If we had wanted to design a system to frustrate interprovincial electricity trade, we couldn’t have done much better. In addition to the inherent mismatch between the aims of monopolists and free marketers, all provinces bordering on the U.S., except Alberta and Ontario, have taken the easy way of getting access to the lucrative U.S. electricity markets, by simply adopting U.S. rules for the operation of their transmission systems. These rules take control out of the hands of the owners of the transmission facilities by creating access rights to use the system. The rights can be bought and sold, with the theoretical result that anybody can use anybody else’s transmission system if they have purchased the appropriate rights.
But in Canada that doesn’t happen, because, unlike in the U.S., there is no overarching federal policy of encouraging nationwide competition in electricity and consequently no enforcement framework to prevent the stifling of competition by amassing transmission rights in the marketplace.
Had the recently proposed sale of New Brunswick’s utility to Quebec not been called off by mutual agreement, Hydro-Québec would have wound up owning rights to 970 megawatts of the 1,000-MW capability to the U.S. via the transmission link between New Brunswick and Maine. As it is, with the sale now abandoned, Hydro-Québec still owns long-term rights to 300 MW of that link.
The situation between Ontario and Quebec is even more counterproductive for interprovincial trade, because the power-trading arm of Hydro-Québec has bought the rights to 100 per cent of the capacity of the recently built link into Ontario for the next 50 years. So in spite of interest by both Ontario and Newfoundland and Labrador in arranging supply from the proposed Lower Churchill hydroelectric project in Labrador to downtown Toronto, and in spite of the theoretical possibility of doing this under Quebec’s transmission rules, any long-term arrangement is thwarted at the Ontario border.
Similar frustrations have occurred at the Alberta-B.C. border, where the only access Albertans have to buy and sell in U.S. markets is through B.C., which has a U.S.-style transmission access system. This U.S. approach doesn’t necessarily serve the interests of the provinces that have adopted it. For example, it complicates expansion and reinforcement of the electricity system. It is notable that major investment in much-needed transmission infrastructure is happening primarily in Alberta and Ontario, the only two provinces bordering the U.S. that have their own homemade approach to electricity transmission.
We need a new, “Made-in-Canada” approach to managing access to transmission links between provinces, an approach that recognizes both the provincial character of our electricity system and the fact that it is a patchwork of different commercial and ownership arrangements. It needs to be designed to eliminate commercial barriers at provincial borders rather than erecting them as the current arrangements do.
So what to do? One first step would be to adopt a 50-50 reciprocity system. In return for allowing half of the transmission capacity to operate under its neighbour’s rule, one province would forgo its ability to block trade at the border and be allowed to set the rules for the other half. This arrangement is used between some countries in the European Union; applied in Canada, it would equalize the bargaining power between provinces.
Another alternative would be for the federal government, through the National Energy Board, to force a transmission line to run through a recalcitrant province that blocks another province’s access to markets beyond; for example, Newfoundland and Labrador to Ontario through Quebec or Alberta to the U.S. through B.C. The legislation to do this exists but this power has never been exercised, in part because the decision is entirely the prerogative of a federal minister and therefore clearly needs many stars to be aligned in the sky of federal-provincial politics.
Man-made rules and policies, which have evolved on a province-by-province basis, impede interprovincial electricity trade and Canadians are the poorer for it. Fixing some of the seams in this administrative patchwork will help us take better advantage of nature’s gifts.
Jan Carr is a corporate director and is the former CEO of the Ontario Power Authority. His C.D. Howe Institute Commentary, “Power Sharing: Developing Inter-Provincial Electricity Trade,” is available at www.cdhowe.org
