Chapter XII Between Old “Provincial Hydros” and Neoliberal Regional Energy Regimes: Electricity Energy Policy Studies in Canada – Alex Netherton
Regulatory State / Urban Modernization & Resource Industrialization
Canada’s formative hydro paradigm was geared towards producing energy for industry and urban modernization Indeed, according to John Dales, H. V. Nelles and Christopher Armstrong, the leading historians in this field, the “story” surrounding the formative electrical energy policy regimes was the struggle over the control over hydro, and its use to seed industrialization, particularly from it’s initial discovery in the late 19th century through to the second world war. (Armstrong
Thinking of hydro, or water power resources, as a staple is a little like assuming that a whale is a big fish. Great similarities, but also significant differences. Hydro, thought of as “water power” is a resource that has been important for Canada’s industrial development, and hydro mega-projects themselves also have many “staples like” features. Once water power was used to power grist mills and motor machinery. But since the late nineteenth century the term hydro usually referred to the use of water power as a fuel to generate electricity, one of the most important modern forms of energy. Neither water power nor hydroelectricity is produced primarily for export markets, though energy can be a significant part of the value of other resources and manufactured items heading for export. For these reasons, hydro has been thought of as a “quasi staple.” (Dales
Hydroelectric systems also need economic and financial balancing, and are prone to the classic staples problem of excess capacity. Simply put, the high costs of hydro mega-projects and infrastructure means that utilities experience inordinately high costs while markets are still low—and within time, markets grow to utilize the full potential of a dam. Electricity producers, therefore, are often at the forefront of making economic strategies that cultivate energy consumption. Hence the ideas of rents and linkages integral to staples analysis are also extraordinarily important to hydro.
Hydroelectric technology is quite efficient, though it necessitates significant change and management of the sociopshere. Dams, reservoirs, river diversions, control works and the mitigative engineering that goes with them are all are one aspect of hydroelectricity’s ecological footprint. Another aspect is the complex network of transmission and distribution lines connecting production to point of use. Electricity networks are not like a train or pipeline in which a particular resource is shipped from point A to point B. Rather a network or grid is actually a balancing act in which managers balance the energy at one point with the loss of energy at other points. Since electricity can not be stored (except in the form of water reservoirs or alternative fuels), balancing is literally done at the speed of light. Grids need constant management to meet daily and seasonal peaks and troughs of demand.
Finally, when we think of hydro a technology, we are really thinking about technologies that produce electrical energy. Electricity itself is one of the most important technologies of the twentieth and twenty-first century, important not only to economic development, but also, since nearly everyone is connected to the grid, social development.
Hydro was the key to the leading edge technology that would transform productive and domestic political economies. Some of the greatest students of electrification, such as Thomas Hughes, for example, define electrical utilities as technological networks or later as systems (Hughes, a concept adopted by Armstrong and Nelles and applied to Canada. (Armstrong The diffusion of these networks extended the control of the networks. (Jacobson Hughes recognized that networks vary across time and space, each assemblage had its own”culture of power”–a concept that was also used by Nelles and Armstrong to distinguish between US and Canadian “cultures of power.” In this analysis, we will use the term “regime” to refer to the ensemble of institutions, actors and values that comprise a particular network.
The strategic importance of the technology, the resource requirements, the capital intensity of hydro infrastructure and the long-term nature of the investment risks made the area a natural monopoly. Initially, impetus for development came from private capital, at first US utility and industrial interests, then former Canadian railway entrepreneurs and financiers. Often power utilities emerged from their role in proving electricity for ‘electric railways’ or urban transportation monopolies (Armstrong. The windfall rents available to those who could control or first use the new technology made its diffusion the centre of public policy.
Growing urban populism contested private monopoly by means of public power movements that pushed for municipal public ownership–or power at cost, while interests more favourable to private capital promoted a more conservative “regulatory” alternative. (Armstrong The contestation between these policy networks produces a variety of regulatory regimes and mixed ownership patterns emerged. A series of private monopolies dominated Québec and British Columbia, while Ontario developed a hybrid monopoly commission that developed power and regulated a provincial transmission grid that supplied the energy to municipal distribution utilities. In other provinces there was a mixture of private and public utility networks. Armstrong and Nelles attribute these differences to such factors as relative abundance or scarcity of hydro resources, the fiscal and financial strength of the provincial governments, the characteristics of the regional political economy, ideologies and cohesion of central agents such as state elites, business and financial groups, and public power movements. They also indicate that Canadian political culture was more receptive to submitting the privileges of private capital to the public good. Public ownership in the electricity sector really acted as a public agent to organize markets and define paradigmatic state-society relations.
The first electricity networks were defined by urban regions, and as hydro resources were developed these networks were also involved in regional industrialization. Additionally, industrial producers emerged that developed hydro resources for local mines, pulp and paper and later, aluminum smelting. The operating assumption was regional network self reliance–meaning that each network stood on its own or that the relationships between them were ad hoc rather than systemic. Industrial producers were barred from selling power as public utilities.
The ecological footprint of early hydro regimes was concentrated on rivers (and their associated drainage systems) that were close to the urban populations. Some of these rivers, such as the Niagara, Winnipeg and Ottawa Rivers, were part of international and interprovincial boundaries and drainage basins. Remote hydro resources could not be exploited because long distance transmission technologies were relatively inefficient. Initially hydro investments were ad hoc, but with time the planning and conservation regimes played a larger role in determining the most rational and efficient use of resources, and thus capital. Provincial governments played a key role in shaping these conservation strategies through a licencing procedure. While the rights to hydro resources were first sold as private property, over time provincial governments claimed ownership of these resources and then licenced their use in return for a form of royalty. Investment was sequenced through the timing and terms of licences.
Some deeply set path dependencies were established during the formative period. First, early electrical energy regimes were marked by dominance of partnerships between innovative engineers and financiers. (Hughes Hydroelectricity technology was developed in the United States where the electricity capital goods industry was more highly developed and where most North American technological research and innovation occurred. Patterns of financing for the Canadian and US industry differed. In the United States a more powerful and highly developed utility financial market led towards the development electricity pyramids or holding companies, such as the Samuel Insull empire, that were both tied to technological innovation and the control of large urban-regional networks. In Canada, the promoter-entrepreneurs connecting local resource interests with metropolitan capital in Montreal, Toronto, London and New York had their role, but the hydro financial sector was simply much smaller, more regionally based and less cohesive. Only one major financial pyramid, Nesbitt, Thomson Limited, a forerunner to today’s Power Corporation, emerged before the depression. Moreover, the state played a larger role in hydro financing, maintaining the power to bend the interests of hydro capital to public policy.
Second, a profound asymmetry developed around the exigencies of international and interprovincial relations, reflecting the importance of early ‘defensive expansionism’ and the unsettled and ambiguous nature of early Canadian federalism. The public power movement was concerned that if firm hydroelectricity was exported, it could not be eventually reclaimed for domestic markets. Accordingly, Ottawa responded by stopping long-term export commitments of hydroelectricity.
Canada and the United States established an enduring process for binational resource conservation and dispute resolution. The 1909 Canada-United States Boundary Waters Treaty established the International Joint Commission (IJC), itself a framework to provide equal rights in boundary water resources and a consensual binational process for settling disputes. The IJC then provided the framework to establish conservation boards to ensure the equitable sharing of hydro resources for Niagara Falls (the lynchpin of Ontario early Ontario energy policy, the Lake of the Woods, Rainy and Winnipeg River System (central to the Manitoba energy strategy). In time the IJC process spread to all boundary waters.
Ottawa did not have the same success in shaping interprovincial conservation regimes or a national electricity policy. Christopher Armstrong details how during this whole period the constitutional jurisdiction of hydro was ambiguous, leaving the determination of federal and provincial roles more to the play of politics than the constitution. Though provinces generally claimed ownership of resources and crown lands, hydro resources were not enumerated in the constitutional division of powers. Ottawa had clear responsibilities for fisheries and navigation, even in inland waters, and also powers to regulate international and interprovincial trade. But the waning years of the National Policy were also a nadir of federal power. (Armstrong Indeed, when Prime Minister Mackenzie King’s Liberal government attempted to outline a federal role in hydro (aside from the then federal control over resources in the prairie provinces), the majority of his MPs from both Québec and Ontario, as well as their respective provincial governments, opposed the initiative. Even a constitutional reference did not clarify the issues nor set out a clear federal-provincial division of tasks in the field. As a result, Ottawa did not have the political support to shape the development of the policy regime. It did not establish interprovincial water conservation agreements or set terms for interprovincial trade in electricity. Nor could it bring the Ontario and Quebec together with the US Government for agreement on how to develop the hydro capacity of the Saint Lawrence River. Protecting hydro for the domestic market really meant protecting it for provincial purposes. Hydro regimes were effectively centred in provincial capitals. Even in the prairie provinces, hydro planning and licencing would need the consent of the junior provinces. Interprovincial trade policy became a matter of voluntary agreements or contracts between provinces.
