the United Kingdom, and is consistent with the OECD recommendation that these rules not apply to public benefit infrastructure. Such an exemption is appropriate for our sector as rate-regulated utilities are unique for several reasons.
First, as a highly regulated, capital-intensive industry, we must maintain high levels of debt to ensure that costs to consumers are spread over the life of a project. Debt levels of utilities could be 50% or 60% of their capital structure and are prescribed to the utilities by regulators. Second, regulated utilities are subject to a significant amount of scrutiny and control by provincial regulators in Canada. In this vein, every dollar a regulated utility spends or charges to a customer must go through a transparent and accountable process. Third, due to their regulatory structure, utilities must pass on certain costs to customers, including taxes paid.
Importantly, EIFEL will create a patchwork that will affect Canadians' energy bills differently across the country based on the taxable status and ownership of their local utility—and we've outlined this in a map that was included in part of our submission. You can't choose, as a customer of a gas or electric utility, to move to a different provider without moving. You have no choice about the utility you have; it's based on where you live. Creating winners and losers with EIFEL will create a patchwork of energy affordability winners and losers, and that's not something that anyone wants. We believe a targeted exemption will ensure fairness and avoid increasing energy bills for Canadians at a time when cost of living concerns are on the rise. That's why we'd encourage, in this case, a sectoral exemption on the EIFEL rules.
Thank you. We look forward to taking your questions.