Falconbridge faces $10m fee hike from proposed hydro rate increase.

Falconbridge faces $10m fee hike from proposed hydro rate increase

Falconbridge Ltd. will pay an additional $10 million annually for electricity for two of its Northern Ontario operations if Ontario Hydro goes through with a proposed 15-per-cent rate increase.

Colleen Wilkenson, vice-president of public affairs for Falconbridge, said the increase will hit the company particularly hard at its Sudbury and Kidd Creek operations, since both include smelter facilities. Falconbridge uses about 1.5 per cent of Ontario Hydro's total output and the smelters account for about half of Falconbridge's hydro costs.

Wilkenson said there is little the company can do to reduce the impact of the increase.

"If we want to keep running at full capacity we'll just have to absorb it," she said.

"They (companies in the province) will have to swallow it," said Thornton Lounsbury, president of the Association of the Major Power Consumers of Ontario (AMPCO). "Industries in Ontario have been on a serious cost-cutting campaign during the past 10 to 15 years and there isn't to much more they can do."

AMPCO is composed of 65 members from a number of industries. Members include Falconbridge, Abitibi-Price Inc., Domtar Inc., Canadian Pacific Forest Products Ltd. and Spruce Falls Power and Paper Company Ltd.

Lounsbury said Ontario Hydro has apparently recognized the industries' efforts by shifting the emphasis of its conservation promotion plans to individual consumers. Ontario Hydro has announced it will spend $125 million this year and $3 billion during the next 10 years to promote conservation.

"Only about 12 per cent of the conservation goals are aimed at industrial users," he said.

Ontario Hydro officials say the increase, expected next year, is necessary due to increasing capital project requirements.

The Crown corporation will spend to upgrade its coal-fired and hydroelectric facilities to meet environmental standards, and to bring new facilities on line. The corporation is also being forced to cover a shortfall in the research budget at Atomic Energy of Canada Ltd. resulting from a reduction in the amount of federal government support for the program. In addition, Ontario Hydro must also contend with a new charge levied by the provincial government to guarantee Ontario Hydro's debt.

The corporation must pay 0.5 per cent of the funds being guaranteed by the province. Ontario Hydro has also been ordered by the Supreme Court of Ontario to increase its obligation to its employee pension plan. The order accounts for to two per cent of the increase.

All the factors will result in about a 7.8-per-cent increase for electricity. Hydro officials have noted that without the additional contribution to the pension plan, the actual increase would be less than the rate of inflation. The total increase jumps to almost 15 per cent with the proposed seven-per-cent Goods and Services Tax added in.

However, during a recent interview, Tom Hockin, federal minister of state for small business and tourism, said businesses should not feel the full brunt of the increase since they are eligible for a input credit to recover the GST paid on electricity bills.

"Only the ultimate consumer, which means you and I, will have to pay the 15-per-cent increase," Lounsbury said.

Even though industry can "claw-back" the seven per cent, Lounsbury said the remaining increase will still deal a blow to industries. He estimates that for each percentage point of the increase, the total cost to the group's members is $9 million. Coupled with the strength of the Canadian dollar, Lounsbury said the increase puts industry at a disadvantage when competing with their counterparts from other provinces and the United States.

"They're unable to pass along the added costs because of the prices dictated by the marketplace," he said.

An official with Abitibi-Price in Toronto said the company is concerned about how the increase will affect expansion plans.

"We're concerned that it will add to the advantage which Quebec has (through lower rates)," the official said. "It's going to make it more difficult to attract new businesses and make expanding ongoing operations more costly."

However, it is an advantage which could be short-lived, since Quebec Hydro officials are considering a 15-per-cent increase over the next two years.

Despite the enormous increase in Falconbridge's electric bill, other mining companies will likely escape huge increases because less electricity is used at mining operations without smelters.

"Obviously, there will be an impact, but since all we operate in Northern Ontario is mines, there won't be as great an impact as there is on other companies which operate smelters," said Karen Hammond, manager for communications for Noranda Minerals Inc.

She added that each of the company's operations, which include a wholly-owned mine in Ignace, as well as joint-ventures in Hemlo and Manitouwadge, handle production costs such as electricity on an individual basis.

A number of forestry-related companies will have an advantage over other industrial sectors because they employ co-generation facilities and private hydro-electric dams.

While the Abitibi-Price official said the presence of a hydro dam will help keep the added cost down at the company's Iroquois Falls operation, Lounsbury remains sceptical about how much such facilities will actually help.

"Companies will still have to buy electricity," he said.

The Ontario Energy Board (OEB) is expected to hold hearings regarding the proposed rate increase early next month. It will issue a report from the hearings in August. The final rate will be set in October. Ontario Hydro is not bound to the OEB's recommended rate.

PHOTO : Ontario Hydro officials say upgrading facilities such as this one on the Mattagami River 

PHOTO : are why a hefty rate increase is necessary next year.

CHRIS KREJLGAARD Staff Writer