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With its above average levels of government taxation and spending and its large state controlled sector, Canada most closely resembles a European country in its economic structure. In recent years, public expenditures have averaged around 50% of GDP, about the same range as Norway, the UK, Spain, Poland, Ireland, Germany, Belgium, Finland, France and Italy. This has not always been so. Earlier in the twentieth century, the Canadian state controlled a below average proportion of economic resources as measured by government spending. The expansion of the Canadian state to European proportions occurred during the post World War II era when the state grew relative to the rest of the economy during each decade up to the 1990’s.
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Less easily measured is the comparative extent of state-owned enterprise. Here too, the Canadian story is a tale of the rapid proliferation of public enterprises across a wide spectrum of economic activity, especially after the Second World War. The government of Canada, for example, came to own airlines, insurance companies, aircraft manufacturers, munitions makers, banks, broadcasting corporations, film companies, railways, nuclear processors and reactor builders, oil companies and telecommunications corporations, to name but a few of the 464 federal Crown Corporations in the 1980’s. No overarching ideological vision drove the expansion of the state sector; Liberal and Conservative rather than Social Democratic parties presided over this development.
The rationale behind nationalization, or public ownership, as it was more frequently described in a Canadian context, varied with each project. Market failure, national security, control of commanding economic heights, regional economic development, rent capture and natural monopoly were invoked most frequently as justifications for state control. A powerful state, both as a fiscal and as a corporate presence, was called into existence during the late 20 th century expansion of Canadian capitalism. In this respect too Canada was the most European of the American economies.
And this public sector has only recently and somewhat fitfully begun to be dismantled. Federalism adds a distinctive dimension to Canadian economic history. Unlike most European states, the sub-national, provincial level of government in Canada exercises extensive jurisdictional autonomy and considerable constitutional power over economic activities. For while the federal government came to exercise considerable economic sway after World War II, so too did the provinces within their ample jurisdictions.
Provincial Crown Corporations are as numerous and as prominent as their federal counterparts. Provincial governments operated railroads, telephone systems, electric utilities, pipelines, mines, smelters and paper companies, grain marketing agencies, pension funds and television systems among others. Nationalization and denationalization in a Canadian context therefore need to be considered at both the federal and the provincial levels of government.
This paper will explore the growth and recent retreat of the state in one of the most distinctive institutional configurations and one of the largest components of the public sector in Canada, the provincial hydro-electric power systems. Until recently, in Canada, the word Hydro was synonymous with electricity. In many parts of the country, one spoke of “the hydro bill” or the “hydro going out” rather than the electricity bill or a power outage. This was partly because most of Canada’s electricity was produced from waterpower. But there were other reasons: Hydro also referred to the large, public monopoly operating on a provincial scale that produced and distributed electricity - Ontario Hydro, Hydro-Quebec, BC Hydro, Manitoba Hydro. In Canada, Hydro was both a form of energy and a special kind of organization. I say was synonymous - past tense - because that is changing.
Hydro-electricity represents a diminishing proportion of total electricity production. Nuclear and coal-fired generating stations now serve the base load in large portions of the country. The future seems to belong to green energy, wind, low head hydraulic, gas turbines, fuel cells and a more distributed web rather than mammoth hydro-electric dams and centralized systems. Moreover, in some provinces, deregulation movements have broken up or are breaking up the large monolithic public monopolies to create openings for private competition in generation and distribution. In Ontario, the birthplace of the integrated provincial publicly owned generation, transmission and distribution monopoly, Ontario Hydro no longer exists. Neither trend, the retreat from hydro-electricity and the deregulation of public monopoly, is proceeding uniformly across the country just as in an earlier era, neither did the transition from private to public ownership and from local to regional systems. However, seen from a global perspective, Canada could be said in its own distinctive way to be entering the “denationalizing” phase of electrical utility development.
