B.C. Hydro’s largest single industrial customer has been pretty shy in the week since Energy Minister Bill Bennett laid out the future of electricity prices.
It might be for some tactical reasons. Or it might be because Catalyst Paper is speechless.
There’s not much doubt the plan Bennett outlined hits the coastal paper company right between the eyes. But it’s not as if the company didn’t see it coming.
After months spent trying to wrestle the need for huge rate hikes down to more manageable levels, the government last week came up with a schedule that will see them rise about 28 per cent over the next five years.
The plan opens with a nine per cent hike next year. The impact on industrial users is dramatic, none more so than Catalyst. Even at a briefing where the impacts were minimized, it was acknowledged that a nine per cent hike will cost industrial users an extra $139,000 a month on average.
And Catalyst, with three high-energy-use mills on Vancouver Island and at Powell River, isn’t an average user. It’s the biggest. It’s also one of the most fragile economically.
The company that owns the mills spent seven months in creditor protection last year. It emerged after a dramatic restructuring that knocked down huge amounts of debt, partly by negotiating a round of concessions from everybody involved with the company, particularly bond-holders, employees and pensioners.
The bottom line has improved since then. But by no stretch is it anywhere near sustained profitability. And close watchers of the operation say it’s hard to picture Catalyst weathering a sizable jump in its electricity bill.
“This could be a back-breaker,” said one source close to the company.
That’s close to what Catalyst was saying itself, a few months ago. The company briefed all the politicians during the election campaign, trying to make the looming hike an issue.
Former boss Kevin Clarke said the company was paying $100 million a year for power two years ago and was forecasting a jump to $127 million. It was based partly on the estimates of what the rate hike would look like and partly on the end of the HST.
Returning to the provincial sales tax adds $8 million to their bill, because B.C. is one of few provinces that taxes industrial power.
Clarke said the combined effect “erases financial sacrifices” made by all the interested parties last year.
The problem was overtaken by other events and never became an issue during the campaign. After the Liberals were re-elected, the company tried again, campaigning among municipal leaders leading up to the Union of B.C. Municipalities convention in September to build support.
It wanted the PST lifted and a freeze on industrial power rates.
The B.C. Liberal government tried to at least appear sympathetic. The ministers of forests, finance and energy met with company officials and some mayors of communities that host the mills on Nov. 19, a week before the rate hike was announced.
But sympathy was about all they had to offer. The planned increases will add about $26 million a year to Catalyst’s costs and amount to a 50 per cent bump over the last few years.
What will Catalyst do about it?
There’s no clear picture.
Clarke has since departed, replaced by new CEO Joe Nemeth. Sources say Nemeth is opting for a lower-profile approach. The former boss took on Premier Christy Clark directly during the last crisis, accusing her government of ignoring the need to protect the thousands of jobs the company supports.
The company is believed to be exploring ways to mitigate the costs. There are conservation gains to be had, through PowerSmart programs.
An independent review of industrial rates suggested new pricing systems, like time of usage rates, that could save money.
Powell River Mayor Dave Formosa, whose municipality gets 26 per cent of its tax revenue from Catalyst, said Wednesday he remains optimistic savings can be had.
But the power hikes could be fatal to the 420-person mill if nothing is done, he said.
Coastal residents are already fuming about ferry cuts. Now they have to worry about a new challenge for their job base, as well.
