Natalie Armstrong
Metro News
February 9, 2006

TORONTO (Reuters): Ontario said on Thursday it will shave a tenth of a cent off prices for bulk users of electricity this year, offering relief to a sector hammered by high energy costs and the strong Canadian currency.

Energy Minister Donna Cansfield told a news conference that the province had decided to prolong a cap on energy prices for large industry, and lower the price to 4.6 Canadian cents per kilowatt, from 4.7 cents.

"We know that Ontario’s businesses, whether they be located in Thunder Bay, in Sarnia or downtown Toronto, need a reliable supply of power," Cansfield said.

"We also know that Ontario’s businesses rely on electricity prices that are stable and predictable and that’s what today’s announcement is about."

Cansfield said the announcement will affect about 55,000 large industrial and commercial electricity consumers – those who use more than 250,000 kilowatt-hours a year.

The move is aimed at helping steelmakers, pulp and paper mills and other manufacturers at a time when many companies blame soaring energy prices for plant closings and job cuts.

The cap affects prices charged by Ontario Power Generation’s unregulated facilities. OPG is the province’s electricity generating utility. Prices will go back up to 4.7 cents per kWh next year and rise to 4.8 cents on April 1, 2008.

The current cap of 4.7 cents per kilowatt-hour expires on April 30 and is well below market rates. The big users pay the bill at market rates and get the difference back in rebates.

Scott Hand, chairman and chief executive of nickel miner Inco Ltd. ., told the news conference that the Ontario announcement could save C$80 million ($70 million) for Inco and Falconbridge over the next three years.

"That’s a lot of jobs," Hand said.

But Tom Adams, executive director of the consumer and environmental research group Energy Probe, said the subsidy to large manufacturers will eventually be covered by Ontario taxpayers in the form of transfer payments.

"The practicality of this is that OPG will lose more money and come to government for greater top-ups. OPG will not have the cash flows to undertake the capital projects that it has on its book," Adams said.

"When you squeeze a balloon, it has to bulge out some place else."

Canada’s manufacturing sector, with much of it based in Ontario, has shed about 151,200 jobs since December 2002, pressured by a rising Canadian dollar and higher oil prices.

The currency has marched steadily higher in recent years and, in late January, touched its highest level against the U.S. dollar since 1991. Energy prices, too, have soared, especially after hurricanes curtailed U.S. oil and gas production in the Gulf of Mexico.

($1=$1.15 Canadian)