Volume 10, Number 10

CROWN CORPORATIONS AND THE MEDIA:                                      A Case Study of Saskatchewan Power Corporation

OVER THE PAST DECADE, Canada's Crown corporations have been under close scrutiny by the media due to public concern about government debts and deficits. Some highly visible Crowns, such as Air Canada, have been privatized. Other state-owned enterprises, such as the public telephone companies in Alberta, Saskatchewan, and Manitoba, have seen components of their industries deregulated and been forced to compete for the first time.

The largest Canadian Crowns, the publicly-owned electric companies, are also preparing for a deregulated environment. Alberta's TransAlta Corp., an investor-owned company, is leading the way as the first Canadian electric company to be allowed to sell electricity to the United States. Hydro-Quebec has also been granted access to the US market. Deregulation throughout the US-all American states except Tennessee have legislation in the works-is expected to significantly lower the cost of electricity, which in turn will enhance American productivity. As the US is Canada's largest trading partner, it is vital that Canada's electric companies work to ensure that Canadian power is competitively priced.

As Canadian Crowns prepare to operate within more competitive markets, the media-often driven by politics and the reactions of Opposition party members within both federal and provincial legislatures-continue to scrutinize their operations. This issue of On Balance examines the media attention to Saskatchewan's publicly-owned utility, SaskPower, as a case study of press reaction to a Crown corporation preparing for deregulation.

In 1996, SaskPower reduced its operating costs, paid off $102 million in long-term debt, partially re-balanced rates, and secured two 10-year contracts worth $380 million. However, while Sask- Power's balance sheet may have improved, the citizens of Saskatchewan were less than pleased with the increase in their electrical bills in 1996. Following a 45-day public review in 1995, the Saskatchewan government approved a hefty rate increase for residential and farm customers. SaskPower may strive to operate in a more business-like manner, but it is still a Crown corporation, and therefore is judged, along with the government of Saskatchewan, according to public opinion.

This study examines media coverage-the most tangible component of the factors contributing to public opinion-of the Saskatchewan Power Corporation and its strategy for survival within a deregulated marketplace. In a province sometimes referred to as the home of "Canadian socialism," how has the coming revolution in the electrical industry been reported? What is Sask-Power's mandate-social action or business operations-according to the media? How has the Saskatchewan media reported SaskPower's recent restructuring and business-oriented approach? Newspaper, television, and radio news reports, editorials, columns, and letters-to-the-editor that discussed SaskPower from January 1, 1996 to March 31, 1997 are examined.[This study is based on a 25 percent sample of 1996 reports and all January 1 to March 31, 1997 reports. The 1996 sample was conducted by identifying the central theme of each report and selecting every fourth report, by date, in each category.]

Click here to view Figure A

Revolutionary changes

SaskPower's residential and farm rate increase, corporate restructuring, and capital upgrading have all been driven by changes in the electrical industry throughout North America. How much of the media coverage of SaskPower has examined the changing industry? Between January 1, 1996 and March 31, 1997, approximately 25 percent of total media attention to SaskPower examined these transitional issues. However, there was minimal discussion of the actual operation of a deregulated industry. Would SaskPower continue to have a monopoly over transmission and distribution? What was the experience of other countries that have deregulated their electrical utilities? What is the expected long-term impact for the province of Saskatchewan? These issues were not seriously debated.

Saskatchewan still loves its Crowns

Five issues directly associated with deregulation were: the role of a Crown corporation, rate-setting, future prospects, corporate restructuring, and long-term contracts. As Figure A shows, the role of the corporation took a prominent position in this public debate, accounting for almost one-third of the media coverage of SaskPower's response to coming deregulation. Dale Eisler, editor of the Leader-Star News Services, commented that: "The truth about Saskatchewan is that nothing reflects our political divide more than Crown corporations. It goes to the heart of how we see economic development and the role government should play in shaping the economy." [Dale Eisler, "Let the Crown debate begin", The Leader-Post, June 6, 1996, p. A7.]

