One of the somewhat unique aspects of the Ontario Electricity Act, 1998 (the Electricity Act) is a so-called "transfer tax" levied on certain transfers of "electricity property". In general terms, the transfer tax is levied on municipal electricity utilities (MEUs) on the transfer of property used in the generation, transmission, distribution or retailing of electricity, and extends to the transfer of shares of a corporation that derive their value from such property. The transfer tax is levied at a rate of 33% and is widely seen as a significant disincentive to consolidation within the MEU sector.
On October 17, 2006 the Ontario Government, in an effort to facilitate such consolidation, announced that a temporary exemption from the transfer tax on dispositions of electricity property by one publicly-owned electricity utility to another. The exemption was to apply to such a transfer if a binding agreement in respect of the transfer was entered into and filed for approval with the Ontario Energy Board before October 17, 2008. One of the public statements announcing the temporary exemption specifically stated that the exemption was "designed to encourage consolidations among municipal electricity utilities".
However, despite the availability of this exemption and its temporary nature, the past two years have seen very little consolidation in the MEU sector. On October 14, 2008, with the exemption about to expire, the Ontario Government announced an extension of the exemption of one year or until October 16, 2009. It remains to be seen whether the next year will see any more activity in this sector, particularly in a period of economic uncertainty.