Few national myths are as strong as that of Hydro-Québec. In the collective imagination of Quebec, the nationalization of electricity has become a symbol of the liberation of an industry dominated by the English.
Notwithstanding the myth, Hydro-Quebec is not particularly successful as a Crown corporation, however. In 2019, researchers at HEC Montréal found that Hydro-Québec’s productivity had fallen by 20% since 1981.
Over the same period, almost all of the studies on the overall efficiency of electricity companies abroad nevertheless observe efficiency gains.
As last November 14 marked the 60e anniversary of the election of Jean Lesage’s government in 1962 — and of his famous slogan Maîtres chez nous — it is useful to look at the historical performance of the electricity market before nationalization, in order to understand the trajectory since its statehood.
The argument frequently put forward in Quebec history lessons is that of politicians of the time in favor of nationalization, such as Philippe Hamel and Télesphore-Damien Bouchard. They compared the prices in effect in the private Quebec market to those in the state-run Ontario market, arguing that if the state took charge of the electricity industry, Quebecers would save money.
A first flaw in this comparison comes from the fact that a significant portion of the high prices in Quebec came from the taxes that the government imposed. In Ontario, the state monopoly was exempt from taxes and levies. In Quebec, nearly a third of the amounts paid for electricity went up in various taxes in 1939.
The second flaw stems from the fact that the Ontario Crown corporation was running a lot on taxpayers’ money at the time. The selling price of electricity was lower than the effective cost. It therefore posted losses year after year.
If it had been a private company, it would only have affected the investors, but because it was owned by the province, the losses were absorbed into the citizens’ tax bills. By adjusting for this subsidy at the expense of taxpayers, we realize that the cost of producing electricity was 32% lower in Quebec than in Ontario at the time.
In short, one of the main arguments used to promote nationalization at the time omitted both the role of taxes explaining the higher price in Quebec and the effect of consumer subsidies from the tax bill giving the illusion of a lower price in Ontario.
Already, the historical myth that Quebec’s private electricity companies took advantage of this to overcharge Quebecers is taking a hit. That being said, if the arguments had teeth at the time, it was because they had to reflect part of the experience of the customers of the private electricity companies of the time.
Added to this is the Ontario demand increase factor. The regulated price of electricity being lower than the market price, Ontario has seen its demand for electricity increase very quickly and very markedly.
Since the most efficient sites, such as those in the Niagara Valley, had already been developed, the only politically viable option for the Ontario government was to import electricity, in large quantities, from nearby markets. Sensing a good deal, Quebec’s major electricity producers quickly signed supply agreements with Ontario, leading to an explosion in exports.
From less than 4% of the quantity produced in Quebec in 1926, the electricity exported to Ontario reached 20% in the early 1930s. Ontario’s excess demand therefore entered the Quebec market.
Such an increase in demand has led to an increase in prices. Compared to the rest of Quebec, customers of Quebec producers connected to the Ontario market have seen their rates increase by 13 to 21%.
The electoral effect was not long in being felt. As early as 1936, the regulation and nationalization of electricity was a hot topic in Quebec. In ridings where electricity producers had a link connecting them to Ontario, nearly a third of the drop in support for the Liberal Party of Quebec could be explained by this grumbling about rising prices.
The mechanism that led to the nationalization of the electricity market was in motion. Eight years later, the Liberal government of Adélard Godbout created Hydro-Québec. In 1962, Jean Lesage was brought to power with a promise to complete nationalization. Ironically, the Quebec monopoly of electricity production is a perverse effect of Ontario state control.
Let’s be clear: better understanding history does not give us a way forward. This tells us, however, that the national myth surrounding Hydro-Québec is not as black or white as we like to believe. To debate more rationally the future of our “national flagship”, perhaps it would be time to put away the scarecrow of a fictitious past.