Electronic copy available at: http://ssrn.com/abstract=2847108

Electricity in Quebec before nationalization, 1920 to 1939     

Vincent Geloso, Texas Tech University Germain Belzile, HEC Montréal 

  

 

Abstract: Upon opening history books about the electrical industry in the Canadian province of Quebec prior to nationalization (which was realized in two steps between 1944 and 1962), one is often confronted with the claim that the industry was monopolistic and was gouging consumers—especially when compared to the neighbouring province of Ontario. Even though it is hard to collect price data at the level of firms, it is possible to collect some overall—but often ignored—data about the industry to evaluate this claim. With the use of such data over time, we observe the opposite: electrical firms in Quebec increased production faster than elsewhere while prices fell constantly. Moreover, there is strong evidence that productivity growth was higher in Quebec than in Ontario and the Canadian average. The main reason for this divergence between facts and history books is most likely the choice of comparing Quebec’s private industry with Ontario’s nationalized industry. 1 JEL codes: D40, L10, N72 Keywords: Electricity, Canadian Economic History, Monopoly 

  

 

1. Introduction

 

The Canadian province of Quebec is one of the foremost producers of hydroelectricity in

the world. Its vast network of high current rivers provides an easily accessible and very large

energy potential. In the early days of electricity, this potential was acknowledged and investments

were made to harness it. The history of electricity in Quebec is tightly linked with the economic

history of the province.  

From the beginning, the private electrical industry of Quebec was accused of being

monopolistic. Although the word “trust” in English does not necessarily monopoly in any

economic sense, the French-Canadians in Quebec used this term to imply that the industry was

                                                            1 Acknowledgements go to Alexandra Foucher, Mike Guetta, Robert Rogers and Art Carden, Jean-Thomas Bernard, Herbert Emery, Edward Stringham, Pierre Desrochers, Michael Giberson, Gérard Bélanger and the participants of the research seminar at Texas Tech University.  

Electronic copy available at: http://ssrn.com/abstract=2847108

controlled by a dominant firm in each market (Bellavance 1998). The claim was that prices were

high compared to the neighboring province of Ontario. The most popular policy proposal aimed

at nationalizing the industry and reducing prices to encourage industrial development. In the 1940s,

a partial nationalization of the industry was enacted and by the early 1960s, the rest of the industry

had been nationalized. Nowadays, there is a widespread belief that nationalization helped the

Quebec economy, especially when compared with the era of private markets.  

That belief is largely based on the contention that the electrical industry had to be a natural

monopoly given large economies of scale that implied that a single firm in each market could serve

the market at a lower cost than multiple competitors (Faucher 1992; Bellavance 1998). While this

view is not uncommon amongst economists, it does not mean that the electrical industry was a

natural monopoly. The electrical industry in the United States was subject to similar criticism from

the late nineteenth century until the mid-twentieth century and numerous economists and historians

have rejected this claim (Bradley 1998; Smith 1988; 1996; Rassenti, Smith and Wilson, 2001;

Troesken 1996; McDonald 1957). The downward trends in prices, the increasing supply of

electrical services and the greater quality of the service noted by these authors all militate against

this contention. Furthermore, in the absence of legal barriers to entry, even a single firm can behave

in a competitive manner since the market can be contested (Coursey, Isaac and Smith 1984),

especially if there is a bidding process (Demsetz 1968).2 Given that, in Quebec like the United

States, numerous contracts for street lighting and industrial clients were obtained through a bidding

process, there is good reason to side with those who are skeptical of the applicability of the natural

monopoly view to the electrical industry. The granting of franchise, which means the presence of

a single firm for a contractually fixed period of time, does mean that a single firm operates in the

market. This is what some denounce. However, Demsetz argued that if there is bidding for the

franchise, then firms compete on rates and propose prices that are contractually fixed and that are

also similar to prices found in competition (i.e. the absence of monopoly profits).3 Moreover, as

Troesken (1996: 25) notes, the electrical industry was locked in competition with the coal and gas

industries. Thus, the presence of a single firm in regional electrical market was not necessarily a

sign of monopoly as the competition could come from other sectors producing substitute goods.

                                                            2 Troesken (1995) makes a similar point, in the case of the Chicago Gas Trust Company in the late nineteenth century. He notes that production costs did not increase after the breakup of the firm by regulatory authorities. Had it been a natural monopoly, an increase would have been observed.  3 Troesken (2006: 267-268) explains this franchise in the case of electricity for the United States.  

Finally, it is also worth considering that even if the industry had been a natural monopoly, the

justification for nationalization was not clear-cut. Indeed, critics of the private electrical providers

in Quebec continually compared prices with those in Ontario where the industry had been

nationalized. However, a public monopoly can be worse than a private monopoly. To justify

nationalization on the basis of market imperfections is akin to a judge in a singing contest with

two participants deciding to award the prize to the second participant after hearing a dreadful

performance by the first under the assumption that the second could not have done worse.

