Hydro Revenue Review Off the Table

Media Appearances, Equalization, Frontier Centre

A July presentation to Finance Minister Jim Flaherty suggesting the government is committed to a full-scale review of how it addresses hydroelectricity revenues in the equalization formula is not under active consideration, the Finance Department said Thursday.

The PowerPoint presentation was included in a response to an access-to-information request for briefing notes to Flaherty. It looks at the fact equalization recipients Manitoba and Quebec keep hydro prices lower than market rates and whether that should be a factor when considering how much they should receive from equalization.

The presentation, which is stamped "secret," is heavily redacted, but it says measuring the fiscal capacity from hydroelectricity will be one factor in the process to renew the equalization agreement when it expires in 2014.

The issue is an old one and stems from criticism provinces such as Manitoba and Quebec charge less than market rates for hydroelectricity, which means provincial revenues used to calculate equalization payments are artificially low. Forcing Manitoba and Quebec to report revenues based on market rates for hydro power would significantly reduce the amount of equalization the two get.

Flaherty's office, however, said they aren't going down that road.

"To be clear, the files referenced are not under active consideration by the government," said department spokesman Jack Aubry. "For instance, some were prepared solely in relation to media stories or third-party reports from earlier this year."

He went on to say, as stated in this year's budget, the equalization program formula will remain in place and the 2014 renewal will only look at technical aspects.

There has been no suggestion yet what the department means by technical aspects.

Flaherty himself insisted equalization isn't going to be substantially changed when asked about it Thursday.

The Manitoba government is counting on Ottawa to stay true to its word and believes it will.

"Equalization is such an integral part of the country," Manitoba Energy Minister Dave Chomiak said. "It's kind of like the jewel of Confederation."

Manitoba also argues the formula is fair because there is no easy way to determine what a market rate is for hydro because the rates vary widely depending on location. It's not like oil, which has an internationally set price.

In 2012-13, six provinces will share $15.4 billion in equalization. Manitoba's share, $1.87 billion, is 17 per cent of the province's revenues.

Manitoba Progressive Conservative Leader Brian Pallister said the province should be a lot more forward-thinking on this issue.

Even if it's not on the table now, it is an issue that has been raised since equalization began, and it is not going to go away, he said.

"We should be leading this dialogue, not trailing it," he said.

Flaherty is under some pressure to look at hydroelectric revenues from the Conservatives' western power bases in Alberta and Saskatchewan. Both are have provinces and believe their oil-and-gas revenues are treated differently from hydro revenues and they are effectively subsidizing have-not provinces that aren't properly accounting for hydroelectric revenues.

Peter Holle, president of the Winnipeg-based Frontier Centre for Public Policy, argues it is the equivalent of Saskatchewan or Alberta charging just $50 for a barrel of oil when the market price is $100 and then saying they need equalization because they don't have enough money.