Northwestern Ontario suffering from a “powering down”

ONTARIO - Now that Dalton McGuinty has professed a desire to ask the "bigger questions" about Ontario's economic crisis, here's one he might want to tackle: Why, after five years of his government, is northwestern Ontario going down the tubes?

It's a harsh but defensible judgment. The region has been the canary in the mineshaft. The recession took hold there about five years ago under the assault of a high dollar and energy prices and, critically, soaring electricity costs.

The power-hungry forestry industry, the region's dominant employer, continues to decline despite billions in investment to make it more efficient. Some 11,000 forestry jobs have been shed since 2004 and as many as 44,000 others are indirectly caught up in the upheaval.

The unemployment rate in the region is holding steady, but that's because people are either leaving or commuting to jobs in Alberta. Its share of Ontario's population is projected to shrink by 25 per cent by 2031 and those left will be older and poorer.

"Everything all together has created a really dire scenario here," said Lakehead University economist Livio Di Matteo.

The McGuinty government attempted to address the forest industry's problems with a series of initiatives it valued at over $1-billion. Some of the moves - such as the uploading of the cost of roads built to bring lumber to mills - were helpful.

But Prof. Di Matteo, among others, believes the strategy has been overwhelmed by events such as the decline in the U.S. house-construction industry and the decline in newsprint demand.

New Democrat Leader Howard Hampton, whose constituency covers 336,783 square kilometres in the northwest, condemns the government's strategy as "essentially a public relations campaign."

The focus now is on the cost of electricity, which the industry says is too high to allow it to be profitable.

Ontario's "all-in" price (which includes various fees) of about $72 per megawatt-hour is the second-highest in Canada (after Alberta) and is higher than most U.S. regions.

Prices rose after the former Progressive Conservative government abandoned policies that provided low industrial rates in favour of a market system that didn't distinguish between manufacturers and homeowners and ignored the northwest's ability to generate cheap hydro power.

The McGuinty government has essentially stuck with this market system despite calls to institute either an industrial tariff or other forms of relief.

Jamie Lim, president of the Ontario Forest Industries Association, said other jurisdictions use electricity as a tool for economic development. "We need to make a fundamental decision in Ontario," she said. "Are we going to keep up with these other jurisdictions?"

Adam White, president of the Association of Major Power Consumers in Ontario, notes that with a lower industrial tariff, "that's why you have a steel industry in Germany, that's why you have an auto industry in Germany."

The government has resisted these calls, saying it prefers to help industry to use less energy and to shift demand to periods when it is less expensive.

Which brings us to Abitibi-Bowater. Doug Murray, general manager of its Thunder Bay pulp and paper operation, says he has tried to make his plants more energy efficient but it's not enough because he is still stuck with the highest electricity prices of the company's 25 North American mills.

He said the January tariff was $76 per megawatt-hour. This was reduced to $63 by various rebates but he said he needs a $50 rate to be profitable.

At some point, with demand for paper down, Abitibi-Bowater will have to decide whether to pull out of Thunder Bay and consolidate production elsewhere.

Mr. Murray calls it "a day of adjustment." Northwestern Ontario has seen plenty of them under the McGuinty government.