Indirectly, this is what historians in Quebec may have done. By comparing the prices of a public

operator with the prices of a private operator, they were comparing a system whose costs were

assumed by channels that did not include prices, with a system where prices were the reflection of

market conditions.  

In this paper, we question the claims often made by Quebec historians. We propose that

the pre-nationalization era was markedly different from what it is claimed to have been. Firstly,

the available data shows a downward trend in prices, relatively low price levels in North American

rankings, and an increase in productivity. Secondly, the comparison with Ontario on the basis of

prices alone is misleading since that province decided that the public sector should be a provider

of electricity at cost. By doing so, Ontario subsidized lower prices and had a higher tax burden

with lower service quality. In addition, electricity at cost meant greater demand—which the

domestic industry could not supply. The shortfall had to be imported from Quebec. This increased

demand for electricity produced in Quebec, putting upward pressure on prices there. Thus, the

complaints of high prices in Quebec were actually a spillover from Ontario’s decision to

nationalize.  

Imperfect though it was, the private market for electricity in Quebec was able to deliver

increasing quantities of electricity across a wide territory at lower prices. In competition with other

energy providers like gas, coal and hardwood, the results it delivered were close to those one could

expect in a competitive equilibrium. While debates can be had over the relevance of regulating

these firms,4 nationalization would not have represented an improvement for Quebec as was

exemplified by the case of Ontario.  

                                                            4 We are skeptical of this possibility, especially in light of the arguments brought forward by Troesken (1995) in his study of the Chicago Gas Trust Company and his later work on the relevance of regulating utilities (1996). Dupré, Patry and Joly (1996) point out that, in the 1930s when price regulations were introduced, the effects upon firm performance and prices resembled those underlined by Troesken (1995).  

2. Quebec’s Electrical System Before Nationalization

 

Quebec is riddled with numerous rivers eminently suitable for hydroelectric generation. This

potential was understood and harnessed late in the nineteenth century as the city of Montreal

electrified its streets and tramways (Pharand 1997). Most of the investors were English-speakers.

Although the vast majority of the province is French-speaking, they composed a negligible share

of investors.5 Progressively, consolidation occurred within the industry and only a few highly

vertically integrated firms remained. The largest of the remaining players, the Montreal Light,

Heat and Power Company (MLHP), and its owner, Herbert Holt, were highly controversial from

the early days of the industry. Holt had been involved in the electrical industry since the late

nineteenth century (Hogue, Bolduc and Larouche, 1979; Dales 1957) and had been quite influential

in the consolidation of the nascent electrical industry. This consolidation elicited criticisms of

monopolization with Holt’s MLHP characterized as a “trust”—although the same claim was made

about companies in the Matapedia and Temiscouata valleys as well as in Quebec City.  

What attention has been paid to the state of this industry before nationalization has centered

on the issue of unproductive “trusts” intent which gouged consumers and municipal governments.

Dubbed the “electrical question” (Faucher 1992:417), the general contention is that they charged

prohibitive prices, especially for farmers, and that this slowed down industrial and agricultural

development by preventing the use of a resource that could have allowed export-based industries

to carve out positions in the American market (Faucher 1992; Boismenu 1981). To substantiate

this claim, numerous historians have pointed out the fact that prices were lower in the neighbouring

province of Ontario (Dorion 2000; Dales 1957; Faucher 1992; Piché 1937). If Quebec could

nationalize its industry, they claimed, it would follow Ontario’s economic path.  

In the 1920s, support for nationalization grew and it picked up steam during Great

Depression with the political activities of individuals like Paul Gouin and Philippe Hamel who got

elected in the 1930s on a platform to nationalize electricity. During the 1920s, Quebec was

struggling to industrialize at a faster pace (Geloso 2013). Louis-Alexandre Taschereau—Liberal

premier of Quebec from 1919 to 1935—was throughout his reign in a deadlock with nationalist

elements favorable to nationalization (Vigod 1986). In his efforts to accelerate the industrialization

                                                            5 This is an important point given that French-Canadian nationalism creates a certain bias against English-speaking industrialists.  

of the province, Taschereau enthusiastically supported the development of the electrical industry

and believed nationalization would worsen things.  

Yet, even within his own Liberal party, Taschereau faced conflict over the issue of

nationalizing electricity. For example, the mayor of Ste-Hyacinthe, Télésphore Damien Bouchard

(amicably known as TD Bouchard), who was also a member of the provincial legislature, favoured

the creation of a publicly-owned distribution system which would sell electricity at cost to

municipal power utilities (Black 1977). Other contemporary Liberals like Quebec City mayor

Oscar Drouin and doctor Philippe Hamel joined in. Eventually, they led a dissenting group of

Liberals and caused an internal schism that resulted in the party’s ouster in the next election. Hamel

is probably the most interesting figure in the history of the electrical industry. A dentist by training

who spent hours reading bulletins from the Federal Trade Commission in the United States, Hamel

believed that the industry in Quebec was a “trust” (Faucher 1992). To support his claim, he

provided evidence that rates in Quebec were considerably higher than in Ontario. The main

opposition party, the Conservatives, argued the same, adding that Quebec consumers were poorer

than elsewhere in Canada and that power corporations like the Quebec Power Corporation and

Montreal Heat, Lighting & Power Company were gougers (Dirks 1974:224). Opposition to

“electrical trusts” was broad, cut across party lines and was the most adamant during the 1930s.  