Provincial hydro regimes, did, however, have substantial economic impact. Electricity networks spread throughout urban Canada and a “cheap power policy” was used to fuel industrialization, social and technological modernization. Peter Wylie, for example, estimates that the technological adaptation and restructuring of Canadian manufacturing during the 1900-1929 period led to an over five fold increase in production and to significant decreases (up to 15 percent ) in the manufacturing costs. (Wylie Certainly, the 1929-39 depression and subsequent world war acted as “perturbations” that substantially affected the development of the formative energy paradigm. The only complete failure of a hydro utility during the period, for example, occurred in Manitoba when the collapse of key industrial markets forced Winnipeg Electric, the Nesbitt-Thomson affiliate and the province’s major private utility, into “financial reorganization”. Yet the regime itself had several anomalies.
Though John Dales had chronicled the efforts of the five regional Québec monopolies to foster industrialization, his study of the Québec hydro sector came to the astounding conclusion that the unfettered monopolies had stifled the economic development of the province! (Dales At issue were the high rates that weakly regulated monopolies charged urban domestic consumers, as opposed to the cheap commercial and industrial rates offered business, a defacto tax that Dales considered a drag on the economy. The regulatory issue was important because although Canadian political culture was more accepting of regulation than that of the United States, the actual form of regulation was generally not particularly effective. (Currie Dales was also critical of the complacency of the Montréal monopoly’s with respect to Saint Lawrence hydro resources, energy Dales thought would have substantially aided in the development of the region. Research suggests similar problems on the Prairies where the lack of surplus power in Manitoba during the war hindered war-related industrialization and economic development. (Netherton Indeed, during the war all provinces would be under pressure to renew investment in electrical energy infrastructure.
Lastly, these formative regimes institutionalised social inequality, particularly between rural and urban society. The latter had the population density that made their inclusion within electrical networks economially viable for public and private utilities. But the low density of rural populations and especially the lack of agricultural income on the prairies during 1930s made rural electrification conventionally impossible.
After facing depression and war effort exigencies, when public leadership thought of postwar energy needs, they began to see the role of the state in more systematic terms than previously. The new overall policy objective was not the pursuit of and control over electrification, but to ensure that sufficient investment could be made to meet postwar needs, and to ensure equity among the various fragmented electrical networks. The emerging energy policy paradigm conformed to Keynesian-welfare state principles, or the Canadian technocratic variety (Campbell in that it necessitated a massive state assisted investment program for electrical energy and, at the same time, the systematic continuation of promotional rates, the “cheap power”policy that subsidized and facilitated the mass production and consumption of electrical goods, a system of production and economic regulation often term ‘Fordism’. So began the era of ‘mega-projects’ and ‘provincial hydros’. As we will see below, critics would eventually draw lines between these two points, arguing that subsidizing energy simply fed the need for more.
Thought the conceptual integration of staples and energy policy with the construction of Canada’s mass production and mass consumption economy appears to be a ‘common sense’ idea, it is clearly not the norm. In the 1970s ‘New Canadian Political Economy’ staples analysis would change to reflect a nationalist-continentalist debate. NeoInnisians blended dependency theory to the staples approach to form a somewhat deterministic “dependent industrialization” thesis. Within this perspective attention focuses on the role of foreign direct investment (primarily American) in manufacturing and resource industries, as well as the increasing importance of continental markets for Canadian resources. In different forms the essential argument is that an alliance between Canadian finance and multinational firms blocked an indigenous national path of development. Instead Canadian industrialization became dependent upon US resource and manufacturing capital. Also, in its original formation, analyses highlighted the difference between the protected national market for manufacturers and the open international market for resources. The tariff wall acted as an incentive for foreign branch plant industrialization, resulting in an inefficient truncated miniature replica effect, an industrial structure that was inefficient, turned on the domestic market, and dependent upon foreign technology. (Clark-Jones Karl Froshauer’s historical analysis of hydro development strategies of five provinces conforms to this general nationalist critique of postwar development.
Not all nationalists accepted the dependent industrialization thesis or the proposition that the Canadian business class was necessarily comprador or subordinate to continental interests. (Niosi John Richards, for example, outlined a “new staples” argument, with antecedents from Mackintosh. Richards rejects the concept of “dependent industrialization” on the grounds that the concept assumes that an alternative autonomous national path of development existed, a reality he questions, given the regional articulation and international position of the Canadian economy. What Richards forcefully argues, however, is that the provincial state can manage resources to generate and redistribute rents or to foster a forward linked economic development strategy. (Richards
While the staples tradition within the New Political Economy highlighted the unique economic structures and international position of Canada, comparative literature on Fordism highlighted the importance of internal political struggles and labour process in forming Fordism as a system of production and regime of regulation. Jane Jenson brought the two together by developing the concept of “permeable Fordism” to denote the ways in which Fordism was shaped by the different matrix of social and political forces in the Canadian political economy, many of the same variables identified by the NeoInnisians. Important to Jenson’s approach to Fordism is that it’s articulation was shaped by domestic politics, what she terms the “societal paradigm.” (Jenson
Focussing on Canada’s ‘permeable Fordism’ has important consequences for the analysis of the postwar energy strategy. Instead of the NeoInnisian focus on the production of hydro as a staple for continental export or to Canada’s dependent industrialization in relation to the United States, energy policy is defined and analysed in relation to it’s own domestic market and energy regime. A.W. Currie’s postwar review of Canadian utility regulation makes the point. In Ontario (the province with the most developed electricity market), he states the cost of appliances, not the cost of electricity, had become the impediment to the continued electrification of society. (Currie The viable corporate strategy for utilities, therefore, was to help cultivate the mass consumption of appliances. It was not uncommon, for example, for public utilities to subsidize the cost of purchasing major appliances, such as electric stoves, refrigerators and washing machines. In rural electrification programs utilities could even offer perspective customers a whole set of appliances in special five year financial packages. (Netherton As the postwar period grew, popular utility demonstration programs, such as “live better electrically” were witness to the convergence of electricity policy to that of the mass production of electrical wares–from the energy guzzling big appliances to the transformation of “hand tools” into “power tools” and later, the transistor transformation of communications andhome entertainment. This approach then ties together and emphasizes Canadian domestic (household), commercial and industrial (mass manufacturing) demand stemming from the articulation of Canada’s “permeable Fordism” as the drivers of electricity policy rather than the production of electricity as a continental staple. Indeed, as the work of Joy Parr illustrates, domestic technology, particularly in the kitchen, as the intersection of market, state and domestic sphere, took on an extraordinary importance in postwar culture and design, economic policy, utility business incomes and mass manufacturers. (Parr One can only surmise that if this modernization had occurred after the rise of the second wave of feminism, women would have gained greater financial power and property rights. However, electrification appeared to be shaped in the interests of dominant institutions, particularly utilities and mass manufactures, institutions that benefited from a passive energy consumerism within society.
Once set in motion, the combination of cheap power and permeable Fordism, given continued economic growth, produced pressures that produced the “provincial hydros” and “mega-projects” regime. With annual growth between six and seven percent, utilities looked at doubling their capacity decade. Accordingly provincial utilities commenced massive coal, nuclear and hydro investment programs–stretching provincial financial capacity to its limits. The whole energy policy paradigm was thrown into a crisis after the 1973 OPEC oil embargo and the mid-decade inflation and then stagflation hat ended the Keynesian era, wrecking havoc on both energy demand and utility financing (Wolfe.
The relative importance of Canada’s petroleum, coal, hydro and uranium changed substantially during this period. During the 1950s hydro or water power, was not considered the wave of the future, not the resource on which to build long-term economic or energy strategies. (Davis Rather, economic thinking looked to petroleum products and natural gas as fuels of the future. Accordingly, a great part of the North American eastern seaboard used oil to generate electricity. For industrial Ontario, coal was used for large scale generation, but it was not considered to be a secure resource or technology, expensive to produce and transport, and environmentally difficult.
