April 23 2012: Alberta Provincial Election

[Tinordi]

BC does the same practice as Quebec. The issue is more with the electricity market deregulated vs. crown owned electric utilities than the pricing model because the market will have different price outcomes. In QC and BC, they do average cost pricing, leads to lower costs because of heritage hydro assets that are paid off.

But yes, some more scrutiny should be brought to electricity rates between provinces for the purposes of equalization. Ultimately though, these are technical tweaks not fundamental problems with the system.

[Senator Clay Davis]

There goes that evil, liberal elite east-coast media...endoring the Wildrose.

http://fullcomment.nationalpost.com/...medium=twitter

[SebC]

Originally Posted by Tinordi

But yes, some more scrutiny should be brought to electricity rates between provinces for the purposes of equalization. Ultimately though, these are technical tweaks not fundamental problems with the system.

What is a fundamental problem with the system, though, is that it does not account for variations in delivery costs.

[Fire]

Originally Posted by Slava

This type of concern is exactly my rational for increasing the amount of savings we make from our current revenues and not sending out cheques to every man, woman and child for $300+ each. Its foolish, short sighted and when the oil is worth less or the revenue stream is not maintainable we'll all feel stupid for having done this.

The PCs have saved how much in the last decade? At least the WildRose had promised to put 50% of all surpluses into the Heritage Fund.

[Slava]

Originally Posted by Fire

The PCs have saved how much in the last decade? At least the WildRose had promised to put 50% of all surpluses into the Heritage Fund.

Yes, and as I've admitted in this thread, I am in favour of that. I'm not against everything just because its championed by one party or another....I know its hard to believe, but I might not be as partisan as some think!

[Rerun]

Originally Posted by redforever

Quebec's hydro cost to its consumers is half that of Ontario. Why?

Because of the sweetheart deal that Quebec negotiated (blackmailed) with Newfoundland in 1968 re the Churchill Falls hydro power. Basically Nfld got royally screwed over that one.

The infamous Churchill Falls hydro agreement - giving Quebec long-term access to discount-priced power from Newfoundland and Labrador - was not only a bad financial deal for Newfoundland, it was also signed under coercive conditions, which may raise "substantive questions of business ethics and law," according to newly released research on the 1968 deal.

http://www.canada.com/montrealgazett...f-6a8b7d004957

[redforever]

Originally Posted by SebC

What is a fundamental problem with the system, though, is that it does not account variations in delivery costs.

Exactly!!!

If the original rules set out in the late 1950s still applied, only P.E.I. would still qualify for equalization.

Geographic and demographic shifts aren't accounted for in the equalization formula, nor does it factor in the difference in costs for delivering services.

Our equalization system is good at calculating how much a province should receive relative to its fiscal capacity, such as its ability to raise revenues from income, sales and corporate taxes, but it fails miserably by not taking into account each province's actual expenditure needs.

However, no consideration is given to how much it actually costs to provide basic public services and no consideration is given to how the received monies are spent.

[Knalus]

Originally Posted by Slava

I'm not naive enough to suggest that Alberta hasn't put anything towards this, or that this is an "easy" way to make a buck. All I'm saying is that there are a lot of factors for how/why the oil industry is as important to the province and country today as it is. All levels of government have made sacrifices and contributions in one way or another.

Quebec is what it is. I can't explain things that they have or haven't done and why or why not they pursue these things. I have a hard time seeing the relevance of their policies to our current provincial election, but maybe I'm the only one.

More specifically to your point knalus, I see countries like Venezuela in particular as a huge problem for Alberta. The oil is cheaper and easier there than it is here, by a long shot. We all know that the major impediment there today is Chavez, and that won't last forever. This type of concern is exactly my rational for increasing the amount of savings we make from our current revenues and not sending out cheques to every man, woman and child for $300+ each. Its foolish, short sighted and when the oil is worth less or the revenue stream is not maintainable we'll all feel stupid for having done this.

I'll remind you that the ONLY province to default was Alberta in 1936. The province was definitely a have not until we hit oil; that's awesome for us today and over the next while and we should be thankful for this bounty. One day that will be gone though (and we all know that) so to fritter it away today is just plain irresponsible and foolish. Why this isn't a bigger issue in this election (or any other) is really beyond me.

I understand. Thing about Venezuela having more than us, and easier to produce, is that we don't need to worry about them figuring things out. Every location that produces oil produces it at larger volumes per well, at a lower cost, and at higher profit margins. Places like Norway, Saudi Arabia, Venezuela, Texas, ect. have always out produced us, and have always had much higher royalties giving these jurisdictions more cash flow than Alberta. This situation is exactly how Alberta shows it's quality, and is the inadvertent reason for our widespread and abundant wealth.

Without the foresight of our government, the relatively low royalty scheme here, and the even handed regulation, there wouldn't be a resource to exploit. Foreigners do not own much of our oil patch, because there are easier, better places to make a buck producing oil. However, it is our structure that draws them in, because it is still possible to make a buck.

