Ontario’s Hospitality Energy Report
Forward
In this report we have highlighted the various factors driving the current hydro energy conditions in the
accommodations and foodservice sectors of Ontario. The primary objective is to provide knowledge that these
sectors are unique to the overall energy power classes being significantly impacted by hydro decisions and
respect supportive policies.
The report touches upon the Global Adjustment’s escalating costs and provides a list of hydro policies introduced
over the years that have not supported mid-size business while not been effective on the success of small
business.
While the rising hydro costs have been hard felt by both consumers and businesses its Ontario’s hospitality
operators working in the highest intensive industry of all commercial and institutional sectors that have
profoundly been hit. The energy intensity commentary has been supported by Natural Resources data including
comparisons in consumption power mix and business concept usage.
A section on the financial performance climate of the industry illustrates the tough economic environment both
hotels and restaurants have been facing and the impact from hydro expenses. Included are results from a
2016/17 ORHMA study analyzing and comparing the impact of hydro expenses to hospitality operations. The
results are conclusions following a review of 18 restaurants and hotels. We limited the commentary in the
report knowing the data included deliver the clarity of the information presented. .
Global Adjustment
In attempting to modernize Ontario’s antiquated hydro system the solution in the Global Adjustment (GA) might
in theory make sense but it has now been determined to be the ulcer to hydro expenses. In the real world, it is a
model that continues to bring unbearable pressure to consumers and to business. The GA initiated to drive the
Province’s “Green” campaign has been pushed too rapidly without economic considerations.
Don Drummond in his government commissioned report criticized government rules enacted in 2009 that dictate
how the province buys power in order to drive a green plan in forfeiting clean, green, renewable, naturally
occurring hydro power just to pay offshore interests five times more for wind power.
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Reference 1: Ontario’s Global Adjustment Increases
Ontario’s Global Adjustment illustrating an increase by 115.21 per cent from 2005 to 2016
Hydro Policy on Small and Mid-Size Business
The hospitality sectors have seen shocking power rate increases, particularly since 2009 and in reviewing
Ontario’s energy policies we conclude:
Small and Midsize business charged inappropriately in relation to large size – both largest along with smallest
consumers have a greater advantage
Electricity rates for medium-sized businesses in Ontario soaring, up about 8 per cent per year over the last
five years with no end in sight.
Since 2009 mid-size business seen average 18 per cent hydro increases while other classes seen less drastic
10-17 per cent increases
Policies do not support mid-size business –i.e. in the run-up to the recent election the Ontario Clean Energy
Benefit plan transferred 10 per cent of the cost of hydro for households, farms and small businesses to the
provincial deficit without mid-size business consideration.
In 2010 regulations passed and implemented in 2011 allow largest users to shift a large and increasing
portion of the cost burden of the power system to smaller and mid-size businesses to what has been
refereed as the Global Adjustment (GA)
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Businesses continue paying the debt retirement charge
Consistently treated by policies without any agency in Ontario’s power system tracking rate trends for
medium-sized businesses.
Recent announcement of the 8 per cent HST Rebate on hydro bills in not supporting most small businesses
due to the HST input tax credit procedures in place
Recent announcement on the conservation incentive does not include businesses under an annual 1 KW
aimed at reducing peak time energy use. Hospitality businesses do not have control over demand and
cannot alter their peak times and operating practices
Ontario’s Hospitality Industry
Highest Energy Intensive Industry of all Commercial and Institutional Sectors
High energy prices are exerting disproportionate impact on businesses that rely heavily on electricity-intensive
power. Ontario’s hospitality sectors are engulfed and trapped in this operational web having been defined as the
most energy-intensive commercial and institutional activity. The following data provides the size and make-up of
the industry’s energy demand and dependence.
Figure 2: Ontario’s Hospitality Industry -Energy Floor Space million m2
Comparison to British Columbia and Quebec
For the time frame of 1990 to 2013 floor space grew by 44.6 per cent to 12.66 million m2 in Ontario’s
accommodation and foodservice sectors.