Last year, after SaskPower's much disliked rate increase had come into effect, the government of Saskatchewan conducted an extensive $3.5 million Crown review. A central finding of the review, the ostensible objective of which was to prepare the Crowns for deregulation and competition, was that "Crown corporations are widely regarded as preferable to private corporations in the delivery of essential utility services and there was strong support for keeping the Crowns." [Crown Investments Corporation, "Saskatchewan Crown Corporations Review," 1996, p. 59.] According to Saskatchewan's (then) Crown Investment Minister Berny Wiens, "Crowns have a very dear spot in the hearts of Saskatchewan." [Canadian Press, "Saskatchewan's Crown firms not for sale," The Globe and Mail, October 18, 1996, p. N7, (as cited in the Globe and Mail's 1996 CD-ROM).]

Click here to view Figure B

However, media attention to the role of SaskPower was not so charitable (see figure B). Overall, negative comments outnumbered positive ones by more than four to one. The Crown review was criticized for its costly price tag and its lack of clarity. For example, energy consultant Roger Gale commented: "My reading of that whole report is that it doesn't lead to much action of any kind." [Bruce Johnstone, "SaskPower can't continue on same course, says analyst," Lloydminster Daily Times, p. A2.]

The review stated that the "Crown corporations have to find a balance between the two-sometimes conflicting-objectives of earning a profit and meeting their public policy mandates. [The Crowns] are expected to make a profit and return a reasonable dividend to their shareholders, the people of the province." Saskatchewan media coverage was critical of both objectives, although less critical of SaskPower's social objectives. Media attention to SaskPower's public policy objective was twice as critical as supportive; media coverage of SaskPower operating as a regular business was four times more critical than supportive. Media coverage rarely debated SaskPower's public policy objectives-the corporation's ability to sustain jobs was the most prominent policy objective discussed. SaskPower's profits were reported, but its expenditure was seldom discussed. [The study examined reports that explicitly discussed SaskPower-the expenditure of total Crown dividends was likely discussed extensively in media reports which did not mention SaskPower.]

Click here to view Figure C

Rate hike heavily criticized

In 1995, the Saskatchewan government approved an 8 percent increase in residential and farm rates to reduce cross-subsidization between residential customers and industrial clients, a procedure known as rate-rebalancing. The government also approved a capital reconstruction fee to upgrade SaskPower's distribution and transmission lines, such that the actual rate increase for most customers was between 12 and 14 percent. As Figure C shows, SaskPower's rate increase was harshly criticized by the Saskatchewan media, with over seven times more negative than positive statements. Coverage focused on rate-rebalancing, the rate-setting process, and the charge that the rate increase was simply a "cash grab" by the provincial government.

Long-term contracts applauded

While the rate increase for residential customers received a lot of negative press, the other side of rate-rebalancing-Sask-Power's rate reduction for industrial customers-was positively received. In fact, the only component of deregulation issues that received more positive than negative press was SaskPower's long-term contracts with two of its largest customers, IPL Inc. and TransCanada PipeLines. On October 31, 1996, SaskPower signed a 10-year contract with Interprovincial Pipe Line Inc. Regina's "Global TV-News" report began: "Good news for Sask-Power. Our province's crown utility has signed a major deal with a Calgary based company . . . [that] . . . will generate money for the utility which will ultimately be good news for SaskPower customers." Similarly, Bruce Johnstone's front-page story in The Leader-Post the following day reported: "In the first of what it hopes will be many long-term contracts with major customers, SaskPower inked a 10-year, $300 million power supply deal with Interprovincial Pipe Line Inc." Numerous media outlets, including The Leader-Post, quoted SaskPower President Jack Messer's comment that in preparation for coming deregulation "SaskPower is blazing a trail which other utilities will have to follow."

Corporate restructuring not a big issue

In 1996, in preparation for a deregulated environment, Sask-Power also underwent a number of internal changes. These included a management review in which, for all intents and purposes, all management had to "reapply" for their positions, an early retirement plan to reduce the SaskPower workforce, and a corporate restructuring plan which divided the corporation into business units. Combined, these issues accounted for just over 10 percent of media attention to deregulation issues. Media coverage was again highly critical, with negative statements outnumbering positive ones by more than five to one. Leader-Post financial editor Bruce Johnstone commented that the restructuring process had "caused enormous upheaval, trauma, and stress for many Sask-Power employees." [Bruce Johnstone, "SaskPower's Future: Messer says Crown in great position," The Leader-Post, November 12, 1996, Markets p. 1.]