In Canada the Hydro-era is ending. There is, I believe, an interesting relationship between the technological change on the one hand, and the organization change on the other. But that is not the whole story. It is not a coincidence that where large scale hydro-electric development opportunities exist, the provincial Hydro’s have proved resilient against deregulation. But technological determinism is not sufficient explanation of the persistence of public monopoly any more than it explained the complex origins of the provincial hydros. In several provinces, mixed public-private regulated regimes persisted against the trend. Ideological and structural factors worked within the economics of returns to scale in a regional polity to produce quite different electric histories for the 10 provinces.
The same holds now with deregulation: technology and ideology interact within the varied social and economic structures of the different regions to produce diverse deregulatory outcomes. Origins of the Hydro Paradigm.
In a North American perspective, the major Canadian deviation from the continental norm occurred in the central province of Ontario. Between 1905 and the end of World War I, the first publicly owned, province-wide integrated electrical utility came into existence: the Ontario Hydro-Electric Power Commission. Ontario Hydro - as it came to be called - did not emerge full-blown, but rather evolved in a protracted political struggle that began with a campaign to curb private monopolies and ended with the substitution of a public super-monopoly. Books have been written to explain this striking series of events. My own interpretation of the emergence of Ontario Hydro turns upon four critical factors.
With a simple message - Power at Cost - Adam Beck held the municipal co-operative together, built a populist bi-partisan extra-parliamentary pressure group, used the powers and the credit of the provincial government to over-ride industry opposition and forge an integrated provincial utility. It must be emphasized that this provincial institution was founded upon a vibrant base of what has been termed “civic populism” in Ontario’s towns and cities. Cheap electricity to promote economic growth and social betterment joined public transit, public health, municipal reform and improved public services as crusaders’ goals.
With the hesitant support of the provincial government and the enthusiastic backing of his municipal alliance, Beck built one of the largest hydro-electric generation and distribution systems in the world, famous for its low rates, giant generating stations and technological sophistication. By the mid- 1920’s Ontario stood out as a dramatic public ownership exception on the North American continent: Ontario Hydro was at that time an object of anathema to the industry trade group National Electric Light Association and a beacon of hope to those who dreamed of building regional development authorities atop a public super-power agency like Hydro. For a long time, Ontario Hydro remained an exception within Canada as well. In the other provinces, no similar organization came into being. The desire may have been present, but the structural factors were unique to the Ontario case and could not be readily duplicated elsewhere. In other provinces, either lightly regulated privately owned systems remained the norm as in Quebec and British Columbia or public and private organizations divided the territory.
Several forms of public/private duopoly appeared in the highly varied regional economic geography of Canada. Until World War II Ontario Hydro may have been Canada’s most famous and controversial innovation in the electric utility field, and it certainly exerted tremendous ideological power within Canadian political life, but it remained the exception rather than the rule. Moreover, a good deal of Canadian hydro-electricity was generated in the resource hinterland for heavy power using industries such as pulp and paper, smelting and electrolytic refining.
In 1930, publicly owned electric utilities supplied 27% and private utilities 66% of total output; in 1940, the numbers were 24% and 67% respectively. Rather than provincial monopoly, accommodation between public and private systems under different regulatory and ownership regimes characterized the broader Canadian experience up to World War II. Hydro and Province-Building. The Ontario Hydro model exerted a powerful demonstration effect influence.
In the postwar era, Hydro installed major generating stations along the Ottawa River and, with the construction of the St. Lawrence Seaway, tapped the power potential of the largest river in the region. A network of long distance high voltage transmission lines brought this cheap hydro-electricity to the heavily urbanized southern regions of the province. Standardization around 60 cycle power meant that the entire province operated as one giant system. Trans-border connections linked Ontario Hydro with the emerging north eastern power grid, westward with Manitoba and indirectly with Quebec. Ontario’s publicly owned system, renowned for its technological mastery, organizational efficiency and low power at cost rates was at the height of its influence in the 1950’s and 60’s.