By the 1960s uranium and nuclear power technology were thought to be the major substitute for coal and generally, the way of the future. Still, Canadian provinces with hydro resources embarked upon massive investment programs, part of highly visible and symbolic regional economic development and modernization strategies and in the province of Quebec, an integral part of the Quiet Revolution. (Beale When the 1970s, the oil embargo precipitated a windfall rise in the value of oil, along side an acknowledgement of its scarcity, the relative economics of electricity generation changed dramatically. “Renewable” hydro would become a substitute for “finite” petroleum in the generation of electricity–and Ottawa would establish a series of oil replacement policies. (Canada. At the same time, the economic and environmental opposition to the nuclear alternative in the United States and Western Europe precipitated an almost total collapse of the nuclear option in the United States. (Campbell Canada’s CANDU nuclear energy technology, however, became a replacement for coal in Ontario, Canada’s largest energy market.
After the oil crisis thinking on hydroelectric policy began to consider whether the provincial state could exact rents or foster economic development from hydro resources the same way as Alberta and Saskatchewan were doing the same with petroleum. (Richards This would prove to be difficult. Eric Kierans, one of the early innovative thinkers in this area was shocked to see that Manitoba Hydro investments were not even conceived in terms of a social investment and argued that without a meaningful analysis of a rater of return building large mega-projects for export entailed a waste of social capital, eroding the ability of the first NDP government to reach its broad social and economic goals. (Manitoba This issue became more salient as post 1973 declines in energy consumption left financially strapped utilities with burdensome surplus capacity. Several binational energy sector groups looked at expanding exports. Through their representation in the Canadian Electrical Association, Canadian utilities also supported building for export. (Battle, Even the federal government, seeking to equalize windfall rents, published an elaborate analysis of the potential rent value of hydroelectric energy. (Zuker,. However, neither the United States or Canada was willing to radically alter regulatory procedure, and at root, the US government did not think that Canada would be an economically viable long-term supplier of electricity. In the short-term, US utilities picked up surplus Canadian electricity on the export market at low “economy” prices. For the long run, the US administration took the view that Canadian electricity had export advantage primarily because it was publically subsidized. Accordingly, US Federal approval for its introduction as a long-term supply was not in the cards. (United.
As Canadian utilities entered into a period of excess capacity, declining demand and related financial stress, economists began to critically assess the postwar paradigm, particularly the “cheap power” policy. For Adrian Vining, publically owned utilities tended to overproduce and underprice, while private utilities tended to do more innovation. (Vining Jean-Thomas Bernard presented the familiar argument that the cheap promotional rate structures (the price goes down the more one consumes) were the root of the problem. As a result of this policy, Canadian hydroelectricity exports, especially those of Hydro Quebec, were unable to capture any rents. Their solutions pointed towards utilities adopting marginal cost pricing–making rates reflect the actual cost of producing a unit of electricity and using time of day pricing, as practised in France and elsewhere. ]
At mid-decade the economic analysis more profoundly criticized the statist hydro regime when the Economic Council of Canada advocated a more market oriented electricity energy strategy. (Economic.
Provincial State Ownership, Mega-projects and Network Reorganization
The energy policy regime for Canada’s “permeable Fordism” was also shaped by the particular Canadian articulation of power and politics. Though there was a lot of institutional development, the basic political contours remained the same as the formative regime. The electricity regimes would be province centred and the federal government would regulate international electricity trade, but not interprovincial electricity trade. The substantial difference, however, was that the basic instrument of energy policy moved from private’ light and power’ companies to provincial hydros that shouldered the responsibilities as a natural monopoly for the whole province.
The new epistemic public ownership model reflected stemmed from the postwar British model of nationalized utility (Murphy or, if you will, the diffusion to other provinces of a modernized version of the Ontario Hydro model- a vertically integrated state-owned company that produced, transmitted and sometimes distributed electricity. Both the scale of the projected capital investments and the level of long-term risk associated with them necessitated substantive public involvement. Provincial governments stepped in to plan and implement these investments. Since Canada did not have a politically cohesive utility financial sector to redefine or shape the paradigm to include its long-term needs and the general thrust of creating ‘provincial hydros’ had broad political support, there was little future for private hydro utility capital in the postwar paradigm. Private capital could not be the instrument to carry out an expanded program of investment, reorganize networks to eliminate inequities and at the same time, push the cheap power policy to its very limits.
The provincial state rose to dominance over formerly private utility capital and of former municipal structures. So important was the idea of the primacy of states over capital that the Government of Manitoba was able to successfully rewrite the terms of the Natural Resources Transfer Agreements so that it could unilaterally change the historical resource claims of capital–a move that would substantially aid the ideologically conservative Liberal-Progressive Government in its leverage to take over the Nebitt-Thomson affiliate that dominated the provincial hydro sector, and also a quasi constitutional change that was justified in terms of provincial equality: if the Ontario Hydro-Electric Commission could use its power to break or change supply contracts as leverage to drive private and foreign capital out of the sector, then Manitoba could use powers to expropriate resource rights for the same purposes. (Netherton
The ‘provincial hydros’ dominated the new policy regime. Equipped with easy access to financial markets (as provincial governments guaranteed their bonds) they turned the regime into investment machines. Indeed, during the boom in public energy investment, the many hydro utilities had annual investment expenditures that rivalled that of the provincial governments that owned them. A second source of authority for the utilities in the policy regime was simply that they had monopoly over the technical expertise needed to manage the design and construction of the new energy systems. In particular, new developments in transmission technology was instrumental in incorporating remote hydro resources as sources for urban Canada’s energy needs. When a federal policy initiative to create a national grid failed, Ottawa outlined a 1962 National Power Policy that reversed the traditional domestic market protection by encouraging a ‘prebuild strategy ‘in which provinces would develop large scale northern hydro projects for export so that they would be ready for Canadian demand as it occurred.
Ottawa itself became an integral player in the provincial supply side policy. Federal attention began to focus on having its CANDU nuclear technology used in provincial energy policies. Generous federal financial support for the new technology coupled with industrial Ontario’s chronic energy shortage provided the essential formula for the initial diffusion of the CANDU for power purposes. (Bothwell The Ontario nuclear commitment reduced the province’s reliance on coal, and, as well, substantially altered hydro strategies. Manitoba hydroelectric energy strategy, for example, initially assumed that the province’s planned northern hydro strategy would use its Nelson River power to supply southern Ontario energy demand. (Netherton Increasingly, its would emerge as a prebuild continental staple. Conversely, the Government of Newfoundland and Labrador worked to see the hydro resources in Labrador developed for export to American markets, only to be confined to the Québec market under the terms of the infamous 1969 Churchill Falls Contract, discussed below.
Regime development occurred in stages. The provinces of Manitoba, Québec and British Columbia, as well as the new province of Newfoundland and Labrador became more concerned with planning and implementing long-term hydroelectric development strategies, a process that saw each of these provinces take responsibility for the provincialization of fragmented local networks and gradually investment in electricity generation capacity. A second stage saw the major hydro provinces place existing private hydro producers under public ownership. (Blais There were exceptions. The private monopoly on the Island of Newfoundland kept its monopoly, perhaps due to the fiscal and financial weakness of the former colony. A second major exception was that for the most part provincial governments did not take over the private industrial producers and in the case of Aluminum producers, allowed an expansion of private hydro development for industrial purposes, often isolated from the emerging provincial networks.
In provinces without an abundance of energy or that relied on a mixture of fuels and technologies (hydro, thermal generation from coal, petroleum, natural gas and later nuclear power) such as Ontario, Nova Scotia, New Brunswick, and Saskatchewan, the provincial energy policy regimes were variations of the universal postwar model, retaining their provincial boundaries and assumptions of provincial self reliance. Prince Edward Island, like Newfoundland, kept a local private monopoly and Alberta maintained the regionally based mixed system developed in the formative paradigm.
New Interests and Structural Pressures for Change
The economic virtue of the new regime is that is simplified and internalized all decisions and transaction costs. The political virtue of the regime was that its centralization of effective decision- making power. While the closed political opportunity structure was important in helping the utilities undertake controversial long term energy mega-projects, they also were an increasingly liability in a socially complex and dynamic democracy. The closed nature of electrical energy policy regimes invited considerable confrontation from three sets of actors. From hydro and to a lessor extent nuclear and coal projects came social and environmental dissent from those directly affected the projects. Of these, confrontation with Aboriginal peoples became the most pressing constraint on energy strategies. Later, in the 1980s, as the costs of energy projects were being considered, class based organizations began to seek influence on rate and investment decisions.
