October 19, 2023 / By Francis Bradley & Tim Egan

Finance Canada’s new rules could threaten energy affordability: Electricity Canada and CGA

Finance Canada is about to make energy even less affordable. Here’s how the proposed amendments to the Excessive Interest and Financing Expenses Limitation (EIFEL) rules, which will be tabled in the House this fall, will drive up costs for consumers.

The EIFEL rules are designed to prevent unreasonable deductions of interest and other financing costs. The focus is principally on multinational enterprises and cross-border investments where the effect of such deductions is tax evasion. The problem is that the rules are so broadly drafted that they would apply to Canadian energy utilities who provide energy to domestic customers. This would mean higher energy costs for consumers.

Energy delivery firms in Canada are regulated by public utility boards, and each of those boards prescribes the debt level companies must carry to finance their operations. This includes everything from new project investments, to infrastructure upgrades, to safety and system integrity. Energy companies’ long-term debt is high, and is expected to increase significantly with the investments utilities will have to make to try to meet government targets for emission reductions.

Historically, energy firms have been permitted to deduct 100 per cent of their interest expenses which helps them keep costs down for customers. As all Canadians know, debt carries interest, and interest rates are high, adding significant expense to the debt utilities must carry, which, ultimately, would be borne by customers.

The proposed amendments to EIFEL would erode these safeguards for utilities, and further erode affordability for energy consumers.

As noted, the EIFEL rules are supposed to help curb tax evasion, a big reason why the Organization for Economic Co-operation and Development (OECD) has advocated for them. They also serve to harmonize circumstances amongst countries, which the OECD also likes.

But harmonization doesn’t demand a one-size-fits-all approach, and, in fact, many of our peers in the OECD—including the United States, Ireland, and the United Kingdom—have extended exemptions to utilities from their application of the rules. Moreover, the OECD itself has identified the need to exclude projects that benefit the public from application of the rules. This was done to prevent problem scenarios like this where citizens will be negatively affected by their application.

This isn’t just about regulations or financial measures—it’s about safeguarding the pocketbooks of every Canadian household. The request we have is simple: Finance Canada should take note of what like-minded nations are doing, and allow energy delivery companies to avoid application of a rule that only hurts Canadian energy customers.

Timothy M. Egan, President and CEO, Canadian Gas Association
Francis Bradley, President and CEO, Electricity Canada