Wednesday
Jul152015

Empowering Ontario: staying competitive in the electricity market

An electrical tidal wave is building and it has the Ontario economy in its cross hairs as the cost of electricity continues
to rise.  The Greater Peterborough Chamber of Commerce in conjunction with the Ontario Chamber of Commerce (OCC), recently released a white paper called “Empowering Ontario: Constraining Costs and Staying Competitive in the Electricity Market”.  The paper is the result of year long consultations with over 100 businesses, energy experts, and government agencies. The report also contains a public opinion poll conducted by Leger Marketing.  The research tells us that electricity prices in Ontario have reached a crisis point, with 81 percent of Ontarians concerned that rising prices will impact the health of the Ontario economy and their disposable income.  

“The price of electricity is expected to continue to rise over the next two decades,” says Stuart Harrison, President & CEO, Greater Peterborough Chamber of Commerce. “If something is not done now to mitigate these increases, businesses will leave the province, jobs will be lost, and our economy will suffer.” 

Despite a significant hit in the past decade, Ontario’s manufacturing industry has managed to reinvent itself, albeit on a smaller scale. However, for a sector of our economy, provincially and locally, that is sparking ingenuity, demanding highly skilled employees and offering high paying jobs, electricity prices are threatening to douse that spark. Industrial electricity prices have increased 16 percent in the last two years and will increase a further 13 percent over the next five years. Not only do electricity prices make it hard for manufacturers to do business, but we’ve already seen other jurisdictions attempt to poach Ontario manufacturers and convince them to set up shop in the United States.

The impact of rising electricity prices is also having an impact on other sectors of the economy.  OCC survey results show 5 percent of businesses expect to close their doors in the next five years because of electricity prices, while 38 percent of businesses expect their bottom line to shrink, which will delay or cancel any investment back into their business.  

A comparison of Ontario’s industrial electricity rate to other jurisdictions shows Ontario at roughly 10 cents per kilowatt hour (kWh) compared to Alberta at 9 cents, BC and Quebec at 5, and Manitoba at 4 cents per kwh.  In 2013, electricity service cost the province $17.6 billion.  The Independent Electricity System Operator (IESO) estimates the cost of electricity service will rise to approximately $20.2 billion by 2018 (OCC Report July 2015 & Figure 2).  

Of particular concern to businesses is the Global Adjustment (GA).  This portion of an electricity bill creates much confusion.  The GA accounts for the difference between the market price and the regulated contract price paid to generators, renewable power sources (through FIT), and to some Ontario Power Generation (OPG) facilities.  It also covers spending on conservation and demand management programs. For businesses, the GA is a flat rate applied to consumption that fluctuates from month-to-month limiting a businesses’ ability to forecast appropriately (OCC Report July 2015 & Figure 4).

The report Empowering Ontario makes five recommendations to the provincial government:

  1. Increase transparency
    What you can measure; you can manage.  Currently what makes up the global adjustment and timelines around retiring the debt retirement charge is not disclosed to the public.  Increasing the transparency of cost drivers and components of a business’ bill will go a long way to ensuring government accountability and evidence-based decisions.
  2. Keep the Debt Retirement Charge on residential bills 
    Spreading the burden over the entire ratepayer base (residential, commercial and industrial customers) will see the debt retirement charge be paid off more quickly and not impact one ratepayer more negatively than the other. 
  3. Incentivize voluntary consolidation of local distribution companies
    This will help by creating efficiencies in the distribution sector that are economically feasible and make good business sense.  This can be done by removing barriers to consolidation and access to capital for a longer period of time.
  4. Move to a more competitive capacity market structure
    This would allow for cost savings by procuring supply on a shorter-term, most cost efficient basis. 
  5. Unlock the power of smart meter data
    By creating a province-wide data platform that collects, stores and analyzes data points from across regions and distribution networks, the province can make better decisions to address system needs. 

Electricity prices are consistently reported as the number one concern impacting the competitiveness of
businesses in the province.  However,  part of the big picture problem for Ontario businesses is the cumulative regulatory burden that has grown as a result of a number of new initiatives from the provincial government.  In the past year alone, the Government of Ontario has implemented or announced several programs that will have a direct impact on business, including increases to minimum wage, a review of the Labour Relations Act, the ORPP, and a cap-and-trade system (OCC Report July 2015).  

What this report tells us is that a tidal wave is coming, however, the report also provides solutions the provincial government can use to lessen the impact and create a better electricity system that works for the province as a whole.  

Comment through the "Peterborough Chamber" group of LinkedIn. 

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