Taxes and Charges on the Gross Revenues of Hydro-electric Generating Stations under section 92.1 of the Electricity Act, 1998

EA 1-2002, April 2002

• This bulletin contains important information for owners of hydro-electric generating stations and water power leaseholders liable to pay the taxes and charges on the gross revenues of hydro-electric generating stations under section 92.1 of the Electricity Act, 1998 (the "Act").
• The information in this bulletin does not replace the law found in the Act and related regulations.

Background

Gross Revenue Charge (GRC)

In November 2000, legislation was introduced to encourage the development and expansion of environmentally friendly hydro-electric generating stations in Ontario. Effective January 1, 2001, the existing property taxes and water rental charges paid by hydro-electric generating station owners and water power leaseholders were replaced with taxes and charges on the gross revenues of hydro-electric generating stations. These taxes and charges on gross revenues represent separate components of what is known as the Gross Revenue Charge (GRC).

GRC Components

There are three GRC components:

• The GRC Property Tax Component Payable to the Minister of Finance,
• The GRC Property Tax Component Payable to the Ontario Electricity Financial Corporation (OEFC), and
• The GRC Water Rental Component Payable to the Minister of Finance.

GRC Property Tax Components

The GRC Property Tax Component Payable to the Minister of Finance is payable by hydro-electric generating station owners liable for the tax under subsection 92.1 (1) of the Act on the gross revenues of hydro-electric generating stations. The GRC Property Tax Component Payable to the Minister of Finance applies to all stations in Ontario except those stations that were, on or before December 31, 2000, subject to the property tax Payment in Lieu under subsection 92 (1) of the Act, whether or not there has been a change in ownership after that date. Stations that were, on or before December 31, 2000, subject to the property tax Payment in Lieu under subsection 92 (1) of the Act (i.e. stations owned by Ontario Power Generation or by municipal electricity utilities prior to 2001) are now subject to the GRC Property Tax Component Payable to the OEFC under subsection 92.1 (2) of the Act.

GRC Water Rental Component

The GRC Water Rental Component Payable to the Minister of Finance is payable by every holder of a water power lease liable for the water rental charge under subsection 92.1 (5) of the Act. The GRC Water Rental Component applies to the gross revenue of the hydro-electric generating station subject to the water power lease.

New Regulation 

On April 4, 2002, Ontario Regulation 124/02 was filed. O. Reg. 124/02: defines "gross revenue" for the purposes of the section 92.1 of the Act; prescribes how to calculate a station's annual generation; provides for certain exemptions and deductions; and, sets out the basic administrative requirements for hydro-electric generating station owners and water power leaseholders required to pay one or more of the GRC components.

Definitions

Definitions for the Purposes of this Bulletin

For the purposes of this bulletin:

"generator" means a person who owns or operates a generation facility that is a hydro-electric generating station;

"holder of a water power lease" means a person who has entered into an agreement, lease or other writing respecting the use of water under subsection 42 (2) of the Public Lands Act, or under the Niagara Parks Act, or The St. Lawrence Development Act, 1952 (No. 2), or who is required to enter into such agreement, lease or writing in order to be entitled to occupy public lands.

"hydro-electric generating station" includes any building or structure in which electricity is generated through the use of water power or from the movement of water;

"new station" means a station that first generates electricity after December 31, 2000;

"owner" includes a tenant of land owned by the Crown or a municipality on which a hydro-electric generating station is located or a tenant of land owned by any other person if the tenant is the generator of electricity from the hydro-electric generating station;

"redeveloped station" means a station at which improvements come into service after December 31, 2000 that include a substantially replaced power house and associated physical infrastructure for the conveyance and utilization of water;

"station" means a hydro-electric generating station;

"upgraded station" means a station at which improvements come into service after December 31, 2000 that increase the station's generation of electricity by at least two per cent on an annual basis.

GRC Rates

Graduated Rates

GRC rates for both property tax components are graduated based on the annual generation of a station as follows:

Total Annual Generation	GRC Rate
Up to and including 50 gigawatt hours (gWh)	2.5 %
Greater than 50 up to and including 400 gWh	4.5 %
Greater than 400 up to and including 700 gWh	6.0 %
Greater than 700 gWh	26.5 %

Every station owner benefits from the lower rates on the gross revenue from the first 700 gigawatt hours of annual generation for each station.

Water Rental Charge Rate

The GRC water rental charge rate is fixed at 9.5% of a station's gross revenue from annual generation.

Annual Generation

Annual Generation of a Station not Engaging in Water Transfers

The annual generation of a station whose owner or operator does not, with respect to that station, pay or receive compensation for the transfer of water to or from another generator during the year, is the amount of electricity generated by the station during the year, other than electricity that is consumed directly in the generation of electricity at the station without being conveyed through a transmission or distribution system.