Energy mega-projects were based upon new pipeline and electricity transmission technologies that allowed for the development of remote energy resources and their transmission to southern urban markets. Aboriginal peoples displaced by reservoirs, river diversions and other changes to the sociosphere attributable to hydro mega-projects were the one societal group targeted to pay most directly for energy strategies designed to benefit the majority. Yet the energy policy regimes that emerged out of the 1950s and 60s still retained historical racist and authoritarian assimilation assumptions, unleashing protracted contestation between First Nations and provincial governments over energy policies and regimes of compensation and mitigation. Jane Jenson and Papillon Martin use the concept of a changing paradigm of citizenship to illustrate the changes in Cree-Quebec relations that accompanied Quebec’s hydro strategy. (Jenson Several stages are noted that are applicable to most Canadian Aboriginal peoples. At first Aboriginal peoples were simply removed, without choice, often with little compensation and no negotiations. In the 1960s Aboriginal peoples gained the right to vote in federal elections and other racist legal constraints. Still assimilation tendencies were very much evident–as evidenced by a 1969 White Paper that proposed to extinguish all traditional title and treaty rights for a negotiated compensation package. By 1973, however, Aboriginal political leadership had completely rejected liberal citizenship and instead began to assert a collective claim to resources, termed “Aboriginal rights” through land claims agreements–or treaties for lands to be taken and compensation for lands taken.
An intense political opposition to the emerging Aboriginal rights emerged in provincial circles by those fearing that these new resource and policy claims would halt or stop the mega-project energy strategies. At mid-decade the James Bay Cree used the judiciary to force Premier Robert Bourassa’s Liberal Government to negotiate a comprehensive settlement of their claims during construction. A similar “negotiating” with a bulldozer in the back yard process occurred in Manitoba, resulting int the signing, in 1978 of the Northern Flood Agreement. In these processes Aboriginal political movements and allies in Churches, the new left, nationalist and environmental groups, used domestic political and legal resources to open a crack in the notoriously closed and powerful hydro regimes.
A large paradigmatic shift in northern development policies occurred with the publication Justice Thomas Berger’s Report of the Mackenzie Valley Pipeline Inquiry. Berger defined a new paradigm of resource development which, in essence, called for an inclusive policy process and the construction of a social contract (through instruments like land claims agreements) between First Nations and the state before resource industrialization could occur. (Berger By 1982 this recognition included the listing of Aboriginal rights (not completely defined) in the new Charter of Rights and Freedoms, and a commitment to negotiate their precise constitutional status.
The representation of environmentalists or environmental objectives in the policy regime was less successful. The first stage, environmental impact assessment policies, would emerge slowly and diffuse into provincial decision-making more unevenly and concern a wider range of issues than provincial energy strategies. Without express ‘horizontal’ enforcement from either the judiciary or from senior levels of government, the environmental agenda was much slower to climb up the regulatory agenda.
Still several new environmental policy initiatives emerged. (Jaccard, Nyboer and Makinen 1991) Clearer legislative mandates and new regulatory regimes were put in major Canadian provinces. Policy makers moved away from thinking about new energy supplies to thinking about the gains from better use of resources. Vertically integrated utilities experimented with new policy concepts such as integrated resource planning, a sophisticated resource conservation strategy. In recognizing that demand is in part manufactured or created, Canadian utilities experimented with Demand Side Management (DSM) programs. For example, “Power Smart” and other conservation and energy efficiency programs initiate conservation practices ranging from subsiding improvements in housing technology, to the creation of energy efficiency standards for public lighting, electrical appliances and electronic components.
In the 1980s utilities also experimented by seeding the use of more environmentally benign “green” technologies, a policy first put in place by the United States with the 1978 Public Utilities Regulatory Act (PURPA). PURPA set an important trend by encouraging non utility industrial producers of electricity, as well as small producers of electricity from more expensive alternative technologies, (what is generally now termed an “independent power producer” (IPP), to sell to major US utilities. The policy logic was that seeding small amounts of alternative supply technologies into the supply at uneconomic prices would eventually lead to a significant supply diversity as they gained economic viability in the future, assuming continuation of rising electricity costs. Eventually, natural gas producers, relying upon a new and significantly more efficient and small scale combined cycle turbine technology, used provisions of the US legislation to gain a foothold in the electricity market, an process that took the pressure off utilities to purse mega-projects.
During the 1990s the Green Plan and federal environmental assessment policy initiatives became the focus for the development of provincial sustainable development programs, just as the hydro policy paradigm shifted towards the neoliberal-sustainable model. Doern and Gattinger argue that the new policy regime is actually a complex dual system–comprised of the vertical regulation of the policy sector and a set of new horizontal regulatory frameworks concerning the environment and market management. In this new regime, political control and accountability are indirect, reflecting the increasing complexity surrounding the intersection of different highly developed regulatory regimes. (Doern
Neoliberal-Sustainable / Regionalization
In Canada, the Neoliberal-Sustainable / Regionalization regime has direct antecedents to the mid 1980s shift from Keynesianism to a neoliberal economic strategy, the national ‘leap of faith’ towards a more market ordered society. Accordingly, it is closely intertwined with a redefinition of boundaries between public sector and private sector, the privatization of state owned firms, deregulation and market-based economic restructuring, as well as fiscal austerity. (Canada. Indeed, Donald MacDonald, the original architect of the new national policy, also wrote the initial blueprint for a similar shift in Ontario energy policy.
Under conditions of globalization, neoliberals argue that economic development has little to do with resource endowment.
Thomas Hutton (this volume) argues that services, export oriented manufacturing and high technology industries have replaced resources as motors of development. Still, as such a post-staples analysis looks at Canada as a mature staples state in which export relationships are already set, diversification and population growth has evolved out of historical development, though the international context for resource extraction is changing. Perhaps most important, he argues that core resources may be depleting and staples such as forests, face sustainability deficits.
Equally as important, then, the concept of sustainable development has replaced the Keynesian concept of abundant low cost energy, therefore linking competitive market efficiency and long-term sustainable development. (Brundtland Given the importance of technology to the contemporary economic thinking, it is important to note that the new paradigm is based on new convergence technologies, such as the use of highly efficient natural gas combined cycle turbine engines to generate electricity, ‘green’ or environmentally benign technologies, as well as new ‘point of use’ generation technologies that change the one sided direction of existing grids. (Flavin
Lastly, the whole paradigm has arisen as much from international as local or national causes, a dynamic that intertwined paradigm shift with issues of globalization and North American regional integration. The politics of electricity regionalization has then, been marked by contestation within societies, not nationalist conflict between societies. (O'Brien Indeed, the contemporary electrical energy politics is more closely related to the raw class conflict of “monopolies moment” than the consensual postwar shifts that supported the rise of provincial hydros. Though the paradigm is, at time of writing, not fully established, the concepts of neoliberalism tied to sustainability within an increasingly integrated North American electricity grids present the new contours restructuring the older ‘provincial hydro’ ‘permeable Fordism’ regime.
