THE CASE OF NEW BRUNSWICK
Generating and distributing electricity in New Brunswick did
not begin through a crown corporation. In the early years of
electricity, private interests were the first to produce it.
They were small producers geared to local markets. Accordingly,
new producers set up operations in Saint John, Sussex, Moncton,
and Fredericton. Smaller communities also began to produce electricity.
The town of Woodstock, for example, had two small electric light
companies by the 1880s and the Campbellton town council decided
to assume responsibility for the generation and distribution
To be sure, communities everywhere in New Brunswick wanted electric
energy, but the decision to develop a capacity was hardly a straightforward
one. It depended on a number of factors. Much more often than
not, however, electric power only became available because a
factory required the energy and the firm either built a capacity
on its own or had it built by another firm from which it would
purchase the required power. The firm would, in turn, sell excess
electric power to other firms or individuals.
By 1918, there were about twenty organizations producing power
in New Brunswick. There were also no standards to cover rates
or services. We are informed that in Saint John, for example,
the price paid by a homeowner ranged from a low of 7.5 cents
per kilowatt-hour to a high of 15 cents, depending upon location
and the amount of power consumed. Lack of uniform price and standards
were not the only problems. Various private firms installing
the infrastructure to deliver electric power gave rise to an
"unsightly maze of poles and wires," which, at least
in Fredericton, "caused a public outcry."
By the end of the First World War, it became widely accepted
that light and power were necessities of life and a key factor
in economic development. It also became widely accepted that
government had to play the lead role in the sector. In 1920,
the provincial government successfully introduced legislation
establishing the New Brunswick Electric Power Commission. The
commission was quick off the mark, and within two years, had
completed its first hydro electric dam. However, subsequent problems
with the dam ignited a debate over which, the public or private
sector, was better suited to develop future hydro sites. The
debate did not settle the matter and, by the late 1920s, a subsidiary
of the International Paper Company was given the right to develop
the generating station at Grand Falls.
Four important factors would favour the public sector. First,
the demand for electricity increased substantially year after
year. Second, the need for maximum amounts of electricity at
peak times required an integrated generating system. Third, the
war years and the decision to locate important training facilities
in the province pushed the government to act. Fourth, rural areas
began to apply political pressure to obtain electricity; as recently
as the 1940s, many rural areas in New Brunswick were still without
electrical service because rural electrification was not economically
viable, given low demand and the high cost of stringing electrical
lines. If the objective was to promote a uniform level of services
and price, then it was felt that only the government could lead
the way. All of these forces, together with very limited capacity
at the time to develop small-scale generating capacity, would
lead decision-makers to conclude that large-scale development
was necessary and that only the public sector was up to the task.
This was why New Brunswick turned to a crown corporation rather
than to private firms to generate and distribute electricity
in the province - it was done largely to ensure that electricity
would be universally accessible and at a standard price applicable
everywhere. This sums up NB Power's central public policy purpose.
The province's Electric Power Act gives the corporation the necessary
authority to pursue its public policy purpose. Sections 32(3)
and 32(4) impose important restrictions on the installation of
electric power and on extending service of electricity by private
interests. In return for maintaining a uniform price and for
making sure that all communities in the province have full access
to electricity, NB Power enjoys an exclusive privilege. Without
the exclusive privilege, NB Power would not be able to maintain
a universal system. For some, the reason is simple enough - private
firms would concentrate in high density and lucrative markets
to turn a profit and ignore rural, isolated areas. Hence the
fundamental link between universal service and exclusive privilege.
In short, exclusive privilege is the price paid for constructing
and maintaining a non-discriminatory provincial electrical capacity.
Understanding NB Power's public policy purpose is key to understanding
why it is a crown corporation. Again, the reason is simple enough.
The more important question today is whether New Brunswick still
needs a crown corporation to generate and distribute electric
energy and to meet a public policy purpose.
The economic literature suggests that private firms, free of
the restrictions associated with public ownership, are able to
adjust more quickly to changing circumstances. We also know that
transferring activities from the public to the private sector
will reduce demands on the decision-making apparatus of government
and often promote important gains in economic efficiency. The
British experience with privatization between 1981 and 1985 reveals
significant improvements in a firm's commercial activities and
in its profitability when public enterprises were transferred
to the private sector. The Economic Council of Canada suggests,
however, that "to some extent ... these profit increases
may be a result of eliminating the firms' public policy obligations."
