Finance Committee on April 27th, 2010

[Tom McGirr]

The choice of harmonization is a choice the provincial government made. I assume that the provincial government, if it were concerned about transfer impacts, would have done that type of analysis, but I certainly wasn't asked to do that.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It's a remarkable answer.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

Mr. Carrier, please.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chairman. Good morning, Mr. McGirr.

If I understand correctly, you are responsible for equalization. I want to go back to the difference in treatment of revenue between Hydro-Quebec, in Quebec, and Hydro One, in Ontario. You know that deprives the Government of Quebec of $250 million a year. That is not a negligible amount, particularly since we, as Quebec taxpayers, pay the difference as a result of the federal government's way of proceeding.

What I understand is that Hydro-Quebec derives its revenue from power distribution. Of course, there is generation, but the revenue comes from distribution and the amount billed to customers. I suppose the same is true of Hydro One, in Ontario. It derives income from the distribution of power to the population, to taxpayers.

So that's the argument that has been raised by the Government of Quebec for a number of years to explain that, ultimately, it's the same kind of treatment. Here I note that Hydro One is considered as having business income rather than income from natural resources. If these are forms of business income, that means that Hydro One is a private company and not a Crown corporation. Enlighten me on that. I don't understand.

[Tom McGirr]

As I said before, the policy is that we take the remitted profits in their entirety from a crown corporation. Any crown corporation that is engaged in the generation of hydroelectricity is treated in the natural resources base. Any crown corporation that is not engaged in anything to do with natural resources is treated in the business income tax base. That's the policy.

I understand what Quebec's concerns are. I think Quebec is saying that we identify what the transmission profits are, the distribution profits. But frankly, it's just not possible to be able to isolate at this point in time, based upon the information that we have available, fairly across the country just those profits that are derived from natural resources. And that's the reason we're having the multilateral discussions, to talk about the Quebec issues in the wider context of the treatment of hydroelectricity within the equalization formula.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Hydro One distributes electricity. It has to get its electricity somewhere; it doesn't invent it; it doesn't make it. In my view, it comes from the natural resources of the province, as is the case in Quebec. You don't manufacture electricity; it comes from natural resources.

[Tom McGirr]

Ontario Power Generation is the crown corporation in Ontario that is engaged in the generation of hydroelectricity. Hydro One is engaged in the transmission and distribution of the electricity that's generated by Ontario Power Generation.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

In my view, this is a matter of semantics. If we had to explain this to someone from outside the country, he wouldn't understand why profits from power distribution would be treated differently from province to province. I think this is completely crazy. I don't understand.

When we ask political questions in the House, we're often referred to negotiations that do not take place in the House of Commons, but that do take place among officials. There are some intelligent people trying to solve problems. Talking about officials, do you see a solution to this problem? And will we be talking about it next year and in two years? Will the people who replace us still be denouncing it? What about the alleged unity or uniform treatment of the Canadian policy? I don't understand.

[Tom McGirr]

I'm certainly not going to be able to give you any sort of insight as to what's happening in terms of the multilateral discussions. We do know that the equalization program is going to have to be renewed in 2014-15. I certainly can't make any comment as to whether changes will happen between now and then because quite frankly it's not my responsibility to make that call. It will be up to the Minister of Finance if there are going to be changes to the program.

In terms of the fairness across the country, I think it is important to realize that we have to step back, first, to say the expert panel on equalization made the recommendation that natural resource revenues should be treated in a certain way and that crown corporations that are engaged in the generation of hydroelectricity are deriving their revenues from a natural resource, and that the transmission and distribution does not comprise the derivation of a revenue from a natural resource; it's part of the normal operation of the corporation.

But there are other parts. If you think about all the crown corporations that are engaged to some degree in the generation of hydroelectricity, it's more than just hydroelectricity that is considered “a natural resource”. There's also, for example, coal-fired electricity, which would not be something that's being derived from natural resources and yet could engender certain amounts of profit. Those profits are counted as a natural resource just as much as the generation of hydroelectricity. There are other parts of that puzzle that are there.

To truly get at something that's going to apply from coast to coast to coast, you'd have to be able to isolate just those revenues that are being derived from natural resources. I'm suggesting that is not an easy task to do, and that's one of the reasons why we're engaging in all of these multilateral discussions.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

I would like some clarification. You say that Hydro One engages solely in distribution. In Quebec, there's also a power distribution sector, which is the equivalent of Hydro One.

In your view, where do the operating revenues of Hydro One go at the end of their fiscal year? Are they remitted to owners outside the government, or are they transferred to the Government of Ontario, as is the case in Quebec?

