Pacific West Commercial Corp. filed its application for a load retention tariff with the province’s Utility and Review Board Friday afternoon (April 27) and then held a hastily called technical briefing and conference call to explain the complicated deal to reporters. The term of the deal is 7.5 years, with aspects of it to be reviewed after five years.
Pacific West spokesperson Marc Dube said the arrangement will see the mill pay for all incremental costs associated with the mill being on the NSP system, and contribute to the utility’s fixed costs.
“I can categorically say this provides cost relief for the rest of our customers,” said Robin McAdam, vice-president of strategic business and customer service with Nova Scotia Power. “The mill will be completely covering the cost that it imposes on the system in addition to making a contribution to fixed system costs that are not being covered right now because the mill is down.”
The former NewPage mill has been shut down since last September and is in creditor protection. Pacific West plans to restart only the mill’s supercalendered paper machine, leaving the newsprint machine idle.
NSP will provide the mill a week in advance with an hour-by-hour schedule of projected costs associated with providing power to the mill after all other customers are served. The mill will develop a tentative production plan based on those costs. The information will be updated one day in advance, when the mill will refine its papermaking plans. Finally, one hour ahead, the costs will be fixed and the mill will lock in its production schedule. The mill will be able to base its schedule around when power is most affordable.
“There’s quite an elaborate planning process that goes on between the mill and Nova Scotia Power as we look at the cost that operating the mill will impose on the system,” McAdam said.
The mill would also make a $2 per megawatt hour contribution to NSP’s fixed costs. In addition, if the mill runs a profit, NSP will be entitled to 30 per cent of that amount. If the mill loses money NSP won’t bear any responsibility for it.
“Nova Scotia Power hasn’t had to invest money in the arrangement,” McAdam said, saying it involves a “nominal” investment of $300,000 by NSP to make it work.
NSP will contractually dedicate power generation for the mill’s use, which McAdam said makes the utility more of a partner with the mill than its other customers. The utility’s renewable producers were selected for the arrangement because they roughly produce the amount of power that will be required by Pacific West. In return, NSP will receive dividends in accordance with the real-time cost schedule of the mill being on the system.
As well, 24 per cent of the steam produced by the boiler that NSP purchased from NewPage Port Hawkesbury for the biomass cogeneration facility under construction at the mill site will go to the mill.
Dube said the mill has flexibility in running its thermomechanical pulp plant, which produces furnish for its paper, allowing it to store pulp. After making some improvements, they will have pulp storage of 20 hours.
“Our wise use of that energy at good pricing periods will give us a better overall energy price, the price is also impacted by what the incremental cost is for that specific hour,” he said.
Dube said they have to develop a restructuring plan so the mill can be restarted and be sustainable and competitive in the global marketplace, calling the energy deal one of the critical pieces of the plan to becoming a low-cost producer.
McAdam said the arrangement will require setting up a complicated corporate structure and they have also filed an application with Canada Revenue Agency for advanced tax ruling.
To participate in profit sharing, NSP will hold preferred and common share interests in the mill. NSP will receive preferred share dividends from the mill based on the after-tax value of the energy it uses.
Pacific West is also planning capital improvements at the mill intended to make it more energy efficient so that, at the end of the day, the goal is to use 40 per cent less energy than would have been required when the company first looked at buying the mill.
The unionized workforce recently accepted a 10-year contract that contained significant concessions and will slash the workforce by more than half. Pacific West is also in talks with the province for access to Crown land and will have to work out an arrangement with fibre suppliers.
Pacific West is owned by Stern Partners, based in Vancouver.
The application will be subject to a Utility and Review Board hearing.
Cape Breton Post