Ontario manufacturers eye greener pastures stateside as hydro rates go through the roof
Jocelyn Bamford, a white hard hat perched over red hair that curls down around her shoulders, has her hands on her hips. Behind safety glasses, her eyes flash. On the shop floor in the bustling Automatic Coating Inc. plant owned by her family, she has to shout to be heard above the squirt of compressed air nozzles, honks from forklifts, the clang of steel as it’s dipped in baths, and the hum of exhaust fans.
Bamford might be shouting regardless of the noise since the hydro bill for her Toronto-based company has her mad as hell. Once boasting one of the continent’s lowest electricity rates, Ontario today has some of the highest and that has many industrial companies planning to move at least some operations to the United States.
“The government treats us like bourgeois sweatshop operators who have to be stopped,” said Bamford, who has organized dozens of medium-sized companies into the Coalition of Concerned Manufacturers of Ontario. “All the businesses are terrified of the government. My husband said, ‘Well, do you just want to pick up and go?’ And I said, ‘Well, I guess I gotta just stay and fight.’ I feel like I’m the Norma Rae of manufacturing.”
Automatic Coating’s electricity bill has more than doubled in the past decade. Its bill for last November was $49,209.68. The first line is for electricity: $6,577.93. The second line is much harder to explain: it is the euphemistic Global Adjustment charge: 217,165 kWh at 11.6 cents each for a total of $25,223.73.
The Global Adjustment contains many different costs, including Ontario’s payments to solar and wind energy makers at far more than the market rate, the cost to sell excess power to U.S. states at a loss, and even the cost of replacing light bulbs with LED bulbs.
For manufacturers, the Global Adjustment fee symbolizes all the excesses of Ontario energy policy, including headline-grabbing salaries at state-owned utilities and the wages for the armies of bureaucrats who manage what plant owners describe as the province’s Byzantine array of energy cost-abatement programs.
“They have an open invitation to take whatever they want,” said Jerrod Rowntree, manager of a unionized, Korean-owned plant in Simcoe, Ont., that employs 110 people to make magnet wire for Tesla Inc., the Chevy Volt and transformers. “What’s their rhyme or reason to put their hand in our pocket whenever they want?”
Case in point, Ontario on Jan. 1 brought in cap and trade, a measure the province said “is designed to help fight climate change, and reward businesses that reduce their greenhouse gas emissions.” The program further hikes energy costs for businesses that burn natural gas or fuel their cars and trucks with gas or diesel.
The costs and rules mean a move out of Ontario can sound mighty tempting and U.S. states have come knocking.
Automatic Coating has an offer to move to Mississippi. Plasticap Inc. of Richmond Hill, Ont., more than 50 years old and a maker of plastic lids using injection moulding, plans to expand in Ohio or Virginia rather than Ontario. Surati Sweet Mart Ltd., a busy Indian baked goods manufacturer in Toronto, has visited New Jersey, Georgia and Texas.
There are many others, but Brad Duguid, Ontario’s minister of economic development and growth, doesn’t fear a manufacturer exodus.
“For every business that’s leaving, there are probably three or four that are coming,” said Duguid, sitting in his spacious office on Bay Street, decorated with big paintings and photographs of his hero, former U.S. President John F. Kennedy. “We’re leading the G7 in growth right now in Ontario.”
Duguid’s office later sends data that boast of the jobs Ontario has recently created in information and computer technology, fintech, life sciences and cleantech. The note does not mention manufacturing, though Ontario historically is Canada’s manufacturing heartland.
Harold Bamford, Jocelyn’s father-in-law, started Automatic Coating in Toronto in the 1950s, where he powder-coated the armatures of washing machines. His son Brad eventually took over, expanded the company, patented several coating techniques and married Jocelyn.
Today, the family employs 55 people on two shifts, from 7 a.m. to 3 p.m., and 3 p.m. to midnight, and 20 people in the field. The company paints everything from fences to pipelines to ship parts.
One of the company’s biggest clients is the U.S. Navy. One current job is painting 48 louvres — car-sized, 700-kilogram intake vents for gas turbine engines — that were pried off the USS Gridley, currently in dry dock in San Diego, and hauled by truck to Automatic Coating.
At the plant, production manager Donna White bends over a louvre. She has worked here since 1978, put her kids through school on her wages and now has grandchildren. She guides staff in white overalls, dust masks and blue Nitrile gloves to apply a powder coating to protect the louvres from salt and extend their life by 10 years.
“If anything did happen to Automatic Coating, I don’t know what I would do,” she said. “I have a lot of employees under me who have younger families. A lot of big companies are closing down.”
Hydro rate hikes and cap and trade make the idea of relocating this business — at least for the navy contract — very attractive. Mississippi’s hydro rates are about one-third those of Ontario.
