Jt. Bernard et Ja. Doucet, The opening of the export market for electricity from Quebec - Reality or mirage on the horizon, CAN PUBL P, 25(2), 1999, pp. 247-258
Worldwide the electricity industry is undergoing a substantial process of r
estructuring. The most significant aspect of this process is the introducti
on of competition in the production sector. The principal objective is cost
reduction, which should eventually lead to lower electricity prices. In th
e United States bulk power markets, that is, markets involving transactions
between producers and distributors, have been open since the beginning of
1997. Hydro-Quebec believes that this opening represents an opportunity for
it to increase its sales in the northeastern US. This belief is based in l
arge part on the considerable differences between electricity prices in the
latter market and in Quebec. In this paper we outline two factors which we
believe will limit profitable exports of electricity by Hydro-Quebec. The
first is the fact that transmission on Hydro-Quebec's grid must now be pric
ed at the average system cost. The second is the fact that Hydro-Quebec's d
omestic tariffs continue to be pegged to the average cost of production whi
ch is lower than the system marginal cost. This implicitly encourages domes
tic consumption rather than exports. Both of these factors illustrate the i
mportance of correct price signals for efficient resource allocation.