The paradigm presupposes a complete reworking of existing regimes, including a breaking up of the vertically integrated monopolies into a universal neoliberal epistemic model structured to include private capital in energy production, marketing, services, transmission or distribution. Such initiatives have been hotly contested. (Cohen
For example, Premier Clyde Wells attempted to privatize Newfoundland and Labrador Hydro in 1994 as a means of forcing a renegotiation of the Churchill Falls Power Contract, but backed down in face of mobilized opposition. The Ontario government began utility market reform with a White Paper and the 1998 Energy Competition Act that would deintegrate and privatize the highly indebted crisis ridden formally provincial Hydro. The older nuclear facilities were mothballed and after a damming assessment of Ontario Hydro’s nuclear management performance, one of three nuclear complexes was leased to a British Transnational energy firm. In 2002, after several years of open contestation the government came to the brink of privatization just as the new system began to operate. However, two union activists organized an anti-privatization coalition that launched an eleventh hour and eventually successful challenge to the privatization legislation. Faced with prospects or remaking the privatization coalition, the Ontario government withdrew the initiative. The “market system” would be state owned. (Swift
The new regime differs from the neoliberal epistemic model in several senses. (Doern The idea that electricity is a commodity like all others has not been accepted. Though older provincial hydros have been broken up to conform to the new epistemic model and there has been limited privatization of new supply, only one provincial hydro (Nova Scotia Power) has been privatized. Even in Alberta, Canada’s most “extreme” market experiment, there was no privatization of major generating utilities, and the new market includes both major municipal utilities, as well as IPPs, clearly a mixed system. Both jurisdictions that have gone to full market integration have also corrected the voluntary and initially volatile markets with forms of rebates, contract alternatives or other interventions to correct market failure. Hence, Doern and Gattinger label it a “managed” competition which seeks to establish workable systems, not unfettered markets. (Doern
The introduction of markets in provincial regimes have also invited the growth of private energy capital, the largest being TransAlta, based in Alberta. TransAlta claims control over 10,000 MW of coal, hydro and alternatives in Canada, the United States and Australia, giving it about twice the capacity of Manitoba Hydro. Fortis, the owners of Newfoundland’s second largest utility, has grown to become a major private utility holding company, owning major regulated distribution utilities in Newfoundland and Labrador, the provincial monopoly in Prince Edward Island (Maritime Electric), and through the 2004 purchase of Aquila Canada Networks, major distribution assets in Alberta (former TransAlta distribution system) and British Columbia (former West Kootenay Power). Fortis owns transmission and generation assets in New York, Belize and Grand Cayman. Emera has taken a broader convergence expansion, owning Nova Scotia Power, a small hydro based utility in Maine, Sable Island Gas, regional pipelines and a regional heating fuel company.
One interesting development, from a staples perspective, is the growth of Cameco and Bruce Power. During the mid 1990s the Harris government, effectively privatized Ontario Hydro’s oldest nuclear facilities in the Bruce Peninsula, called the Bruce Power Complex. Four of the installation’s eight reactors had been laid up by Ontario Hydro. The privatization took the form of a long-term lease to British firm, that for other reasons, shortly wanted out of its Canadian operations. The Canadian replacement was Bruce Power, a partnership between the Cameco, the Saskatchewan uranium supplier, Transcanada Pipelines and the two unions working at the Bruce Complex. Privatization has been a success, with substantially greater efficiency and power production from operating units and refurbishment of two older installations. Over time Cameco has increased its ownership. Cameco, therefore, emerges as both a staples supplier and a high technology consumer of its own product.
Most of Canada’s provincial utility sector has been, by definition, confined to provinces–and did not grow in league with the new energy giants–save Hydro Quebec. Hydro Quebec has invested in hydro and natural gas energy assets in the United States, Brazil and Latin America to becoming the world’s third largest hydro producer. The new regime has also weakened Quebec Hydro’s monopsony powers over Churchill Falls Power. As a result the Governments of Newfoundland and Labrador, Quebec and Ontario are negotiating the construction of an east-west grid to develop and transmit Labrador power to needy markets. Also, Ontario and Manitoba have restarted negotiations about the development of Nelson hydroelectricity for Ontario Markets. Called, the Clean Energy Transfer Initiative, it differs from all previous concepts and negotiations in that it presupposes the establishment of an East-West Grid.
Finally, in many cases it is difficult to use the term “provincial” utility with the clarity of meanings in the postwar regime. Even provincially owned generation companies, like BC Hydro, can become as committed to out of province regional markets as they are to traditional provincial markets. Additionally, the new class of national IPPs are restless in the constraints of yesterday’s regime.
Drivers of Paradigm Change
During the 1980s economists and sociologists argued that the provincial hydro regime had lost its way. For economists such as Jean Thomas Bernard, the inability of publically owned utilities to set prices at marginal costs meant that they regimes could not collect or redistribute rents and eventually argued that that this was normal for public ownership in a democratic state(Bernard while other economists, as well as sociologists and historians, argued that the regime was out of control. (Cairns
By the 1990s, Canadian economists openly questioned the older paradigmatic assumptions. For example, Mark Jaccard, argues the case for change by asking whether electricity ought still be considered an important public good, whether it’s production and distribution were natural monopolies and whether utilities were an appropriate agent to carry out public objectives. In concluding the negative for each question, the case for complete change to the neoliberal epistemic model was made. (Jaccard A related criticism was that public ownership of utilities led to overinvestment and economic waste, potentially the most important critique because it connected utility investment with the sustainable development and environmental policy objectives that emerged during the last decade. Glen P. Jenkins opened up a national debate on public ownership by arguing that the financial and tax advantages given to provincially owned public utilities created distortions and massive economic waste of the capital used to invest in them, a waste that ranged up to 60% of the cost of Canadian electricity! (Jenkins Though economists criticized method, the extent of the distortion and alternative remedies, and defended the potential of provincially owned utilities as instruments to capture rents from hydro resources, no economist defended the paradigm at it was. (Bernard
Federalism and Electricity Grids: Interprovincial and Regional
The provincialization of electrical energy policy regime had direct effect on electricity networks. Under provincial tutelage, networks grew in scale from a fragmented set of local urban regions to become province wide network, allowing then to reap economies of scale and diversity. Provincial utilities also instituted “postage stamp” rates, meaning that the similar classes of customers paid the same price or “rate” for electricity within a province.
Given the logic of scale and economies, why didn’t the process continue to make a national or a series of regional grids? Ottawa did establish the National Energy Board to regulate international and interprovincial electricity trade, but not exercise its jurisdiction in interprovincial electricity trade and transmission systems. This is not for want of trying. As Karl Froschauer documents, Ottawa tried to start a national energy grid in the early 1960s only to be blocked on the grounds that provinces did not want to give up jurisdiction or control over interconnected power generation facilities–a necessary step in setting up grid independent of any one provincial electrical system. (Cass-Beggs As Ottawa gave up the idea of a national grid, national power policy turned to prebuild export strategies, though the expansion of domestic energy demand made income derived from exports less important over time. Still, Ottawa attempted to set up regional Maritime and Western power grids the next decade–only to fail.
One explanation for this state of affairs is simply that the relative economics of interprovincial trade did not appeal to provinces. After all, even if imported energy was marginally less expense that provincially supplied energy, it would lack the backwards economic linkages so important to staples industries. Moreover, as well shall see below continental trade and network integration was much more important to energy planners.
A second explanation lies in the political weakness of the postwar federal energy regime. Ottawa’s postwar national energy policy regime began with a consensus with provinces on developing energy resources and facilitating a pattern of exportation that would not threaten future Canadian energy supply, and that would make a reasonable return to producers. Ottawa subsidized the planning and construction of hydro mega-projects, and transferring lands and transmission technology, initially subordinating its fiduciary responsibility towards Aboriginal lands to the priority of project construction. The National Energy Board (NEB) was established in 1959, to exercise its authority in international and interprovincial petroleum, natural gas and electricity trade, as well as pipelines and transmission systems.
The consensus would not remain last long. The 1973 OPEC oil embargo sparked a legitimacy crisis because the NEB’s over reliance on the large multinational oil companies for essential policy information led to a perceived energy supply crisis–a significant policy failure. The problem for petroleum, and equally true for the electricity sector, was that the NEB had also become dependent upon, and perhaps a representative of, the utility sector. Change would have to come from other quarters.
The overriding provincial responsibility for electricity ensured that Ottawa did not have to take responsibility for overextended utilities and the pressures they presented to provincial treasuries. But the Ottawa did have responsibilities for Aboriginal Peoples, for the environment and for a national energy policy. These were the issue agendas that marked Ottawa’s influence on provincial electrical energy regimes. (Robinson Certainly by the mid 1970s Ottawa had moved away from the unqualified support for hydro mega-projects, taking on the role as a broker between provincial governments, Aboriginal peoples and environmentalists.
On a more fundamental level, the constitution and the dynamics of Canadian federalism would not enable Ottawa to take any serious lead in electricity policy. The 1970s witnessed intense federal-provincial conflict stemming from competition for fiscal resources, increasing competition between pan Canadian and Quebec nationalism, and long standing regional disputes fuelled by the oil crisis. The oil crisis ignited intense regional and intergovernmental conflicts over the federal intervention to construct a national energy policy and western provinces’ attempts to capture economic rents from resources. (Doern The end result of these conflicts was a series of constitutional changes that solidified provincial control over natural resources, explicitly recognizing provincial responsibility for hydro development, and a Charter of Rights to define a set of pancanadian relations between state and society.
