11/18/2009 6:00:00 AM PT Paper, BPA agree to 14-month power supply: By December 2010, county's largest industry must make new plan
"It impairs the long-term planning so important to an industrial customer such as Port Townsend."
PT Paper response to BPA plan
By Scott Wilson of The Leader
After months of intense legal and bureaucratic wrangling, the Port Townsend Paper Corp. has finally signed an agreement ensuring it sufficient electrical power until the end of 2010.
After that, a new agreement with the Bonneville Power Administration (BPA) must be reached.
The agreement was finalized Nov. 13, and while it provides power for 14 months, PT Paper officials were unhappy the term was so short. It would make it difficult to make or enact long-term plans and investments in the pulp, paper and containerboard plant that is Jefferson County's largest industrial employer. PT Paper employs about 300 people.
Two British Columbia finishing plants owned by the company are being shut down, and around North America other small pulp mills have shut their doors.
Prior to 2008, PT Paper had received the bulk of its electrical power through Clallam County PUD in a pass-through arrangement with the BPA, the region's publicly owned electrical power generator and distributor.
That arrangement, slated to last until Sept. 30, 2011, was derailed by a ruling of the Ninth Circuit Court of Appeals in December 2008. Following a challenge by the Pacific Northwest Generating Cooperative, the court ruled that PT Paper was purchasing power from the Clallam PUD at a below-market rate that was unfair to other bulk ratepayers.
A series of legal maneuvers and temporary power agreements followed, as PT Paper sought to reach a new agreement with BPA at market rates that would survive a legal challenge, all while continuing to provide power for the mill. A series of temporary agreements were signed, the last one covering just six days from Nov. 8 to Nov. 14, 2009.
On Nov. 13, a longer-term agreement was finalized. It provides for the direct sale of BPA power to PT Paper until Dec. 31, 2010, at which time another agreement must be in place.
The agreement sells to PT Paper between 13 average megawatts (aMW) and 20.5 aMW over the term at a predetermined rate, using a block contract mechanism.
The BPA expects the new agreement to generate between $430,000 and $560,000 per month, and $7.46 million over the 14 months of the agreement.
The proposal fixes the price for the power during that time frame, but BPA officials are confident that the rate is fair and reflects market conditions over the 14 months covered by the agreement.
In the agreement, PT Paper will pay in advance each month for 13 aMW and will pay for overages up to 20.5 aMW each month. PT Paper will also pay $213,000 to BPA to be held as security in the event that payment for a month of higher power is not forthcoming.
In the agreement, if PT Paper fails to make proper payment within seven days of the due date, "BPA may terminate the contract."
The BPA summary issued Nov. 13 noted, "BPA believes the foregoing provisions taken together provide it with ample protection against any default by Port Townsend."
PT Paper officials no longer comment publicly about the plant. The BPA summary of discussions notes, however, that PT Paper expressed concern over the short term of the block grant, which expires in 14 months. It "impairs the long-term planning so important to an industrial customer such as Port Townsend," according to the summary quoted from PT Paper filings. PT Paper also argued that the BPA price was above the normal market price for power. Other high-energy-use companies such as Alcoa seconded that sentiment.
The BPA replied that it "is sympathetic with the fact that long-term planning by Port Townsend is impaired by the short-term nature of the proposed contract. If Port Townsend is going to make capital investments, it needs reasonable certainty as to their future recovery. BPA's proposal does not allow that reasonable certainty, unless Port Townsend can recapture their investments in the short period of the contract."
However, the BPA continued, 14 months is the best window in which to ensure the block power rate is fair.
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