Halifax, NS/St. John’s, NL: One of the potential benefits of the multi-billion dollar Muskrat Falls project in Newfoundland and Labrador (NL) is the enhancement of the electricity grid, which is especially significant for the Island of Newfoundland, since it would be physically connected to the North American electricity market for the first time. According to a new report released by the Atlantic Institute for Market Studies, however, the province’s recently enacted legislation will deny Islanders the gains accrued through trade.
The report, Electricity Market Integration: Newfoundland Chooses Monopoly and Protectionism, authored by James Feehan, Professor of Economics at Memorial University, finds that NL’s legislation regarding the Muskrat Falls Project, “imposes measures that restrict interprovincial trade and consumer choice.”
NL’s government has, for instance, banned private-sector electricity retailers and large energy-intensive businesses on the Island of Newfoundland from developing their own sources of electricity. Nor can they buy from independent power producers because the law also entrenches the monopoly power of the provincial government’s crown corporation, Newfoundland and Labrador Hydro, which is given the exclusive right of supply, distribution, and sale of electrical power in the Island’s wholesale market. This also means that on-Island wholesale buyers will not be allowed to purchase from out-of-province suppliers, despite the fact that the project will make this physically possible for the first time. The law, not a competitive advantage, will give NL Hydro an iron grip on the Island’s wholesale market.
“Professor Feehan does an excellent job outlining the pitfalls of Newfoundland and Labrador’s decision to outlaw competition in its electricity market. He aptly shows that restrictions introduced in Newfoundland and Labrador’s recent amendments to the Electric Power Control Act will hurt consumers,” commented Dr. Marco Navarro-Genie, the Institute’s president. “Banning competition is not in the best interest of consumers, as cases from other jurisdictions in the country have already shown.”
Feehan suggests that NL Hydro’s exclusive control over Newfoundland’s electricity supply ensures that the Island will be insulated from competitively-priced electricity. As a result, Feehan cautions that, “Island ratepayers, with no access to outside markets or alternate on-Island suppliers, will be trapped in a highly monopolized market with little choice but to pay.”
“The project, despite connecting the Island to the North American power grid, replaces physical isolation with economic isolation, preventing potential gains that would be otherwise unimpeded under a competitive framework,’ says Feehan. As a result, Island ratepayers will be forced to pay for this expensive project, whatever the cost.
Ultimately, opening up NL’s energy market should mean reduced costs and increased competition, not the reverse.
For more information, please contact:
Dr. James Feehan
Department of Economics, Memorial University of Newfoundland
St. Johns, Newfoundland and Labrador A1C 5B7
Tel: (709) 864-3003