N.B. Power to spend $3.4 million of proposed rate hike on higher industrial subsidies

New Brunswick's six pulp and paper mills will not be made to pay the same 8.9 per cent increase for electricity next April as other customers of N.B. Power, evidence filed with the Energy and Utilities Board shows.

Last week the utility announced plans to raise rates 8.9 per cent "across the board" to all customers to address its rising expenses. Acting N.B. Power president Lori Clark said financial problems the utility faces in the next year are significant and require every customer to contribute equally to address them.

"The 8.9 per cent is to cover our current costs.We are not making significant progress on debt reduction.It is only to cover our costs," said Clark

"We decided it was in the best interests of all of our customers to put an average rate increase in place."

But in a 200-page evidence package submitted with the application to the EUB,the utility revealed it will be using $3.4 millionof the $135.8 million higher rates are expected to generateto raise subsidies it supplies to six New Brunswick pulp and paper mills.

Part of that will cover an expected increase in the consumption of power by the mills next year, but some will partially shield facilities from having to pay the full cost of increased rates.

The mills include three owned by J.D. Irving Ltd. in east Saint John, west Saint John and Lake Utopia, two owned by the AV group in Nackawic and Atholville and the mill in Edmundston owned by Twin Rivers.

According to N.B. Power's evidence, transfers to the mills will increase 30 per cent, from an estimated $11.3 million this year to $14.7 million next year.That will help keep the price of "firm" power supplied to the mills from rising as much as it does for other N.B. Power customers.

The subsidies are the responsibility of N.B. Power to finance, but the payments are required by provincial regulation, and the increases are not the result of business decisions made by the utility.

"It is not discretionary," N.B. Power communications officer Dominique Couture noted in an email to CBC News.

The transfers occur under a ten-year-old policy the province calls the "large industrial renewable energy purchase program" that despite its name serves only pulp and paper mills.

The regulation requires N.B. Power to buy green electricity the companies self-generate at elevated prices, and then sell it back instantaneously at a discount.

Most of the power is supplied from generators fuelled by the burning of biomass in mill boilers, with a portion also supplied by J.D. Irving Ltd.'s hydro electric dam in St. George.

This year, N.B. Power is paying $110.54per mega watthour for what it buys. It then sells it back to the mills at an average of just over $77 per mega watt hour, according to information the Crown corporation has filed with the EUB.

The utility is made to buy and sell at those price differences until it has lost enough money on the transactions to effectively subsidize the total power costs ofthe six mills, down to a level the province has declared to be a national average for pulp and paper facilities.

The transactions are mostly on paper since electricity generated at the mills is consumed onsite and does not actually enter N.B. Power's transmission system.

Last year the scheme cost N.B. Power $10 million.This year that has increased an estimated 13 per cent to $11.3 million, and next year is budgeted to increase a further 30 per cent to $14.7 million.

According to Couture, N.B. Power has to increase amounts it buys and sells with the mills to accommodateboth higher electricity prices and the growing consumption of power by some of the facilities.

"Firm sales to program participants are increasing due to electrification and other growth, and the targeted amount of reduction is increasing, therefore increased purchases are required in order to satisfy the regulation," wrote Couture.

According to the province, the subsidy program is meant to help New Brunswick mills compete against facilities in other provinces that have access to lower power costs, especially in Quebec and British Columbia.

"The purpose of the Large Industrial Renewable Energy Purchase Program is to make New Brunswick's export-oriented pulp and paper sector competitive with their competitors in other Canadian provinces," the government explains in an online information sheet about the program.

The program only concerns itselfwith electricity costs and does not attempt to evaluate other expenses of pulp and paper mills, such as wages, wood costs, property taxes or other expenses, to assessif there might be offsetting benefits to operating in New Brunswick.

The Department of Natural Resources and Energy Development oversees the policy but it did not respond to questions about its increasing costs last week.

Last year, J.D. Irving Ltd. issued a statement in support of the program, calling it"critical to the long-term viability of New Brunswick's pulp and paper industry."

Last week, the company's vice president of communications, Anne McInerney, said electricity costs remain a concern.McInerney noted N.B. Power passed along large price spikes this yearin the cost of normally cheap non-firm "surplus" energy large industrial customers often access to supplement their firm supplies

"In some of our operations, we're paying as much as $60 million every year," wrote McInerney in an email to CBC News.

"In fact, this summer, (non-firm) rates increased so sharply, four times higher than normal, Irving Paper temporarily ceased operations."