The apparent lessons of Ontario Hydro were not lost on other provinces eager to obtain similar industrial development. The specific reasons and circumstances for public takeover of private electric companies differed from province to province, but the general objective - co-ordinated provincial control of the electrical sector to maximize economic development opportunities within the province, was roughly the same. Thus the two decades following World War II witnessed a series of provincial “nationalizations” of private utilities and the formation of large, integrated provincially owned electrical systems with a mandate to expand. Quebec began the process in 1944 with the provincial takeover of Montreal Light, Heat and Power. Major provincially owned system expansion also occurred in Saskatchewan (1945), Manitoba (1956), New Brunswick and British Columbia (1961). Quebec completed its process in 1963 with the nationalization of the remaining private hydro-electric producers, municipal utilities and rural co-operatives.
Nova Scotia and Newfoundland provincialized their electric companies in the early 1970’s. By 1970, 74% of electric output originated in the public sector and only 10% in the private. The era of the provincial Hydros had arrived.
Some of the new Hydro’s, most notably in Quebec, Manitoba and BC, built their systems not simply to serve local markets but rather upon power export strategies to the US which justified the construction of massive hinterland hydro-electric megaprojects. In this way, the publicly owned hydro-electric industry were designed to act as a regional growth pole.
It is perhaps worth pausing briefly to examine the context of this massive wave of nationalizations if only to provide a background to Canada’s subsequent experience with deregulation. By way of deep context it should be noted that World War II endowed all governments in Canada with both the competence and the taxing power to take on postwar social and economic development responsibilities. Similarly, Keynesian economic policy legitimized state intervention and public investment. Thus it should not be forgotten that a significant ideological shift underlay this expansion of provincial political activities.
What provinces could and should do differed greatly, for example, before World War II and after. This did not happen at the same pace in all provinces: Saskatchewan with a democratic socialist government became an early proponent of statist activity; Quebec and British Columbia, with Union Nationale and Social Credit governments respectively, tended towards small state non-interventionism at least in the 1950’s. In the 1960’s, Quebec most noticeably underwent a “Quiet Revolution” in which provincial statism, particularly in the electrical sector, spearheaded regional economic planning. Even more quietly, the other provinces underwent similar transformations in government mission, personnel and activities.
Looking more closely at the nationalizations of electric utilities per se, a combination of tactical and strategic issues determined outcomes. Political party appears to have mattered little.
Liberal, Conservative, CCF, and Social Credit governments all took over power companies. At the tactical level, provinces resented the fact that their private power companies paid taxes to Ottawa (thus raising electricity prices) whereas publicly owned companies like Ontario Hydro did not.
Thus, corporate taxes in effect until 1966 provided a powerful incentive towards public ownership. In some cases provincial companies operating alongside private companies developed powerful bureaucratic arguments to takeover their competitors. Taxation and this bureaucratic rivalry appear to have played a significant role in the cases of both British Columbia and Quebec. At the strategic level, it could be said that provincial economic planning exceeded the vision of the several smaller private actors. Provincial planners could imagine vast hydro-electric developments which themselves would become engines of economic growth. For a variety of reasons, the existing utilities could either not raise investment at this or justify the risk. Typically, nationalization became a prelude to the undertaking of massive frontier hydro-electric developments: Manicouagan and James Bay in Quebec, for example, and the Nelson River in Manitoba.
In British Columbia, the 1961 takeover of the major private companies allowed the provincial government to preside over the simultaneous development of the Peace River in the north and the Columbia in the southern part of the province. These projects represented a quantum leap in scale which, in turn, required government borrowing capacity.
Mega-projects like this had a significant direct economic impact, of course. But they also permitted a much larger share of local control over decision making and thus local participation in the economic benefits. In the case of Quebec control also meant the opening up of a vast terrain of technical, professional and managerial employment for a bourgeoning universitytrained francophone middle class.
These provincial takeovers followed by rapid mega-project expansion and system reinvestment created giant organizations, some of the biggest in the country. In 1983, for example, Ontario Hydro and Hydro Quebec were ranked 19 th and 20 th respectively by sales, 4 th and 2 nd by net income, and 2 nd and 1 st by assets. By the end of the decade, these rapidly growing companies had moved up the league standings of the largest corporations to 11 th and 14 th largest respectively measured by sales.
