[BETA] Fortnightly

Canadian markets beckon U.S. utilities, and vice versa, demanding greater access to transmission lines to bridge the gap.

When I took the job of president of Niagara Mohawk Power Corp., way up North, near the Canadian border, I shared the news with a close friend. I told him how excited I was to be joining an innovative team that was out in front, breaking new ground in the competitive arenas rapidly evolving in the electric power industry.

He looked me in the eye and asked, "Do you know what people who are comfortable in the dark do when they see light at the end of the tunnel?"

"No," I replied.

"Build more tunnel," he said.

We can see the light at the end of the tunnel, of course, from both the U.S. and from Canada. That tunnel, a metaphor for the transmission bottlenecks that block access to energy markets, is a natural result of regulation in the electric industry. However, powerful market forces are rapidly changing that regulatory framework. Soon history may forget why it ever existed.

Some suggest that these market changes stem from public policy and regulatory initiatives. Indeed, it is true that sweeping regulatory changes are upon us. Arguably, these changes appear to affect the production, pricing and transmission of electricity.

Nevertheless, in my view, these changes occur simply as manifestations of the force of new technologies. In fact, as we restructure the electric industry, we must take care to craft policies that respond to emerging technology (em and not to tunnel-building instincts.

The view from Syracuse is based on prudent economics. The Canadian and U.S. economies need a well-conceived, straightforward, bilateral transmission policy, rooted in the principle of open access, that will match the shifts in technology already transforming the electric industry.

Shifting Technology, Changing Regulations

The current regulatory system, which was developed to respond to the issues of the industry 15 to 20 years ago, continues to make headlines today. The severe effects of the Public Utility Regulatory Policies Act and the New York "6-cent law" for independent power producers have changed completely the corporation I encountered just two years ago when I came to Niagara Mohawk. Outmoded regulatory policies have kept Ontario Hydro from competing for electricity sales in the U.S. because of the difficult problems of access and pricing associated with the transmission network in Ontario.

However, in spite of these barriers, I believe that relief will come from industry restructuring, which marks the bow wave of technological changes now occurring both in North America and around the world.

For decades, the economies of scale associated with central-station generation and long-distance transmission have dominated the market and discouraged innovation in the fundamental structure of supply, delivery and control of electricity. This dominance will fade, however, as market forces already in place drive changes at an accelerating pace. Environmental and aesthetic concerns will continue steadily to increase the cost of "traditional" grid systems and large central-station supply. Improvements in end-use efficiency will reduce the crossover point at which grid systems are no longer the most economic