Can businesses absorb higher power costs?

An editorial is a place for opinion, but your readers also deserve full and substantiated information.

There is little evidence of such informational prudence in statements made by Oct 29 editorial such as “food bills could go up by as much as 20 per cent,” and the rate system “will strangle all real economic development in Nunavut.” Editorial opinions are one thing, but making bold statements that sound like expert opinion is another.

The editorial makes a dangerous assumption: businesses will automatically pass on the full cost of the energy price increase to customers. In fact businesses have a choice. If a business is operating in a competitive environment and has healthy profit margins, it may choose to absorb part of the increased energy cost to stay competitive.

Take for example Northern Property REIT, a real estate investment company with 71 per cent of their properties in Nunavut’s large communities, or the North West Company, operator of North Mart, Northern stores and Quickstop. According to their financial statements the companies have profit margins of 30 and 4.6 percent, respectively, or $12 million and $36 million. Industry comparisons based on the Financial Post’s industry reports indicate that these margins are quite healthy in comparison to an average of 20 per cent in the real estate investment trust industry and 3.4 per cent in the foods retailing industry.

Although this sample is unrepresentative of the predominantly small businesses operating in Nunavut, it does highlight the likelihood that at least some businesses in Iqaluit have benefited handsomely from the region’s growth in the past few years and may be able to afford to absorb some of the increased energy costs.

As for strangling‚ economic development in Nunavut, increasing costs of power generation will play a role, but given the territory’s heavy reliance on air and sea transportation for goods and movement of people, rising world oil prices should be of greater concern. Or perhaps more concern should be expended for the territory’s high personal RRSP and savings rates, most of which will presumably be spent in the south thereby draining the local economy.

No doubt the one-rate system is a heavy burden that Qulliq Energy is asking citizens and businesses to carry, but has anyone stopped to think beyond their own cheque book?

How heavy is the burden for smaller communities under the differential rate system? It’s no wonder most private businesses are located in Iqaluit and other large communities.

One rate systems are used in many places in the world, and even in Canada many big city hydro customers often subsidize those living in remote communities, so that people and businesses in those communities are not disproportionately disadvantaged.

So while the some people aptly describe the one-rate system as unfair in economic terms, one could also choose to describe it as fair from an equal opportunity perspective. But no matter the perspective, everyone has the right to full and accurate information in forming their opinions.

Kate Odziemkowska
Iqaluit