Annual Generation of a Station Engaging in Water Transfers

The annual generation of a station whose owner or operator, with respect to that station, pays or receives compensation for the transfer of water to or from another generator during the year, is the amount of electricity generated by the station during the year, other than electricity that is consumed directly in the generation of electricity at that station without being conveyed through a transmission or distribution system, plus the net amount of compensation, in the form of electricity or other compensation converted to electricity, received from other generators for the use of water associated with that station.

Measuring Electricity by Means of an Approved Electricity Meter

Station owners or operators must determine the amount of electricity generated by the station by measuring the amount of electricity generated by means of a meter that would either: satisfy the market rules established by the Independent Electricity Market Operator or the requirements of a distributor licensed under the Ontario Energy Board Act, 1998. to whose distribution system the station is connected; or satisfy the requirements for a meter to be used for the purposes of obtaining the basis of a charge for the electricity under the Electricity and Gas Inspection Act (Canada) and the regulations under that Act.

As an exception, where the Minister has authorized the owner or operator to determine the amount of electricity generated by the station without the use of the meter, or if the meter described above did not accurately measure the electricity generated, the owner or operator may determine the amount of electricity generated by making a reasonable estimate. Such estimates may be reviewed.

As a further exception, and only for the period prior to the opening of the electricity market to competition, in situations where there is no meter, the owner or operator of a station may determine the amount of electricity generated by the station by making a reasonable estimate of the amount of electricity generated during the year. Such estimates may be reviewed.

Gross Revenue

Gross Revenue Prior to Electricity Market Opening to Competition

In December 2001, the Ontario Government confirmed its intention to open Ontario's electricity market to competition on May 1, 2002. For the period January 1, 2001 to the day before Ontario's electricity market opens to competition, the gross revenue of a hydro-electric generating station is the amount determined by multiplying the station's annual generation for the year by a price of $40,000 per gigawatt hour.

How "gross revenue" is to be determined for the period after the electricity market opens to competition will be the subject of a separate Ontario Tax Bulletin, to be issued as soon as "gross revenue" for post market opening period is defined.

GRC Payments

GRC Payments for 2001

Payment of the taxes and charges on the gross revenues of hydro-electric generating stations for 2001 must be delivered to the Ministry of Finance on or before May 16, 2002, along with the 2001 GRC Annual Return. Station owners and water power leaseholders should refer to the 2001 GRC Annual Return Guide for detailed instructions on making GRC payments for 2001.

GRC Payments for 2002 and Subsequent Years

For 2002 and subsequent years, station owners and water power leaseholders are required to make their GRC payments on a monthly or quarterly basis. Station owners and water power leaseholders should refer to the GRC Instalment Instructions for detailed instructions on making GRC instalments for 2002 and subsequent years.

Monthly Instalments

If the total of all GRC amounts payable for all stations for the immediately preceding year is $10,000 or more, the owner or the holder of a water power lease is required to make a monthly instalment on the 16th day of every month, equal to the lesser of:

• 1/12th of the total of the amounts payable for the year, and
• 1/12th of the total of the amounts payable for the immediately preceding year,

unless, the month is January or February, in which case the instalment is equal to the lesser of,

• 1/12th of the total of the amounts payable for the year, and
• 1/12th of the total of the amounts payable for the year immediately before the immediately preceding year.

Quarterly Instalments

If the total of all GRC amounts payable for all stations for the immediately preceding year is less than $10,000, the owner or the holder of a water power lease may make quarterly instalments on the 16th day of March, June, September and December of the year, equal to one-quarter of the lesser of:

• the total of the amounts payable for the year, and
• the total of the amounts payable for the immediately preceding year,

First Instalments for 2002 are due June 16, 2002

First instalments are due June 16, 2002. If the total of the GRC amounts payable for all stations for 2001 is $10,000 or more, the first instalment payment must be equal to six (the number of months in 2002 commencing before June 16, 2002) multiplied by th. lesser of,

• 1/12th of the total of the amounts payable for 2002, and
• 1/12th of the total of the amounts payable for 2001.

If the total of the GRC amounts payable for all stations for 2001 is less than $10,000, the first instalment payment must be equal to two (the number of quarterly instalment periods in 2002 commencing before June 16, 2002) multiplied by the lesser of,

• one-quarter of the total of the amounts payable for 2002, and
• one-quarter of the total of the amounts payable for 2001.

