HALIFAX (CP) - As complex hearings begin Tuesday into electricity rate formulas for two Nova Scotia pulp mills, the residents of a Cape Breton mill town will be watching - and worrying.
Finnish papermaker Stora Enso has made it clear the stakes before the Nova Scotia Utility and Review Board are high: cut the power rates significantly or its mill in Port Hawkesbury stays closed.
That's a disaster scenario for northeastern Nova Scotia, says town mayor Billy Joe MacLean.
"Stora is the foundation of our community, and for 100 miles around the town," he said in an interview.
"If you lose Stora you would lose the economic foundations of eastern Nova Scotia."
After two years of double-digit price hikes, the pulp company wants a new pricing formula that would slice at least 10 per cent from its estimated annual $97 million power bill.
The Bowater Mersey mill, based in Liverpool, is part of Stora's submission and is also seeking reduced power rates.
But there's firm opposition to granting the mills what they want, with Nova Scotia Power arguing it would mean a massive bill is shifted over to its other customers.
The publicly traded utility (TSX:EMA) has produced estimates that other customers would have to share $200 million in increased costs over four or five years if Stora's formula is accepted.
Al Dominie, a veteran energy consultant, says that could "result in an increase in rates of about five per cent to all of the other ratepayers in Nova Scotia if distributed evenly."
MacLean admits such a scenario would spell "political suicide" for a Conservative minority government falling in the polls.
Instead, he predicts there will have to be a compromise between the private utility and the mills.
"Behind the scenes there's discussions as we speak, hoping to resolve this through agreement," he claimed.
However, business analysts say a compromise may be difficult for Stora and Bowater, as their eastern
Canadian mills continue to operate at a loss.
Stephen Atkinson, a Montreal-based industry analyst with BMO Nesbitt Burns, said even if there is a compromise, the Stora mill's future is uncertain.
"You can make the product more cheaply in Europe. Why lose money? I would call this situation as being on the edge."
Still, Stora may be influenced by the willingness of the Communications, Energy and Paperworkers union to accept a contract that cut wages by up to 10 per cent after a painful six-month lockout.
And the province has also offered subsidies of $10 million a year for six years, and $5 million in the seventh. In exchange, the province is no longer required to provide Crown land for logging.
These kinds of issues aren't likely to be discussed a great deal during the board's hearing.
Instead,
lawyers will focus on often impenetrable arguments over competing formulas for setting the price of the large mills.
Nova Scotia Power's method would give the pulp mills credits by having their power interrupted during peak consumption periods. That system allows the firms to avoid using costly generation during periods of high electricity use.
Stora hasn't said if that would result in any direct price cut.
Meanwhile, Stora has proposed a system known as a "real-time pricing formula," which it says more closely tracks the cost savings the power corporation receives when a mill reduces power consumption in peak periods.
Despite the problems, some observers see cause for long-term optimism, and reason that Stora may wish to compromise.
Tom Adams, director of Toronto-based Energy Probe, says it's expected that in a few years
Nova Scotia Power's prices may moderate.
"The increase in world prices is turning around. The outlook is for a significant decrease and that fuel price savings will show up on consumer bills in the next few years," he argues.
Meanwhile, MacLean foresees Stora eventually receiving government assistance to build a $60 million co-generation plant, which will produce power for the factory and sell energy back to the power grid.
If an agreement outside of the hearing doesn't occur, the board is expected to rule within 30 days on a formula.
The company has indicated it will make a final decision then on whether to fully re-open its paper machines.
Stora currently has about 200 people working at the mill, restoring it to normal operations after the lockout.