By the 1980’, s the provincial Hydros were ranked among the largest economic organizations in the country, certainly among the largest Canadian-owned corporations in an economy heavily dominated by foreign, largely US, investment. Telecommunications, automobile, oil and gas, transportation and some retail organizations were larger, but it could be said that with the growth of the Hydro’s the provinces controlled some of the commanding heights of the Canadian economy. The critical assault on the Canadian Hydros began in the mid 1970’s when they were at the height of their powers. What has been termed the “Fall From Grace” began in Ontario, birthplace of the public ownership movement. There, three broad forces converged to undermine the political foundations supporting public monopoly. In the first instance, Ontario Hydro appeared to lose its mastery of technology and the market, a failure registered most obviously in rapidly rising electricity prices.
Secondly, Hydro, along with other utilities like it, came under withering attack from two different intellectual directions: the economics profession and environmentalists. And lastly, Hydro’s insatiable need for capital to finance growth, coinciding with a major the fiscal crisis of the state in the early 1990’s, led to a political revolution in which Hydro itself became the target. Taken together, Hydro’s own blunders, a compelling intellectual critique of the organization and a political revolt, raised devastating doubts about the validity of the Hydro model in the very province of its birth. Hydro’s troubles began as it started to run out of hydro-electric sites to develop to meet Ontario’s insatiable demand for electricity.
First, in the 1960’s, it built a series of thermal generating stations around the shores of the Lower Great Lakes. In the 1970’s, Ontario Hydro launched a massive nuclear power programme with installations located at Douglas Point, Bruce, Pickering and Darlington using an expensive, capital-intensive CANDU technology. In a little more than a decade the Ontario electric base load shifted from hydro-electric to nuclear generated power. Despite its best efforts, Hydro could not make nuclear power appear as “friendly” as the more familiar hydro-electricity. Secondly, nuclear power was expensive to build, and the inevitable cost overruns associated with a new technology more or less doubled initial estimates. The reactors had to be built during a period of hyper-inflation, which drove up the cost of capital. All of this added a massive burden of government-guaranteed debt.
It also required major electricity rate increases. Then, as all of this nuclear power eventually came on line, falling electricity demand associated with a major economic recession exposed the flaws in the demand model upon which all of this nuclear capacity has been built. Ontario had more expensive nuclear electricity than it could use or sell. Still, the unused mega-watts had to be paid for. Stranded assets weighed down the system. Even in recession, Ontario electricity rates continued to increase, attracting tremendous political criticism as might be expected.
And finally, the reactors didn’t work or Hydro’s engineers could not operate them safely. Cracks in boiler tubes necessitated expensive shut-downs and repairs; concerns about competence and safe operating procedures led to a humiliating operating receivership by foreign nuclear engineers. Ontario passed quickly from a low cost electricity regime to a province with some of the highest electricity rates in the country. Ontario Hydro appeared technologically, organizationally and economically bankrupt.
This loss of mastery played a signifi-more focused group, Energy Probe. Hydro’s coal-fired generating stations were ranked among the leading polluters of air and water in the province. Nuclear technology raised a whole chain of related environmental concerns, from the health and safety of uranium mining, the leaching of mine wastes into groundwater, the safety of the reactors fol-cant role in Hydro’s Fall From Grace, but it was not alone. The shift from hydro-electricity to coal-fired thermal and then nuclear power occurred during a moment of heightened environmental concerns. Ontario Hydro became a prime target for environmentalists, first organized in Pollution Probe, and then a lowing Three Mile Island, design flaws associated with the CANDU technology and the long term storage of radio-active waste. A constant drum beat of withering criticism of the environmental implications of Hydro’s thermal and nuclear expansion programme from Pollution Probe and other similar organizations took its toll.
