Ontario must pull the plug on painful electricity-related policies
Ross McKitrickGeneral Energy Government Manufacturing electricity Fraser Institute government industry manufacturing Ontario rates
Rates for industry are among highest in North America, thanks to a series of bad policy decisions.
Ontario manufacturers are feeling the pinch from high electricity prices, but how high are industrial rates relative to other jurisdictions?
Ontario has the highest residential electricity costs of all Canadian provinces. Prices increased twice as fast as the national average over the past decade, and the average Toronto resident in 2016 paid $60 more a month than the average Canadian.
That takes us back to industrial electricity rates, which are paid by industries including manufacturing (automakers, for example) and mining. A recent Fraser Institute study showed that in 2016, out of 16 major cities, Toronto and Ottawa ranked third and fourth behind only New York and Boston.
Small industrial consumers (with a power demand of one megawatt and monthly consumption of up to 400 megawatt hours) in the Toronto area paid, on average, 16.27 cents per kilowatt hour, nearly double what comparable-sized firms paid in Montreal (9.11 cents) and Vancouver (9.49 cents), and nearly three times what they paid in Calgary (6.53 cents).
And although industrial electricity costs in New York and Boston remain higher than those in Ontario cities, the differential is shrinking over time as Ontario cities experience faster increases. In 2010, for example, electricity costs for small industrial users in Toronto were 85% lower than in New York. By 2016, the differential had shrunk to 51%.
The same pattern exists with large industrial consumers. In 2016, large users (with a power demand of five megawatts and monthly consumption of 3,060 megawatt hours) in Toronto and Ottawa paid almost three times more than consumers in Montreal and Calgary and almost twice what large consumers in Vancouver paid. Even some select large industrial consumers (Class A) that were granted rate reductions from the provincial government still paid higher rates than large users in Quebec, Alberta and BC.
Between 2010 and 2016, electricity costs paid by large industrial consumers rose 53% in Ottawa and 4% in Toronto compared to 14% in the rest of Canada. Montreal saw a modest increase of 10%, while costs dropped in Edmonton (-7%), Calgary (-5%) and Chicago (-19%).
Out of 16 cities examined, the fastest rates of increase were in Portland and Seattle. But even with their rapid growth, their electricity costs for large industrial consumers were significantly lower than Toronto’s in 2016 (71% lower in Portland and 62% Seattle).
So what’s caused surging electricity prices for residents and industries in Ontario?
Government policy choices are to blame, in particular the province’s aggressive promotion of renewable energy sources (solar, wind and biomass). Other policy decisions – including poor structuring of long-term contracts with generators and phasing out coal – have also contributed to the pain.
To finally lower electricity bills for current and future ratepayers, the government should look at electricity costs in other jurisdictions and pursue meaningful policy reform.
This article was written by Ross McKitrick, a senior fellow, and Elmira Aliakbari, a policy analyst, at the Fraser Institute. They authored the recent study Rising Electricity Costs and Declining Employment in Ontario’s Manufacturing Sector available at www.fraserinstitute.org. Distributed by Troy Media © 2017