It has been a long time coming, but B.C.’s pulp and paper mills might have a chance to get some breathing room on cost pressures with an electricity announcement expected today.
Energy Minister Bill Bennett and B.C. Hydro CEO Jessica McDonald have scheduled a news conference this morning at which $100 million will be earmarked for a fund available to mills attempting to curb energy costs.
The companies will have to pay to play, by spending millions to curb energy consumption. But if they do, up to 75 per cent of the costs could be covered by the fund.
The money comes from B.C. Hydro’s long-range Powersmart fund and will be available to all the major producers, including Catalyst Paper, which runs three coastal mills in Crofton, Port Alberni and Powell River. It will be divvied up by mill size, and several million dollars will be available to each of the Island mills.
The program has been in the works since last November, when a long-range electricity plan was unveiled that included significant rate hikes for the next several years. The five-year plan includes a staged 28 per cent rate hike for most users.
The calculation at the time was that the overall hike would amount to an average $139,000-a-month increase for industrial customers by the end of the five-year plan.
The prospect was devastating for the paper industry and particularly for Catalyst Paper, which came out of creditor protection in 2012 by way of a restructuring effort in which everyone from pensioners to debt-holders sacrificed something to keep the company whole.
The debt was rewritten, pensioners made some concessions, employees took wage cuts and the company has been on a sustained cost-cutting drive.
Catalyst also conducted a concerted campaign to lower its property taxes in the three communities that host its mills, winning some concessions, although losing a court battle over the rates.
The company’s former boss said at the time the looming electricity hikes would have wiped out all the cost savings accomplished in the restructuring. Catalyst briefed politicians during the 2013 election campaign about the implications of the rate hike.
The power-intensive mills already push the company’s annual electricity bill well over $100 million, and it is scheduled to ramp up in the years ahead.
There were vague references when the rate hike was announced to using Powersmart money to ease some of the pain. Today’s announcement is the result of that effort.
The help being offered won’t eliminate the increases, but buying new technology that uses less power on a subsidized basis could mitigate some of the costs over time.
It’s believed the fund will be available for three years and it’s expected to be used up well within that time frame.
As far as Catalyst Paper and the hundreds of people who work at Island mills are concerned, the program has the potential to contribute to the company’s comeback.
Following creditor protection, it took until the last half of 2013 for the company to deliver positive cash flow. The annual report for that year flagged electricity rate hikes as a danger, but expressed optimism the Powersmart program would mitigate a significant portion of the rate hike.
The first quarterly report for 2014 cited strong operating results due to higher productivity and prices and a weaker dollar, even in the face of lower demand. It warned that second-quarter results, not yet posted, would be negatively affected by electricity rate hikes.
The first of the staged increases — nine per cent — took hold in April.
Over the last 13 years in power, it’s the closest the B.C. Liberals have come to a direct subsidy for business. Previous NDP governments had no problem subsidizing companies and industries to preserve jobs, but the Liberals turned the taps off in 2001.
The government might argue that its subsidy-free record is still intact because the Powersmart fund also involves some cost avoidance. B.C. Hydro will save a few hundred million dollars over the long haul by not having to produce the electricity the mills will be saving.
