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Financial Post, August 18, 2015

Note: the Minister of Energy has admitted that Ontario’s renewables program is responsible for a significant portion of the increase in electricity bills.

Ontario’s Power Trip: How Hydro is walloping Ontario business

Parker Gallant, Special to Financial Post | August 18, 2015 | Last Updated: Aug 18 11:06 AM ET More from Special to Financial Post

Electricity bills for all segments of businesses and households are now a drain on the economy versus an attraction for new business and the jobs they might create.

Peter J. Thompson/National Post Electricity bills for all segments of businesses and households are now a drain on the economy versus an attraction for new business and the jobs they might create.

Over the past several months there has been a constant din of noise from all business segments in Ontario about the high price of electricity and its effects. Electricity prices have risen as they have absorbed the high costs of 20-year contracts for renewable energy in the form of wind and solar as additions to Ontario’s electricity grid. Ontario currently has a huge surplus which results in as much as 20 per cent of our generation exported at fire sale prices. Couple that with a drop in demand, annual spending of $400 million on conservation messages, smart meters that allow time of use (TOU) pricing and the Hydro One, OPG and other Ministry of Energy employees enjoying wages and benefits that outstrip the private sector means electricity bills for all segments of businesses and households are now a drain on the economy versus an attraction for new business and the jobs they might create.

The situation for many small business owners is dire

The foregoing recently manifested itself in a report from the Ontario Chamber of Commerce entitled: “Empowering Ontario: Constraining Costs and Staying Competitive in the Electricity Market.” The report stated soaring electricity prices would cause one (1) in 20 Ontario businesses to shut their doors within the next 5 years. The report didn’t suggest how much electricity those 5 per cent of businesses consume or how many jobs would be lost but it should represent a concern to the ruling Liberal Party of Ontario. Should the scenario play out it would also result in a revenue drop for generators, transmitters and local distribution companies. Due to how the electricity sector operates in Ontario a revenue drop results in rate increases to all remaining Ontario businesses and residential households.

The Chamber was not the first to note the problems with high electricity costs, as the Association of Major Power Consumers of Ontario (AMPCO) raised its concerns in a May 2015 release of its “Power Market Outlook” and the president was quoted in the media referencing large Ontario industrial concerns: “Not only are they paying very high costs for the commodity but they’re paying some of the highest delivery rates … so it’s not just a commodity cost problem, it’s not just a renewable energy or coal phase-out problem.”

The above concerns were expressed despite the fact AMPCO members qualify as “Class A” ratepayers, meaning they get a break on their rates as part of the Global Adjustment which finds its way to residential and small businesses (Class B ratepayers) who subsidize the reduction of Class A rates.

A mid June 2015 C. D. Howe study, noted: “Class B consumers are paying more in GA charges so that Class A consumers can pay less. The panel estimates that the new GA formula resulted in Class A consumers paying $422 million less in 2012 than they would have paid under the former formula. From a policy perspective, the relevant question is – is society better off?”

The Canadian Federation of Independent Business (CFIB) also expressed its concern in relation to electricity prices on “small businesses” in April, noting: “The situation for many small business owners is dire, said CFIB’s Ontario vice president Plamen Petkov. The advocacy group, which represents 42,000 small and medium-sized business, has been asking the provincial government to provide relief for businesses for years.”

The Canadian Manufacturers and Exporters in their January 29, 2015 “pre-budget” report submitted to the ruling Wynne-led Ontario government also expressed concern about electricity rates:

“Competitive electricity rates are fundamental to the success of Ontario’s manufacturing sector and our economy. Despite progressive reforms including the demand based allocation of the global adjustment for large volume users, Ontario has among the highest electricity rates in North America.”

The CME further stated: “The only path forward for Ontario is to adopt a manufacturing action plan with an industrial/electricity rate as a core component.”

Another association referencing the cost of electricity to their activities is the Ontario Mining Association which on May 11, 2015 reported: “Jurisdictions with higher mining tax rates have lower electricity prices and government cost-sharing on infrastructure. A recent report indicates that exploration and mining costs are particularly inflated in the North, where companies need to invest in lacking, but essential infrastructure such as ports, power plants, winter and permanent roads, and accommodation facilities.” And the Ontario Forest Industries Association in its January 9 pre-budget submission to the Ontario government noted: “As a primary resource industry, forestry is an energy-intensive and trade exposed sector. The government has introduced a number of programs that have provided some relief from the steady rise in electricity pricing. However, given the government’s own projections in the recent Long Term Energy Plan these benefits are quickly being erased, along with the small competitive advantage they bring.”

Parker Gallant is a former banker who didn’t like what he was seeing in his Ontario electricity bills.

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