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U.S. suitors are wooing Ontario manufacturers with promises of cheaper electricity. (Fred Lum/The Globe and Mail)
U.S. suitors are wooing Ontario manufacturers with promises of cheaper electricity. (Fred Lum/The Globe and Mail)

Soaring energy prices making Ontario look dim for manufacturers Add to ...

For businesses in Brockville, the attempt to lure them over the border wasn’t new. But the pitch was.

Earlier this winter, manufacturers in the Eastern Ontario community received a letter reminding them that their province’s industrial electricity rates were projected to rise by 33 per cent over the next five years, and 55 per cent by 2032.

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“As a hedge against these increases,” it suggested, “setting up an operation just across the border in St. Lawrence County, New York, may be a competitive strategy you should consider.”

Such overtures, if not in written form then made more casually, are becoming increasingly common in Ontario. While they may not find immediate takers, they are emblematic of the mounting economic threat from an energy-cost trajectory that – following a series of questionable policy decisions – the province now seems powerless to do much about.

Owing mostly to a combination of overdue investments in infrastructure, phasing out coal and an ill-fated gamble on green energy, soaring power rates have already greatly increased the cost of doing business in Ontario. That’s particularly true for those in the troubled manufacturing sector. In a report last month, the Association of Major Power Consumers of Ontario (AMPCO) alleged that the province now has “the highest industrial rates in North America”; per that report, prices are currently 37 per cent higher than in neighbouring New York for the province’s biggest industrial users, and 68 per cent higher for smaller ones.

Adding insult to injury is that, because an excess of energy supply has come online at a time of decreased demand, Ontario is currently selling surplus power to New York and other neighbours at a steeply discounted rate. While that may play only a marginal role in enabling them to offer lower prices to consumers, it adds to frustration on this side of the border – not so much with those taking advantage, as with perceived mismanagement of the province’s energy market that has given them the opportunity to do so.

“It’s not anything to do with them – they’re capitalizing on an opportunity,” said Brockville Chamber of Commerce executive director Anne MacDonald about St. Lawrence County. “It’s more about the hike in electricity costs.”

Ms. MacDonald is quick to note that those costs have yet to actually drive any of the region’s businesses to move, and local industry leaders say such decisions would be far more complex. “If a decision like that was ever forced to be made, it would involve more than the price of electricity,” said Northern Cables CEO Shelley Bacon, citing factors such as labour costs and the strength of the Canadian dollar.

But Mr. Bacon, whose company makes industrial and power cables, says energy prices have in the past couple of years “started to creep onto the radar screen” when it comes to making investment decisions.

Influencing where new investments are made rather than trying to get companies to uproot themselves altogether is what St. Lawrence County says it was aiming for. “The pitch isn’t for a Canadian company to move over here,” said Patrick Kelly, the CEO of the industrial development agency that sent the letter. “What works best for us is some kind of satellite or companion facility.”

While insisting that setting up operations in New York can complement those in Ontario though, Mr. Kelly acknowledges that his agency “ramped things up last year” in terms of emphasizing its power advantage, because it recognized energy prices as “clearly something that’s frustrating the industrial world over there.” And to date, he says, the county has gotten “some response” to the hundreds of mailings it sent out.

For its part, Kathleen Wynne’s government points to a pair of recently introduced programs aimed at providing price relief to manufacturers – one allowing the biggest users to save by shifting production to off-peak times, the other trying to direct some of that surplus power at discounted rates to smaller companies starting up or expanding. Neither, according to a spokesperson for Energy Minister Bob Chiarelli, was factored into AMPCO’s cross-border comparisons.

There is speculation that further such measures will be announced this spring, and it’s not hard to see why. With government and even opposition sources conceding price increases are an inescapable fact of life in the coming years, the province will need to get creative in trying to mitigate their effects. Meanwhile, the stateside pitch that businesses have recently started to hear will fast become more familiar.

 

Follow on Twitter: @aradwanski

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