[BETA] Fortnightly

The electric power industry is mutating all over the globe. We can analyze, study, and compare, yet no single and universal model has emerged in any country. Each has developed a solution of its own.

The restructuring of the U.S. electric power industry has provoked a strong response here in Canada, but few seem to care that a U.S. solution could prove ill-advised on this side of the border. The structures of electric industries are fundamentally different in both countries. Prudence is called for.

Unfocused Restructuring

Some segments of the Canadian electricity industry are experiencing a major shift in their production strategies. Traditional transmission and distribution policies are also being questioned as some market players seek new alternatives for electricity supply.

In Canada, the policy debate over restructuring is complicated by the dominance of a small number of publicly owned monopolies. Many people (em legislators, regulators, and existing or potential producers (em regard monopolies as a perverse element in the industry, a barrier to good trading practices. Since the monopolies are publicly owned, talk of privatization inevitably surfaces. But the existence of publicly owned monopolies does not prove that the Canadian industry is not competitive or cannot fully participate in a so-called competitive market. More competition could mean freer markets, rather than a proliferation of hundreds of new producers.

Conceptually, neither the destruction of existing monopolies or privatization constitute an appropriate response to restructuring pressures. People are confusing deregulation with restructuring and privatization. Yet there is no such thing as deregulation. In the United States, the Public Utility Regulatory Policies Act and the Energy Policy Act serve as examples not of deregulation but of more responsive rules to answer industry and customer concerns. My definition of deregulation in the Canadian context would include the elimination of unjustified duplicative regulations between various levels of government. It would also include the elimination of outdated regulations that cannot be justified in a North American free-trade environment (em such as energy export regulations. Unfocused and duplicative regulations are probably the most effective deterrent to entry into the electricity industry.

Rather than destroy existing structures, deregulation need only allow new players to enter and operate in the market. If they are cost-effective, these new players will contribute positively to the industry. Restructuring and privatization will follow as existing firms are forced to adapt. In my view, these three elements form a logical sequence. Deregulation of electricity markets is the necessary condition for market restructuring in Canada because it would automatically provide a propitious environment for restructuring and privatization. Other trade impediments are unlikely to be lifted without it.

Finally, what happens with provincially owned utilities is for every province to decide on its own. There will never be a single Canadian solution to this question; therefore, debating the issue in the context of restructuring is irrelevant. But if we must, the discussion needs to go beyond the theoretical monopoly rhetoric we find in any elementary economics course. The issue is complex and deserves more attention.

The Spirit of Privatization

The spirit of privatization has come to North