With the Great Depression, Taschereau’s position became untenable and he had to resign

in favor of Adélard Godbout who, although he would lose the subsequent election, would end up

being the harbinger of nationalization. In 1939, the liberals returned to power after a brief

expulsion, and by 1944 they had nationalized the MHLP which was the largest of the private firms.

In 1962, the remaining firms would be nationalized. The general opinion is that this nationalization

process was fairly positive (Hogue, Bolduc and Larouche 1979; Fleury 2004) or that, at the very

least, it was an improvement relative to the state of affairs when the industry was privately owned.

This is the accepted narrative.  

However, a first and very brief glance at the evidence indicates several problems with this

account. Until the 1950s, Quebec was one of the poorest provinces in Canada and it had a hard

time converging to the Canadian average of per capita income (Geloso 2013; Brown and

MacDonald 2015). After the Maritime provinces of Prince Edward Island (PEI), Nova Scotia and

New Brunswick, it was the poorest. Reasonably, we can assert that a province whose citizens were

poorer should also have had fewer customers for electricity relative to the national level. However,

as Table 1 illustrates, this was not the case. The population of Quebec represented 27.5 per cent of

the entire population of Canada in 1926 and its share of all electricity customers was 27.1 per cent,

a surprising figure given that its personal income per capita was roughly 15 percent below the

Canadian average. The number of electricity consumers per inhabitant in Quebec as a percentage

of the same in Canada was actually very high—at 98.5 per cent. If the citizens of Quebec were

poorer and had higher prices, why were they so inclined to consume electricity? Of course, this

does not provide sufficient proof to invalidate the current dominant opinion, but it does create

enough doubt to warrant further inquiry.  

 

Table 1: Personal income per person and customers per inhabitant in selected province as share of

Canada with shares of Canadian population and customers for the year 1926 

 

Personal

income

per person 

Customers

per

inhabitant   

Population

Share of

Canada 

 

Share of

Canadian 

Customers 

Quebec as % of Canada  79.9% 98.50% Quebec 27.5%  27.1%

PEI as % of Canada  47.1% 33.31% PEI 0.9%  0.3%

Nova Scotia as % of Canada  60.9% 59.78% Nova Scotia 5.4%  3.3%

New Brunswick as % of

Canada  61.1%  57.78%  New Brunswick  4.2%  2.4% 

Ontario as % of Canada  119.6% 125.61% Ontario 33.5%  42.1%

Source: Statistics Canada, 2015 (CANSIM table 384-5000) and Dominion Bureau of Statistics, 1926.  

 

There are further causes for doubting the conventional narrative, all of which revolve

around the constant contemporary comparison made with Ontario. This comparison, which has

inspired numerous justifications of the benefit of nationalization, is flawed. First of all, Dales

(1957: 43-45) suggests that the electrical industry in Quebec actually did offer lower prices with

regard to industrial clients. Given the importance of energy-intensive industries in Quebec, like

aluminium, paper factories and pulp factories, this is an important feature. The importance of

electricity in Central Canada’s industrialization probably mandated such a strategy according to

Dales (1953). Indeed, this helped the productivity of these firms and allowed them to offer higher

wages than they otherwise could. Thus, workers might have paid higher prices for residential

electricity, but they also had higher wages thanks to the greater productivity of the industrial clients

of electrical firms.  

Secondly, and most importantly, when one compares the two provinces, one compares a

partially nationalized market with very heavy regulations on distribution (Ontario) to an

unregulated market (Quebec). In fact, Ontario was unique in Canada with its “completely public

system” until the 1940s (Dupré et al. 1998: 120). Set up in the early years of the twentieth century,

the provincial electric utility, the Hydro Electric Power Commission (HEPC), was established to

compete with the private sector. It bought electricity from “an American owned firm (…) [and]

built its own transmission lines to reach municipally owned distributors” (Bliss 1987: 369). The

energy would then be sold at “cost” by the city-owned distributors. This has been nicknamed the

“Power at Cost” movement. This movement stemmed from the union of businessmen around the

city of Toronto who desired the availability of cheap power to manufacturers. Before the end of

the Great War, the state arm was authorized to construct central generation plants to produce its

own electricity. In 1921, the provincial government pushed for the acquisition of the Electrical

Development Company’s plant, hence eliminating the “largest and most aggressive private rival”

(Dupré and al. 1998: 129). In 1924, the Toronto Power Company sold its assets to the HEPC