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Figure 3: Ontario’s Hospitality Industry - Energy Intensity Comparison by Sector Type
Comparison to Commercial/institutional energy intensity 1990 and 2013
According to Natural Resources Canada, the accommodation and food services sectors combined consumed 1.86
GJ/m² in 2013 the highest in the commercial/institutional sectors attributable to the energy-demanding nature
of activities and services operating with extensive hours.
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Figure 4: Ontario’s Hospitality Industry – Improvement in Intensity by Sector Type
Commercial/ Institutional energy intensity improvement 1990 and 2013
The accommodations and foodservice sectors combined achieved the highest energy intensity improvement in
commercial and institutional at 40% per cent.
The industry’s high energy intensity is to be attributed to the energy-demanding nature of activities (restaurants,
laundry) and services (extensive hours of operation), as well as the use of new technologies, which translates
into the proliferation of the amount of electronic equipment. It is important to note that these hospitality sectors
operate at full throttle during peak demand periods in activities such as guest check in/out, hotel guest
shower/bath use, breakfast and dinner service, high use of banquet facilities and demanding that kitchen
equipment be at full power.
Restaurants Typical Annual Energy Range Intensity are:
• Fast Food 5 to 12 GJ/m2 averaging 7 GJ/m2
• Full Service 3 to 10 GJ/m2 averaging 5 GJ/m2
• All Restaurants 3 to 10 GJ/m2 averaging 6 GJ/m2
• An Ontario Hotel and Restaurants averaging 1.82 GJ/m2
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Figure 5: Ontario’s Hospitality Industry - Hydro & Natural Consumption Mix
Data from 2016 shows Ontario’s Hospitality Industry dependency on hydro power remains double than the consumption of Natural Gas with the remaining being light fuel oil, kerosene, heavy fuel oil and steam.
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Figure 6: Ontario’s Hospitality Industry –Energy Power Use Comparison
Ontario vs. Canada Hydro & Natural Gas Use comparison
Figure 6: Ontario vs. Canada Hydro & Natural Gas Power Use
Comparison
Data from 2016 shows Ontario’s Hospitality Industry consumes 5% more hydro power as a mix to total energy
than the national average.
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Figure 7: Ontario’s Hospitality Industry – Consumption Mix Comparison
Figure 7: Ontario’s Hospitality Industry
Consumption Mix Comparison
Data from 2016 shows Ontario’s Hospitality Industry consumes 5% more hydro power as a mix to total energy
use than the national average.
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Hospitality Industry Climate-Financial Pressures
For over two decades and a half Ontario’s hospitality industry has been struggling. Impediments such as 9/11,
SARS, 2008/09 financial recession and a lengthy strong Canadian dollar crippled international visitation resulting
in record breaking travel deficit performance while the domestic market noted low consumer confidence slowing
down disposable income. These are drivers with direct impact to the accommodation and foodservice sectors.
Recently, the weakening of the Canadian dollar has been favourable to Ontario’s tourism showing positive
growth in most provincial destinations. Accommodation and foodservice businesses are showing revenue growth
and beginning in 2015, performance data are finally equaling the 2000 numbers but without inflation conversion
while the pre-tax profit margins have yet to make up time.
Over the years the accommodation sector profit dipped by 50 per cent and its only crawling to recovery. Both
sectors continually perform less than the national average. Ontario’s foodservice pre-tax profit margin at 3.5 per
cent in 2013 is a far cry from 1990’s industry performance in the 6 to 10 per cent range. The independent small
businesses operate near the 1 per cent profit range and with 25 per cent of new restaurants closing in the first
year and 50 per cent in the second year the sector is struggling primarily being pressured by high expenses.
Drivers for expenditures are attributed to the minimum wage increases (39 per cent of minimum wage earners
work in the hospitality sectors), food commodity pricing (influenced from severe weather conditions, global
urbanization and fuel and energy fee increases passed on by processors and transportation of goods) and direct
costs from energy utilities including hydro.