Deregulation strategy is tough medicine

Overall, media attention to SaskPower's reaction to deregulation-specifically to the rate increase, corporate restructuring and long-term contracts-was four times more negative than positive. Similarly, media debate regarding the role of SaskPower was four times more critical than conciliatory, with limited support for a wholly business-oriented mandate.

International venture puts SaskPower on the hot seat

The 1996 Crown review found that there is a "strong consensus" among the people of Saskatchewan for the Crowns to do business beyond the provincial borders. However, when Sask- Power's $31 million bid for partial ownership of a Guyanese utility beat out utilities from the US, Great Britain, India and Australia, the opposition parties and the media roundly denounced the deal.

The extremely controversial nature of the investment can be demonstrated by the ratio of news to commentary. Total media attention to SaskPower in the January 1 to March 31, 1997 media coverage was composed of 86 percent straight news reports and 14 percent commentary, which is defined as editorials, columns (including radio commentaries), and letters-to-the-editor. In contrast to overall media attention to SaskPower, media coverage of the Guyana deal during the first three months of 1997 was 60 percent news reports and 40 percent editorials, commentary, and opinion.

The most vocal critic of the $31 million bid was Moira Wright of the Saskatchewan Taxpayers' Federation who commented that "the role of government is not to run around the world throwing taxpayers' hard-earned dollars into foreign investments." [Murray Mandryk, "Harsh Words for Guyana Project," The Leader-Post, February 4, 1997, p. A4.] This ideological opposition was based on the premise that the Guyanese deal is risky and that a publicly owned corporation should not engage in risky business. Liberal and PC Opposition MLAs also critiqued the venture on this basis.

A report on CBC Radio by Michael Tymchuk on February 9, 1997 added some pertinent details. Speaking on behalf of the proposed deal, the report quoted Canada's High Commissioner to Guyana, Allan Bocker, who pointed out that Guyana's economy has been "booming" for the past few years, but has been hindered by an unreliable electrical system. However, Mr. Tymchuk also reported that Guyana "has the highest per capita debt in the world, two neighbouring countries claim parts of Guyana, and the current prime minister is a former Marxist, once black-listed by the CIA." Tymchuk concluded his report by pointing out that Canada is currently the largest foreign investor in Guyana, implying that other Canadian firms believe the potential for profits outweigh the political risks. Energy Minister Eldon Lautermilch predicted that the return on equity from this investment would be between 18 and 30 percent. [Mark Wyatt, "Power Play," The StarPhoenix, February 1, 1997, p. A1.]

Should Crowns take risks?

The central concern raised in media reports-whether it is appropriate for a Crown to seek out investment opportunities that are not guaranteed-is a fundamental issue, particularly in Saskatchewan. The Crown Investments Corporation (CIC) administers assets totalling almost $8 billion, over one-sixth of Saskatchewan's GDP. SaskPower is the largest of the Saskatchewan Crowns, with assets totalling $3.3 billion and 2,100 employees.

Based on the media coverage of the proposed Guyanese investment, the resounding answer to the question of whether Crowns should take risks is "no." Overall, sources cited in news reports on the Guyanese investment were two-to-one against the proposed deal, while commentary was five-to-one against the deal. The editorial in the February 10, 1997 Daily Herald summed up the majority position: "if the corporation has excess funds for investment, why would it not risk them here at home rather than in Guyana? A better answer than simply saying it was an investment opportunity must be forthcoming from our utility and its minister."

The politics of running a Crown

Over the years, successive governments have tried a variety of approaches to running the Crowns. The Crown Investments Corp. Minister Dwain Lingenfelter has publicly stated that his government is taking a hands-off approach: "how SaskPower runs will be much more left to the management." [Crown Investments Corp. Meeting, July 21, 1997, www.legassembly.sk.ca/legassembly/committees/970721cc.htm, p. 4.] Nonetheless, numerous issues reported by the media stemmed from and focused on the fact that SaskPower is a Crown corporation, the rates of which are set by the Saskatchewan government. Predictably, opposition MLAs, various lobby groups, and the media have continued to take a keen interest in SaskPower's activities.

