[POINT TUPPER, NS] — A consultant hired by some intervenors in the power rate application by the company looking to reopen the NewPage paper mill says the proposal shouldn’t go ahead because it would shift costs to other users.
A report filed this week with the Nova Scotia Utility and Review Board by Drazen Consulting Group on behalf of the Avon Group states that a load retention rate of the type being sought by Pacific West Commercial Corp. must pass the test of other ratepayers being better off by retaining the load at the price offered in the rate. The revenue must also be greater than the incremental cost of service and must make a significant positive contribution to fixed costs. The report says that the proposal before the board fails that test.
“Retaining the mill load could cost other customers $15 million to $25 million per year on top of the other rate increases that will be needed,” it states.
Over the proposed seven-and-a half-year life of the agreement, the total cost could reach $150 million, Drazen said. The report also argued the proposed tariff doesn’t fully cover all of the incremental costs of the mill’s load and without the mill’s load, Nova Scotia Power Inc. has the opportunity to reduce other generation costs.
Pacific West and Nova Scotia Power have jointly filed a load retention rate application with regulators which Pacific West says is necessary to reopen the former NewPage mill, which shut down last September. With the rate, improved efficiency and by only operating one paper machine, it expects to have about $32 million in power costs in its first year of operation.
A hearing into the application takes place next month.
Drazen also said there are other potential risks and costs that other ratepayers may have to bear including the risk of sudden closure of the mill and its failure to pay, as well as costs that may be incurred to maintain or repair transmission facilities.
However, evidence filed with the board by Todd Williams of Navigant Consulting, who was hired by the province, said he tested the model agreed to by Pacific West and Nova Scotia Power under a variety of scenarios which he said confirmed that Nova Scotia Power would fully recover its actual incremental costs to serve the mill as well as a contribution to its fixed costs.
Williams said the rate as proposed would be better for other Nova Scotia Power customers than if the mill was not operating.
John Athas, a consultant hired by the small business advocate, wrote that the proposal would have a substantial impact on Nova Scotia Power’s other customers, but it does result in some contribution to fixed costs. Basing the pricing on hourly marginal costs also helps minimize some risks to other customers, he added.
Nova Scotia Power and Pacific West have justified the need for the rate, Athas said, but he expressed concern about the length of the agreement. He recommended approval of the application contingent on approval from Revenue Canada and completion of a credit rating study, and that the contribution to fixed costs is increased annually after the two and a half-year point.
Richard Hornby of Synapse Energy Economics, who was hired by the board, noted Nova Scotia Power hasn’t provided a detailed description of the method it will use to determine the actual incremental costs associated with supplying the mill. Nova Scotia Power also hasn’t proposed a process for periodic audits of its calculations by an independent reviewer.