A spin-off organization, Energy Probe, shifted the attack to failures in Hydro management, in particular weaknesses in demand forecasting, the abandonment of low head hydro-electricity, Hydro’s indifference towards energy conservation, its proclivity for wasteful and expensive mega-projects, and its growth at all costs mentality. Gradually, as its critique intensified, Energy Probe passed from attempting to reform Hydro to advocating its break-up. In some quarters, then, Ontario Hydro had become a pariah organization. The local environmental and policy critique of Hydro was joined by another powerful stream of criticism from the economics profession. During the 1960’s and 70’s, economists in the United States turned their critical attention to the inefficiencies associated with regulated industries. Kahn, George Stigler, the Chicago School and eventually the Law and Economics movement laid down the theoretical basis for the attack on regulation. Airlines, pipelines and telephone companies were the first to feel the effect of this market-oriented intellectual revolution.
In their theoretical exercises, the economists unbundled the integrated electric utility into its separate parts, generation, transmission, distribution and sales, and set about devising ways in which markets might replace centralized command structures. Neo-conservative governments, most notably in Great Britain, Norway and California, led the way in implementing deregulated electricity regimes which involved the break-up of large scale integrated organizations into smaller competitive entities. In the environment of the 1980’s, the “economies of scale” justification for large scale development was reversed. The dis-economies of large-scale projects inspired a technological revolution that made smaller-scale, distributed hydraulic, thermal and co-generation projects economical, thus opening up the market to a larger number of potential power producers.
This fundamental economic transformation removed one of the most important intellectual props beneath centralized monopoly. As Ontario’s difficulties with its publicly owned mega-utility mounted, politicians, customers and taxpayers became aware of a major policy shift-under way south of the border in which integrated monopolies in more than 30 states were being replaced by various types of competitive market structures. There appeared to be sound economic arguments for doing away with institutions like Hydro.
As might be expected, money brought the issue to a head. Repeated rate hikes created tremendous political pressure for change. Hydro’s mounting debt load strained the provincial credit.
Moreover, provincial deficits in the early 1990’s added an unprecedented burden of debt on the operating account to the equation. Ontario, in company with many other national, state and local governments around the world, entered a period of fiscal crisis in the 1990’s. In a deep recession, as the provincial government chose deficits over spending cuts, Ontario became the largest non-sovereign borrower in the world. If Ontario Hydro hung on the verge of bankruptcy, so, too, did the province. By the early 1990’s, Ontario Hydro had lost its reputation for supreme competence and forfeited much of its political legitimacy by its failure to manage nuclear technology effectively.
Moreover, while Hydro had been deeply wounded by environmentalists and policy critics, the intellectual assault from deregulatory economics delivered fatal blows to the theoretical underpinnings of centralized monopoly. Consumers were in revolt over steeply rising electricity prices. The staggering debt from hydro mega-projects compounded by the provincial government’s own overspending meant not only a heavily mortgaged future, but also debt service crowded out other needed current expenditures. Although the assault on the Hydro model gathered force in Ontario, especially in the early 1990s, Ontario would not be the first Canadian province to embark upon electricity deregulation. As with the previous regulatory eras, during this deregulatory phase, political ideology, social institutions and industrial structure interacted in different ways in different provinces to either reinforce the movement or blunt it. Even though the pressures for change were greatest in Ontario in the early 1990’s, a social democratic/labour party (the NDP) with strong ties to organized labour and a commitment to public ownership governed the province.
The ideological predisposition of the government bought time for Hydro. Faced with an unprecedented fiscal crisis and locked in a tumultuous battle with the unions over its program to curb public spending, the NDP government chose to try to reform Hydro rather than restructure it.
Instead, electricity deregulation made its first appearance and deepest impact in the west. The advent of a radical neo-conservative provincial government intent upon eliminating public debt, reducing the size of government and lowering taxes also led to a restructuring of the electric utility industry in Alberta. Ralph Klein’s Conservative government in Alberta was briefly a foster child for the taxpayer-led neo-conservative revolution sweeping through North American politics in the 1990’s. Electricity deregulation was entirely consistent with the fiscal conservative agenda and, in Alberta, was undoubtedly ideologically driven.
But there were other structural factors - social and sectoral - which made Alberta more conducive to change than other provinces. In the first instance, Alberta’s oil and gas economy implicated it more intimately with US markets and business attitudes.