It should be noted that the Newfoundland-Quebec Churchill River power contract emerged as an anomaly to the decentralized electrical energy policy regime, an anomaly that has continually fuelled regional grievance and questioned the legitimacy of the federal regime. Others have documented the case. (Froschauer The essential problem was that when the financially weak Government of Newfoundland and Labrador started the hydro development (originally designated for US markets), it found that the government of Quebec exercised monopsony powers–the power of a single consumer, who, in theory uses market leverage to ensure that the supplier makes no returns to capital. And that is what the Government of Quebec did. Quebec refused to allow the Newfoundland the right to transmit its Labrador power across its territory to US export markets. In a text book example of monopsony power it then offered to save the project from a $ 800 million dollar financial collapse by having Hydro Quebec finance and build the project. In return, Quebec asked for part ownership of the project, and a contract dedicating the majority of the project’s power to Quebec Hydro, at declining prices, for up to sixty-five years. Though Quebec leadership was absolutely stunned that Newfoundland would agree to such terms, successive generations of Newfoundland have been shocked and humiliated by their staggering losses. Less than a decade later the contract, supplying Quebec with about one third of its domestic electricity needs, represented a windfall value of over $500 million per year, a sum that would only rise over time. Try as it might, the Government of Newfoundland could not break or amend the contract, nor get Quebec to renegotiate critical aspects of price or duration, or to open up Quebec Hydro’s lines to transmit surplus Labrador power to US markets. Even Ottawa tabled legislation to force Quebec to allow the Government of Newfoundland build a power transmission corridor through its territory, though the emptiness of the threat was readily apparent. The government of Quebec, on the other hand, desired to settle the contract issue in the context of negotiations about the full development of Churchill Falls resources.
Without a regime change to redress the imbalance in bargaining, there is no reason to assume that Quebec’s monopsony power would not again, shape the outcome of any bilateral trade agreement, reenforcing a situation that Bernard terms the most important hydro rent seeking failure in the history of Canada. (Bernard
Canada-United States Policy Integration as a Policy Driver: Conservation and Trade Regimes
An important part of the postwar hydro policy centred on the economies of functional integration of cross border regions. During the 1950s Ottawa worked with the US government and the provinces of Ontario and Quebec to make an agreement on Saint Lawrence River hydro development–in parcel with an emerging pact on the construction of an international Seaway system extending Canada’s inland ocean ports from Montréal to Lake Superior’s Thunder Bay. Also, through IJC processes Ottawa coordinated the negotiation of the Columbia River Treaty, and agreement whereby stabilization of the Columbia’s tributaries in Canada by means of dams and reservoirs allowed for greater power development in the lower Columbia. In return for the stabilization, BC was to receive an equivalent to half the extra energy produced. Eventually the BC government used the Columbia River money to help finance hydro development on the Peace River. (Swainson The IJC process also led to conservation regimes on the Saint John’s River and the sharing of the costs of New Brunswick’s diesel electric generating capacity with the state of Maine.
The functional integration between Canada and the United States also took the form of tackling a problem of reliability. In 1965 a major ice storm in Québec tripped a prolonged blackout throughout North Eastern North America. Three years later, the United States response was to set up a voluntary non profit corporation, National Electric Reliability Council (NERC), to promote, educate, assess and monitory system reliability issues. To aid in this process, NERC set up a system of regional reliability councils through the United States, collections of systems that evolved into regional groups of cooperating utilities that became institutional stepping stones for Canadian utilities seeking greater market and reliability integration.
The NEB rose to become the central regulator of international electricity trade and international transmission facilities. To ally the traditional nationalist concerns, NEB regulation confined exports to energy surplus to domestic needs, and, as well, placed time limitations on export licences. Unlike the Canadian petroleum sector, Canadian electricity did not take an overall staples export structure. Total Canadian exports to the US were less than seven percent of total production, and US exports not even reaching a quarter of one percent of US production.
By the 1970s, electricity trade and interconnections represented an equitable functional integration in which benefits were shared by all participants. (Perlgut In the Maritimes, New Brunswick Hydro had one small interconnection with the state of Maine–and would continue agreements sharing capacity with interconnected US utilities for the period. The Ontario network became functionally integrated with those of New York and Michigan as their interconnected grids saw power flow clockwise around Lakes Ontario and Erie. Additionally, there was a great deal of economy energy exchange with Michigan. Indeed, US auto interests worked out a set of US regulatory exceptions that allowed then unregulated access to Ontario electricity. (Perlgut Ottawa did not allow Ontario to export nuclear-electricity and eventually placed an environmental charge on coal generated electricity exports.
Slightly different trading relationship emerged in the hydro-electricity provinces. The proliferation of small international interconnections that characterized the formative paradigm in Quebec had been eliminated, and instead, Hydro Quebec was building large capacity interconnections with the Power Authority of the State of New York (PASNY) , exporting energy in a form of seasonal diversity exchange to offset costs of financing the James Bay development. Though Quebec would eventually develop more hydro capacity than any other province, it has primarily been for domestic as opposed to export markets. (Laundry
Similarly, new international connections between Manitoba and Minnesota reflected a prebuild export strategy for energy flowing from Manitoba Hydro’s Nelson River power corridor. Though Manitoba’s export strategy was based upon seasonal differences in energy demand with its US partners, early years of export saw great quantities of ‘surplus’ energy simply dumped on the export market. (Netherton British Columbia developed several interconnections with Bonneville Power Authority (BPA), the US federally owned utility, itself based on the Ontario Hydro model, that was charged with developing the hydro potential of the Columbia. Domestic opposition to a Site C, a large mega-project on the Peace River, stopped BC from fostering a staples export relationship, although the provincial utility did become an effective opportunistic trader on the regional market.
The Emerging Supra National Power of FERC
Continental and hemispheric integration provide a direct link between regime change and the rise of United States policy influence. Here there is some debate on the effects the nature of this influence. Contemporary NeoInnisians argue Canada loses it’s sovereignty and national autonomy vs a vs the United States. For Glen Williams, Canada becomes a periphery of the centre, a formulation that essentially argues that there are two states in a single economy. (Williams Given increasing market dependence, this situation leaves the Canadian state only regional autonomy within the North American context. One of the implications of that argument is that Canada has to politically construct or redefine its sovereignty in these new conditions. The real question, then, becomes what it the extent of US influence in Canada? NeoInnisians look at the regional trade agreements, such as the FTA, NAFTA and the emerging Free Trade for the Americas Agreement, as quasi- constitutional frameworks or structures that embed neoliberal values and the interests of dominant institutions in public policy processes. (Clarkson At the same time, Clarkson argues that domestic political forces could, if mobilized, shape the Canada-United States relationship in the national interest, in other words the increased US influence in Canadian affairs is a product of the ascendancy of Canadian neoliberalism. (Clarkson In an interesting combination of integration and international political economy literature, Peter Leslie argues further that the United States is leading a process of hegemonic regionalization, a argument that is useful in capturing the emerging supranational role of US energy regulators in the continental energy markets. Additionally, the hegemonic power thesis is meant to explain why Canada responds to US domestic policy, regardless of treaty contours, more than the opposite, the US responding to Canadian domestic policy. (Leslie This view highlights the politics and role of hegemonic powers in formulating regimes more than their ordering effects.
Marjorie Griffin Cohen, writes extensively on Canadian hydro from a this perspective, focussing on the ways in which trade agreements and US energy policy undermine sovereignty and shapes Canadian intervention in hydro. (Cohen The implicit argument is that the neoliberalism legitimizes investment opportunity structures for US capital in Canadian electricity regimes, that it is antithetical to rent seeking and implicitly transfers Canadian resource rents to US markets.
The influence of continental integration was gradual. In 1988, the Canadian government established a new electricity policy in which National Energy Board export regulations were changed to conform to the terms of the FTA. The older security of supply and price protection regulations were replaced by concerns for third party effects, environmental standards and fair market access by other potential Canadian customers. The post-FTA Canadian electricity policy purposely conformed to the established parameters of provincial dominance. The NEB would not regulate interprovincial electricity trade or interconnections, and gave signal that it would consider objections from other provinces before giving the ok to new international power lines. (Canada. In keeping with an objective to reduce regulatory duplication and inefficiency, these new electricity policy expressed interest in establishing, with provinces, national environmental standards, and hoped, as well, that provinces could fill in any policy vacuum by establishing regulatory policies of their own. Additionally, the open access provisions were a significant step facilitating interprovincial integration because they ensured, for the first time, that each of the vertically integrated provincial utilities had to share their planning with others. Not surprisingly, the policy did not change the status quo regarding interprovincial trade, not break the monopsony powers of Quebec over any potential Labrador power.