To prosper in a competitive environment, SaskPower must operate efficiently. According the Lexicon of Economic Thought, it is difficult for a publicly-owned corporation to function as a typical business enterprise. "The comparative advantage of the marketplace derives not from better managers and a more highly motivated workforce-many Crown corporations can match their counterparts in these regards-but from the necessity to meet the businessman's requirements to make profits and avoid losses. . . . The unfortunate manager in the public sector has instruments which are somewhat similar to the balance sheet and the profit and loss statement, but [these instruments] are subject to constant override by management's desire to please his political masters." [Walter Block and Michael Walker, Lexicon of Economic Thought, The Fraser Institute, 1989, pp. 80-81.]

Regardless of whether or not this is the case with SaskPower, the fact that the corporation is a publicly-owned monopoly, and has rates set by the Saskatchewan government, results in media coverage which is driven by politics. For example, the 1997 columns by Murray Mandryk and Mark Wyatt of the Leader-Star News, as well as those by Paul Martin of the Free Press do not critique SaskPower's strategies such as rate-rebalancing and the Guyanese investment, but rather the process followed and the government's lack of disclosure.

Within the time frame of this study, Saskatchewan's media was not opposed to its Crowns, or at least SaskPower, operating in a more business-like manner. The media will, however, continue to scrutinize SaskPower's decisions as long as the corporation remains publicly owned. The StarPhoenix's September 16, 1996 editorial, which was primarily concerned with SaskTel but also discussed SaskPower, concluded: "if the Crowns are going to act as private-sector companies, then let the private sector do it. In the long run, Saskatchewan residents will be better off in a truly competitive marketplace instead of having a quasi-free enterprise system operated by political appointees."

Without monopoly protection, Canada's Crown corporations are forced to operate as efficiently as their competitors. However, the media have continued to report the Crowns' operations based on political considerations, often because the Opposition wants to score political points.

For example, the so-called "M.E.S.S.E.R. Act," a private-members bill entitled, "An act to Maintain the Equality of Senior Staff and Employee Raises," sought to highlight the pay raises received by SaskPower's managers. Saskatchewan PC Labour Critic Jack Gooshen commented in a February 3, 1997 media release: "It's a matter of fairness. If the unionized workers are asked to accept a wage freeze, so should management." The private-members bill was reported in 2 newspaper reports, 4 TV reports, and 6 radio news reports.

On February 3, 1997, CJME-Regina radio news reported: "A pay raise for SaskPower managers has the Tories taking aim at Jack Messer. The PCs plan to introduce what they call the `M.E.S.S.E.R. Act.' The Sask-Power workers nearly went on strike last year, and settled for a wage freeze. Manager's got an average 8 percent increase, while power rates went up 12 percent. Both the Tories and the Taxpayers' Federation are questioning SaskPower's plan to get involved in the Guyana Power Corporation. The $31 million plan is being called a bad gamble. The Taxpayers' [Association] says the government should focus on tax and utility cuts at home."

Only three media outlets reported SaskPower's rationale for the wage increases, namely, that the utility's managers had taken on many additional responsibilities due to corporate restructuring. CBC-TV's Marc Genuist reported: "The big changes at SaskPower mean 100 fewer managers, but those remaining are getting an average eight percent more than before. The company has created new management positions and needed to boost the salaries to match those new responsibilities."

Managers' remuneration and the Guyanese investment were just two of many politically-charged issues that ensured that the public utility was consistently in the news. Although the Saskatchewan media seemed to support SaskPower's new business-oriented approach in principal, it was the political angle that was most often sought and highlighted. SaskPower may consider itself a business first and foremost, but the media has continued to emphasize the Crown's public role.

The StarPhoenix's January 9, 1997 editorial stated: "The heavyweights at SaskPower never seem to learn. They either never understood or never accepted that they are servants of the people of Saskatchewan, not a law unto themselves. Sask-Power was established more than half a century ago as a means of bringing electrical service to as many people as possible at the lowest possible price by spreading the cost among all users. It was a Crown corporation set up to serve the interests of the entire province." Such sentiments permeated media attention to the public utility, even though there was obviously an understanding within media reports that both business conditions and social policy objectives have changed.

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Last Modified: Wednesday, October 20, 1999.