LDC Reform in Ontario

What is the most efficient way to organise the 80 licensed Local Distribution Companies (LDCs) scattered across Canada’s largest province? And how can the government of Ontario encourage much-needed private investment in the LDC sector?

The Ontario Distribution Sector Review Panel recently sought to answer these questions in its report, Renewing Ontario's Electricity Distribution Sector. The report proposed that 73 of Ontario’s LDCs should be consolidated by the provincial government into 8 to 12 regional entities. These larger regional entities, they argued, would be better suited to lowering costs and attracting inflows of private sector capital. Larger LDCs could, for example, become rated entities and take other steps necessary to attract some of the billions of dollars of investment that the LDC sector will require over the coming years. The panel also argued that consolidation would lessen regulatory costs and bring greater efficiency to regional planning, and that the stronger balance sheets of large regional LDCs would allow for better conservation and demand management.

The CD Howe Institute report Mergers by Choice, Not Edict: Reforming Ontario's Electricity Distribution Policy (CD Howe) took a different approach, and countered that it was unclear that the forced amalgamation of Ontario’s LDCs would result in increased private sector investment or improved economic efficiencies. Their proposal was that the provincial government focus on creating an environment that is neutral towards consolidation, but that allows private sector participation for individual LDCs and municipalities that want it. Private investment could be encouraged by, in particular, strategically removing taxes on sales of LDCs to private companies.

Today McCarthy Tétrault was fortunate to host a lively panel discussion on the merits of these proposals, chaired by our Energy Group partner Séan O’Neill. Murray Elston, chair of the Ontario Distribution Sector Review Panel, argued in favour of government-led consolidation while McCarthy Tétrault’s own George Vegh (head of our Toronto Energy Regulation Practice and a co-author of the above-mentioned CD Howe report) argued against forced amalgamations and in favour of tax reform and policies that promoted local decision making. David Williams of CIBC World Markets provided practical insight into the merits of these proposals and on the policy changes that would be needed to ensure increased private sector investment in the LDC space.

Many thanks to our speakers and everyone who attended. Links to the two reports are found below:

amalgamation CD Howe Institute consolidation David Williams local decision making local distribution Mergers by Choice Murray Elston Not Edict: Reforming Ontario's Electricity Distribution Policy Ontario Distribution Sector Review Panel private investment rated entity Renewing Ontario's Electricity Distribution Sector tax



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