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Figure 8: Accommodations Pre Tax Profit Margins Trends
Ontario Comparisons with the National Average
In the 1990’s Ontario performed higher than the national average pre-tax profit margin but since 2003 the sector
has been under-performing the rest of the country with a slow recovery pace.
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Figure 9: Foodservice Pre Tax Profit Margins Trends
Ontario Comparisons with the National Average
Historically the Canadian restaurant industry was much healthier.
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Figure 10: Foodservice Pre Tax Profit Margin Trends
Ontario Comparisons with the National Average
The Ontario restaurant sector has continually been under-performing the national average and every province in
pre-tax profit margin for a lengthy period with the gap widened in 2013 as compared to 2001.
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The Impact of Hydro Expenses to the Hospitality Industry
The primary issue in Ontario’s hospitality industry is the Global Adjustment which represents around 70 per cent
of a total hydro invoice.
Case Study 1: Ontario’s Hospitality Industry - Comparison with Other Provinces
Hydro Invoices Breakdown
In comparison to other provinces, Ontario’s hydro invoices contain more items than the hydro charge itself. On
top on the list is the Global Adjustment making up 69 per cent of a typical hydro invoice allocating only 9 per
cent to the true hydro charge. Delivery Charges a cost that varies throughout the province congruently stands
out at 6 per cent of the total hydro cost.
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Case Study 2: Ontario’s Foodservice Sector- Comparison with Other Provinces
Hydro Cost by Square Foot
Ontario’s hydro cost in 2012 by sq. ft. amounted to $0.68. The cost increased by 76.1 per cent to $1.20 by 2016.
The other provinces included in the study operate with costs well under Ontario’s.
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Case Study 3: Ontario’s Foodservice Sector -Pre-Tax Profit Margin Impact
Hydro Impact by Square Foot
Over the years Ontario’s Hydro expenses grown to impact the foodservice sector profit margin from 0.24 per
cent in 2008 to 0 .64 per cent in 2016 resulting in a cost increase variance of 171 per cent.
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Case Study 4: Ontario’s Accommodation Sector- Comparison with Other Provinces
Variance of Hydro Consumption vs. Cost per Available Room
ON AB BC NB NF NS NT
Ontario’s accommodation sector’s dropped hydro consumption by 1.3 per cent from 2015 to 2016 yet the hydro
cost per available room increased by 9.1 per cent over the same time frame. The sector in the province reduced
its consumption but pays a higher hydro cost. Ontario’s disturbing variance in this comparison far exceeds the
other provinces and territories.
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Case Study 5: Ontario’s Accommodation Sector- Conservation Impact on Cost
Conservation Programs Reducing Consumption however Expenses Continue to Increase
Capital expenditures of $409,319 in energy conservation projects, spend on ten sample Ontario
accommodation properties were successful in dropping the hydro kWh consumption by 14.3 per cent however
the cost per available room increased by 3.6 per cent.
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Case Study 6: Major City Accommodation Sector – Comparison with Other Cities
Total Energy Expense Comparisons per Occupied Room (POR)
A 2015 study on Per Occupied Room (POR) cost showing the City of Toronto at $3,450 being a very high energy
cost destination as compared to other Canadian business competing cities,
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Case Study 7: Ontario Foodservice Sector – Total Expense Comparison
Hydro Expense comparison of restaurants located in the provinces of Ontario and Quebec
The November/December 2016 monthly hydro expense of a restaurant located in Ontario is $3,055. The
expense of a similar size restaurant with equal consumption located in Quebec in the same time frame is $1,503
representing a variance between the two locations by 103.23 per cent. If the Ontario restaurant was located in
Quebec it would reduce annual business costs by $18,621.
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Case Study 8: Ontario Foodservice Sector – Per KWH increase comparisons
Hydro Expense per kwh comparison of restaurants
From 2008 to 2016 the per KWH total hydro expense of an Ontario Restaurant increased by 114.13 per cent.
2600 Skymark Avenue, Suite 8-201, Mississauga, ON L4W 5B2 (905) 361-0268 (800) 668-8906
Ontario Restaurant Hotel & Motel Association
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