The FTA did not open up floodgates of electricity trade between Canadian provincial and US utility networks. The US regime, unlike its Canadian counterpart, was much more fragmented and each held on to the custom that utilities were not obliged to “wheel” or transport a third party’s energy, along its lines. Traditionally Canadian exporters had considered this wheeling problem as the major obstacle to developing long term diversity exchanges with southern US networks. To increase trade, it seems that US domestic policy regime would have to change.
In 1992, a new US Energy Policy was founded on the assumption of internal market failure; that the US had a great deal of electricity production capacity, it was not efficient and not well distributed. In contrast to the Canadian case, the US federal government has expansive powers over interstate as well as international trade, and has a long history of using federal powers to macro manage the electrical energy sector. It embarked upon a bold initiative to establish competitive markets for the supply, transmission and distribution of electricity throughout the United States and, through trade, Canada. The United States was to be organized into a set of Regional Trading Groups (RTGs). Each of these groups would form the rules and conditions of trade within each area. Eventually, Canadian utilities would have to be part of an RTG in order to trade within US market. The concept of an RTG would later give way to that or a Regional Trading orgnization, or RTO. RTOs are defined as a “functioning voluntary organization (of transmission owners, transmission users and other entities approved by FERC) to efficiently coordinate transmission planning and expansion, operation, and use on a regional and inter-regional basis,” in other words, regional self-contained electricity networks. (National
During the early stages of the FERC initiative, The Canadian government displayed passivity in the policy field. There are obvious explanations or rationalizations for what amounts to a defacto policy vacuum or abdication. The Canadian federation was caught in a national unity crisis from 1987 until 1995. The immediate crisis ended when pro-federalist forces in Quebec narrowly won another sovereignty referendum. In the aftermath, Ottawa would engaged in a defacto decentralization of the federation, studiously avoiding conflicts over jurisdiction and formal constitutional processes. Given the importance of hydro and electrical energy policy to provincial politics, the idea of direct intervention was not likely.
As the US government turned towards creating its own version of the epistemic regime, the NEB, surveyed provincial utilities and provincial governments to ascertain if they would support it taking on a role regulating interprovincial energy trade. Several choices were offered, from establishing interprovincial grids to simply being an independent arbitrator in the case of disputes in the existing or reformed bilateral exchange model. The answer was an overwhelming negative. (Canada. By 1996, when FERC began market restructuring in earnest, there were no public objections from Ottawa, no visible binational or intergovernmental processes to mediate FERC’s regulatory authority, nor policy recognition of Canadian national exceptionalism within FERC regulations. Yet is not clear that FERC had the legal powers to force Canadian utilities to conform to their regulations.(Cohen
Four initial FERC regulatory orders and policies with significant extraterritorial impact provide the parameters of the attempt to institutionalize a new energy policy regime in the 1996-2004 period. In 1996 FERC authored Order 888, commonly known as the “open access” or “reciprocity” provision. This ordered utilities wanting to have access to US markets to allow access of US utilities to their markets. This request could have been handled in a number of different ways. At a maximum utilities could completely deintegrate and adopt the new epistemic regime, and at minimum, integrated monopoly utilities could simply undergo an internal reorganization or “ functional restructuring” to set up different and autonomous generation, transmission and distribution divisions or subsidiaries. Each utility could therefore outline a series of consistent market prices for the use of its transmission system. These open access tariffs transmission tariffs (OATT) are the costs that the utility would charge others for wheeling (transporting) their energy. The condition of open access meant a utility that wanted to trade in the US could not bar other utilities access to its own system. Along with 888 was Order No. 889 demanding that the utilities had to use the same time sharing data system. (The idea of a market for electricity depends giving instantaneous price signals using the advanced levels of information technology.) In 1997, in response the wave of mergers and acquisitions that came with deregulation, FERC issued Order No 592, a policy that attempted to ensure that corporate mergers and restructuring did not thwart the intent to establish competitive markets. Finally, in December 1999, FERC issued Order No. 2000, asking that all utilities wanting to trade in US markets apply to join a RTO by October, 2000, or show cause why they have not done so. FERC could not directly apply this condition to Canadian utilities since they were not under its direct legal authority, although, interconnected Canadian utilities had to weigh costs of entry and exclusion.
By 2000 several different models of the new energy regime had emerged in the United States, but the most symbolic new starts were costly failures (Jaccard 2002; Woo, Lloyd and Tishler 2003). In California, the flaws in the initial model negotiated among key stakeholders stumbled into a financial and policy disaster. Policy failure and the bankruptcy of large distribution utilities eroded the support for FERC and its market regime within the state. A great deal of uncertainty, therefore, grew around the “deregulation” issue. Other factors also worked to undermine confidence in the ‘deregulation’ process. Enron, the star of the new transnational energy companies that had grown on market deregulation and used the new utility regime as an global investment opportunity, declared bankruptcy under the shadow of systemic accounting improprieties. Political attention then turned towards holding the new economy corporations more accountable. Energy policy debate then turned toward establishing a “standard market design” (SMD) that would guide utilities in forming the market rules within newly formed RTGs. In July, 2002, FERC issued a notification that it would make rules concerning a standard market design. This was followed in 2003 with a white paper and a consultation process (US Federal Energy Regulatory Commission 2003). However, at time of writing, FERC has not finished this process. Significant opposition to the FERC model developed in the south as well in California–implying that despite the ample administrative and legal power, FERC and federal authorities in Washington will have to find a compromise to meet regional interests as it delineates its ‘standard market design.’
In a useful recent comparison of international electricity trade, Pierre-Olivier Pineau, Hira and Froschauer, indicate that Canada and the United States have the most integrated electricity markets in the world. Thought total Canadian exports vary, they do not exceed 9 percent of total generation while imports from the United States are less than one percent of US total generation. The significant fact is that capacity of international interconnections is about 17% of total Canadian generation capacity, implying that short-term trade remains an integral part of managing Canadian energy supply. The overall picture emerges of a complex regional integration, not a staples export relationship, nor a profound market dependence. (Pineau,
Predicably, all Canadian utilities with US interconnections were fairly quick, with some regulatory challenges, to minimally meet FERC reciprocity demands with a functional restructuring and adoption of OATTs. However, at time of writing no Canadian utility had joined an RTO, for much the same reason that provinces refused Canadian federal government initiatives to form a national grid. Membership represents a significant loss of control over provincial energy transmission grids and linked capacity investment. At root, the concept of RTO shifts the energy problem from a “provincial” to a transnational, but primarily American regional problem. On the other side, exclusion from RTOs implies significantly higher transaction costs for Canadian traders.
Still, there has been western Canadian participation in RTO formation. In order to protect its regional market access, Manitoba worked out an “external participant” coordination agreement with the Midwest Independent System Operator, (MISO) a fully market based RTO that replaced MAPP. British Columbia, as well, been involved in the negotiations concerning GridWest, the RTO for the Pacific Northwest–although no decisions have been made on the final form of the provincial participation. Other western Canadian stakeholders are looking primarily for ways to increase the transmission infrastructure for electricity from Alberta through BC onto the California market. Emera, the parent company of Nova Scotia Power, and a minority participant in the New Brunswick and New England energy markets has expressed interests in greater New England - Maritime Provinces energy integration. Nova Scotia Power is now making minimal open access tariffs and is interested in a new jointly-owned transmission line from Nova Scotia through New Brunswick to Maine.
The emergence of FERC as a supranational regulator also coincides with the increasing reliability problems associated with increased trade. The issue came to a head with an August 2003 blackout, caused when a regional US electrical system experienced a set of problems that caused a series of cascading power failures, eventually putting 50 million Canadian and Americans in the dark. A binational report into the incident recommends replacing NERC with a new Electrical Reliability Organization with the authority to enforce standards on utilities. Present path dependency would see FERC take over reliability regulation within the context of the proposed regional trading organizations, though the Canadian industry seeks a model with formal binational governance structures.
