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Feeling powerless (05/05)

What gets made in the North should be used in the North.
What gets made in the North should be used in the North. Ontario NDP leader Howard Hampton wants the McGuinty government to implement a plan called Regional Location Pricing to help alleviate the burden of increased electricity rates on Northern Ontario industries.
The region has a multitude of hydroelectric dams in place, according to the Kenora-Rainy River MPP, and is capable of generating power at about a cent-and-a-half per kilowatt-hour (kWh).

However, since everyone is on the same provincial grid, all large consumers of energy (over 250,000 kWh per year) are subjected to the current electricity price increase, which for industry is 12 per cent.

Hampton wants Northern industries to benefit from low-cost power production in their region so they remain competitive and are able to keep their plants and offices open.

The Liberal government, on the other hand, says responsible electricity pricing demands fair and stable prices for electricity provided by Ontario Power Generation (OPG). Citing a need to ensure an adequate, long-term supply of electricity and to equalize previous subsidized electricity prices, the provincial government took the price cap off and imposed new prices through the Electricity Restructuring Act, 2004.

According to an Ontario Energy Board Web site, the new pricing will affect approximately 55,000 large industrial and commercial electricity customers across Ontario, using more than 250,000 kilowatt-hours per year.

Hampton says most industry in Northern Ontario is very energy-intensive, so their bottom line is directly tied to the price of electricity.

He added that paper mills, along with other industries, are asking why they are being forced to pay 6.5 cents per kWh for electricity, which is putting them out of business, when it is being produced in their “own backyards” 20 kilometres away for considerably less.

Falconbridge’s vice-president of communications, Denis Couture, says the increased rates are counterproductive.

“If you want to help industry in Northern Ontario, you need to help industry be competitive,” he says.

Although they are not against the objective of improving the financial position of OPG, Falconbridge relies completely on them for their electricity, according to Couture.

Industrial operators are big employers and economic and social contributors to the North, Couture says. Something must be done to help the vulnerable operations out.

None are more vulnerable than the Kidd Creek Mine in Timmins, which lost about $100 million in 2004 thanks to an appreciating Canadian dollar and rising energy costs, he says, and has been in the red for years. About 25 per cent of the mine’s expenses go to the electricity bill.

“We’re talking about tens of millions of dollars here,” he says, calling for a system that can treat the problem on a case-by-case basis. “All we’re telling people is that if you continue, you will have a permanently deficient operation, and it won’t be viable.”

Tembec’s Pierre Brien, vice-president of communications and public affairs, says the energy costs are having a significant impact on their cost of production, particularly on their newsprint mill in Kapuskasing.

“It is a place where energy costs represent a significant (portion) of the total cost of production,” Brien says.

Because their product is driven by demand and is internationally priced, Brien says there is little manoeuvring room with respect to increased pricing. Consequently, Tembec is hoping the government will develop solutions to make sure their mills stay competitive.

The rising cost of power isn’t the $4 billion company’s only headache.

“We are a people who like to face a challenge, but there is a certain limit that we have,” Brien says. “We cannot face all those challenges at the same time.”

Brien says some of their people are presently working with Minister of Natural Resources David Ramsay, and government, to explore alternatives and ideas to improve their situation. The Mattagami River Hydro project, a joint venture between Tembec, SNC Lavalin and the Moose Cree First Nation to refurbish existing hydro plants on the river, is one area Tembec is awaiting a decision on from the government.

“We are talking about a large capacity here and it would certainly help the situation,” Brien says. “There are people who are willing and ready to work on this. We only need a decision.”

Pulp and paper giant Domtar’s Espanola mill produces 70 per cent of its own power, buying the rest from the provincial grid. Since they are at their production capacity, their focus is on reducing energy consumption, according to spokesperson Lynne Gibson.

“We are changing our generator operating strategy to maximize generation during high-rate periods, and making process changes that reduce electrical consumption,” Gibson says.

Algoma Steel is also feeling the pinch on more than one front. Increasing costs for raw materials are also having an effect on their productivity and competitiveness, according to spokesperson Brenda Stenta.

Algoma does generate some power by burning byproducts, and is working to become more self-sufficient.

As one of the top three electricity consumers in the province, energy is a major component of their bottom-line fixed costs, according to Inco Ltd. spokesperson Cory McPhee.

“We have an energy-intensive process and we actually generate about 20 per cent of our own power,” McPhee says.

Several years ago, project engineer Sean Brady launched a program called Power Play. The plan consisted of a combination of moves, from changing and updating operating processes, to installing motion sensor lights in the offices. According to Brady, there was about a 20 per cent reduction in energy costs inside the year that saved the company millions of dollars.

Government officials were not available for comment before Northern Ontario Business press deadline.