Our Green Dilettantes

Commentary, Energy, Environment, Peter Holle, Role of Government, Uncategorized

Green is good, we all agree. That makes it critically important that Manitoba’s energy sector and especially Manitoba Hydro, our best exemplar of clean, renewable power, maximize their potential for growth. Instead, key elements of that sector are monopolized by the provincial government, with significant consequences for our tax and fiscal frameworks, the environment and job creation. Its status also exposes it to considerable danger from manipulation by green policy dilettantes.

“Today’s NDP” still lives and breathes the quaint fantasy that depoliticizing the phone company was an apocalyptic disaster. To the contrary, the Filmon government’s biggest achievement was its bold decision to privatize the company. That allowed the province to exit a fast–moving, increasingly risky marketplace while cashing out near the top of the market for telecommunications assets. MTS now offers lower consumer prices and better services. It has made massive investments in high-speed Internet, cell-phone service and television, all without cost to taxpayers.

Back when private capital markets would not invest in a scattered, low-density marketplace, a government telephone company made great sense.

Today virtual organizations like the Frontier Centre use Internet technology, including telephony and video-conferencing software (Skype), to link policy professionals telecommuting from home offices (DSL and cable), farms (wireless high speed) and log cabins (satellite) with each other and with sister think tanks in Brussels and Auckland, New Zealand. The cost? Aside from the internet hookups, it’s free.

The risks of profit and loss lie with the shareholders and business operators of various providers like MTS, Shaw, Xplornet Satellite, Wiband.ca and Granite Internet Services. The Filmonites understood that the slow-moving bureaucratic model was an increasingly bad fit in a complex, multiple-provider marketplace morphing forward at warp speed.

With the state of technology in power markets comparatively stable, the need to privatize Manitoba Hydro on those grounds is less pressing. It does make sense, however, to unwind one of the Filmon government’s biggest mistakes by separating and divesting Centra Gas from Hydro. Natural gas competes with electricity, and this minor policy recalibration would eliminate an obvious conflict of interest when its owners wear both hats. Remember the Doer government’s policy gaffe when it cross-subsidized non-renewable gas prices with renewable hydro-electric revenue?

The ongoing tragicomedy at Manitoba Hydro plays out in many ways, including politicians that refuse to end its foolish under-pricing of electricity. One of the biggest myths in Crown corporation folklore is that waves of private investment, factories and industry will flood into Manitoba if we sell domestic power at or below cost. Pure bunk, as usual. Manitoba is dead last in private investment per capita in Canada.

This disconnect with reality creates cascading opportunity costs. Imagine Alberta selling its oil, worth $65 a barrel, in the market for $25. It makes up the lost revenues with high taxes that depress investment and the general economy. It then runs to Ottawa and whines that it is a “have-not” province and need billions in equalization payments. It winds up on the federal dole with high taxes and mediocre public services. Finally, cheap oil means everybody drives big, evil, dastardly SUVs.

That describes Manitoba almost exactly. Rock-bottom power prices have made us one of the highest per-capita consumers of electricity in the world. Stuck with 1930s “power at cost” ideology, the province foregoes almost $1.2-billion a year in lost revenue – the difference between selling electricity for what it is worth and what it costs. With that money we could eliminate all business taxes, including payroll, capital, and corporate taxes, plus cut income tax by 20%. It’s almost enough to eliminate the sales tax, or end the school portion of property taxes while tripling provincial grants to municipalities (see Power Opportunity Cost Calculator).

Gary Doer’s slick but uninformed campaign literature vows to keep electricity rates the lowest in North America and preserve this archaic edifice. But artificially low prices send consumers the wrong signals and turn them into power hogs. Lower prices also stunt the renewable energy sector. Wind power, for example, is more expensive to produce from the start. It can’t compete with subsidized hydro energy.

Our green dilettantes respond with quiet subsidies for alternative energy. Shortly they will dabble with central planning – unnecessary emission regulations and carbon limits – as they futilely try to reduce energy consumption. In the end, we have little to show for the effort because electricity prices are too low. The smart green pricing hammer, easily wielded with appropriate protections for low-income people, is ignored.

The green argument for eventually privatizing Manitoba Hydro, subject to a careful process which maximizes benefits to the average Manitoban, is solid. That would eliminate its hidden subsidies which include tax exemptions, preferential interest rates on debt capital and a failure to take dividends, which means we fail to account properly for the cost of capital. They all help artificially underprice electricity and encourage wasteful consumption.

Down the road, a shareholder-owned Hydro headquartered in Winnipeg would expand beyond Manitoba’s borders and become a mid-continental giant, paying huge royalties into the public purse.

But we need to walk before we run. First we must banish the green dilettantes from Hydro’s levers and encourage intelligent conservation by capturing the full value of our renewable energy resources. We could then cut taxes and decisively break the back of the transfer-subsidy complex that underlies our pathetic“have not” status.