(Giguère 2014: 26). By the end of the 1920s, most of the private providers in rural areas had closed

down in the face of “the expanding Hydro monolith” (Fleming 1992: 126). In essence, the HEPC

had virtually been substituted for private industry (Giguère 2014:26). As for the setting of fares

under the Ontario system, historian Keith Fleming summarizes how the “power at cost” (electricity

sold at the cost of production) system worked:  

 

Rates charged by the municipalities had to be sufficient to cover the cost per horsepower

incurred by the HEPC at the point of development. Also to be considered in the final price

were the municipality’s proportionate share of transmission costs, operation and

maintenance costs, interest charges on any money borrowed for installation, depreciation

reserves, a reserve fund for obsolescence and contingencies and sinking fund reserves for

the amortization of local commission’s debts. Ultimately, a higher power cost resulting

from longer transmission distances, smaller population density and lighter power load had

to be borne solely by the contracting municipality (Fleming 1983: 486). 

 

Hence, the systematic comparison between Quebec and Ontario with regard to electricity

markets seems quite biased in favor of finding lower prices in Ontario—especially during the

Depression. Until 1926, official statistics demonstrate that Ontario generated more electricity than

Quebec (Statistical Year Book of Quebec 1944: 384). However, it was estimated in 1922 that

generating costs in Quebec were cheaper by 32% relative to Ontario even if domestic rates were

lower in Ontario (Murray and Flood 1922: 19). Taxpayers had to pay since the financial liabilities

incurred by the Hydro Electric Power Commission rose from less than $4.3 million in 1911 to just

below $98.4 million by 1920 (Ibid: 83). Ontarians paid for this by having higher taxes than Quebec

(Ibid: 110-115). When comparing 35 Quebec cities with 66 Ontario cities, we see that the 1920

per capita tax burden was significantly higher in Ontario (Ibid: 115) as a result of the HEPC’s

activities. Comparisons with cities HEPC had not yet penetrated in 1920 also show that the tax

burden was lower with lower per capita debt burden (Ibid: 121). We can use the personal income

and personal disposable income data made available by Brown and Macdonald (2015) to measure

the difference in the tax burden. Although not a perfect measure, the difference between the

personal income measure and personal disposable income measure gives us the effective tax

burden of the average person. Using that approach, we find that this effective tax burden stood at

2.59% in Quebec between 1926 and 1939 compared with 4.52% in Ontario. In addition, it ought

to be pointed out that the HEPC was an important inspiration for the future Tennessee Valley

Authority (TVA) in the United States (Giguère 2014: 28-30). To the best of our knowledge, no

studies use econometrics to document the success of the HEPC. However, the similarities of the

TVA suggest that the benefits were negligible. According to Kitchens (2014:389), the TVA “had

little impact on economic growth” and the impact is not statistically significant in numerous cases.

This echoes William Chandler (1984) in his Myth of the TVA who argued that it actually hindered

growth by providing incentives to remain on small farms. If the TVA was inspired by the HEPC,

the absence of positive outcomes could also have been found in Ontario.  

It must be pointed out too, that in some instances, complaints about high prices were the

result of limits on the competitive process—largely in less densely populated areas. One such

example is provided by the Bulletin des Agriculteurs, an agricultural news outlet, in 1935. In the

November edition of that year, it reported that, in the city of Rimouski, the price for city lighting

was considerably higher compared with cities in the neighbouring province of New Brunswick

(p.6). However, it is noted that the city had, in 1905, granted a twenty-five-year franchise in the

city of Rimouski. This would be in line with Demsetz’s (1968) argument that competitive auctions

for the exclusive right to operate would attract firms to the bidding process and, as long as the

process were fair and open, the utility that won the auction would offer prices equal to those in a

competitive setting even if it had a franchise.6 However, the potential exists for corruption to enter

the process. Firm owners might bribe politicians to accept contracts in spite of high prices. In that

case, the issue of high prices and low quality is the result of “rent-seeking”—the legal creation of

a privileged status. Whether or not that was the case in the instance of Rimouski (the evidence we

will present below suggests that in general it was not), the lack of attention devoted to the issue of

how franchises were conceded in Quebec allows a certain confusion between “monopoly power”

and “rent-seeking.” In addition, the renewal of such franchises—even in the absence of

corruption—opens the door to self-interested politicians to “hold-up” private firms at the end of

the contract in order to extract politically useful favours (Troesken 2006: 264). The case of the

United States is instructive as local politicians often complained of high prices in order to either

extract bribes from private firms (as was the case in Chicago) or to win elections regardless of

whether or not the price was a competitive price (Troesken 2006: 268-272). It is hard to see why

politicians in Quebec, who had a great hand in determining the narrative during the private era of

electricity, would have been any different than those in the United States. 

This is where we should also question the sources of the arguments against private firms.

