Brian Lee Crowley

“Monopoly” no synonym for “consumers massively preferring good companies”

In this week’s column for the Globe’s Economy Lab feature I have a little fun with words. Specifically I call to order those who erroneously  call Google’s dominance in the search engine market a “monopoly.” It is nothing of the sort when consumers freely choose one provider’s product or service over that of its competitors, which is the case with Google and was the case in earlier times with Microsoft, IBM and others who have all been unfairly and inaccurately treated as monopolists.

If you want to find real monopolists, you should look at those companies whom the state shelters from the bracing winds of competition, technological change and consumer preference. Supply management and the post office, anyone?

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Provincial liquor monopolies’ Achilles’ heel

If you’ve ever wondered why it is that provinces, who have no constitutional authority to regulate either interprovincial or international commerce, seem able to stop you from buying directly from your favourite Scottish distiller or French vintner or the micro-brewery in the province next door, go to the head of the class. That is the real question we should be asking as we contemplate the future of the provincial liquor monopolies. The place to go to defeat these quaint holdovers of a more moralistic and censorious age is not the province. It is Ottawa first, whose legislation confers on provinces their local monopolies, and the courts second, because it is far from clear that Ottawa has this anti-free trade power to give. Read all about it in my latest column for the Ottawa Citizen and other Postmedia papers.

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NB Power-Hydro QC: Grab the money and Run!

In today’s Globe and Mail, Tom Adams and I have another run at the proposed NB Power-Quebec-Hydro deal put forward by NB Premier Sean Graham and QC Premier Jean Charest.

As readers of this blog will know, I think this deal is a dream proposition for New Brunswickers. Ten years from now, if it goes through, people will look back and bless the name of Sean Graham, the premier who had the balls to propose it.

As Tom and I show in the essay in the Globe, far from being the “province’s crown jewel” of much overheated anti-deal rhetoric, NB Power has been a poorly managed mess for years. It has drowned the province in huge debt, locked them into high-cost and low-productivity generation, and encouraged politicians to play politics with electricity rates. The multi-billion dollar debt the utility has accumulated is a millstone around the province’s neck.

This deal will allow the province to rid itself of that debt with the stroke of a pen. It will see residential rates frozen for 5 years (they’ve risen faster than inflation — 27% in the last 5 years alone), after which they will track inflation. That’s a better deal than QC-Hydro’s own customers have got in recent years. Major industrial users will benefit from a 30% cut in their power rates, a major boost to competitiveness. Future increases in electricity demand can easily be met from Quebec’s plentiful, green and low-cost hydro base. The electricity business will still be subject to regulation by the NB authorities.

Two of the main criticisms of the deal hold no water:

1) that this gives Quebec blocking power on future electricity development in other eastern provinces because QC will be able to block access to the US market.

Uhhhh, no. Quebec is itself a major exporter to the US and would like to sell a lot more. That access to the US market comes with conditions. QC-Hydro must have a licence to export from the Americans’ Federal Energy Regulatory Commission (FERC). FERC regulations unambiguously require anyone exporting to the US to allow open market access to their jurisdiction from other suppliers. If Quebec tried to exploit their geographic advantage by blocking electricity exports from, say, NL or NS, they would lose their FERC licence and with it their access to the US market. It would be incredibly self-damaging for no gain. Won’t happen folks.

2) NB is just exchanging one electricity monopoly for another. Yes, true. And yes, I would prefer to see both QC-Hydro AND NB Power broken up and sold, creating a genuine competitive electricity market in eastern Canada. That’s not happening anytime soon. What we’ve got is this: under the proposed deal, NB is still subject to a monopoly supplier of electricity. That supplier is still subject to the regulatory authority of NBers. It is the status quo in that regard, so they are no worse off. By contrast, they get rid of more than $4-billion in debt, access to lower cost sources of electricity, remove local politics from a lot of power decisions, improved competitiveness for many major industries, and can expect much better rate performance than they’ve got from NB Power for years and years. So it’s not competition, but a huge improvement on the status quo. Let’s not let the perfect become the enemy of the good here.

My main criticism of the deal: rather than springing it, Meech Lake-like, on the public, the province should have announced that the utility was for sale and invited proposals. The QC-Hydro deal is a clear improvement on the status quo, but we don’t know how it rates compared to other alternatives that might have been put on the table. In 2009, NB’s way of proceeding seems old-fashioned and paternalistic. If they’d gone ahead in a more open manner, they probably could have managed public opinion better. Still, when the emotional reaction eases a bit, and NBers can look at this deal in the cold light of day, I think they’ll realise they’ve been given a gift — a free pass out of their own self-created electricity mess. They should take it.

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Brian Lee Crowley
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