July 15, 2012
Ontario

Rising electricity prices shock plastics firm

Chuck Howitt, Record staff | www.guelphmercury.com 14 July 2012

WATERLOO REGION – Bill Mechar first noticed something was amiss when he received his electricity bill for December.

The co-owner of Integrated Packaging Films near Ayr was looking forward to a lower charge than the previous month after the plant was shut down for a 10-day Christmas holiday.

But when the bill arrived in January, Mechar couldn’t believe his eyes.

“Our kilowatt hours were down considerably, but our bill went up from the previous month, which makes no sense.”

When he began digging into the issue further, he was alarmed to discover his hydro costs had been rising sharply since 2009.

Integrated makes plastic sheeting out of used water bottles, pop bottles and other products made of PET plastic. Suppliers grind down the bottles into plastic flakes or pellets, and ship them to Integrated where they are melted in two giant extruders and shaped into large rolls of plastic film.

The film is sold to customers in Canada and the U.S. who reshape it into plastic trays and containers for food products and plants.

Large and noisy, the 300 horsepower extruders are the main hydro users in the plant. In a recycling industry where margins are thin, they must run 24 hours a day seven days a week for the company to make a profit, says Mechar.

Shutting them down for part of the day to save hydro costs is not an option, he says.

Efforts to cut his bill through other means such as installing energy-efficient lighting resulted in minimal savings of about 10 per cent.

Mechar estimates his hydro costs have risen by 50 per cent since 2009. Last month, his electricity bill came to $53,000 and if rates don’t go down soon, his annual bill will top $600,000.

The soaring hydro costs have Mechar pondering the unthinkable.

Already feeling pressure from a strong Canadian dollar, he is considering moving the company to an area with lower electricity rates or shutting down the facility entirely. Launched 15 years ago, Integrated employs 23 people at a plant on Waydom Drive and generates annual revenues of $10 million to $12 million.

“You take $250,000 out of your bottom line (for hydro increases). We don’t make enough profit to absorb that.”

After contacting his electricity supplier, Cambridge and North Dumfries Hydro, he was told that much of the increase went for something called “global adjustment.” That covers the shortfall between what Hydro One, the province’s electricity distributor, receives in revenues and what it pays to suppliers.

Mechar suspects much of the increase in global adjustment is going to pay for the province’s heavily subsidized wind and solar energy programs.

First announced in 2009, they paid as much as 80 cents per kilowatt hour for solar projects, but were reduced to a ceiling of 64 cents when the province was flooded with applications.

“You charge me on my electric bill two cents per kWh, and you pay other people 64 cents. Where’s the logic here?” Mechar wonders.

Ontario’s Green Energy Act, which ushered in those wind and solar subsidies, has been fraught with problems almost from the beginning.

The goal was a noble one – to clean up the province’s polluted air by shutting down coal-fired generating plants and replace them with cleaner solar, wind and bioenergy power kick-started through generous subsidies or feed-in-tariffs.

But the province plunged in without conducting any business-case evaluation of the impacts of the program, the provincial auditor-general said in his 2011 annual report.

Prices offered to contractors, especially for solar projects, were much higher than similar schemes in countries such as Germany and Spain, auditor-general Jim McCarter said.

Meanwhile, a perfectly good program was already in place to generate renewable energy at lower prices through requests for proposals and standard offers, his report noted.

And many of the jobs created by solar and wind could be blown away by higher electricity prices in other sectors of the economy, McCarter said.

The provincial blundering in green energy is one of the main reasons why electricity prices are “going through the roof” in Ontario, says Michael Harris, Conservative MPP for Kitchener Conestoga.

As proof, skeptics need look no further than the province’s fall economic statement of 2010. It forecast price increases of 46 per cent over the next five years, with renewable energy accounting for more than half the total, he says.

And this is all happening while the province is selling surplus electricity to the U.S at losses approaching $2 billion, Harris said in an interview.

But the province says aging infrastructure, not renewable energy, is the main reason why hydro prices have gone up thus far.

Green energy projects “accounted for only about one per cent of a typical consumer’s bill in 2011,” Kirby Dier, a spokesperson for the ministry of energy, said in an email.

Meanwhile, the province has invested $9 billion to improve and replace equipment in Hydro One’s distribution systems, and cut prices for wind and solar at the same time, he says.

The ministry forecasts more moderate price increases – five per cent a year from 2010-15 – than those projected in the 2010 economic statement, says Dier, and has offered discounts to large industries if they create jobs, expand operations and shift consumption to off-peak hours.

While the Tories point the finger at renewable energy, the Ontario Clean Air Alliance says subsidies for the province’s nuclear power industry can be blamed for a large portion of the price increases.

Whatever the reasons, Ontario’s manufacturing sector is clearly steamed by the growing hydro bills.

Canadian Manufacturers and Exporters supports the concept of renewable energy, “but not at any price,” says Ian Howcroft, vice-president of its Ontario division.

He attributes the rise in electricity prices to many factors, including rates that were too low in the past, the need to upgrade hydro infrastructure, the closure of coal plants and the Green Energy Act, though much of its cost hasn’t been seen yet in bills, he says.

The organization is pleased with recent relief for large industries in Ontario, but says more needs to be done for small and medium-sized businesses like Integrated Packaging near Ayr and Valley Blades in Waterloo.

At Valley Blades, which makes blades for snowplows and graders, controller Bob Livingston frets about the “other charges” on his company’s electricity bill. These include distribution charges, debt retirement, global adjustment and network services.

In 2007, they came to $136,000 a year. Five years later they’ve more than doubled to $277,000 per year, he says.

At the same time, the manufacturing slump in the province has dropped prices for usage of electricity to rock-bottom levels of around two to three cents per kWh, Livingston says.

With manufacturing starting to pick up and more renewable energy set to come on line, he fears the pain will only get worse.

Mark Fisher, director of finance at Krug Furniture in Kitchener, says the company’s hydro costs have gone up even though production is down 20 per cent due to the sluggish economy.

“It’s not one of those things where you can’t pay,” he says with a frustrated laugh. “You’re kind of at the mercy of your bill.”

URL to article:  https://www.wind-watch.org/news/2012/07/15/rising-electricity-prices-shock-plastics-firm/