TORONTO, May 7, 2026 /CNW/ - The structure of Canada's equalization program incentivizes Quebec to maintain below-market electricity rates and results in billions more in equalization payments for the province every year, finds a new study published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

"Canada's equalization program is designed in such a way that it materially incentivizes Quebec and other hydro-rich provinces to charge below market value for their power in order to receive more in equalization payments," said Ben Eisen, a Fraser Institute senior fellow and co-author of How Hydroelectricity Prices in Quebec Dominate Canada's Equalization Formula.

The study finds that the equalization program creates strong incentives for hydro-rich "have not" provinces like Quebec to maintain below market electricity rates. As such, by keeping hydro rates low and reducing the resource revenues collected from ratepayers, equalization payments are larger than they would be if hydro rates reflected market prices.

For example, Quebec currently has the lowest electricity rates nationwide. This year, its natural resource revenue (for the purpose of calculating equalization) is $4.18 billion and the province will receive $13.91 billion in equalization payments, as opposed to other aspects of equalization where imputed revenues are used (for example, estimating what Alberta's revenue would be if it had a provincial sales tax, there is no adjustment for provinces charging below market rates for electricity).

However, if Quebec increased hydro prices by four cents per kilowatt hour, which would bring Quebec closer in line with many other provinces, resource revenues would increase by $7.69 billion. As a result, equalization payments to Quebec would decrease by an estimated $3.65 billion this year.

"Because Quebec is the largest recipient of equalization, the rates the province charges for electricity have a huge impact on the program as a whole and influence how billions of dollars flow to other have-not provinces across the country," Eisen said.

"The equalization program is up for review in 2029, and the federal government should consider options to address unintended consequences caused by the current formula including the incentives it creates surrounding hydro electricity prices in several provinces and most importantly Quebec."

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, Halifax and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to improve the quality of life for Canadians, their families and future generations by studying, measuring and broadly communicating the effects of government policies, entrepreneurship and choice on their well-being. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org

SOURCE The Fraser Institute