[Tom McGirr]

Hydro One is just involved in distribution and transmission. Its profits are remitted to government and are counted in equalization, so it's the same thing. It's an amount that's being remitted to the government.

Hydro-Québec, yes, there is a division that is concerned with distribution and transmission, but it is a division of the same crown corporation. And the policy is that we take the remitted profits in their entirety of a crown corporation. We do not try to split them.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Since we have with us senior officials who can give us answers that are not necessarily biased or influenced by partisan views, I would like to understand the essence of your remarks.

As is the case in Quebec, the Government of Ontario profits from the distribution of electrical power in its province, which is quite normal. In Quebec, on the other hand, the amount of income earned is deducted from the amount of equalization, which penalizes the province. Ontario, on the other hand, is not penalized. It pockets profits from power distribution. For reasons that I find obscure, Quebec is deprived of $250 million of revenue. Is that what you're telling me?

[Tom McGirr]

Let's keep in mind that the $250 million figure is a figure that is being put forward by the Quebec government. My understanding of the way they came to that number was simply to look at what the impact would be if we took out the transmission and distribution profits of Hydro-Québec but did not extend that same type of treatment to other crown corporations engaged in hydroelectricity across the country.

If you did the same treatment across the country, I'm not sure you'd get to $250 million. I'm not sure where you'd get to, because as I said, it's very difficult to isolate just the profits from the natural resource component from the other components that would not be considered part of natural resources. That's why the policy is that we take the total revenues that are remitted by any crown corporation that's engaged in hydroelectricity.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

You're telling me that the $250 million does not necessarily correspond to the portion of the equalization amount that would be lost, that it could be another amount. That at least shows that you're discussing the matter and that you're negotiating. That's normal because negotiations are necessary on every issue in order to reach a consensus, an agreement.

What amount is the federal government proposing, if it's not $250 million? That amount could be acceptable to the Government of Quebec and help avoid a categorical denial of all compensation.

[Tom McGirr]

I believe I said that we're involved in multilateral discussions with all the provinces about the treatment of hydroelectricity in general. There are certainly no negotiations going on between the federal government and Quebec with respect to the treatment of hydro at this point in time.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

So there's a major dispute in the public arena. We have copies of letters from successive Quebec ministers of finance in which they demand that the federal government solve this problem. You're telling us that there's no discussion. Is it the federal government's wish not to discuss it? We're still talking about the same country? We're still in Canada?

[Tom McGirr]

What I said was there are no negotiations. I certainly did not say that there are no discussions going on. As I said, the Minister of Finance in Quebec has recently written a letter to my Minister of Finance, again outlining those concerns, and we're looking at that correspondence as we speak.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

I'm going to leave some time for the other speakers.

[The Chair, Conservative, James Rajotte]

Okay.

I actually have a question, as do two other colleagues, and I understand we do have an answer to Mr. McKay's question.

Colleagues, I'll just remind you, we go to committee business at 12:30.

My question, Mr. McGirr, is with respect to the payments to Ontario, and it has to do with the position of the Government of Alberta. The Government of Alberta contends that it is not getting equal per capita payments for health transfers, as you know. You mentioned the agreement with respect to the legislated CHT until 2013-14.

Now, when I had officials before the committee--I believe last year--they said if you total the tax points plus the cash payments, in fact you do have an equal per capita transfer for health care to all provinces. But as you know, we're moving for equal per capita cash transfers. That's my understanding beyond 2014, but not before then.

Now the Province of Alberta says that the federal government changed the way the cash transfers are done for the Province of Ontario and therefore are not fully respecting that CHT until 2013-14, so it ought to be changing the cash transfer portion for the Province of Alberta at this time. I just wanted to get your official response to that.

[Tom McGirr]

We're certainly aware of Alberta's preference. The change that was made for Ontario was premised by the fact that Ontario was entering the program as an equalization-receiving province. Alberta certainly isn't an equalization-receiving province.

[The Chair, Conservative, James Rajotte]

But can you expand as to why that makes a difference?

[Tom McGirr]

I think you're now getting into the policy, which is government-driven. At this time the government has committed in legislation that we'll be moving to equal per capita cash beginning in 2014-15. Alberta is certainly pushing to move to equal per capita cash sooner than that. I assume that's a political question and not a technical question, if you will.

[The Chair, Conservative, James Rajotte]

But on the response to Alberta saying we have to respect the agreement to 2013-14, it's the government's contention that we are still respecting that agreement, even though these payments are being made to Ontario. These payments to Ontario do not in any way affect the agreement until 2013-14.

[Tom McGirr]

No.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

I have Monsieur Paillé and then Monsieur Mulcair.