U.S. demand, privatization, pushing Canada toward continental electricity market

July 5, 2002

(OTTAWA) The desperate need for electricity in the U.S. is a powerful force behind the privatization of electricity in Canada, according to a new study released today.

Written by economist Marjorie Griffin Cohen for the Canadian Centre for Policy Alternatives, the study -- "From Public Good to Private Exploitation" -- says that the U.S. drive for a continental electricity market is in danger of succeeding because of the lucrative revenues that are possible as increasing proportions of Canadian electricity goes to the U.S.

But Cohen warns that while provincial incomes from exports will undoubtedly rise, the price for Canadians will be enormous. The outcome of complete deregulation, should it occur, will hurt Canadian consumers, the economy, and the environment.

So far, only one of Canada's five electricity-exporting provinces, Ontario, has a plan for complete deregulation and open market access. The others--New Brunswick, Quebec, Manitoba and B.C.--still rely primarily on publicly-owned institutions for the generation, transmission, and distribution of electricity. But pro-deregulation pressure is intensifying for them, as well, exposing Canada to enormous hazards.

Within Canada the push for electricity deregulation is coming mainly from private power marketers and suppliers who want access to government-controlled markets within Canada and the ability to increase private production for exports. "The electrical industry obviously has the potential to provide the private sector with huge profits," the study notes. Total revenues from electricity are larger than those from oil and gas combined - something that has not escaped the notice of the private sector.

Exporting electricity to the U.S. brings Canada's regulated market into conflict with the deregulated system in the U.S. Having greater access to U.S. markets would require allowing U.S. private companies access to Canada's electricity system, which in turn would require the deregulation of our system.

Cohen points out that 'deregulation' refers to a shift to market prices and reliance on the market for future supply. Prices in Canada now reflect the cost of production and future supply is planned by public corporations, providing significant economic advantages for Canadian industry and households. A continental electricity market would nullify these advantages and would bring about considerable insecurity and instability to the industry. This will create enormous difficulties for both households and industries.

According to Cohen, the most obvious disadvantage of a continental electricity market is that prices in Canada will be raised to prevailing U.S. levels. "As private firms provide increasing levels of electricity, there will be no way to prevent them from exporting power to markets where the prices are highest. With the Canadian dollar so low, the upward harmonization of prices on a continental basis will cause hardship for many Canadians, particularly those in rural and hard-to-service areas, or with low incomes."

She adds that electricity price increases will also raise production costs for Canadian industries, adversely affecting their ability to remain competitive, and ultimately having an impact on production and employment in Canada.

The study also warns that environmental protection will be fully exposed to the whims of the market. "Fuel sources used will be based on market decisions, not on environmental considerations. Conservation measures that are rational for a public utility will be abandoned by private producers who have only one incentive: to sell more electricity for the highest prices."

Cohen's study also warns of the dangers to the public provision of power as a result of the current negotiations taking place with the WTO's General Agreement on Trade in Services (GATS). The intent of GATS is to increasingly deregulate all markets, including electricity, as a prelude to opening them up to privatization. The main danger is that even small steps toward deregulation create an opening that allows the international trade rules to further the deregulatory process. The best protection is to keep electricity firmly in the public sector.

"Some provinces are proceeding with deregulation as though it and privatization are two separate and distinct actions," Cohen says. "But deregulation is not a half-way measure; it is the 'thick-edge-of-the-wedge' for privatization. Deregulation means breaking up integrated public monopolies and encouraging private participation in the market. When this is done, the major efficiencies that an integrated public utility can realize are lost. Under the GATS, any incremental movement toward deregulation at the provincial level will place Canada's electrical utilities on an escalating path toward complete deregulation."

The study reminds us that electricity is not a commodity like any other. "It is an industry that provides for human survival in a densely populated and complex world. Electricity is the basic infrastructure for every industry and virtually every job in the country. The significance of who controls its generation and supply cannot be overstated."