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Excluded from Ontario’s hydro cuts, firms say they can’t compete

Ontario Premier Kathleen Wynne speaks to the media at Queen's Park in Toronto on Oct. 1, 2015.

MARTA IWANEK/THE CANADIAN PRESS

Ontario Premier Kathleen Wynne unveiled a new hydro plan Thursday that targets lower residential rates but provides only modest relief to industrial customers who say soaring electricity costs are driving business out of the province.

Through legislation it intends to pass before summer, the provincial Liberal government will cut residential rates by 25 per cent, including a previously announced 8-per-cent reduction. The plan also promises deep price cuts to rural and remote customers who faced dramatic increases over the past decade, and will boost subsidies for low-income households.

Business customers will not benefit from reduced rates but will instead see an expanded rebate program for those that can shift their consumption to off-peak hours. Companies in Northern Ontario and rural areas will also benefit from a reduction in delivery charges that have driven up bills in less-populated regions.

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Analysis: Will Kathleen Wynne's last-ditch hydro fix just add to the mess?

Read more: A formula for smoothing rising Ontario hydro bills

Explainer: Why does Ontario's electricity cost so much? A reality check

Faced with a political backlash over soaring power bills, Ms. Wynne said the plan would deliver the largest reduction in electricity costs in the province's history.

To pay for the near-term relief, the province will add $25-billion in interest costs over 30 years as a result of stretching out financing for existing generation projects. It will also shift $2.5-billion over three years in costs from ratepayers to the general provincial account.

"Electricity rates in Ontario will come down significantly, they're going to stay down and everyone will benefit," Ms. Wynne said in a news conference.

The Premier faces an election in spring 2018, and rising electricity bills have been cited as a major factor in her slumping support in opinion polls. With Thursday's plan, opposition critics complained the Liberal government is taking on significant debt that will be left for future taxpayers and ratepayers to cover.

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"They're making our kids and grandkids pay for the mistakes they've made on the energy file over the last eight years," Conservative MPP Todd Smith said. "There's a massive price to what they're doing and they're not addressing the root cause as to why electricity prices are as high as they are."

In an interview, Ms. Wynne compared the effort to extending the amortization period of a mortgage to bring down monthly payments. Though critics note the assets in this case – electric generating stations – belong to the developers not the province.

"The accusation that we're spreading this over more than one generation is absolutely true," Ms. Wynne said in a telephone interview. "That's the point of what we're doing – we're asking a future generation to help pay for an asset that they're actually going to use."

Not every customer will benefit from the 25-per-cent rate reduction. Industrial users say there is little in the strategy to deal with higher rates that make it difficult for them to compete with firms in neighbouring states.

Byron Nelson, president of Leland Industries Inc., a Toronto-based manufacturer of bolts, screws and other fasteners, said his company is scouting for a location to open a new factory, but will build the manufacturing facility in Illinois, Ohio or some other Midwest state. Ontario's high hydro rates are driving that decision, Mr. Nelson said.

"We will invest no longer in Ontario," he said Thursday, about a year after completing an expansion of Leland's Toronto manufacturing operations. Electricity costs in the U.S. states Mr. Nelson is considering are about half those in Ontario, he said, and are even lower in Manitoba, Quebec and Saskatchewan.

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"We've got to be competitive," he said. "Our provincial government doesn't understand that word."

Large manufacturers, such as the Canadian units of the Detroit Three auto makers, are also worried about the competitive position of their operations in Ontario.

The announcement of lower rates for residential consumers represents a lost opportunity to reduce hydro charges for FCA Canada Inc. (Chrysler), Ford Motor Co. of Canada Ltd. and General Motors of Canada Co., said Mark Nantais, president of the Canadian Vehicle Manufacturers' Association, a trade association and lobby group for the three auto makers.

"From what we can tell, there's nothing there that would reduce our costs and help us improve our competitiveness," Mr. Nantais said.

Although the Canadian operations won substantial commitments in the latest round of union agreements, the industry worries it will have trouble attracting future investments, particularly as U.S. President Donald Trump plans to cut corporate income-tax rates and, potentially, throw up protectionist barriers.

Mr. Nantais said car companies are too tightly tied to production schedules to take advantage of the program offered by the province that provides rebates for companies that can shift power consumption to off-peak hours. The Liberal government expanded that industrial conservation initiative to include more small businesses.

"I think this is going to make us more competitive because we are capturing those businesses [in the conservation program], and I think it puts us in a good position," the Premier said. She added the electricity costs are not top of mind for most businesses that are investing or expanding in Ontario, but rather they look for a highly skilled work force.

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About the Authors
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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