Businesses are Leaving Canada Because of Increasing Energy Prices – What Should Governments do to Provide Affordable Energy Solutions for Companies to Continue to Operate in Canada?

VIEWS FROM OUR POLITICAL COMMENTATORS: NDP, CONSERVATIVE AND LIBERAL

BY TIM POWERS

BY TIM POWERS

Ask a business or an individual and they are always likely to tell you that energy prices are too high. However, it is not just a statement of dissatisfaction but a reality.  Don’t believe me? Check out these headlines from the last year found in a simple Google search:

 

 

“Toronto company opening U.S. plant because of rising Ontario electricity rates,” Toronto Star, December 20, 2016

“Ontario manufacturers’ eye greener pastures stateside as hydro rates go through the roof,” Financial Post, March 16, 2017

“Hydro costs slashing profits of Windsor region businesses,” CBC, November 27, 2016

As the story titles scream, Ontario has recently seen a heated debate about how government should respond to energy systems that are costing the economy business. It is not exclusively an Ontario issue, you can find that this sort of discussion has or is taking place in other provinces.  Policy makers are trying to figure out how to deliver affordable energy solutions and it is hard to point to a consistent model of choice.

If you go to the Natural Resources Canada (NRCan) website here is what they say shapes “Energy Policy”  – “Canada’s energy policy is guided by a series of principles, agreements and accords.” The site points to key principles such as: a) market orientation; b) respect for jurisdictional authority and the role of the provinces; and c) where necessary targeted intervention in the market process to achieve specific policy objectives through regulation or other means. Finally NRCan states, “Federal energy policy is solid but not static. It must remain flexible to ensure an economically competitive and innovative energy sector that sustainably delivers a secure, reliable and safe supply of energy.”

The words of the policy say the right thing particularly with the reference to “economically competitive”. But there is more than one way to be economically competitive and it varies for policy makers based on their location, their ability to invest, the population, how it is dispersed and the public affairs environment among other things. None of that appears in the energy policy statement but those elements are equally influential in guiding a government’s choices around affordability.

Ultimately delivering affordable energy is about policy makers doing substantial homework and applying significant forethought. Also vital and generally a colossal failure by many governments across many jurisdictions is communicating what affordable energy will look like in the years ahead, what the tradeoffs or costs will be and why change, if it is necessary, will be necessary.

If you are government involved in delivering affordable energy, make sure that when you deliver the solution you propose that it is in fact affordable. Get your fiscal forecasting right. It is often because governments have got the numbers wrong in so many places that credibility is likely the single biggest challenge they have in delivering affordable energy. If you can’t make a product no one thinks you can sell one either.

“Ultimately delivering affordable energy is about policy makers doing substantial homework and applying significant forethought.”

“Ultimately delivering affordable energy is about policy makers doing substantial homework and applying significant forethought.”

Tim Powers, is the Vice-Chairman of Summa Strategies Canada and the managing partner of Abacus Data, both headquarters are in Ottawa. Mr. Powers appears regularly on CBC’s Power and Politics program as well as on VOCM in his home province of Newfoundland and Labrador.


Gabriela Gonzalez

BY GABRIELA GONZALEZ

Rising energy prices don’t discriminate between residential dwellings and businesses. In 2016, there were a handful of stories about companies moving their operations and/or expanding from Canada to the United States because of high energy prices.

Companies used to be only preoccupied by the competitor down the street but the times have changed and so have the needs and worries of businesses. In a globally connected market, businesses are not only mindful of their competitors in their home jurisdictions but they are forced to compete at a global scale.

Some parts of the world, notably Asia and South America, have lower costs for labour, materials and production. While jurisdictions in the southern U.S. often give businesses incentives in the form of tax breaks or upfront funding. Many of those jurisdictions depend on coal plants for their power, which lowers the energy costs but at a high environmental cost. This is what businesses in Canada have to compete with and it’s a tough playing field.

The Ontario government understands the challenges that businesses face. Ontario currently has the low corporate tax rates and a host of social programs such as quality public health care and public education that make it an attractive jurisdiction for businesses and their employees.

Despite these facts, rising energy costs were eating away at businesses’ bottom lines, especially manufacturing facilities, many of which are located in Southwestern Ontario, a region that was particularly affected by the 2008 global recession.

