CALGARY — Canadian electricity companies are warning that an impending change to federal tax rules could restrict their access to capital, weakening their ability to build the renewable and low-emissions energy capacity they need to reach net-zero. 

Under Bill C-59, the federal government is proposing new tax rules—called the excessive interest and financing expenses limitation, or EIFEL—that reduce the amount of interest costs that corporations can deduct from their balance sheets. The bill is currently under parliamentary review, and is expected to pass this spring.

EIFEL is Canada’s version of an OECD-led effort to align corporate tax policies and limit tax avoidance among multinational corporations, particularly those that relate to interest payments. The U.S., U.K. and others have introduced policies similar to EIFEL. 

The electricity industry is calling for an exemption, arguing that EIFEL specifically targets regulated electrical utilities and gas companies, and that it significantly hinders their access to capital. 

Regulated power providers in Canada are required by law to maintain capital structures that favour debt over equity, a provision that often causes them to carry larger debt loads than other industries. (Some jurisdictions require utilities to hold as much as 70 per cent debt, for example.) By extension, the majority of transactions they conduct also take the form of debt—between 50 per cent and 75 per cent, according to Canadian Gas Association estimates. 

Companies therefore argue that interest-expense limits under EIFEL would tie up an especially large pool of their available capital—money they say could otherwise be put toward decarbonization projects like wind farms and carbon sequestration facilities. Electricity Canada, a lobby group representing power providers, estimates EIFEL will raise utilities’ costs by $100 million over the next three years in British Columbia and Nova Scotia alone. 

TC Energy, a Calgary-based pipeline operator, said in a submission to Finance Canada ahead of the federal budget that EIFEL “will disproportionately impact the development of large infrastructure and low-carbon energy projects in Canada, increasing consumer costs and impeding the transition to net-zero.” 

TC manages a 4,600-megawatt electricity network—fed by both natural gas and zero-emissions sources—making it one of the largest power distributors in North America. The company says it plans to develop clean hydrogen hubs in the U.S. and Canada, in an effort to generate new sources of emissions-free power.

EDF Renewables, a subsidiary of French utility EDF Group, warned Finance Canada that EIFEL would restrict the “unfettered access to international capital” required to build major projects like its 300-megawatt Black Spring Ridge wind farm proposed for construction in southern Alberta. 

TC Energy and EDF did not respond to The Logic’s questions. Finance Canada, which is implementing the EIFEL rules, did not immediately respond to a request for comment. 

Ottawa’s EIFEL proposal comes at a time when high interest rates already weigh on the private sector’s ability to leverage debt. The power and cleantech sectors generally also face uncertainty due to the federal government’s coming clean-electricity rules, which may or may not restrict companies from building natural gas generating plants with carbon-capture technology after a certain date, for example.  

Michael Powell, vice-president of government relations at Electricity Canada, told The Logic that the capital required to clean Canada’s grid will only get more expensive as the country moves closer to net zero. Companies tend to replace the cheapest CO2 emissions first, leaving the priciest reductions further down the road.

“We want to make sure that we support the rest of the shift,” says Powell, “whether it’s toward home heating or electric vehicles or industrial de-carbonization. There’s going to be a dramatic load growth.”

In a recent submission to the House of Commons’ Finance Committee, which is studying Bill C-59, Halifax-based power provider Emera said both the U.S. and U.K. have exempted regulated utilities from their versions of EIFEL. 

Emera said the policy would “produce a significant amount of denied net interest expense” that the company would ultimately pass on to consumers. 

“Other OECD jurisdictions recognize this and have taken steps to ensure that utilities, which provide a public good, are not adversely impacted, relieving customers of the financial pressure associated with EIFEL compliance.” 

In its 2024 budget, tabled last week, Ottawa introduced a new exemption from EIFEL for companies developing purpose-built rental properties. 

Government-owned power providers are already exempt from EIFEL, Emera pointed out in its submission, creating “inequity in energy costs across Canada” depending on what province the private companies operate in.