As mentioned above, many of the criticisms came from self-interested politicians. French-

Canadian nationalists also played an important role in the shaping of the discourse. As the industry

was mainly English-speaking, French-Canadian nationalists were immediately distrustful of it on

top of their strong anti-industrial bias (Lamonde 2004). Historians have rarely considered that

those who pushed for nationalization and criticized the private industry were farmers who stood

to gain from nationalization and French-Canadian nationalists who were hostile to English-

speaking investors. In his work on Canadian business history, Michael Bliss underlines the

importance of anti-industry feelings toward utility companies in provincial politics (1987: 345-

380). Distrustful of private enterprise and supportive of a greater role for government in economic

affairs, the Ontario push to establish public operators of electrical utilities was imitated in other

provinces for other utilities. For example, the governments of Alberta and Manitoba entered the

telephone business in 1907 to compete with private firms (Bliss, 1987: 371). One should also

                                                            6 Especially if the price schedule were fixed in the franchise contract.  

consider the importance of farmers in this debate. The number of farms reported in the 1921 census

was equal to 31% of all families in the province compared with 25% in the 1931 census. This was

a substantial share of voters. Farms in Quebec had electrified more slowly than farms in Ontario

(Dorion 2000: 10), but the share of electoral districts in rural areas was considerable and incited

politicians to engage the issue especially during the Great Depression. Taking its cue from Ontario,

where the Rural Hydro-Electric Distribution Act of 1921 had allowed the government to assume

50% of the global cost of the rural distribution network, the government of Quebec finally adopted

a plan to subsidize electrical distribution in the rural regions of Quebec during the 1930s at the

behest of farmers (Ibid: 9). However, the proponents of nationalization argued that it was not

sufficient and that to catch up with Ontario, a plan equivalent to theirs for nationalization was

needed. In such an environment, facts might have been discarded in favor of political rhetoric.

Across the years, one can consult the Bulletin des Agriculteurs (farmers’ bulletin) which constantly

railed about the high price of electricity and how it pushed farmers to leave their farms in favor of

the city. To halt this exodus, it was argued that rural electrification was required. For farmers,

mandating governments to provide cheaper electricity was a form of rent-seeking and given their

vested interest and their importance in the debate, we should be skeptical of the reliability of the

narrative they advanced to justify their demands.  

A more cautious and nuanced look is required to assess the pre-nationalization market.  

 

3. The Actual Performance of the Industry

 

To adequately measure the performance, it is necessary to rely on numerous sources of

official data. Much of this data is drawn from the Central Electrical Stations booklets produced

by the Dominion Bureau of Statistics (DBS)—the ancestor of Statistics Canada. We complement

this source with evidence from the Canada Year Books (statistical compilations of annual data

relating to Canada’s development) and the Quebec Statistical Year Book. Taken together, these

sources give cause for skepticism. The most damning piece of evidence comes from prices. Up to

the Great Depression, prices were falling in both nominal and real terms—and at a very fast pace.

During the Depression, prices went up slightly and then went down again. By 1939, real prices

were not as low as they had been during the 1920s, but they were near historical lows and declining

progressively. But this first piece of evidence has some limitations since the price quotations prior

to 1930 are collected from the work of Hogue, Bolduc and Larouche (1979) who merely took

quotations from the newspapers in Montreal while the DBS statistics are a composite of prices

across the province (see figure 1). Furthermore, the fall in prices in Quebec was actually more

pronounced than that seen for the rest of Canada as a whole between 1910 and 1933 as shown by

data from the Canada Labour Gazette (1933). Between 1910 and 1932, prices in Quebec had fallen

(in nominal terms) by 57% compared with 45% for the Canadian figure quoted in the Labour

Gazette.  

 

Figure 1: Residential electricity rates in Quebec, nominal, adjusted for inflation (1913=100)

using the city of Montreal price index from 1910 to 1939  

 

Source: Prices from 1910 to 1929 (Hogue, Bolduc and Larouche 1979); prices for 1930 to 1939 (Dominion Bureau

of Statistics 1939); price index (Emery and Levitt 2003).  

 

This trend in prices can also be confirmed indirectly by looking at the revenues generated

per customer, adjusting for consumption. The idea is that, if prices were falling, there should be

fewer revenues per unit of energy consumed by household. As we can see in Figure 2, there is a

similar trend in the 1920s.

 

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Figure 2: Residential electricity rates and revenues per Customer-KwH (1923=1) 

 

Source: See Figure 1 

Moreover, the evolution of those numbers is similar to that of the United States and the

United Kingdom as can be seen in Figure 3. In terms of comparison with the United States, Quebec

fared very well.

 

Figure 3: Residential electricity rates and revenues per Customer-KwH in Britain, Quebec and

United States (1923=100) 

 

Source for American prices (Historical Statistics of the United States 2000: Table Db234-241); British revenues per

Customer-KwH (Hannah 1979) 

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Revenues per customer/KwH Residential rates

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Residential QC Revenues per Customer/KwH QC

US Residential Revenues per Customer / KwH  (Britain)

The prices were much lower than in most American cities as can be seen in Figure 4. Even

within Canada’s domestic electricity service, Quebec was doing very well. Revenues per kWh for

domestic service were lower in Quebec than in all the other provinces save Manitoba and Ontario

(and it was nearly on par with British Columbia) (Central Electric Station booklet 1939: 14). 

