Skyrocketing electricity rates may force one in 20 Ontario businesses to close
JANE TABER
TORONTO — The Globe and Mail
Published Wednesday, Jul. 08, 2015 4:00AM EDT
Last updated Wednesday, Jul. 08, 2015 8:45AM EDT
Soaring electricity rates in Ontario are threatening industries and businesses across the province, with one in 20 reporting they expect to shut down in the next five years, according to a major study by the Ontario Chamber of Commerce (OCC).
Businesses can’t grow, make improvements or investments or even hire new workers because of the increasing rates, which are among the highest in the country and expected to continue to rise over the next 20 years, says the report, Empowering Ontario: Constraining Costs & Staying Competitive in the Electricity Sector, released Wednesday.
It paints a grim picture of a convoluted, complicated electricity pricing system, and warns that to keep business in the province or attract new businesses, government and energy authorities must act now.
A Leger poll, accompanying the report, shows that 81 per cent of Ontarians are concerned that rising electricity rates will “impact the health of the Ontario economy.” In addition, the same percentage of Ontarians are concerned that the increases will “impact their disposable income.”
“Call it the canary in the mine,” says Allan O’Dette, president of the Ontario Chamber of Commerce, which represents 60,000 businesses employing more than two million people in the province. “We have just completed this Leger poll and when 81 per cent of Ontarians are concerned that rising electricity prices are going to impact the health of the economy, you’ve got to be paying attention to that.”
The poll of 1,000 Ontarians was conducted between June 22 and 25; it has a margin of error of plus or minus 3.1 percentage points, 19 times out of 20.
Premier Kathleen Wynne and her government have been on the defensive about electricity prices. There was a rate hike in May, which raised consumers’ hydro bills by nearly $6 a month. Ms. Wynne’s government also announced in its spring budget that it is selling 60 per cent of Hydro One to help pay for new transit and infrastructure. This has raised fears that private ownership will cause prices to go even higher.
Jamey Heaton employs 21 people at his North Bay business, Bavarian Link Meat Products Ltd., which he has owned for three years. They produce and sell premium deli meats, sausages, smoked items, specialty bacon and meat snacks.
His electricity costs are more than $110,000 a year – the second-largest cost after salaries. He calls the high electricity prices a “huge burden.”
He says the rates have “slowed our expansion.” “If we spent 50 per cent less, I would invest the $50,000 in new equipment, which would lead to new jobs,” he says. “We have already grown by 25 per cent a year every year over the last three years and could grow more if there were additional funds.”
To keep costs down, he says, they cook mostly with natural gas, but he still has to rely on electricity as the 15,000-square-foot plant is refrigerated.
“We also, as industrial consumers, don’t benefit from time-of-day usage, whereas, if you’re a consumer, you get that time-of-day usage,” he says. “I can switch some of my production to do things at nighttime but there is no advantage for me to do it.”
He wonders why he can’t take advantage of the lower costs.
In fact, the OCC report notes that medium-sized businesses are “bearing the brunt of costs” because, like Mr. Heaton’s business, they can’t take advantage of lower costs during those time periods.
“What we need to do is flatten the rising costs,” says OCC president Mr. O’Dette, who adds that there is “not much we can do at the moment to bend the cost curve on electricity rates.”
The chamber hopes to compel the government to start laying the groundwork for the future in order to keep Ontario competitive.
Increasing transparency about how electricity costs are calculated is the report’s main recommendation. Businesses don’t know how their rates were arrived at because many costs are not disclosed by the authorities. For example, the report says the Independent Electricity System Operator, which runs the system, “does not release average electricity prices nor does it conduct publicly available jurisdictional comparisons similar to that of Hydro-Québec.”
Lack of information reduces confidence in the system among consumers, the report says. It points out that governments cannot be held accountable without knowing the reasons behind increases.
According to the report, energy demand in the province dropped 8 per cent between 2003 and 2014 – but generation capacity has increased by 13 per cent. This means that Ontario has a huge surplus and so it gives away electricity. These costs of producing electricity and then basically exporting it for free are passed on to customers.
“Let’s help all the actors, including consumers, in this discussion and debate understand what it is in the pricing of electricity in this province,” Mr. O’Dette says.