In crude terms, it could be said that Alberta is the more American of the Canadian provinces. Cattlemen, grain farmers and oilmen operated in global markets; why shouldn’t everyone else, especially when resulting prices were locally attractive? Market models were much more at home in Alberta than elsewhere. With respect to electricity specifically, it will be recalled that Alberta was atypical of the more dominant Hydro model.
There was no provincially-owned integrated electric monopoly in Alberta, no Alberta Hydro. Rather, as has already been noted, Alberta had a mixed public/private regulated regime, closely resembling that of a US state. Several large private generating and transmission companies sold electricity wholesale to quasi-competitor public distribution utilities subject to rate regulation by a provincial utilities board.
The provincial government played a small role in rural electrification. Thus, the idea of replacing regulation with markets did not have as much institutional opposition to overcome in Alberta. Neither the government nor the electorate had an emotional investment in public monopoly. No large bureaucracy intent upon self-preservation stood in the way of change.
Something like a market for electricity already existed. The Alberta government had more room to manoeuvre; it could approach the question of electricity supply with a greater degree of detachment than most other Canadian provincial governments.
Thus, notwithstanding the fact that creating electricity markets resonated happily within a neo-conservative political philosophy, and that business and public opinion in Alberta was familiar with and favourably disposed towards US experiments in this direction, the pre-existing “distributed” structure of the mixed enterprise electric utility industry in Alberta not only created fewer barriers to change, but it also positively encouraged it. Alberta was a few steps closer to being there than monopoly regimes. The utilities, even the public ones, were imbued with a free enterprise, market-oriented ethic.
Thus, in the electricity sector Alberta was the innovator. In 1998 the Alberta government created a framework for restructuring the electric industry.
Legislation provided that both public and private utilities would be unbundled, that a power pool would be created, power auctions and future markets established, and competitive sales arrangements and consumer choice would be facilitated. In Alberta electricity deregulation did not emerge from the collapse of the regulatory regime or a crisis, but rather as part of a much broader philosophical change in the relationship between government, business and citizens in a setting characterized by multi-player quasi-markets rather than public monopoly. An Ontario general election in 1995 somewhat unexpectedly brought a Klein-like neo-conservative government to power with a similar tax cutting, spending reduction, deficit elimination and government downsizing agenda. The new government of Mike Harris also inherited the Ontario Hydro debacle. Its ideological predisposition towards market solutions inscribed in its campaign bible, The Common Sense Revolution, ushered in an era of revolutionary change at Hydro as well. Hydro had been preparing itself for change.
The NDP interlude had bought time for Hydro but during that time, the organization to a very large extent had capitulated to its critics. Hydro’s problems were seen not just mistakes, but rather endemic to its structure. Maurice Strong, the charismatic CEO of Hydro appointed by the NDP regime, began the process of rethinking the Hydro model from within. According to Premier Bob Rae’s memoirs, he appointed Strong with a mandate to downsize Hydro, level off rising rates, and bring the construction programme under control. Rae, allowed as how Strong might study structural change, but with a fairly full agenda of conflict already on his plate, insisted that fundamental reform would have to wait until after the 1995 election. Thus, even under the NDP, Hydro tentatively began to contemplate various privatization scenarios. As part of its own internal strategic planning, Hydro contracted with the University of Toronto Law Faculty to evaluate the several models of deregulation and potential associated issues.
Anticipating the future of a more “commercialized” organization, Strong split Hydro into three separate operating units, generation, transmission and engineering consulting. The advent of a neo-conservative government added considerable external encouragement to a process that had already acquired a good deal of internal momentum. A Blue Ribbon business panel studied the situation in 1996 and quickly endorsed the break-up of Hydro and the creation of competitive electricity markets along Alberta lines. In 1998, the government passed the Energy Competition Act. By this legislation, Ontario Hydro was permanently split into three separate companies: Ontario Power Generation, Hydro One and a services company. Moreover, to create a competitive environment the generation company had to dispose of many of its assets. At the distribution end, the municipalities were required to surrender their monopoly over local distribution, opening the way for competition in the retail sector.
