Certain industries are considered “natural monopolies”, because they function most efficiently as monopolies rather than as competitive markets. An example might be the natural gas industry; we wouldn’t choose to have four or five different companies running gas lines into our homes just so that we could choose among their competing offerings of an identical commodity. Similarly with both electricity and telecommunications, there would be obvious disadvantages to having lots of competing sets of electrical and telephone wires running down our streets.
Canada’s telephone and energy systems were, in fact, built on the basis of large monopolies. Our telephone industry is dominated by a few companies, primarily Bell Canada and Telus. Our energy supply has been dominated by large publicly owned electrical companies, such as BC Hydro and Ontario Hydro, and by large private companies in the natural gas area, such as Terasen (formerly BC Gas) and Enbridge (formerly Consumers Gas). One problem with monopolies, of course, is that the absence of competition could allow them to overcharge or otherwise abuse their customers, since customers have no option of switching to a competitor if service is poor or prices are too high. For this reason, governments have often created regulatory bodies that supervise monopoly utilities and try to impose some of the same controls on them that free markets impose on competitive industries. These bodies oversee the rates that monopoly utilities charge and the services they provide.
The Canadian telecommunications industry is regulated by an agency of the Government of Canada, the Canadian Radio-television and Telecommunications Commission (“CRTC”) and the federal Cabinet. Energy supply is regulated both by the Government of Canada, through the National Energy Board, and also by the Government of British Columbia, through the British Columbia Utilities Commission (“BCUC”) and the Cabinet.
The traditional regulatory model has been changing rapidly, however, not only across Canada but around the world. Changes in technology and in the dominant political ideology have led governments to rethink the whole idea of using regulated monopolies to provide utility services. Instead, some governments are introducing competition in industries that were traditionally dominated by monopolies, so that market forces, rather than government regulators, set prices and services. This move toward “deregulation” has not been without its problems, however, making future developments difficult to predict.
The biggest changes have been in telecommunications. Under the 1991 Telecommunications Act, the federal cabinet and the CRTC have allowed competitors into the market for long distance phone services, and in 1998 access was granted to competitors in the local phone service area as well.
The CRTC is also changing the way it oversees the phone companies. Until recently, it has used the traditional “rate base/rate of return” system. This system sets phone rates at the right level to guarantee that the companies will cover their costs and provide a secure profit margin for shareholders. The new system, introduced in 1998, is “price caps”, where the CRTC sets formulas for price ceilings both in total and for sub-groups of customers, such as residential. This leaves it to the companies to set prices within those limits. Restrictions on the amounts of profit that companies can make from their continuing domination of the industry no longer apply.
Switching from regulated monopolies to competitive markets has been a difficult process and has produced a lot of new problems. While long distance markets are increasingly competitive, as are optional local services, particularly for business customers, real competition in basic local services has often failed to develop, especially outside of metropolitan areas. In rural areas, the monopoly utilities often remain the only suppliers, and consumers have lost much of the protection that they previously received. Local-calling telephone rates for consumers are rising rapidly and promised service improvements are failing to materialize.
We at BCPIAC are the only group representing consumers from BC in CRTC hearings about telephone rates and services. We act for a number of community groups, including the BC Old Age Pensioners’ Organization, the Council of Senior Citizens’ Organizations of BC, the federated anti-poverty groups of BC, the West End Seniors’ Network, End Legislated Poverty, and the Tenants’ Rights Action Coalition.
Our job is to bring consumer perspectives before the CRTC, so that it is not just the phone companies and other business groups that the CRTC listens to when making its decisions.
Most of our work on energy issues is before the BCUC. The BCUC’s job is to set rates and operating rules for electrical and natural gas suppliers in the province. We have represented our clients at every major hearing before the BCUC since its first hearing in the early 1980s.
The major electrical utilities with which we are concerned are BC Hydro and FortisBC. We participate in hearings concerning gas utilities that include Terasen Gas, Terasen Gas (Vancouver Island), and Pacific Northern Gas.
There is currently no real competition in electricity in British Columbia. There is limited competition in the provision of electricity by Independent Power Producers (IPPs) to utilities for resale but IPPs cannot provide electricity to end-use customers in competition with utilities. Competition in the production of natural gas was introduced in 1986, allowing end-use customers to purchase gas directly from producers, however this was limited to large industrial and commercial users. The degree and extent of competition in both the electricity and natural gas industries could certainly change in the future. While the degree of change is difficult to predict, it is more likely to be in the natural gas rather than the electricity sector.
Movement toward competition and deregulation in the electricity industry in British Columbia is slow for a number of reasons. Some of these reasons are technical, such as the need to coordinate the operation of hydroelectric dams on each of British Columbia’s two major electricity-producing rivers. Another is the limitations placed on the BCUC by the Utilities Commission Act, which has not been overhauled since 1980. Low electricity prices in British Columbia – where residential rates are among the very lowest in North America – have created little incentive to seek a change from the status quo. Finally, high prices and problems created by restructuring and deregulation in other jurisdictions (notably California and Alberta) have served as a deterrent to experimentation here.
November, 2005: In 2003, the government amended the legislation governing ICBC to remove it from direct Cabinet control, and place it under the regulatory power of the BC Utilities Commission. The amendments retain a Cabinet power to issue “special directions” to the Commission, so the government can provide guidance in its regulation of the Insurance Corporation. But in October 2005, the Cabinet issued a direction that tries to undo the amendments, and put the politicians back in control of ICBC. The direction invents a new mechanism it calls a “Government Directive” to ICBC, and says that the Commission is required to rubber-stamp whatever ICBC does to comply with a Directive. Jim Quail has filed a court challenge to this Cabinet order on behalf of our regulatory clients. We expect that the case will be heard in January 2006.