The “quasi-staples” status of hydro has to be reflected in any summation of its “post-staples” trajectory. The concept of resource scarcity, from a Ricardian point of view, really centres on its relative scarcity. During the formative paradigm relative abundance depended upon geographic endowments. In the age of mega-projects and provincial hydros, scarcity was reduced by the advances in long distance transmission technologies and by the seemingly unlimited financial capacity of publically owned utilities. In the third, neoliberal-sustainable paradigm, resource scarcity is more the product of the price mechanism in markets where alternative technologies and fuels are available for purchase. Hydro, along with other “renewable” resources, has the advantage of being sustainable, a prized quality in an age of increasing market scarcity.
New staples analysis has always focussed on the creation and redistribution of economic rents and linkages. In the formative paradigm, the key issues were the distribution of rents to subsidize industrialization, and the process of urban electrification. In the second paradigm, rents were distributed through “cheap rates” to subsidize and facilitate the development of mass production and mass consumption. In the third paradigm, post-staples rents and linkages are oriented towards sustainable development. Hence ‘smart’ consumption has replaced ‘mass’ consumption and “demand side management”has replaced the “cheap power” policy. There are exceptions. Large industrial consumers of electricity can shop around in a “retail market” to get cheap power. Additionally, as provincial utilities have stopped building mega-projects, provincial governments have not been afraid to ‘tax’ rents, or collect dividends, as a way to augment provincial coffers. Economist will say that unless hydro pricing approximates marginal costs, the paradigm will not meet its sustainable objectives.
Thinking of hydro as one of many technologies to generate electricity also introduces several post-staples changes. In the first paradigm electricity was made with the most readably available resource–primarily, but not exclusively hydro. The second paradigm ushered in the era of ‘big’ technologies and projects, increasingly larger hydro projects, nuclear reactors and coal thermal plants–with all the attendant political, social and environmental issues particular to each. In the third paradigm, we find that electrical energy regimes have far greater choice in technologies. In the sustainable side, there are a series of benign and/or sustainable technologies that are and can be further developed for energy production; such as wind farms, photovoltaic and small scale hydro. Natural gas has entered into the generation technologies with the efficient ‘combined cycle gas turbine.’ As a result, energy planners have the choice of alternative and competing technologies, big and small. Current energy policy planners in Ontario, for example, have the choice between revamping older coal plants, buying new hydroelectricity from Labrador and Manitoba, reinvesting in a revamped nuclear technology and investing in natural gas combined cycle turbine technology.
Networks have also changed. In the first paradigm networks were essentially defined by small urban regions with fixed borders, and as institutions they were simply command and control–competing to extend their control over relatively remote resources and urban populations. In the second paradigm, networks were organized by provincial jurisdictions, and in a process fraught with contestation, provincial hydro networks extended their reach into northern peripheries.
More or less structured trade relations developed between Canadian and US grids in five cross border regions. In the third paradigm, the nature of electricity grids began to change substantially. First, due to a neoliberal reordering, electricity networks are more complex and also significantly more open. Second, the older command and control networks oriented towards the transmission and distribution of energy from large mega projects is giving away to the idea of a more open grid, where utility consumers can also, through distributed generation, supply energy to the grid. In terms of issues of reliability and openness, future grids may closely resemble the dynamics of the internet.
One of the most contested aspects of a hydro or electrical energy policy paradigms is its regime. In the early era of monopoly’s moment, Canada had a set of heterogeneous provincial regimes, that had, for the most part, closed opportunity structures. There was a mixture of private and public ownership. While Canadian and American governments worked out durable conservation regimes for boundary waters, for the most part, Canadian provincial governments could not overcome the obstacles of fragmentation, inequity and inefficiency. The second paradigm confirmed provincial dominance in hydro affairs, and witnessed the growth of effective national regulation of international trade. Though the powerful provincial hydro regimes were grounded on a broad Keynesian consensus, they were also closed, continually inviting contestation from those who paid the direct costs for subsidized production and consumption of energy. In cases were utilities could not manage the gap between the historical cheap power policy and the higher costs of new capacity, the resulting financial and fiscal pressures transformed the postwar Keynesian consensus into class divided networks of support and opposition to neoliberal alternatives.
The third regime is not fully established. While advocates for change sought a neoliberal revolution, they ended up with an unstable system of managed competition and increasingly transnational electricity grids. Privatization has not generally taken place, and provincial governments are carefully seeking ways to legitimate the new regime. Sustainable development interests began the paradigm with an implicit alliance with neoliberal forces, but have ended up somewhat disenchanted by new regime’s poor performance on the environmental issues.
The evolving regime is highly influenced by the increasingly supranational role the US government has played in reorganizing continental markets, demanding reciprocal access to each nations grids, leveraging Canadian membership in regional trading organizations and fostering the deintegration of the older vertically integrated utilities. The sustainability components of the existing regime are less well designed. There are several explanation for this weakness stemming from the increasing costs and complexity of the new regime. However, it is also clear that Canada has to resolve the tension between multilateral commitments towards Kyoto implementation and the realities of increasing continental integration with a non signatory to the Kyoto protocol.
Finally, the implicit identity of electricity networks change significantly. During the formative regime, the major identity for electricity networks was local–stemming from the regional articulation of networks that made up provincial systems. During the second paradigm, the identity and focus for politics was primarily provincial, though export regulation brought an important national articulation to electricity politics. In the third paradigm, identities and politics have shifted significantly. The transnational articulation of markets and the openness of networks means that one can no longer speak of a “provincial hydro” in the sense of an institution that automatically gives priority to the local or provincial interest. Networks are increasingly defined by continental region, hemispheric and international investment regimes, and regional US hegemony. Provincially owned utilities no longer have a monopoly right to produce power, and several new large non-utility independent power producers have grow to supply energy to the new regimes. Some hydros have converged with former natural gas utilities to take advantage of new fuels and technologies. BC Hydro, like Ontario Hydro, has been broken into pieces along the lines of he neoliberal model, while Quebec Hydro has grown to be one of the largest energy companies in the world.
Electrical Energy Policy: A Research Agenda
Social Learning and Metamorphosis
How do governments learn when orchestrating change? Looking through the policy reports and documents tracing the evolution of each province’s restructuring process, it is striking how policy develops as one set of elites draws lessons from other jurisdictions’ policy successes and failures as well as from the tactics of political opposition. What was the social learning process as different governments approached change? In short, there is ample material for case studies of policy learning in a policy field normally closed to outsiders.
The Politics of Diffusion and the Explanations of Provincial Differences During the second and third paradigms, Canadian provinces adopted what was then current epistemic models of electrical energy regimes. What was the path of diffusion? What are the particularly Canadian innovations or features of the new epistemic model? What explains differences between provincial cases? Comparative analyses will help fill in this void and contribute to our knowledge of how smaller jurisdictions make policy in an internationalized and global context.
Globalization, Transnationalism and Internationalization
Kari Levitt wrote that Canadian public utilities were one of the last bastions of Canadian entrepreneurship. Of course Levitt’s assessment of Canadian capitalists is contested by many. Nevertheless, all Canadian utilities have responded to the recent merger movement, setting up international subsidiaries, and seeking partners within the North American market. Aboriginal peoples and Canadian energy related NGO’s have as well, become more transnational in their focus. Research is needed to outline, compare, analyse and valuate these processes.
Technology, Innovation and Energy
Canadian utilities were dependent upon US technology during the first paradigm. During the second paradigm Canada became a centre of international research in the long distance transmission of electricity. Presently, the government of Canada has become committed to “green” technologies as parts of its industrial, sustainable energy and economic strategies. Little is known published about innovation regime of the contemporary Canadian electrical energy sector, nor its relationship with larger US research centres. Studies of innovation systems in this sector would be key to understanding the mechanisms of our response to Kyoto an to the challenges of “green innovation” as an industrial strategy.
Electricity Sector and Climate Change When addressing climate change through the mirror of regime change, emphasis was placed on the relative merits of marketing energy produced from different technologies. The relationship of electricity to global climate change, is much broader. There is needed research on mechanisms for implementing the Kyoto Plan. There is also basic interdisciplinary research needed on the projected effect of global warming on river and drainage systems, and how the energy sector itself will deal with major challenge.
Electrical Energy Regimes and Sustainable Development
The new hydro policy regime has tied sustainability to market mechanisms. But is their any empirical evidence to indicate how well IPPs perform in relation to provincial hydros and the new provincial generation, grid companies and energy authorities? Such research would be highly relevant to current energy policy agendas.
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