High Electricity Rates Driving Auto Manufacturers Outside of Ontario?


Even though power rates account for an incremental percentage (%) of an automobile's manufacturing cost, automakers in the province of Ontario are (still) calling for lower electricity prices.  Ontario has struggled with high electricity rates for many years.  Some trace Ontario's high electricity rates back to a supply-side problem that arose during the post-WWII economic boom in Ontario.  Other authoritative commentators have argued that the problem of rising electricity costs is a problem made in Ontario, directly tied to the provincial government's policy choices, which include aggressively promoting renewable sources, structuring long-term contracts poorly, and phasing out coal.

Regardless of the origins of Ontario's energy pricing problem, a recent report by the Fraser Institute found that Ontario manufacturers were paying the highest electricity rates in all of Canada.  Manufacturers in Toronto and the Greater Toronto area were also paying some of the highest electricity rates amongst all major North American cities.  Worst yet, the study by the Fraser Institute also found that electricity rates in the province of Ontario were also some of the fastest rising rates in all of Canada.  In addition to reducing the competitiveness of Ontario manufacturers, high energy rates have also meant decreasing capital investments in Ontario, and a decrease in jobs in Ontario's manufacturing sector.  The report found that between 2005 and 2015, Ontario's manufacturing output declined by 18% and employment by 28%. Employment positions in Ontario's manufacturing sector have also dropped by 14% since 2008.

For auto manufacturers specifically, rapidly increasing electricity rates has also meant an increase in the total cost of production of an automobile.  A study from the Automotive Policy Research Centre at McMaster University (Hamilton, Ontario), found that the total cost of electricity required to produce a vehicle in Ontario was between US$6 to US$18 more expensive than competing jurisdictions in the United States.  While the automotive industry seems aligned on the fact that high electricity rates are not sufficient to drive Ontario's auto manufacturers out of the province, high electricity rates nevertheless dilute profitability and divert cash flow away from invaluable capital investments and job creation.

Unlike other costs, for instance, labour, auto manufacturers in Ontario and elsewhere have no control over energy costs. For manufacturers located in Ontario, this has meant a decrease in their ability to compete with factories in other North American jurisdictions.  While the government of Ontario struggles to find ways to reduce or at least stabilize energy costs for manufacturers in Ontario, some automakers have no other choice but to shut down long enough to meet the energy budget targets.

As Mark Nantais, President of the Canadian Vehicle Manufacturers' Association (CVMA) pointed out, the energy consumption profiles of auto manufacturers differ from those of other manufacturers in the province, such that auto manufacturers often do not have the option of participating in energy conservation programs that other Ontario manufacturers use to stabilize/minimize their costs. 

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