 

Figure 4: Residential electricity rates in Quebec and American cities, 1923-1925 and 1938 (in

USD) with Montreal highlighted 

 

Source (American cities): Bureau of Labor Statistics. 1939. Changes in Retail Prices of Electricity, 1923-1938.

United States Department of Labor. Source (Quebec): See above 

 

Moreover, a significant level of attention must be given to the relative evolution of the

supply of electricity. Throughout the period, Quebec’s electrical capacity increased at a much

faster pace than Ontario’s. In fact, as Figure 5 shows, Quebec started off producing less electricity

than Ontario, but by 1926, was producing more. It should be pointed out that, contrary to the

situation in Quebec, Ontario’s electrical production was being subsidized and barely taxed at all.

The DBS data show that in 1925 (the first year where taxes are not reported as “miscellaneous”)

taxes represented 16.7% of expenses for the entire electrical industry in Quebec. This compares

with Ontario where 4.12% of expenses were the result of taxes (although the burden fell on the

few private producers left). The vast expansion of the supply of electricity in Quebec occurred

under a much heavier tax burden for developers and was not being subsidized as was the case in

Ontario.  

 

Figure 5: Capacity of power plants installed in Quebec and Ontario (horsepower) 

 

Source: Quebec’s Statistical Yearbooks (numerous editions) 

However, capacity is not a perfect indicator; it does not measure how extensively the

capacity was used. Figure 6 solves that issue by showing that the quantity of KwH produced

increased much more rapidly than the capacity of hydroelectric plants measured in horsepower.  

 

Figure 6: Capacity (HP) and KwH actually produced (1920=1) 

 

Source: Quebec Statistical Yearbooks (numerous editions) and DBS (numerous editions) 

In addition, it should be understood that the industry did not merely increase output

considerably; it also grew incredibly more productive at generating electricity. If we look at

0

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operating revenues over the number of employees (Figure 7), we can see that Quebec already had

a productivity edge in 1920, but also that that this advantage increased over time (from 14% to

43% in 1939).  

 

Figure 7: Productivity of Labor in Electrical Sector of Quebec and Ontario 

 

Source: Previous figures 

 

The two pieces of evidence most often presented in favor of nationalization and against the

private production of electricity have been the number of households connected to the network

and the price difference between Quebec and Ontario. Dorion (2000) pointed out that Quebec

lagged well behind Ontario in terms of the percentage of households connected, and grew more

slowly. However, this claim is problematic.  

The largest problem is that Ontario provided roughly $850,000 worth of power below cost

for (Dupré, Patry and Joly 1996:3) directly at taxpayers’ expense (Nelles 1974 [2005]: 407; 467-

481). In comparison, Quebec’s electrical firms paid taxes and provided electricity at market prices.

It is worth noting that the effects of these differences in policy can be very well seen during the

Depression. So it is fairly obvious why consumption was greater in Ontario as can be seen in Figure

8. During the Depression, the unsubsidized consumers of Quebec had to cut down on electricity.

In Ontario however, where consumption was subsidized through the provision of power at cost by

the public operator, there was no decline in consumption.  

 

$3,621 

$3,882 

$5,068  $6,993 

$6,434 

$4,124 

$4,156  $6,154 

$10,132 

$9,199 

1920

1925

1930

1935

1939

Ontario Québec

Figure 8: Domestic light consumers per 100 inhabitants, Quebec and Ontario with the difference

(right axis) 

 Source: See previous figures 

 

The second problem is that, as mentioned above, prices in Ontario were subsidized which

meant a greater level of consumption in the first place. A significant part of that consumption had

to be imported from Quebec (Evenden 2009). The strategy of the HEPC in Ontario to sell energy

at cost did not force Quebec producers to sell also at cost. Thus, if the HEPC faced shortages, they

had to import the energy from other markets—the closest being Quebec. In 1926, the HEPC

established a contract with four private companies from Quebec to supply Ontario with more than

500,000 HP at the price of $15 per horsepower year (Biss 1936: 551-552).  

To convince Quebec producers to sell them the energy, they had to take market prices and

offer to buy electricity at prices that were more attractive than what Quebec providers could have

obtained otherwise. This is important because it means that the greater demand in Ontario meant

greater demand for Quebec-produced electricity. Consequently, this meant that Quebec consumers

would pay higher prices than they otherwise would have had Ontario not opted to publicly produce

electricity. It also means that the complaints made against private electrical companies were in fact

2

2.5

3

3.5

4

4.5

5

5.5

6

10

11

12

13

14

15

16

17

18

19

201923

1924

1925

1926

1927

1928

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

1939

Quebec Ontario Difference

the result of the HEPC’s pricing policy that subsidized greater levels of energy consumption which

then had to be met by importing from Quebec, thus increasing prices there. Moreover, Quebec’s

other neighbours followed a similar course. In the neighbouring states of Vermont, New York,

Maine and New Hampshire, public commissions were mandated to regulate utilities and their

prices (Troesken 2006: 262). As Piché (1937: 18) pointed out, 17.9% of Quebec’s production of

energy was exported either to Ontario or the United States. If you adjust for the percentage of

electricity lost during transmission, this number jumps to 19.2%. Other sources also point out that

most of the New England States and New York had to get a substantial portion of their supply by

importing from Quebec (Prentice 1928).  

