Cost of NB Power subsidies tops $100 million for six pulp and paper mills

An electricity subsidy created by the province for New Brunswick's six pulp and paper millsnearly a decade ago has cost NB Power an estimated $101 million so far, even though the utility has its own serious financial problems, and it is not clear all the mills need the subsidy.

Earlier this week, the province confirmed its "large industrial renewable energy purchase program" will be continuing for 2021, with a requirement NB Power pay six New Brunswick pulp and paper mills elevated prices for renewable energy they generate before selling it back to them at a discount.

According to this year's rules, NB Power will purchase electricity that companies produce from their own biomass boilers or river damfor $106.91 per megawatt hour and instantaneously resell it for something close to $72 per megawatt hour.

New Brunswick Green Party Leader David Coon calls the arrangement an elaborate charade meant to disguise a simple transfer of money from the province to business.

"It's an accounting exercise," said Coon.

"It's a sleight of hand. It's a scam that really dupes New Brunswickers into thinking that somehow we're getting renewable energy from the pulp and paper mills, which we are not."

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

NB Power is required to buy and sell electricity with the three companies until it has lost enough money on the transactions to effectively subsidize the total power costs for their six mills down to a level the province has declared to be a national average for pulp and paper facilities.

In recent years, that has meant NB Power losing $11 million or more to the companies on the purchases annually.

"The underlying premise of the Large Industrial Renewable Energy Purchase Program is to bring electricity costs for qualifying export-oriented pulp and paper mills in New Brunswick in line with the average cost of electricity in provinces where their competitors are located," the province's information sheet about the program says.

The program only concerns itselfwith electricity costs and does not attempt to evaluate other expenses of Canadian mills, such as property taxes or wood costs, to assessif there are offsetting benefits to operations in New Brunswick

The subsidy for the mills has persisted for more than nine years even though it was created to address specific and serious market conditions that existed in 2012, including low prices for pulp and paper products at the time and a high Canadian dollar.

Former Progressive Conservative Energy Minister CraigLeonard originally announced the program and made it clear it was a response to serious economic problems facingthe industry in the moment

"The reason for this program is that we have large industrial customers in this province that are facing severe challenges in their industries." he said in December 2011 after unveiling the program in the legislature.

Leonard claimed one or more of the mills was in danger of closing without help and said that would have a cascading effect on NB Power and its other customers, including homeowners and small businesses, if it wasn't prevented.

"If some of these larger customers were to leave the system all of a sudden, the fixed costs of those companies that were being absorbed through regular industrial power purchases would have to be spread across all customers," he said.

Records do show pulp and paper producers were struggling in 2012. They also show problems for some began to ease as early as 2013.

According to data compiled by Natural Resources Canada, prices in North America for northern bleached softwood kraft pulp, one of the products made in New Brunswick, bottomed out in the summer of 2012 at $800per tonne before supplier discounts.

Earlier this spring those prices had more than doubled to $2,000 per tonne following a steady series of gains that began in 2013.

The recovery has not been as robust for paper products but the subsidy program does not differentiate between mills that are prospering from those that are struggling, if any.

In an email Nick Brown with the New Brunswick Department of Natural Resources and Energy Development said the province still believes the program is important for industry and worthwhile for NB Power to pay for.

"The Large Industrial Renewable Energy Purchase Program provides the opportunity for NB Power to purchase firm base load renewable energy from New Brunswick's pulp and paper companies. In addition, the program provides overall competitive electricity costs for our pulp and paper companies," said Brown.

Anne McInerney with J.D. Irving also defended the program.

"Securing a competitive electricity rate allows NB pulp and paper mills to continue to make investments and maintain thousands of jobs across the province," she wrote.

Meanwhile, the program continues to cost NB Power about $900,000 each month to finance, despite the utility's struggle with its own financial troubles.

NB Power has missed hitting its profit targets five years running, ending with a $16 million loss in the last recorded fiscal year in March 2020.

Last February, then New Brunswick auditor general Kim Adair-MacPherson scolded the utility forits poor record reducing its $4.9 billion debt levels which she called a potential threat to the province's own finances.

"It's the largest contingent risk to the province," she told MLAs, about NB Power's liabilities.