Automakers and suppliers are stepping up calls for lower electricity prices in Ontario even though power rates account for a small percentage of a vehicle’s total costs.
The reason: Companies have no control over energy costs, which have risen in recent years at a rapid pace in Ontario and made it one of North America’s most expensive jurisdictions in which to run a factory.
And while other sectors might be able to take advantage of energy conservation programs that can lower operating costs, automakers say high-capacity assembly plants can’t be shut down long enough to hit those targets.
“When you look at the rate at which electricity prices have increased, it’s really quite remarkable,” said Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association (CVMA).
“We’re an industry where we try to maximize our capacity use. And we’re running two, maybe three, shifts per day, so we don’t have the opportunities for some of the energy conservation programs that other industries might be able to access as a means to try to reduce their costs. So we’re left without any options except to incur these higher costs.”
COST PER CAR: UP TO $18
A 2017 study by the Automotive Policy Research Centre at McMaster University in Hamilton, Ont., found that the total cost of electricity per vehicle assembled in Ontario was about US $6 to US $18 more expensive than in the largest auto-producing states in the United States.
The report’s authors concluded that the costs were not “large enough to warrant” claims that Ontario energy costs were high enough to hurt the province’s competitiveness but warned that could change if costs continued to rise as those in the United States stayed flat or declined.
“Our costs had gone up in Canada by a lot, and a lot of the challenge or the uproar has been about the increase in costs,” said Greig Mordue, an associate professor at McMaster and one of the report’s authors. “It’s been characterized as the absolute cost, but what prompted it is the increase in cost because we spent the first 100 years with the lowest electricity costs probably in North America, so to suddenly go to amongst the highest is a tough pill to swallow.”
BEYOND THEIR CONTROL
Electricity is among a handful of expenses that vary from location to location, Mordue said. Unlike labour, companies have no control over power rates.
“Electricity [costs are] a lot smaller than labour,” he said. “They can control labour, but they can’t control electricity. So if they’re going to point fingers, electricity is the one to point fingers at.”
Linda Hasenfratz, CEO of parts supplier Linamar Corp., said that while electricity rates in Ontario are not high enough for the company to consider moving production out of Canada, rising costs eat into profitability at plants that often have tight margins.
“It’s an issue,” Hasenfratz said. “Electricity costs in Canada are higher than they are in the U.S., and that’s a problem. It dilutes profitability, and that’s never good because it gives you less cash to invest in the future.”