Basket Cases

Commentary, Energy, Frontier Centre

If there is anything the Selinger NDP government is ‘good at’ it is self-promotion.

A report commissioned by the provincial government asserts that the ratepayers of Manitoba Hydro, its wholly owned subsidiary, Centra Gas, and Manitoba Public Insurance, all monopolies controlled by the government, enjoy the lowest overall annual costs in Canada for electricity, home heating and car insurance.

The study follows the general terms of reference provided to an obliging ‘independent’ accounting firm by the government.  (The auditors and oftentimes consultants of and to the Crown corporations are from the major accounting firms.) From those terms, the firm developed the methodology of comparison to be used.  The methodology selected served the political aspirations desired by the government.

The 2013 report (apparently based on rates in effect as of March 31, 2013 – Hydro’s most recent electricity rate increase took effect May 1) claims the average Manitoba householder pays, annually, $844 for electricity, $734 for home heating and $1,152 for car insurance.  The aggregate of $2,731 for Manitoba was compared against the average for other the provinces, that  being a reputed $4,829.

On the surface, Manitobans appear to have low costs for three important elements of ‘life and living’ in Canada, yet, let us look deeper.

There are reasons for the differences, though these are not set out in either the government’s press release or the accounting firm’s report to the government.  As well, the selection of the ‘cost bundle’ to be compared was made by government, and ignores major differences in provincial and municipal taxes and fees, costs that are, on average, much larger than the ‘basket’ of costs selected by the provincial government.

Manitoba’s low electricity rates are due to two major factors – the first being an aged electric infrastructure, one that is highly amortized with both amortization and finance charges based on the low capital costs of many decades ago. Few of Canada’s provinces and territories can rely on hydro-electric generation, and many of the other provinces have recorded higher population and industry increases, driving new and more costly facilities.

As Hydro’s infrastructure is updated and expanded, rates, in the end, will soar – the-now major cost differences for electricity may well fall.

Another factor is Hydro’s accounting practices, which has probably $2-billion of expenditures being deferred, yet to be represented in rates.

With respect to home heating, the approach taken in the report (based on the costs for two not-named selected population centres in each jurisdiction) ignores the 35 per cent of Manitobans that cannot use natural gas because the distribution pipelines carrying natural gas do not reach their communities and or homes.

For those hundreds of thousands of Manitobans who heat by electricity, mostly rural or northern, their annual average heating cost is close to $1200, and that doesn’t include the $300 for electric water nearing – that three times the cost of nearing water by natural gas. Nor, does the amount cited take into account northern customers of Stittco, who rely on propane for home heating, at more than twice the annual cost for home heating cited in the government-commissioned report.

And, as for car insurance, the report appears to ignore major factors driving the actual cost experience of drivers and vehicle owners across the country.

Vehicle registration fees have been hiked significantly in Manitoba, while driver licensing is levied on the basis of accident records – neither of these two factors are reflected.  In the private insurance world, poor driving records are reflected in higher car insurance premiums.

As well, the report makes no attempt to compare benefit levels. Manitoba is a total no fault benefit environment, benefits set by legislation and regulations not by the courts. Seriously injured here, and not at fault, your compensation will likely be much  lower than in tort jurisdictions.

Also, differences in the distribution of vehicles as to make, model and year appear to be not reflected in the report, though major factors in rates, along with density, the split between driver licensing and vehicle insurance costs, and benefit design.

Finally, if the so-called basket ever climbed higher than that of another province, the government, apparently, would direct the corporation(s) causing the ‘excess’ to issue a rebate to ratepayers, and those rebates would simply form an element of the corporation’s costs and be reflected in rates.

In short, any relief from a rebate based on a report of an excessive cost of the basket would be short lived.

In the end, the consumer always pays when dealing with this government.

Publius notes that the government’s basket is designed to ensure an annual compliment for the government. As for the cost of the report, it is not reported.

The Media dutifully reported on the government’s claims, without, it appears, having performed any analysis as to the reasons for the differences or the appropriateness of its narrowness.

The criticism of a former government in the Selinger’s government media release of the report (related to the long-ago sale of MTS) is evidence of the political bent of the exercise.

It is unlikely the government will develop a different and wider basket of government fees and taxes (the Crown corporation’s operate at the government’s direction and  some aspects of the costs they incur as the result of that direction could fairly be considered a tax), or a comprehensive economic analysis that extends to wage levels and disposable income, to compare against other provinces.

A comprehensive ‘cost’ package could include retail sales taxes, provincial income taxes, land transfer fees, probate fees, gas taxes, vehicle registration fees, and the other fees among the myriad of fees the government levies on Manitobans.  In comparison with at least the other western provinces, such a report would not ‘favour’ Manitoba – higher provincial taxes, a higher retail sales tax rate, etc. etc.

Such a broader comparison would likely not reflect well on this ‘borrow, tax and spend’ ideologically-driven self-centered government, and, so, is unlikely to be the next ask of an ‘independent’ accounting firm by the Selinger government.