Kevin McCaughen’s business pays an average of $325,000 per month for electricity and he’s preparing to see that number increase.

McCaughen, plant manager at Sigma Stretch Film, said news that Ontario’s hydro costs are going to continue to grow by an anticipated 42 per cent over the next five years could be seen as the death blow for manufacturers in the province.

The Ontario Liberals released their Long Term Energy Plan Tuesday with a projected outlook of hydro costs continuing to balloon in the coming years.

That balloon may pop and leave Ontario’s manufacturers deflated.

“I’ve looked at hydro rates and the actual cost of hydro hasn’t really gone up that much, it’s the new Liberal green initiatives,” said McCaughen. “We use about $60,000 worth of hydro and our bill can be as high as $325,000 a month. You get all those fees on there and the adjustments and it’s just going to kill industry.”

McCaughen said it’s not just the coming increases that will hurt industry, hydro has already increased leaving businesses scrambling to cover their bottom lines. As an example, he said, his plant’s hydro bill in January 2011 was $143,489. Last month’s hydro bill was $294,852.

An employer of 120 people, Sigma Stretch Film has been able to manage the increases but continued hydro bills of $300,000 or more can’t be ignored. With a parent company in New Jersey, McCaughen said, the same work can be done south of the border at lesser costs.

“Quite frankly, they can make the same film I’m making in our headquarters in New Jersey, just across the lake, at three cents per pound cheaper just with hydro rates alone…. When you’re making 100 million pounds of film per year and it’s three cents cheaper that’s a lot of money on the bottom line,” he said.

McCaughen’s story is not unique.

Mike Hewitt, Manufacturing Resource Centre co-ordinator with the Quinte Manufacturer’s Association, said hydro costs remain the No. 1 issue discussed by local businesses. A recent market survey showed 70 per cent of local businesses polled identified it as the major external force impacting their business.

“For people who are already saying it’s an issue an increase of 42 per cent means it’s going to become a much bigger issue,” he said. “That goes right through to the bottom line where you start getting in to situations where those who can save energy have already and there’s nowhere else to save.”

Hewitt said many manufacturing plants, including Sigma, operate 24 hours-a-day, seven-days-a-week and are already trying to reduce their costs. There are government programs that they can apply to to assist them, he said, but limitations such as business size or location excludes them from those deals.

“When you look at energy rates in other jurisdictions and you find that they’re lower that puts you uncompetitive with your sister plants,” he said. “How do you compete with those plants?”

Reticent to say the increasing costs will result in job losses, Hewitt said if a company can’t recoup costs there is a possibility employee numbers could be reduced to enact savings.

But local Conservative MPP Todd Smith wasn’t as reserved when it comes to how he sees the long-term impact of the hike. He said the province has already lost 300,000 manufacturing jobs in the past decade and such drastic increases are only setting the stage for higher unemployment figures.

“As long as they’re using electricity, it means their bottom line is taking a hit,” he said. “Over the past 10 years they’ve watched their hydro bills double. It’s making it very difficult to hold on.

“Eventually it will cost us jobs if we don’t change course. There’s no question and that’s what the manufacturers are telling me.”

brice.mcvicar@sunmedia.ca

Small businesses also feel the pain

The provincial government needs to address skyrocketing hydro costs to make Ontario appealing to businesses once again, says the local chamber of commerce’s CEO.

Bill Saunders, the Belleville and District Chamber of Commerce’s chief executive officer, said while manufacturers have long been crying about high hydro costs in Ontario … they’re not the only ones who are feeling the pinch. Small, independent businesses are also susceptible to the increasing costs and news that those costs are expected to jump 42 per cent over the next five years isn’t settling well.

“Electrical costs in Ontario are a major issue for the entire business community across the province,” he said. “It is a major concern and it is always the main topic whenever we get together and talk about the costs of doing business in Ontario.”

Saunders said when hydro in Ontario is more expensive than rates in California, there’s a major dilemma and it makes attracting business to the province a challenge. Meetings with elected officials have taken place to express those concerns but, he added, there seems to be no simple solution.

“The view of this chamber is that the cost of electricity in this province is totally out of control and it’s going to take a major overhaul to fix it,” he said. “There’s so many contracts in place and there are so many fixed costs associated with it that businesses are overwhelmed by the charges. It’s a totally messed up business model.”

The costs, he said, may not be forcing small businesses to close their doors, but it does mean larger companies are keeping a close eye on the bottom line and recognizing taking their business elsewhere will save them big bucks.

“When companies do their site assessments and relocation plans and sourcing studies it’s certainly becoming more and more of a factor.”