Businesses and their associations reached out to government to ask for help. The Wynne government listened and delivered. The Fair Hydro Plan offers a 25 per cent relief to residential dwellings and small businesses. There is relief for industrial businesses too. The Industrial Conservation Initiative (ICI) provides a strong incentive for large electricity consumers to shift their electricity consumption to off-peak hours to reduce their bills by about one-third. These are significant investments that help businesses maintain their footprint in Canada, while continuing to compete on the global stage.

“Governments and businesses should engage in meaningful interaction.”

“Governments and businesses should engage in meaningful interaction.”

So what else can governments do to provide affordable energy solutions for companies to continue to operate in Canada? First of all, they should listen to businesses. As the employers are the backbone of the economy, businesses experience first-hand the changes in global trends and can attest to how well the economy is actually doing. Businesses can provide real-time feedback on how well or not government policies are working.

Secondly, governments and businesses should engage in meaningful interaction because, as Premier Kathleen Wynne recently said at the 2017 Ontario Chamber of Commerce Annual General Meeting, businesses create jobs and they are the backbone of the economy. Governments should be willing to develop and implement business-friendly policies such as competitive corporate taxes and fair energy prices because our country is better positioned to thrive when its businesses and people are doing well.

Gabriela Gonzalez is Consultant at Crestview Strategy. Prior to joining the Crestview team, Gabriela worked at Queen’s Park for four years and is a long-time Liberal organizer. Most recently, she worked as a Senior Communications and Operations Advisor to Ontario’s Minister of Economic Development and Growth. Gabriela holds an Honours Bachelor’s degree in Political Science and Psychology from York University and a bilingual (English/French) Master’s degree from the Glendon School of Public and International Affairs.

 


BY KATHLEEN MONK

BY KATHLEEN MONK

I am skeptical that businesses are fleeing Canada for Donald Trump’s America. I’d argue that companies are nervous about what is happening in the U.S. right now and that uncertainty doesn’t attract investment. While there have been several media headlines about businesses contemplating a move, notably in the province of Ontario, I am not sure the case has been substantively proven. A scan of media headlines reveal several stories about Leland Industries, a manufacturer of fasteners, that said last year it had an eye on expansion into Illinois. The company’s president argued that high energy costs were making production in Ontario uncompetitive. But for all the ink spilled on that story, a quick visit to Leland’s website clearly notes its headquarters (recently expanded) are still located in Toronto.

I am not in any way delegitimizing the very real concerns about the high cost of hydro in Ontario raised by businesses and citizens. Quite the opposite. The frustration Ontarians are feeling is palpable. It has grown so much that it has spawned scores of new advocacy organizations from the “People’s Hydro Coalition” to “Take Back your Power Ontario”, as well as the Coalition for Concerned Manufacturers.

For many small and medium size businesses’ energy costs, including the various delivery charges and debt retirement fees, are crushing. Since 2010, and the introduction of smart meters in Ontario, the on-peak rate during normal business hours has caused electricity costs to jump 81 per cent to 18 cents per kilowatt/hour.

"Businesses are best served by a stable and predictable environment where companies can plan, invest and grow."

“Businesses are best served by a stable and predictable environment where companies can plan, invest and grow.”

But in politics and business an often repeated rule is “no surprises.” So, in answering the question what should governments do to provide affordable energy solutions for companies to continue to operate in Canada? Policy makers and elected officials need to remember the cardinal rule: no one wants to be blindsided.

Businesses are best served by a stable and predictable environment where companies can plan, invest and grow. The business community understands that the world is moving towards a low carbon economy but to participate and succeed in that economy companies need clarity on regulations and carbon pricing. Certain energy intensive industries may need more supports in the transition to the low carbon economy, just like workers require ‘just transition’. Government needs to lead by offering incentives and supports to encourage the transition and reduce impact inequities. Most of all, governments need to provide a long-term vision that allows Canadians to benefit from our wealth of natural resources, by creating family sustaining jobs as we move to a low-carbon future.

Kathleen Monk is a Principal at Earnscliffe, where she is trusted by Canadian leaders to navigate complex public strategy issues, design strategy and bring together diverse stakeholders to tell authentic stories that deliver results. She appears regularly on CBC The National’s preeminent political panel, The Insiders, and provides analysis for CBC News Network’s Power and Politics.