The third problem with the evidence of Dorion (2000) is that the electrical industry in

Quebec concentrated heavily on providing cheaper inputs for heavy industry (Dales 1957: 43-45).

These cheaper inputs would have meant a more buoyant industrial sector than in Ontario (all things

being equal).  

 

4. A New Narrative

 

Normally, economic theory suggests that if a private company has a monopoly,

productivity should stagnate, innovation should slow down, production should be diminished and

prices should increase. In no respect can we observe such phenomena in the case of Quebec before

nationalization. Yet, the industry was often accused of monopolistic practices and was

characterized as being dominated by “trusts.”  

American literature on antitrust, especially the case of Standard Oil in the early twentieth

century, offers an illuminating conceptual framework (Armentano 1996). In 1911, the Standard

Oil Company—the US oil giant—was dismantled by order of the court for adopting monopolistic

practices detrimental to consumers. However, a series of scientific articles published since the late

1950s have questioned this interpretation. In 1958, John McGee noted that prices declined in the

years before the trial, and the innovative practices of the company enabled it to lower the price of

oil. The development of by-products, and improved techniques of production and refining, allowed

Standard Oil to achieve more than 90 percent market share while lowering the price of a barrel

from 30 cents to 5.9 cents between 1870 and 1897 (Fulsom 1991 [2007]:25-37). Overall, Standard

Oil’s market share increased, its prices fell and innovation was supported. It was only after the

dismantling of the company that prices started to increase. This was also confirmed in the work of

Crandall and Winston (2003:6-7). In fact, the same thing occurred in the case of the electricity

industry in the United States, to wit, in the first years of private operation, prices tended to fall and

consumers gained dramatically (Bradley 1996). Indeed, “competition was never ‘over’ in the open

franchise period and falling prices, increasing quantity supplied, and service-quality improvements

suggested that consumers were beneficiaries during the quasi-free market era” (Bradley 1996:

101). Another industry quite similar to electricity, the gas industry in the United States, also

exhibited a broad pattern of falling prices and greater levels of service (Troesken 1994: 61-62).  

To maintain a status of “dominance” in a market and generate vast profits, companies must

constantly innovate, especially if the product is new, and thus lower prices (McKenzie and Lee

2008). In fact, the economist Joseph Schumpeter described the large companies looking for

gargantuan market shares as the real engines of technological innovation. Competition in this

business probably does not come from the usual area of operation, but from new substitute

products, or from the mere threat of entry of new competitors. It may be that a few firms dominated

the electrical market in Quebec, but all indications are that they sought constantly to innovate,

grow and reduce prices to face the stress of their resources and their environment (Liebowitz 1999).  

Hence, limiting one’s arguments to the number of competitors displays a poor

understanding of the dynamics of markets. It also prevents us from drawing good parallels with

research for the same period, most notably the research of Nicholas (2003). Nicholas examined

the innovative practices of the largest American companies in the 1920s, and he confirmed the

assertion of Schumpeter: large market shares incited innovation. But the important fact is that there

was a great market for capital inputs. If firms failed to innovate, they would tend generate lower

returns on capital. Given the mobility of capital, investors could simply allocate capital to new

firms that would innovate and render the innovations of other firms irrelevant. In short, financial

markets incentivized innovation and prevented large market shares from being detrimental to

consumers in the long-run. Nicholas’s interpretation is probably valid for Quebec. As pointed out

above, prices declined while output increased in the 1920s—a period of rapid economic growth.

The innovation of providing a large supply of electricity profited the rise of industries and

increased welfare on the whole. This suggests that a more plausible story is that the rise of the

electrical industry in Quebec prior to nationalization had positive effects in increasing the

productivity of other industries.  

In a certain way, the electrical industry had strong competitors in anthracite coal (Emery

and Levitt 2002: 120) and hardwood (Dominion Bureau of Statistics 1941: 81). Most households

satisfied their daily needs for fuel and light by burning either anthracite coal or hardwood. These

were cheap and available sources of energy that electricity had to replace in household budgets.

The average French family in Montreal spent $24.80 on coal and coke, $12.00 on wood and $19.90

on electricity while their total expenditures for fuel and light stood at $77.00 (Dominion Bureau

of Statistics 1941: 82). More than 47% of the average household’s expenditures went to coal, coke

and wood compared with 26% to electricity. In addition, for the purposes of cooking electricity

had to compete with gas which was another cheap alternative. Thus, while it is true that electrical

companies in urban markets generally had very large market shares for electricity, they did not

command the majority of the energy market. In order to profit, these companies had to be able to

outcompete alternative sources of energy. 