The first phases of this programme have been completed; Ontario Power Generation has begun to divest itself of some of its assets and new entrants have entered the market. The privatization of Hydro One, the transmission company, has been announced but has been held up in the courts. The competitive retail market has been delayed but is promised for this coming year. Thus, in the year 2002, electricity deregulation is most advanced in the province in which Hydro was born, Ontario, and in Alberta, the province where the Hydro model never gained a foothold. In one province, it emerged from a perceived collapse of the system; in the other from a broader ideological drive to reduce state intervention in economic life and achieve the supposedly greater efficiencies associated with market regulation. In neither place has the process run its course, nor has the proposed plan been fully implemented. And in some places, considerable resistance to radical privatization has begun to form.
Nevertheless, Ontario and Alberta represent the two driving forces behind deregulation in Canada: a loss of legitimacy and neo-conservative ideology. Post-Hydro Canada. Alberta is to deregulation what Ontario was to the Hydro paradigm.
It is the home of a potentially revolutionary idea. With industrial restructuring and the creation of energy markets at the wholesale and retail levels, it has instituted a fundamental challenge to the Hydro model. But it did so, as we have already noted, without having to do away with its own Hydro. The question is, to what extent will Alberta’s deregulatory revolution spread to other jurisdictions?
Or will it remain bottled up within one jurisdiction, a creature of the unique circumstances that created it? If the past is any guide, one thing we should expect is considerable variation across the country. Uniformity does not appear to be a natural condition in Canadian regulatory history. This will likely be true with deregulation as well. It took half a century for the Ontario Hydro model to be fully diffused and for other provinces to adopt it in their own ways and for their own reasons. For that reason alone, for the short term or even for the intermediate term, different regimes are likely to co-exist.
The rest of Canada is not the same as Alberta. Political cultures and industrial structures differ. Thus, I would venture a guess that the implementation of deregulation will be lumpy; it will “take” in some provinces but not others.
The two provinces who have advanced furthest towards deregulated electricity markets have ventured down similar (but not identical) roads but for quite different reasons. In Ontario, it was much more a response to a fiscal and system crisis than in Alberta. Secondly, we should expect the Hydro model to be more resilient in some provinces than others. I must confess I am somewhat surprised that Ontario Hydro got broken up without much resistance either from within or without. At one time Hydro as an organization possessed tremendous elan and it had a powerful extra-parliamentary political base in the province.
Obviously, at some point in the late 20 th century it lost both its social base and its self-confidence. In other provinces, however, I anticipate that Hydro’s political foundations will remain sound. In Quebec, Hydro is so closely identified with the nationalist project of independence it seems unassailable for the short term. The prolonged blackout following the ice storm in 1998 momentarily shook public confidence in the technological competence of the organization. But Hydro-Quebec is such a powerful symbol of modern Quebec, it is hard to imagine it being dismembered, broken up into pieces, sold to the highest bidder and having extra-provincial non-francophone actors gain entry to the electricity business.
Nova Scotia demonstrates this point in reverse. It was one of the last provinces to build an integrated utility; it could be privatized after a couple of decades without much anguish because it did not deliver either lower rates or extraordinary economic development. There was no passion in its formation - it was more bureaucratic and belated than anything else- thus there were few tears shed when it got sold. In 1992, in a simple act of privatisation aimed at reducing public indebtedness, the government simply sold the utility to provincial investors.
Neighbouring New Brunswick contemplated a similar course of action, only to back off when government and consumers determined that New Brunswick Hydro continued to serve joint objectives. There are other reasons, besides ideology, why some Hydro’s may prove more durable than others.
It may be that the broader social purposes of Hydro, providing low cost power, rural electrification, or even local jobs, may be given a higher priority than economic efficiency more narrowly defined. New Brunswick Hydro may be an example in this respect. Gay Georgia Phone Chat here.
As long as the Hydro model continues to deliver cheap power, demonstrably cheaper than that available in other places, it may well survive. Some Hydro’s have been able to exploit large scale hydro-electric opportunities - British Columbia and Manitoba come to mind.