Thus the two key questions outlined earlier remain. Does the
corporation's public policy purpose still hold and do we need
a crown corporation to generate and distribute electrical energy
in New Brunswick? We know that all regions and all communities
in the province now have the required infrastructure to receive
electric power. In addition, some observers insist the province
could ensure "universal service" and "uniform
pricing" without resorting to a crown corporation to do
any or all of the required work. The government, they argue,
could declare an open market or, in effect, remove exclusive
privilege and at the same time establish a regulatory agency
with policy instruments to ensure that all New Brunswickers,
wherever they live, would have access to electric energy at comparable
Other observers remain of the view that only a crown corporation
can properly promote the public interest. They insist that principles
of "universal service" and "uniform pricing"
are rooted in a public service culture and in the notion that,
to the extent possible, everyone must be treated the same. Lest
we need to be reminded, there is a world of difference between
citizens and clients. Clients are sovereign. They can hold business
accountable through their behaviour in a competitive market.
In short, clients can turn to the market to defend their interests
or walk away from an unsatisfactory firm and turn to one of its
competitors. It makes solid business sense for firms to reserve
special treatment for their best clients. Citizens, on the other
hand, have common purposes. They also expect "common"
treatment from government and, by ricochet, from crown corporations.
One can imagine the uproar in the legislative assembly and in
the media if - leaving aside affirmative action programs - a
government program or the services of a crown corporation deliberately
discriminated against some New Brunswickers or some communities
or favoured certain citizens over others. Albert Hirschman spoke
to the difference when he wrote that in the business world "the
customer who, dissatisfied with the product of one firm, shifts
to that of another, uses the market to defend his welfare and
to improve his position." This is neat, tidy, impersonal,
effective, and quiet. It also easily lends itself to quantifying
success and failure. With government, however, the citizen uses
"voice" to express dissatisfaction. Voice is, of course,
much more messy than a quiet exit, since it can range "all
the way from faint grumbling to violent protest; it implies articulation
of one's critical opinions rather than a private secret vote
in the anonymity of a supermarket; and finally, it is direct
and straightforward rather than roundabout."
The difference goes to the heart of the most important public
policy role of NB Power: "universal service" and "uniform
pricing." Unleashing market forces, some would argue, could
play havoc with these two principles and in time "citizens"
would become business "clients" and be treated as such.
Government regulations could attenuate the impact, but they insist
only up to a point.
At the risk of oversimplication, the public sector or a crown
corporation has developed a well-honed capacity to serve all
New Brunswickers fairly and to construct a strong infrastructure
able to perform well at all times. Put differently, it has built
the right infrastructure, albeit at a very high cost. The private
sector, meanwhile, has developed a well-honed capacity to make
a profit, to respond quickly to marketing opportunities, and
to satisfy customers.
Still, an increasing number of observers favour privatization
and insist that private firms, through proper regulation, can
just as easily pursue a public policy purpose as any crown corporation.
There are now a number of studies that make the case that private
or market supply is much more efficient than public or non-market
supply. One such study looked at fifty cases in five countries,
comparing the efficiency of both sectors, and reported that,
in at least forty, the private sector was considerably more efficient.
Non-market supply appeared less costly only in such cases as
veterans' hospitals and garbage collection. In seven cases, the
verdict was unclear, because either the results showed no difference
or they were too ambiguous to draw any conclusions. In forty
cases, however, private supply was more efficient. The study
looked at a variety of areas, ranging from insurance sales and
servicing, airlines, bus services, cleaning services, banks,
slaughterhouses, fire protection, to weather forecasting. In
many instances, the differences were substantial, with the private
sector being 50 percent more efficient in the case of cleaning
services, 200 percent in debt collection, and from 12 to 100
percent in the case of the airline industry.
Privatization is a powerful tool also for those wishing to ensure
lasting change. One of the fears of many government reformers
is that bureaucracy will, as in the past, simply wait out the
political crowd in power and then see to it that things get back
to normal. Privatization takes the decision-making from the hands
of the bureaucrats and turns it over to market forces, which
(the thinking goes) will, by their very nature, ensure more efficient
decisions and allocation of resources. It also "attacks
the integrity of public sector organizations" by exposing
and removing the protective ideologies that government agencies
build up "to insulate their over-supply behaviour from external
scrutiny or criticism." If public bureaucracies cannot,
by definition, operate efficiently, then the solution is to move
the bureaucracies into the private sector.
History tells us that governments have not been very successful
at reforming their agencies or enterprises from within. Efficiency
drives or campaigns only bring at best limited success and this
only during the actual period of pressure. One observer explains
why. "When the novelty has died, the practices of public
supply gradually reassert their effects. The history of the public
sector in Britain is littered with the names of consultants who
wrought beneficial but short-lived influence from the private
The above suggests that, if the goal is truly to reform public
enterprises and to make the reform stick, then policy makers
ought to turn to privatization. Failing that, the status quo
will eventually prevail. We now have a whole body of literature
which argues that government officials intuitively favour the
status quo and that many of them have developed a capacity to
give the appearance of change while, in fact, moving very slowly
or even standing still.