Remittance Advice Forms

GRC payments are to be made using one or a combination of the remittance advice forms provided by the Ministry of Finance. Station owners and water power leaseholders are asked to complete and detach the applicable remittance advice form(s) and send it to the Ministry of Finance, together with their GRC payment(s), in the self-addressed envelope also provided by the ministry.

All returns, payments and remittance advice forms are to be submitted to the Minister of Finance, including cheques that are made payable to OEFC for charges under subsection 92.1(2) of the Act.

Interest

Debit interest is calculated and charged daily on the unpaid portion of any amount payable, from the day on which the payment is due to the day on which the amount plus interest is received. Credit interest is allowed on instalment payments in the same manner interest is allowed on instalment payments under the Corporations Tax Act.

5 per cent Penalty

Station owners and water power leaseholders may be liable to a penalty equal to 5 per cent of any unpaid amount or $6, whichever is greater, if they do not make full payment by the GRC Annual Return due date.

GRC Annual Return

2001 GRC Annual Return

The 2001 GRC Annual Return must be delivered to the Minister of Finance on or before May 16, 2002, along with full payment of all amounts payable for 2001.

2002 and Subsequent Years

For 2002 and subsequent years, the GRC Annual Return is due on or before March 16th of the year following the year to which the Annual Return relates.

Exemptions and Deductions

Exempt Stations

The following stations are exempt from the GRC:

• Every station that is exempt from provincial, municipal and school taxes and fees under section 12 of The Ottawa River Water Powers Act, 1943.
• Every station that is a work erected by a conservation authority, as referred to in subsection 33 (1) of the Conservation Authorities Act.
• The Stan Adamson Power House on the Ottonobee River in the City of Peterborough, while it is owned and operated by Trent University.
• The Prairie Portage Generating Station in Quetico Provincial Park, while it is owned and operated by the Crown in right of Ontario.

Exemptions from Water Rental Charges

The holder of the water power lease for each of the following stations is exempt from the water rental component of the GRC on the gross revenue derived each year from the following amount of annual generation of the station:

• 270.608 gWh or, in a leap year, 271.35 gWh of annual generation of the Francis H. Clergue Generating Station on the St. Mary's River in the City of Sault Ste. Marie.
• 58.03062 gWh or, in a leap year 58.189608 gWh of annual generation of the Big Eddy Generation Station on the Spanish River in the City of Greater Sudbury.

Prior 10-Year Holiday from Water Rentals

Under subsection 92.1 (7) of the Act, a holder of a water power lease who was not required to pay a hydro-electric charge under the Public Lands Act because the station has been in service for less than 10 years is exempt from the water rental component of the GRC for the remainder of the 10-year period, if any.

The above exemptions are provided only for the purpose of ensuring similar treatment for stations that were exempt from property taxes and water rental charges prior to the GRC effective date.

Deduction for Eligible Capacity Available for 120 Months

In order to encourage investment in the generation of electricity from water power, subsection 92.1 (6) of the Act provides that the gross revenue from the generation of electricity from eligible capacity may be deducted from gross revenue for the purposes of calculating the GRC amounts payable. The deduction for eligible capacity is available for the first 120 months after the eligible capacity is put into service, as determined by the Minister of Natural Resources.

The eligible capacity of a "new" or "redeveloped" station refers to the station's total annual generation. The eligible capacity of an "upgraded" station refers to the incremental increase in the amount of electricity generated annually by the upgraded station as a result of the upgrade.

Statements Issued by the Minister of Natural Resource

In order to claim this deduction, the station owner or the holder of the water power lease must provide the Minister of Finance with a statement issued by the Minister of Natural Resources, and any amended statement issued by the Minister of Natural Resources, that contains the following information:

• Whether the work carried out was to construct a new station, to redevelop the station or to upgrade the station.
• That the work was carried out in accordance with an approval issued by the Minister of Natural Resources under the Lakes and Rivers Improvement Act.
• The date that the eligible capacity was put into service.
  If the work was to upgrade the station, the projected percentage increase in the amount of electricity generated annually by the upgraded station as a result of the upgrade.

Additional Information

If this bulletin does not completely address your particular situation, refer to the Electricity Act, 1998 and related Regulations, or contact the:

Ministry of Finance
Motor Fuels & Tobacco Tax
33 King Street West
PO Box 625
Oshawa ON  L1H 8H9

Toll-free: 1 866 ONT-TAXS (1 866 668-8297)
Fax: 905 433-5680

This publication and various other English and French tax bulletins published by the Ministry of Finance, may be obtained online at ontario.ca/finance.

The Electricity Act, 1998, O. Reg. 124/02, and Ontario's other public statutes and regulations may be obtained online at ontario.ca/e-laws.