Monday, 12 March 2012

Is Fedeli writing Christina Blizzard's column?

On March 8, 2012, Christina Blizzard wrote a column in the Toronto Sun claiming that the Province's green energy policy is putting at least one company at risk.

In the article, Blizzard cites the case of Fabrene, a North Bay company that makes industrial fabrics.  She claims that "The Liberal government's green energy plan has added $1 million a year to his hydro bill - an amount he says will eventually force his company out of this province."  She goes on to claim that the Global Adjustment is the culprit.

The Global Adjustment (GA) is the charge electricity consumers pay for power above and beyond the price charged for Ontario's legacy fossil fuel sources.  The Hourly Ontario Energy Price (HOEP) is the spot market price for those fossil fuels and tends to run in the 2.5 to 3.7¢/kWh range in the last year.  The GA ran in a range of 3.1 to 5 ¢/kWh in 2011.  The sum of the two is what you pay before transmission, distribution and debt recovery charges are added.

The GA includes:

•Non-utility generation (NUG) contracts established by the former Ontario Hydro and now administered by the Ontario Electricity Financing Corporation (OEFC); 
•Nuclear generation operated by Ontario Power Generation (OPG); 
•Certain “prescribed” hydroelectric generation owned by the OPG (plants in Niagara Falls, St. Catharines and Cornwall); 
•Generators (including natural gas, renewable energy and Bruce Power nuclear) and suppliers of conservation services contracted to the OPA. 

The OPA portion of the GA was 54% in 2011 on a cash flow basis.  Renewable energy represents 30% of the OPA capacity under contract in commercial operation.   Wind represents a little less than 50% of that portion (the rest is hydro and solar). So, if you do the math, wind represents .54x.3x.5=8% of the GA.  Obviously, if you add hydro and solar, the number doubles.  We don't know the specific capacity factors and prices within the OPA portfolio, so this is an approximation.

So, while Fabrene may be blaming the GA for it's problems, renewable energy at 5% of the GA is clearly not the issue.   It's possible that they may be complaining that they now have to pay their fair share of the GA.  New rules introduced early in 2011re-allocates GA amongst industrial users.  Prior to that, consumers carried most of the burden of the GA.

More fundamentally, though, we need to take a look at Fabrene itself.

Based on Fabrene's website, its North Bay plant is 40 years old and their other plant is in Portland, Oregon. Fabrene is a trademark for woven polyethylene fabric.  It's the material that you see covering shipments of wood, construction sites, etc.

My experience with situations like this is that if there is one plant in Canada and any less than five in the US, then you have to question what's going on.  If there's no obvious unique source of competitive advantage in Canada (e.g. a potash mine) then you ask whether the location was just a historical accident.  

And why would you put a plant in North Bay fifty years ago?  It might have been because their parent at the time, Dupont, already had an explosives plant there.  It was probably because the woven poly wrap was used for the lumber industry.  Nowadays, there is low demand in the lumber industry, a high Canadian dollar, and competition from non-woven fabric.  Perhaps the Canadian plant has old technology.  Maybe that's why they use the words "both the capacity to fill long run orders and the flexibility to engineer and produce specialized shorter runs" in their marketing pitch.  Specialty short runs is frequently code for subscale equipment.

You could give them the power for free and it might not make a difference.  If power was the issue, all the Canadian poly plants would be in Manitoba, BC and Quebec.

Fabrene is used to calling on government for help.  Fabrene appealed to North Bay for tax relief over ten years ago - long before the Green Energy Act.   Then again for government funding for water service three years ago.  In 2010, North Bay paid for a power transformer near their plant.  

And who was the mayor of North Bay at the time?  Vic Fedeli.  Vic Fedeli is now the energy critic for the Progressive Conservatives.   Makes you wonder where Christina Blizzard got her story.



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