An example my Petroleum Engineering professor gave me was from a Canadian who went to an international convention regarding getting the most out of your reserves. He was discussing methods to make profitable a well that was producing 8 bbls of oil per day. During the question period, the first question was about units. An American engineer was asking whether or not the Canadian engineer meant 800 or 80 barrels, perhaps 8000 barrels? Apparently most of those in attendance did not believe him when he re-iterated it was only producing 8 barrels a day. It was not possible to make money in that situation where they came from.


But that brings up why this resource is so great for Albertans. It takes a lot more work to make these things profitable. Better technology, better services, more innovative methods of increasing production or reducing costs, a more efficient pipeline and processing sector. The industry in Alberta is not the same as the industry in the rest of the world (and even that is changing to be more like Alberta). The industry is more of a high tech industry than a conventional oil and gas one.

The perfect example of how tight things are is given to us by our neighbours in Saskatchewan. There is no mistake as to why Saskatchewan has had a massive jump in production starting 3 years ago. Coincidentally, that was the same time we changed our royalty regime. That skinny profit that we were making previously in this province went to zilch. Money flooded into BC, and Saskatchewan - who had learned from our industry, and had modeled theirs after ours. Profitability - and investment - returned to our province when the royalty framework slowly and quietly returned to the old methods.


And for those who think that the Oilsands are the key to our profitability, that is partially true. But these people don't realize that the reason that the Oilsands are here is because the royalty on them was 1% up until the review. Increasing the Oilsands royalty was the reason for the review. Everyone in the patch realized that the oilsands royalty would increase. It was when conventional oil and gas royalties increased that things went badly.



just my $0.02

[c.t.ner]

Originally Posted by Senator Clay Davis

They just mentioned on the radio that advanced polls are open and that at one there is a 40 minute wait to vote. I suspect that bodes well for the Wildrose.

At this point, I don't know which way this slides. It's either going to be a great side for the WildRose who probably have the strongest most motivated base to vote or it could be a big sign for people looking to block the wildrose....

After this week, it's really hard to gauge who this really benefits.

[Senator Clay Davis]

I think you make a good point about how motivated the anti-Wildrose bunch are right now. But since its mostly us young people, we all know we're going to wait until the last minute to vote

[darklord700]

Originally Posted by c.t.ner

At this point, I don't know which way this slides. It's either going to be a great side for the WildRose who probably have the strongest most motivated base to vote or it could be a big sign for people looking to block the wildrose....

I always believe that love is a stronger force than hate and I can't believe the HATE for WR is that strong.

[Fozzie_DeBear]

There is something strange about someone called darklord talking about the overriding power of love over hate

[Jacks]

Originally Posted by Senator Clay Davis

There goes that evil, liberal elite east-coast media

I don't think anyone ever included the National Post in that category.

[bizaro86]

Originally Posted by redforever

Read on page 2 where it says

“With the exception of natural resource revenues, the equalization formula estimates fiscal capacity in each of the above categories by determining how much per capita revenue each province could generate if all provinces had identical tax rates. In the case of natural resource revenues, because of the wide range of resources and royalty structures across the provinces, instead of creating a national average tax rate to measure fiscal capacity, actual resource revenues are used”

http://www.parl.gc.ca/Content/LOP/ResearchPublications/prb0820-e.pdf

Which is bogus, imo. If Quebec doesn't want to produce their natural gas fine, but I don't see why the rest of should pay them extra because they're not going to.

[Senator Clay Davis]

Originally Posted by Jacks

I don't think anyone ever included the National Post in that category.

Yeah I know I was just kidding around. I'm not sure if we talked about it hear or if I talked about it someone else, but the idea the media has a liberal bias is kinda laughable. Most newspapers tend to lean more conservative, especially fiscally.

[Knalus]

Originally Posted by Senator Clay Davis

I think you make a good point about how motivated the anti-Wildrose bunch are right now. But since its mostly us young people, we all know we're going to wait until the last minute to vote

And I think there is an interesting point to be made about how motivated the anti-PC bunch is right now. I mean, that's been the story the whole election.

[Knalus]

Originally Posted by bizaro86

Which is bogus, imo. If Quebec doesn't want to produce their natural gas fine, but I don't see why the rest of should pay them extra because they're not going to.

I don't think we need to worry about this. With the state of the industry today, we've increased the volume of Natural Gas production so high, it is practically unprofitable to drill for it here, much less in a basin with such weak infrastructure. If they did produce it in this environment, they wouldn't make much money off of it anyways.

[Senator Clay Davis]

Absolutely there is. Really there are 4 main groups that will decided the election: Anti-PC, Anti-Wildrose, Pro-PC, Pro-Wildrose. I've never really seen anything quite like it.

[SebC]

Originally Posted by Knalus

And for those who think that the Oilsands are the key to our profitability, that is partially true. But these people don't realize that the reason that the Oilsands are here is because the royalty on them was 1% up until the review.

Until they reach profitability, then it goes up. That's why Redford can project greatly increasing oilsands royalties, and it's not completely nuts. Great post though.

[Knalus]

Originally Posted by SebC

Until they reach profitability, then it goes up. That's why Redford can project greatly increasing oilsands royalties, and it's not completely nuts. Great post though.

Oilsands royalties are now considerably higher, and are a big boost to government coffers now, true. But we didn't need them to achieve our current prosperity, even if they are a key to our future. We benefited more from the economic activity rather than the royalties.