Public enterprises or crown corporations are a hybrid governance
structure. Although a crown corporation certainly has the potential
to be more businesslike than a government department, it is not
a pure business structure nor can it ever be. A crown corporation
is designed to serve a public purpose, not a private one. It
is also accountable to political authority and not completely
to market forces. No matter what type of management improvements
one can introduce to the operations of a crown corporation, it
remains that the corporation will always lack the discipline
of an equity market and clear, quantifiable criteria for success.
Lacking such clear criteria and the profit motive, crown corporations
will invariably be accused of having inefficient management and
lacking in productivity.
Some will make the case that NB Power still serves an important
public purpose because it pursues such public policy objectives
as "universality of services" and a "uniform price."
But, at the risk of sounding repetitive, even these two principles
no longer require the existence of a public enterprise. Again,
both principles could now be pursued much more effectively by
private firms and at less cost.
The exclusive privilege, some observers argue, may well be more
useful in paying for costly decisions than in supporting universal
service and a uniform price. The exclusive privilege serves to
isolate the corporation from the rules and discipline of the
marketplace. It also makes it impossible for anyone to assess
its performance from a commercial or business perspective. Therein
lies the rub - if it is not possible to evaluate the performance
of NB Power from an economic perspective, then no one, be it
cabinet, the legislative assembly, New Brunswickers, or the marketplace,
can hold it properly accountable. We will also never know for
certain what ought to be the true cost of electric services in
The above explains why we cannot talk of electric power in terms
of pure public interest. National defence, for example, is a
public good because private firms can neither price it or deliver
it according to price. Electric power, if left to private firms,
could be priced and charged to its beneficiaries in a way military
service can never be.
This, in turn, leads us to ask, once again, is NB Power the only
way to achieve universal service at a uniform price? The answer
is no. The breakup of the AT&T system in the United States
and the deregulation of the airlines in both the United States
and Canada did not end service to small towns and rural areas.
Indeed, the deregulation of the airline industry in Canada has
given rise to new, profitable regional airlines serving smaller
cities and towns. With respect to telephone service in the United
States, we are informed that "AT&T justified its monopoly
primarily from universal availability of service at affordable
rates. To justify the prohibition of competition, some people
argued that competition would result in 'cream skimming,' 'service
degradation' and 'service reductions, especially in remote areas'."
We are now informed that "since the introduction of competition,
however, none of these adverse consequences have surfaced."
In addition, NB Power should no longer speak of uniform price.
Indeed, it currently provides a two- or multi-tier pricing system.
If, after having privatized NB Power, we would discover that
the practice of "cream skimming" is, in fact, taking
place and that isolated rural communities are no longer being
served adequately, then the Government of New Brunswick could
easily introduce a direct subsidy to ensure service is available
to all areas of the province. But even this may not be necessary
given that, through regulations, the province could require private
firms to deliver electricity to all communities in the province,
at a comparable price.
NB Power has other public policy objectives. We know that the
corporation has been directed, through an order-in-council, to
utilize up to 300,000 tons of New Brunswick coal, which is burned
at the Grand Lake and Belledune plants. This coal is more expensive
than imported coal. This is not to suggest for a moment that
creating jobs in Minto is an unimportant public policy objective.
But, rather than have NB Power assume the cost, the Government
of New Brunswick could provide a direct subsidy to the corporation
to purchase Minto coal through the budget process. In that way,
the public policy objective would be more transparent.
NB Power is also subject to the provisions of the Public Purchasing
and Crown Corporations Acts, which result in added administration.
In addition, the process for acquiring goods and services under
the acts can impede NB Power to do business in a timely manner.
Lastly, NB Power has, as a matter of public policy, pursued the
objective of minimizing rate increases for in-province customers.
The implication of this objective in terms of debt-to-equity
ratio and cross subsidies is obvious.
But the Government of New Brunswick could also pursue the above
public policy objectives even if it were to privatize fully NB
Power. Again, the government can turn to its budget process to
support any public policy objectives, including keeping power
That said, the status quo holds a number of advantages and we
need to review them. But first we need to be clear about what
constitutes the status quo. It is a crown corporation given an
exclusive privilege to generate, transmit, distribute and market
electrical power. Members of the board of directors are appointed
by the provincial cabinet. The sale of electricity is regulated
and the crown corporation enjoys monopoly status.