“The U.S. Navy has been after us for years to move our plant down to the States,” Bamford says. “It’s like you’re with the bad boyfriend, and you say, ‘There’s a guy down the street and he’s bringing me candy and flowers,’ and your boyfriend has been drinking all the time.”
Bamford wants to stay in Ontario. She sits on her local hospital foundation board, her three kids, aged 14, 12 and 10, all play hockey and husband Brad coaches two of the three. Even so, the U.S. looks pretty good.
“We could sell our house and buy a 4,000-square-foot house in Long Beach, Mississippi, with a gourmet kitchen for $350,000,” she said. “And 20 minutes down the road at Gulf Shores, there is an amateur hockey association.”
If Automatic Coating does move its louvre division to the U.S., it will retain the jobs in Toronto, but any future growth will be stateside, Bamford said.
Other businesses are making similar calculations. City of Toronto statistics show the city has lost 20 per cent of its manufacturing jobs in the past decade.
North of the city, three steel silos loom on an outside wall of Plasticap’s factory, which opened in 1963. The silos contain millions of plastic pellets known as raw resin.
Pipes in the factory ceiling blow pellets to injection moulding machines. The newest of these machines is a Japan Steel Works 1400H, a fast-moving collection of hydraulics, motors, pipes and conveyors.
“Whirr! Puff!” sings the machine, and it injects molten white plastic into 24 cavities. Every 14.3 seconds, 24 warm caps for fabric softener bottles fall, each with a little “pop!” onto a conveyor belt.
“Our volumes have increased so we have to run 24/7,” said plant manager Daniel Palka, 29, whom Plasticap hired in 2010 straight out of mechanical engineering school at the University of Toronto. “We get calls in the middle of the night.”
Business may be booming, but Plasticap has a problem: it cannot afford Ontario hydro.
Peter Gossmann and Tom Lato, Plasticap’s co-owners, in February drove to Virginia and Ohio, seeking a spot to expand. The pair left icy Ontario and arrived in southwest Virginia at night. Lato recalls, “I said to Peter, ‘I think the grass is green down here.’” In the morning they looked out their hotel windows and, sure enough, the grass was green.
“Absolutely, we are going,” said Gossmann, though he adds that Plasticap will retain existing Ontario operations. “In Virginia, they are really quite well-equipped for our industry. And 70 per cent of what we make goes to the United States already.”
Duguid, Ontario’s economic development minister, acknowledges that manufacturers struggle to pay their hydro bills. But he said Ontario offers plenty of other positives to attract and retain business.
“We have the lowest effective tax rate in North America, we provide the best talent anywhere in North America in terms of workers, we have a health-care system that’s second to none on the continent, and we have a quality of life that is superior to anywhere else on the continent as well,” he said.
Duguid also cautions business against moving to states such as Virginia, which burn coal for power. “Ultimately, the global economy is going low-carbon,” he said. “There will come a time when your business will pay a price if you use dirty energy.”
Ontario wants to help manufacturers, he adds. Recent policy changes mean Automatic Coating and Plasticap now qualify for Ontario’s Industrial Conservation Initiative (ICL).
Duguid said ICI “is not an easy program to explain,” which is why the province pays the Ontario Chamber of Commerce to do it. Even with that help, Tim Clutterbuck, who runs U.S.-owned ASW Steel Inc. in Welland, Ont., says ICI is “very complicated.”
ASW now operates nights, 7 p.m. to 7 a.m., to avoid high-cost power, but under ICI, he said, his factory also has to completely shut down when Ontario hits peak hydro use.
“The best way to avoid high Global Adjustment charges is to avoid the five highest hours of electricity consumption,” Clutterbuck said. “But they don’t tell you that until six weeks after the fact. It cost me 50 hours of production to make sure I don’t hit them.”
Government officials have suggested that companies could, alternatively, buy natural-gas-powered generators to switch on during consumption peaks.
Rowntree, the wire-maker in Simcoe, calls that suggestion ridiculous. “This initiative is encouraging manufacturers to burn fossil fuels,” he said. “From a moral standpoint, I won’t burn fossil fuels.”
Last October, Kathleen Wynne, Ontario’s Liberal premier, told the Niagara Chamber of Commerce that Ontarians are “very bad actors in terms of our per-capital creation of emissions” in explaining her push for a cap-and-trade system.
The comment enraged Bamford. Her plant switched its curing ovens to electricity from natural gas to reduce emissions, “but now electricity is so outrageous that we are wondering whether it was the right thing to do,” she said.
“When the premier said, ‘You’re all bad actors,’ I threw the gloves down. I was ready to go. We have to now band together and stand up for our rights. It’s time for us to get the attention we deserve.”
Financial Post, March 16, 2017
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