Alberta is threatening to drop out of the federal government's revenue-sharing deal with other provinces if energy income is included in the equalization formula.
Premier Ralph Klein says he's seeking a legal opinion to see if Alberta has the right to pull out, and says he'll fight "tooth and nail" against attempts by Quebec or other provinces to tap into Alberta's energy windfall.
"We will participate if the feds and the provinces conclude that there ought to be a 10-province standard," Mr. Klein said Wednesday. "But we won't participate if resource revenues are included."
The premier said the Constitution clearly states that Alberta has control and authority over its resources.
"This is a political showdown, but this is also a constitutional issue."
The federal Conservatives will have a battle on their hands if they don't live up to their election promise not to include resource revenues in the equalization formula, said Mr. Klein.
A recently released report prepared for the federal government called for 50 per cent of resource revenues to be included in the calculation of equalization. A report prepared for the provinces called for all resource revenues to be used in the calculation.
But Mr. Klein said he won't stand for that and he's hoping that the sanctity of resource revenues will be reflected in another report being prepared for Ottawa.
"The federal government has given a commitment that they will resolve the issue by this fall, so we'll wait and see what they do."
The Alberta premier is girding for what he calls a political showdown with Quebec and Ontario at a special leaders meeting following the western premiers conference in Gimli, Man., next week.
Alberta expects strong support from premiers in western and Atlantic Canada, and Mr. Klein said he wants the issue resolved before he retires in the late fall.
Equalization is a complex and often misunderstood system of revenue sharing between provinces.
Currently, the federal government calculates the fiscal capacity of each province, then establishes a standard by averaging the capacity of five provinces: Quebec, Ontario, Manitoba, Saskatchewan and British Columbia.
Ontario, Alberta and Saskatchewan currently are above the standard, but all other provinces fall below and receive equalization payments from federal coffers to ensure similar services nationwide.
But most provinces are now pushing for a standard based on the fiscal capacity of all 10 provinces, including energy-rich Alberta, so that they will receive more money.
Prime Minister Stephen Harper's letter to the provinces during last winter's federal election campaign promised an equalization formula based on an average of 10 provinces and excluding resource revenues.
Federal Finance Minister Jim Flaherty has said recently that the Conservatives are sticking to that election promise.
He was travelling Wednesday and was not available for comment.