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High energy costs hurt industry

Electricity spot market prices up 77%
GM Canada says costs doubled in June

Toronto Star - July 27, 2005
by Sharda Prashad

Soaring power prices are causing some industrial customers, such as General Motors of Canada Ltd., to pay double what they used to for electricity. It's a trend industry observers say is not sustainable.

"Buying on the spot market equates to significant price premiums and we are most concerned," said Pam McLaughlin, spokesperson for GM Canada. The increase in spot electricity rates caused GM's June electricity bill to double compared to average rates, she said.

The company's electricity costs relate directly to the production of cars, trucks and auto parts, McLaughlin said. There isn't much opportunity to reduce energy consumption and curb escalating costs, she said. "We try to conserve energy where we can, like turning off lights," she said. "But safety is an overriding concern for us."

The average spot price for electricity in July was $85.00 per megawatt-hour, up from $71.00 in June and $53.00 in May, said John McNeil, president of Barker, Dunn & Rossi Canada, an energy consultancy. Last July, the price was about $48.00 — a year-over-year increase of 77 per cent. "The bottom line is companies must be hurting," said McNeil about the soaring electricity prices. "(But) it's not as much as it would be if there was a total free market."

About 70 per cent to 80 per cent of the market is still regulated, McNeil said, and the price in the regulated market is currently capped at about $55.00 per megawatt-hour.

"Electricity prices have gone up about 30 per cent since 2000," said Mike Kuriychuk, chairman of the Association of Major Power Consumers in Ontario. "And this summer there have been unusual price hikes because of the demands (on electricity)."

Members are dealing with the higher prices by decreasing their consumption between the peak hours of 2 p.m. and 8 p.m., rescheduling maintenance from high energy cost times and entering into long-term fixed-price contracts.

Energy prices in Ontario are not competitive with other areas, warned Kuriychuk, and the province risks losing business because of uncompetitive prices. He predicted energy prices will increase another 30 per cent by the end of the decade.

"(Calgary-based) Nexen Inc. shut down its Ontario operations because of energy costs," said Kuriychuk.

In the mining industry, there's little ability to reduce energy usage, said Peter McBride.

"The wake-up call was the energy shortage in the 1970s," said McBride, president of the Ontario Mining Association, where member organizations annually spend $300 million for energy.

Mining companies are already very efficient because of the energy crisis three decades ago, he said, adding that after labour, energy is the second highest expense for mining companies — about 15 per cent of total costs.

"Electricity prices in Ontario used to be a competitive advantage .... That's no longer the case," he said.

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