Ontario Liberal electricity rates are impacting jobs.


 

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Impact of a very bad government harms families

 

The news usually appears on the inside pages of the large Canadian media conglomerates.  In the home town or local papers where plant closings occur, the news is bold headlined front page news for a few days at least.  The impact on the families that relied on those jobs and made long term family decisions on the assumption of job security however, lasts a lifetime.

Southern Ontario was once the manufacturing hub of the province and the nation.  The jobs paid well and prospects for a worry-free future were once solely dependent on each factory’s ability to produce good quality products for a world-wide market that suddenly threw its doors open for quality products worldwide.

And, so it went.  At the macro level, international trade agreements increased potential markets thousands of times larger than the Canadian domestic market.  At the one level that should be most important; the micro level – Ontario families deriving income from those same factories paid down payments on family homes and negotiated mortgages wagering that the quality of their workmanship would eventually pay off those mortgages.  At the dinner table each evening, those families began discussing port secondary education for the kids.  Thousands of other mini-dreams (a new car, perhaps even a European vacation) all seemed not just dreams, but attainable realities.

And then the notice of lay off as required by Ontario law circulated through the workplace and the future suddenly stopped.  Things took an irreversible turn to the dark side.   Years of loyalty to the same employer see young workers turn into middle aged workers and middle aged workers turn into older workers.  The potential for reemployment diminishes as the suddenly unemployed worker’s prime employment age gradually disappears into the rear view mirror of life.

The factory closures mount and escalate. All told, in Ontario over 50,000 manufacturing have disappeared in the past ten years.

The Trail of Broken Dreams

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In hundreds of towns and in the homes of thousands of Ontario families, the bad news has spread. 

As example, London, Ontario saw Caterpillar closing its Electro-Motive Diesel factory and 450 families cast into unemployment (2012).   Those workers were informed that the London facility was “being consolidated elsewhere with other existing Caterpillar operations.  Another 450 workers at the London Kellogg cereal manufacturer (2014) were handed similar news.

The incidents are now epidemic and have become the new-“normal” throughout Ontario.   In Leamington, Ontario the H.J. Heinz Co.’s ketchup factory closed shop in 2014, eliminating 740 jobs.  That closure literally gutted local tomato growers who’s farms had supplied the factory for generations.

You could spend hours ferreting out similar stories. In nearby St. Thomas, Ontario 1,200 families were cast into unemployment in 2011.   The layoff notices have continued to appear throughout the province and are certainly not confined to small-town south western Ontario towns.  Caterpillar had shut down its Toronto factory   that manufactured tunnel boring gear in 2014 leaving another 330 families worried about tomorrow.

There was never a question that products made in any/all of those factories were inferior.  In fact, in front of many of those same factories a flag flew alongside the Canadian flag attesting to the fact that international quality standards were being faithfully used by the workers inside.

And, with certainty, I guarantee that you will still find Kellogg’s cereal and its iconic “corn flakes” still amply stocked in most supermarkets. It is still there as is Heinz’ world famous ketchup.  Unfortunately for hundreds of Ontario farm families, that ketchup is no longer manufactured from Ontario grown tomatoes.  In the supermarket parking lot, there still lots of Ford cars and trucks though fewer than the Oriental made stuff parked beside them.  Funny thing about those electro-diesel motors.  They are still powering rail equipment in a growing worldwide market.

What’s the Problem?

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It is not that Ontario’s workers suddenly forgot how to produce quality corn flakes and ketchup. 

Walk through Canada’s retail icon: Canadian Tire.  I defy to gather even a small had basket of products from the thousands on display that are made in Canada.   You would need four or five shopping carts to gather even one of each made in China products from that company’s retail shelves.  I often muse that; perhaps the name on the front of that retail giant might be more aptly changed to China Tire.

But, International trade agreements in and of themselves are a sword with two edges.  Where quality is concerned, we should be being an overall increase in worldwide demands for high quality Ontario made manufacturing goods.

I was in London, Ontario for a sustained period during 2012 when Caterpillar also decided to play hardball with 450 factory workers who were told to accept 50% pay cuts.  There is grass growing in the former employee parking lot today.  Obviously, economics (more than quality) is at play in the strategic planning of industrial giants.

Rather than single out labor costs alone as the culprit for job losses any of us who have ever been tasked with managing the (famous ) Profit and Loss Statement and its cousin, the Source and Applications reporting that takes place monthly can attest to the foolishness of the labor cost argument alone. 

Those of us who comprehend a thing or two about strategic planning an attest to the fact that direct labor has very often decreased as a percentage of total cost for any successful product as a result of intensive investments in factory automation.  And, (!!)Perhaps there is your answer.  With increased automation, increased electricity usage is a given.   In hundreds of boardrooms across the manufacturing sector, hundreds of us presented compelling arguments that automation was the corporate answer.  Based on Ontario’s readily available supply of electrical energy, investments in automation would not only abate labor economics but (also) throw the doors wide open to unfathomable export markets paving the way for Ontario’s future.

Though those decisions to automate an Ontario based manufacturing sector were based Ontario’s more than ample supply of electric energy, something took a bad turn.  Ontario first elected a Liberal government run by Dalton McGuinty in 2003.  By the end of his second term, Premier McGuinty and his caucus began tinkering with the supply side of the electricity market. 

“Fiat Chrysler Automobiles CEO Sergio Marchionne, who voiced concerns that the province’s hydro costs, pending pension plan and a cap-and-trade system are making Ontario too expensive for business.” [1]

“It’s not fair for us as a manufacturer … [to be] paying for the mistakes done by the province,”Al Yousef at Brampton’s Par Pak (employing 500) said. “We are a Canadian company, but how much can we take?”

