Ontario Automotive Assemblers: Competition the True Cost of High Electricity Rates?


[DRAFT 1.0] Automotive assembly plants play an important role in maintaining our current standard of living and in ensuring continued future economic growth. Naturally, electricity plays a vital role in the production and assembly lines for Ontario automotive assemblers such that the price of electricity becomes a key variable when competing on the global market. A report by the Automotive Policy Research Centre ("APRC")entitled "Electricity Pricing in Ontario and its Effect on Competitiveness: An Automotive Manufacturing Case Study", drew some important comparisons between the assembly cost of an automobile produced in Ontario as compared with the top 10 North American jurisdiction that compete with Ontario on global auto markets. 

The report puts-forth a number of key findings that fall squarely in line with other reports on similar matters. The Fraser Institute, for instance, published a detailed report in the same year entitled "Rising Electricity Costs and Declining Employment in Ontario's Manufacturing Sector".  Among many other startling findings, the report highlights that Ontario manufacturers pay the highest electricity rates of all Canadian provinces and territories, with Toronto and Ottawa paying some of the highest and fastest rising electricity rates of all major North American cities. Noting the importance that electricity constitutes a major input cost for Ontario manufacturers, the Fraser Institute also notes the negative effect of high electricity costs on Ontario manufacturers.  The Automotive Policy Research Centre arrived at the same conclusion, albeit in the more specific market of Ontario automotive assemblers. 

Specifically, the Automotive Policy Research Centre found that at US$54 per vehicle, the cost of electricity is higher in Ontario than any of the top 10 automotive-producing jurisdictions in the United States. The cost of electricity per vehicle produced in Ontario is between US$6 and US$18 more expensive than even the most expensive jurisdiction in the United States. On reassuring finding made in the Automotive Policy Research Centre's report that differs from the Fraser Institute's report is that the cost of electricity required to produce an automobile has been "relatively stable in recent years". With respect to the increase in electricity costs, the Fraser Institute reported that between 2010 and 2016, electricity costs for manufacturers increased by 50% in Ottawa, and 48% in Toronto, as compared to 15% for the rest of Canada. 

However, the Automotive Policy Research Centre notes in its report that the relative stability of the cost of electricity per vehicle produced is not due to a stability in electricity market prices. Rather, the Automotive Policy Research Centre attributes this relative stability to the declining value of the Canadian dollar and, more importantly, the adoption by Ontario auto assemblers of more energy efficient assembly methods and processes, a factor which alone lead to a 22% decrease in the cost of electricity per vehicle. In that sense, findings and conclusions by the Automotive Policy Research Centre fall squarely in line with those of the Fraser Institute. 

Both the Fraser Institute and the Automotive Policy Research Centre found that electricity rates in Ontario have been a major factor in the deteriorating competitiveness of Ontario's manufacturing sector. Other authoritative sources that have examined the issue have arrived the same conclusion.  The Ontario Chamber of Commerce, for instance, had found in its study conducted in 2015 that one out of 20 businesses in Ontario expected to close in the next five years as a result of high electricity costs. The APRC departs from the findings of the Fraser Institute in that it states that "the size of the gap is not currently large enough to warrant such characterizations; certainly not in the context of a $30,000 vehicle". The APRC was also quick to note that most of a vehicle's cost come from "other upstream and downstream stages within the value chain (e.g. research, design, parts and components, and marketing)". It also highlighted the fact that "only about 10% of a vehicle's final value (i.e. about $3,000) and that is it on that basis that an individual plant's competitiveness should be judged.

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