Electricity Subsidies to Pulp and Paper Mills to Continue Despite Increasing NB Power Debt

An effort to redress NB Power’s financial woes that is supposed to involve a review of “all options” will not include a review of the policy that requires the utility to subsidize electricity prices for six pulp mills. and New Brunswick papers, according to the Department of Natural Resources and Energy Development.

The program aims “to allow New Brunswick pulp and paper companies to have access to electricity at competitive prices,” the department’s communications manager, Nick Brown, said in an email Monday.

“It is important to keep our large industries competitive with other Canadian jurisdictions,” he wrote, overturning the idea that the subsidy program could be scrutinized for loopholes like other NB Power spending.

Figures released last week show NB Power paid $ 9.7 million in rate subsidies to mills under the program in the fiscal year ended March 2021, even though the utility lost $ 4 million for the year and was in more debt.

The grants went to three factories owned by JD Irving Ltd. including two in Saint John and one in Lake Utopia, two belonging to the AV group in Nackawic and Atholville and the Twin Rivers pulp mill in Edmundston.

The New Brunswick government has asked NB Power to subsidize pulp and paper mills like Twin Rivers Paper Company since 2012 and demands that the program continue despite the utility’s financial problems. (SRC)

This was NB Power’s second consecutive year of financial losses, as it is expected to repay $ 500 million of its $ 4.9 billion debt over the next five years to prepare for forgiveness. to nine of the Mactaquac dam, under a directive issued by the province.

NB Power President Keith Cronkhite said he was “very disappointed” with the increase in debt last year instead of decreasing and Senior Vice President and CFO Darren Murphy said everything would be under the microscope this year to straighten the finances of the public service.

“We have to do better,” Murphy said Thursday.

“We need to take a step back and make sure that we consider all options to achieve this goal, as the goal is quickly approaching us.”

However, the review of the subsidy program for the six pulp and paper mills is apparently prohibited.

The subsidy program requires NB Power to buy back the cost of “hard” electricity purchased by pulp and paper mills at a national average calculated by the Department of Natural Resources and Energy Development.

Last year, the province said the price paid by New Brunswick factories averaged 7.536 cents per kilowatt hour (kwh). It is higher than the rates of five other provinces that have factories, which the province cites to justify the subsidies, although the true meaning of this difference is not entirely clear.

In British Columbia, the large forest products company Paper Excellence operates five pulp and paper mills that charge 17.2% less for guaranteed electricity than the six mills in New Brunswick.

The Paper Excellence paper mill in Port Alberni, British Columbia, pays lower electricity prices than New Brunswick mills, a benefit more than offset by higher property taxes. This is a factor that New Brunswick does not take into account in calculating the subsidies that NB Power has to pay. (Excellence of paper)

However, local property taxes on the five factories in British Columbia are $ 7.8 million higher than those on the six factories in New Brunswick, offsetting much of that difference.

The province’s subsidy formula does not take into account such differences, nor the fact that New Brunswick factories purchase a high percentage of their electricity at cheap loose prices.

Besides the subsidies, NB Power already sells high volumes of what it calls interruptible and surplus electricity to industry at very low prices, with the understanding that it can be cut and redeployed elsewhere on short notice in case of need.

Actual service interruptions are rare. Last year there were none, but NB Power sold 837 million kilowatt-hours of discounted electricity to the industry at an average price of 4.9 cents per kWh.

NB Power is not disclosing how much of the $ 22 million or more in savings went to the six plants, but the price was 35% lower than NB Power’s posted rate for plants and rivaled the firm prices large plants receive. everywhere in Canada, including Quebec.

When asked why the subsidy program ignored the large amounts of discounted interruptible electricity used by New Brunswick factories to make comparisons between provinces, Brown said the regulations governing the program require a comparison. firm prices only.

“The average New Brunswick tariff is based on the high industrial tariff published by NB Power for farm energy, as required by the regulation for electricity from renewable resources,” he wrote.

The subsidy program itself was imposed on NB Power by the province in 2012 to help companies suffering after years of poor markets for forest products following the financial collapse and recession of 2008.

The subsidy has cost NB Power $ 100 million so far and has continued even as markets for pulp products have improved dramatically and NB Power’s finances have deteriorated.

Report warns against subsidies

NB Power has never directly criticized the program, but in a case currently before the New Brunswick Energy and Utilities Board examining how NB Power could restructure its rates, an independent consultant hired by the utility has suggested tariff subsidies to large export-oriented manufacturing industries. facilities, like pulp and paper mills, is generally a bad idea.

“We do not recommend offering subsidies to exporters,” says the report from Christensen Associates Energy Consulting of Madison, Wis.

Bruce Chapman works at Christensen Associates in Madison, Wisconsin, and is one of two authors of a supporting document that advised NB Power against granting tariff subsidies to industrial exporters. (Christensen Partners)

“There are two serious economic problems with export subsidies. The first is that the benefits may be less than the costs. The second problem is that subsidies tend to go on forever, even though the circumstances that originally justified the subsidies have disappeared. “

The Christensen report did not directly assess the merits of the current subsidy for pulp and paper mills, but it did address the issue because it said in the design of the new tariffs “a commercial customer of NB Power has raised the possibility that his electricity-intensive business should receive subsidies due to the possibility of generating additional benefits for the province through increased exports ”

This, Christensen said, rarely benefits the public.

“The direct costs of the subsidies are the subsidies themselves, some of which ends up in the pockets of out-of-province consumers of the exported goods,” the report said.

“But there are also indirect costs due to the fact that the subsidies are financed by higher electricity prices, which means that other electricity customers have less money to spend on the services provided by the electricity providers. local businesses, thus putting a brake on the local economy. “

The province does not agree.

When asked if it had any studies or cost-benefit reviews demonstrating that the grant program is of net benefit to New Brunswick, the department cited none, but maintained that it was an important initiative.

“The program was designed to give large industrial companies the opportunity to compete on an energy level field,” Brown wrote.

About Christopher Easley

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