Yousef went on to ask the obvious: “whether Ontario really wants a manufacturing industry. Par-Pak, which has 500 Ontario employees, could save millions of dollars a year by moving to Buffalo, which is dangling cheap power and tax breaks to attract Ontario manufacturers[2].”

Still not convinced that we have a problem?  The Canadian Manufacturers and Exporters Association adds, ““Competitive electricity rates are fundamental to the success of Ontario’s manufacturing sector and our economy. Despite progressive reforms including the demand based allocation of the global adjustment for large volume users, Ontario has among the highest electricity rates in North America.  The only path forward for Ontario is to adopt a manufacturing action plan with an industrial/electricity rate as a core component.”[3]

Tinkering and a Chain Reaction of Bad Choices – the Liberal legacy

When the McGuinty Liberals arrived in Queen’s Park things looked promising in Ontario.  When McGuinty arrived along with his cronies, Ontario (Canada’s manufacturing heartland) had excess capacity of electricity and was actually exporting that energy source to nearby domestic jurisdictions in Manitoba and Quebec but also to nearby USA states such as New York and Michigan.

Those pre-Liberal times were halcyon times for Ontario’s families who annually consuming 15,000 kWh of electricity per person, one of the highest levels in the world.  There was no need for smart meters telling us to do our laundry during “off peak hours” until the Liberals re-engineered Ontario and sent electricity costs spiraling.

About C$13.26 billion (in 2005 dollars) was invested by the government in Canada’s nuclear program over 1952-2006 through Atomic Energy Canada Limited (AECL). This investment has generated more than C$160 billion in GDP benefits to Canada from power production, research and development, Candu exports, uranium, medical radioisotopes and professional services, according to AECL.[4]

When McGuinty sat in his office for his first day on the job as Premier, Ontario was generating sufficient electricity to assure future growth of the Ontario economy.  The sources were a Nanticoke coal-fired power station Nanticoke, Ontario as well as our “famous” hydro electricity generation at Niagara and collection of state of the art nuclear generation facilities in Bruce (4 reactors)  and Darlington (6 reactors).

Those jobs at Caterpillar, Kellogg, Ford, and Heinz along over 50,000 Ontario manufacturing jobs were doomed and on death-watch when the McGuinty caucus announced a “twenty year energy plan for Ontario” in June 2006. 

There is always some noble and good cause for just about any Liberal policy.   The use of coal (or any other fossil fuel) to generate electricity generates high levels of carbon emissions. Thus, the closing of the coal fired generators at Nanticoke had solid environmental reasoning at its roots.  Nanticoke stopped production in 2014 amid much hoopla and publicity by the Liberals in Queen’s Park.    Though, in other parts of the world, clean technology has greatly diminished the environmental harm caused by burning coal to produce electricity and it is highly comical to have observed the McGuinty “dance” with natural gas generated electricity in 2014.  Both coal and natural gas are (after all) fossil fuels each capable of generating not only electricity but pollution if burned without using state of the art scrubbers.

When McGuinty arrived in office, Ontario was producing 14,000 megawatts of electricity across its coal, hydro (water) and nuclear driven platforms. By 2010, the Liberals slashed total overall planned capacity of electricity by 2,000 megawatts annually thereby limiting Ontario economic (manufacturing) growth AND manufacturing job opportunities for future generations.    Moreover, by 2010 plans to expand nuclear electricity capacity with the addition of two new reactors at Darlington were deferred by the McGuinty Liberals. 

The age old question about chickens or eggs could not be truer than in Ontario.  Ontario’s dwindling electricity capacity has resulted in failed manufacturing sector usage and a reduction of over 25 TwH annually due to plant closings. (One terawatt-hour is equal to a sustained power of approximately 114 megawatts for a period of one year.)

When you open your household electricity bill each month, you will be looking at years of bad planning by a government (the Liberals) who plan by impulse and view energy as a publicity stunt instead to a key component of our economic futures.

Today, one half of the ten nuclear reactors in Ontario (Bruce and Darlington) are turned off and long overdue for maintenance.  While, at the same time fanciful wind turbine schemes with Samsung brought with them  then higher consumer costs as incentive for Samsung to take part in Dalton’s ill advised energy plan as now perpetuated by (new) Premier Kathleen Wynne and her Liberal caucus.

In the lexicon of an economist, we do not use the word “accident”. Fortunately (for me) one can not be sued for one’s thoughts.  Suffice to say that these terrible things are “unplanned consequences” flowing from a political party (the Liberals) that would be hard pressed to organize a two car funeral.

 

Copyright   Thunderbird Rising 2016

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The above article is copyrighted.  You may use, copy or distribute this article conditional on attributing your source (Thunderbird Rising) and the author (Lloyd Fournier)

(follow Lloyd on Twitter  @LloydFournier1)

 

[1] “Hydro rates ‘handicap’ for luring manufacturers”, The Toronto Sun,  BY JENNY YUEN, JULY 13, 2015

[2] Ontario drives manufacturers away with overpriced electricity, Globe and Mail, BARRIE MCKENNA, Oct. 13, 2013

[3] “Ontario’s Power Trip: How Hydro is walloping Ontario business”, Financial Post, PARKER GALLANT, August 18, 2015

[4] Canadian Energy Research Institute, The Canadian Nuclear Industry: Contributions to the Canadian Economy, Final Report, Prepared for the Canadian Nuclear Association (June 2008)

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