They were able to build much larger and more efficient projects than their local markets might otherwise have allowed on the basis of massive exports of power to the US market. These provinces therefore enjoy abundant low cost power and are likely to do so for the foreseeable future as domestic consumption gradually replaces exports of surplus electricity. (Quebec has followed a similar mega-project export oriented strategy which, incidentally, has also delivered extremely low cost domestic electricity.) There has not been much interest to-date in either deregulation or divestiture in either British Columbia or Manitoba. Both provinces, it must be added, have strong social-democratic political constituencies - until recently, the NDP formed the government in British Columbia and it still does in Manitoba. It will be remembered that Ontario Hydro began to lose its legitimacy when it lost the ability to deliver on the promise of cheap power.
Finally, to displace the hydro model, deregulation will have to prove itself in the field by delivering low cost electricity. Perhaps it would be more accurate to say it must deliver price stability and energy security.
Recent events in California, whatever their origin, hasve at the very least shaken public confidence. Rolling blackouts, brown-outs and then soaring electricity rates are not good advertisements for deregulation. It will take a very long string of good news for the public to forget the shock. Nor has the road to deregulation and open markets proven to be smooth, even in Alberta.
At the municipal level, ratepayers and politicians have been reluctant to sell off their public utilities as required. Indeed, recently, there has been something of a backlash in Alberta against electricity deregulation.
Both Epcor, the Edmonton owned utility, and Enmax, owned by the city of Calgary, have remained publicly owned after major civic protests. Citizens appear to be reluctant to surrender what they perceive to be an important measure of control over markets as represented by these organizations as long as there is some market volatility. As gas prices spiked at about the same time as problems began to develop in both California and Alberta, security of supply and price stability assumed much greater importance. The pace of deregulation slowed noticeably in Ontario as a result of the California debacle.
Moreover the success of deregulation depends in part upon the province of Ontario not charging market rents for its water powers. If markets imply volatility and uncertainty, the Hydro model may look more attractive. People may be prepared to trade off a small loss of efficiency for stability and security. Canada enters to post-Hydro era with the same tentative, regionally varied temper in which it embarked upon the Hydro experiment. In a global perspective, and especially from a European vantage point, the Canadian experience may appear quite familiar, unusual perhaps, only because it took such a long time for the model to become diffused across the country. From a continental North American perspective, however, Canada marched out of step with the dominant US state-regulated investor-owned pattern as the Hydro model became generalized in the postwar era.
The retreat from Hydro has begun. How far it will proceed is a matter for current debate. The California debacle, and to a certain extent the problems encountered implementing electricity markets in Alberta, have greatly reduced the appeal of radical deregulation. I predict the market model and the hydro model will co-exist in Canada for some time to come and that deregulated markets will have some difficulty delivering secure, low-cost, stable-priced electricity as the most efficient, provincially owned, scale economy hydro-electric utilities. Presently in Canada Hydro accounts for 61.2% of electricity generation, coal 18.3%, Nuclear 12.4%, natural gas 4.4%, oil 2.4%, wood and pulp 1.1%, other 0.3% and wind 0.1%. There is considerable deviation from the national mean at the provincial level. Manitoba, Quebec and Newfoundland, for example, obtain 98.1%, 96.1% and 97.1% of their electricity from hydro-electric station respectively.
Alberta, Saskatchewan and Nova Scotia depend upon coal for 78.6%, 68.7% and 71.5% of their electricity respectively. In Ontario, the largest percentage of electricity, 41.7% comes from nuclear power.
See National Post Business, October, 2001, pp. 96-7 using current National Energy Board data. English This paper surveys the process of nationalization and some recent steps towards denationalization in a distinctive Canadian institutional setting, the provincial hydro-electric power utilities. The richest, most industrialized central province, Ontario, established a dynamic publicly owned electric generation and distribution system before World War I. Most other provinces developed variations of the regulatory model to govern private monopolies until the post World War II period when widespread nationalization at the provincial level created a near universal pattern of state owned electric companies. Recently, the process of dismantling state monopolies in this sector has begun in two provinces, one where public ownership was weakest, and the other where the concept of “provincial hydro” was born.