By GORDON HAMILTON, Vancouver Sun, May 1, 2012
Pulp company Mercer International has filed a $250 million claim against Canada under the North American Free Trade Agreement claiming it is being placed at a competitive disadvantage by BC Hydro.
Mercer, which owns the Celgar pulp mill at Castlegar, claims that as a result of intervention by Hydro, it is not able to reap the same benefits for producing green energy as its competitors in the B.C. pulp sector.
Under NAFTA, Mercer’s Canadian investments are required to be accorded the same treatment as are Canadian investors. Although Mercer’s head office is in Vancouver, the company is listed in the United States, making it eligible to seek damages under NAFTA.
Like many B.C. pulp mills, Celgar also has a biomass electricity generating facility adjacent to the mill. The facility burns wood waste to generate both heat and power for the mill. Like other mills, Celgar also sells energy to BC Hydro through a green energy power purchase agreement. What makes Celgar different from other mills, however, is that it operates in an area of the province where FortisBC is the initial provider of energy to the mill, rather than BC Hydro.
Mercer vice-president Brian Merwin said Tuesday that Celgar and Fortis signed a contract in 2008 under which Celgar would buy power from Fortis at a so-called “heritage rate,” which is based on the cost to produce electricity from older and less expensive hydroelectric facilities. Celgar was then free to sell all its green energy at a higher rate to Hydro. However, Hydro had that contract blocked, he said, forcing Mercer to use its green energy internally in the mill before it could sell any at the higher rate.
Subsequent discussions by Mercer with Hydro, the B.C. government and the federal government to change Hydro’s policy were unsuccessful, Merwin said. Mercer first announced its intention to take the issue to NAFTA three months ago. By filing its request for arbitration, Mercer has now initiated a legal process that could take from one to two years to resolve.
Mercer argues that other pulp mills that have installed biomass power facilities receive preferential treatment. In some cases, Hydro has provided them with subsidies, Mercer argues in its request for arbitration document. In other cases, Hydro has allowed other mills to buy lower-cost heritage-rate power while simultaneously selling power to Hydro at the higher green energy rate. By applying energy policy unevenly, Mercer argues, it is conferring a competitive advantage to other pulp producers.
The spread in prices can be significant. The heritage rate is in the $45-a-megawatt-hour range while green energy sales can generate more than $100 a megawatt hour, a difference of at least $55 per megawatt hour.
Celgar uses from 340,000 megawatt hours to 360,000 megawatt hours of electricity annually. If it could benefit from the price spread as are other mills, that benefit would be worth $19.2 million a year, for the life of Celgar’s 20-year contract.
Merwin said that Mercer has invested heavily in Celgar to make it the most energy-efficient pulp mill in the province.
A spokesman for the provincial ministry of energy and mines said Tuesday that the province and BC Hydro are reviewing the NAFTA claim and providing support to the federal government.
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