October 5, 2006
Government to Contribute to Hydro�s Industrial Rate Stabilization Plan
The Honourable Kathy Dunderdale, Minister of Natural Resources, today announced that government will cover the portion of the historical balance in Newfoundland and Labrador Hydro�s Rate Stabilization Plan (RSP) relating to the loss of a large industrial customer, the Abitibi mill in Stephenville.
"Newfoundland and Labrador Hydro was on track to recover the full amount of the historical balance in the plan from its industrial customers by the end of 2007, prior to the closure of the mill in Stephenville," Minister Dunderdale said. "This $10-million payment will allow Hydro to recover the historical deficit on time, without passing additional costs onto the remaining industrial customers."
Hydro currently has four industrial customers � Corner Brook Pulp and Paper, Abitibi Grand Falls-Windsor, North Atlantic Refining Ltd. and Aur Resources. If an industrial customer ceases operation, they are not required to continue payment on the historical balance of the Rate Stabilization Plan.
Government is covering the amount that would have been paid into the fund by Abitibi if it stayed in operation from late 2005 through to 2007 to ensure the operations of the remaining four industrial contributors are not adversely affected by having to pay the costs of energy they did not use. Otherwise, the rates of the remaining four industrial customers would increase by eight per cent as a result of Hydro�s current General Rate Application.
"This is the best option available to ensure industrial customers are not burdened with this cost," Minister Dunderdale said. "If Newfoundland and Labrador Hydro were to absorb the remaining $10 million, it would negatively affect the company�s financial structure."
The rate charged to an industrial customer to cover the historical balance in the RSP is proportionate to that user�s current power purchases. Since Abitibi in Stephenville is no longer buying any significant amount of power, the facility�s contribution to the RSP is much smaller than it would have been had the mill continued normal operations. Abitibi in Grand Falls-Windsor was established as a separate customer of Newfoundland and Labrador Hydro and is therefore not obligated to cover any costs associated with the Stephenville operation.
Corner Brook Pulp and Paper would be the most negatively impacted if the balance was redistributed among the remaining industrial users, having to cover nearly 50 per cent of that balance.
"Government recognizes the significant benefit the pulp and paper industry provides to the economy of the province," Minister Dunderdale said. "It is important that their energy rates remain competitive for the viability of their operations, given the challenges facing the industry worldwide. It would be unfair to pass this debt onto them."
Government is directing the Public Utilities Board (PUB) to approve that the money be used to cover the remaining historical balance that exists as a result of the closure of the Abitibi mill in Stephenville. It is also directing the PUB to adjust the current portion of the Industrial Customers� RSP rate adjustment immediately to reflect savings from the reduced oil consumption at Holyrood.
The RSP was established in 1986 to smooth out monthly fluctuations in electricity prices. From 1986 to the late 1990s, the RSP worked well. However, from 2000 onward, deficits began to accumulate as the price of oil increased to the point that rates no longer covered the full cost of power being used. The accumulated deficit has since been frozen and is now known as the historical balance. Newfoundland and Labrador Hydro has been recovering the historical balance in the RSP from its customers, with full recovery by the end of 2007. Customers contribute at a rate based on current power purchases.
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