As for the explanation of discontent with the electrical industry, its rise was strongest in

the 1930s—during the depression. The data above indicate sporadic increases in prices. This is

easily explained by the fact that the deflation that occurred in Canada made debt more expensive

to hold. This meant that the interest on capital borrowed prior to deflation increased. The statistics

from the Dominion Bureau of Statistics do not reveal anything about the capital investment of

central electrical producers in Quebec, however it does separate their overall expenses into

categories for “wages”, “fuel”, “taxes” and “cost of power.” Given that companies tend to be

reluctant to default on their creditors, their only alternative was to cut expenses. However, “wages”

represented only 33.8% of their expenses while the “cost of power” represented 49.3% of expenses

in 1925 (Dominion Bureau of Statistics 1925). Expenses associated with the “cost of power” could

be reduced merely by reducing output. It was a relatively easier way to adjust to the shock of the

depression’s onset. The data from the Dominion Bureau of Statistics for 1929, 1930 and 1931

confirm this since producers in Quebec reduced output considerably in the year 1931 so that it was

below the 1930 level by 7.9% and the 1929 level by 6.9%. After that decline, the industry resumed

its steady pace of increasing supply. However, the depression made price changes harder for

consumers to bear. In this case, the rise of discontent toward the industry was not that result of

monopolistic behavior on the part of firms as much it emerged from the economic disruption

associated with the Great Depression. Hence, a more plausible story for the rise of discontent lies

in how the electrical companies responded to the depression rather than in their alleged price

gouging.  

In any case, the performance of the private industry was far from being what it has been

made out to be. This is not to say that no case can be made in favor of welfare-enhancing

regulations, but nationalization (especially given the comparison with Ontario) was unlikely to

improve the situation. This new narrative would be more in line with the economics literature

comparing public and private providers (Shleifer 1988; Shleifer and Vishny 1994) whereby in spite

of imperfections, private providers are much more efficient than public providers.  

Moreover, we would do well to remember that the common narrative emanated largely

from actors who were engaged in rent-seeking. In Ontario, some of the main drivers for

nationalization were manufacturers who benefitted largely from the policy (Fleming 1983). In

Quebec, farmers were the main drivers and their electoral influence afforded them the capacity to

shape the debate and the policies. They had a clear bias in favour of painting a darker portrait.  

 

5. Conclusion 

 

The most important conclusion we derive in this paper is that the claim of “monopoly”

made regarding Quebec’s electrical industry during the interwar period is a weak one. It is very

possible that many people had wished for prices to fall faster, but any government intervention

would have had adverse effects. The Ontario case is an excellent example, since we have seen a

reduction of investment and innovation efforts to develop the resource and improve the provision

of electricity. However, comparing Quebec’s prices with Ontario’s prices at the time does not

support the conclusion of monopoly power. As pointed out above, prices were falling and output

was increasing in Quebec while the industry was operating under a heavier tax burden than the

Ontario state monopoly. Moreover, the subsidization of consumption in Ontario meant that

electricity had to be imported from Quebec and that a significant chunk of the electrical supply

produced in Quebec was, therefore, not available for Quebec consumers. These facts militate

against the historiography that claims that the electrical industry was monopolistic.  

While it is true that these firms tended to have large market shares, this should not be

confused with market power. Indeed, there are a great number of cases in which individual firms

have substantial shares of their respective markets yet are able to deliver falling prices and

increasing supply (Armentano 1996; McKenzie and Lee 2008). Competition is not measured solely

by market shares in a given industry. Rather, competition is a discovery process in which

entrepreneurs can create new goods and services that render existing goods and services obsolete.

The electrical industry was locked in just such a competition—it was trying to replace coal, wood

and gas in order to heat and light households. To do so, it had to expand production and reduce

prices considerably—which is what we observe.  

Moreover, one must not fall prey to the assumption that because markets were imperfect,

government intervention was automatically justified—quite the reverse. As we indicated, a large

proportion of the complaints regarding prices in Quebec can be easily explained by the fact that

Ontario’s nationalized at-cost electricity distribution network basically subsidized electricity

consumption. As it could not supply that subsidized demand, Ontario had to bid for electricity on

the free market in Quebec resulting in larger demand on that market and higher prices as well. The

situation denounced by many in that case was an unforeseen consequence of state intervention in

the neighbouring province.  

Although this article in no way pretends to settle the debate, it points out that historians

and economists who write on the issue have failed to consider that those who shaped the prevailing

narrative on Quebec’s electrical industry were rent-seekers who would have gained from

nationalization. A view that recognizes the rent-seeking behaviour of the politicians and interest

groups who clamoured for nationalization provides a sounder portrait of the industry. This should

not be construed as a claim that all was well, merely that the state of the situation was appreciably

more positive than we have been led to believe.  

 

 

 

 

 

 

 

 

 

 

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