Nova Scotia Power was challenged Tuesday to justify the "innovative" discount it wants to offer its largest customer as regulators once again must decide whether preferential treatment for Port Hawkesbury Paper is in the public interest.

Hearings into the four-year plan opened Tuesday at the Nova Scotia Utility and Review Board in Halifax, and will run all week.

The new rate will provide the mill with cheaper power and in return, Nova Scotia Power says controlling how much electricity the mill uses — and when — will allow it to operate the system much more efficiently, saving other customers $10 million a year until the rate expires in 2023.

"The tariff will allow Port Hawkesbury Paper to continue to operate in Nova Scotia and continue to make an important contribution to the provincial economy, while providing a substantial increase to the contribution made by Port Hawkesbury Paper to system costs, which will benefit all customers," Nova Scotia Power's commercial vice-president, Dave Landrigan, told regulators.

The proposed rate of $61.14 per megawatt hour is 25 per cent below what Port Hawkesbury Paper would pay if it was charged on the same cost-recovery basis as all other customers, and amounts to a savings of $20 million per year.

Advocate questions fairness of arrangement

Nancy Rubin, who spoke at the hearing on behalf of industrial customers, raised the issue of fairness.

"PHP's economic circumstances and its ability to pay ... is not a relevant consideration for any other rate class or customer," she told the three-member board.

The rate went into effect Jan. 1 on a temporary basis, pending the outcome of this hearing.

Nova Scotia Power's director of pricing, Eric Ferguson, said the mill cannot afford the rate applied to other customers.

"That's unlikely to be a sustainable number, which would not provide any benefits for other customers if it was to be in place," Ferguson said.

Port Hawkesbury Paper is Nova Scotia Power's largest customer and uses 10 per cent of the power generated by the utility. (CBC)

The utility's application includes an assessment of the mill's financial situation for the next 10 years and the impact of various rate scenarios on its viability. That report, which was done by TD Securities, was not challenged.

The advocate for small businesses, Nelson Blackburn, supports the new rate, which is known as the "extra large active demand control tariff."

He said "it appears to be a unique and progressive tariff which seeks to balance the interest of Port Hawkesbury Paper to have electricity service at a price that allows them to be competitive with NSPI's goal to manage its load."

Why Nova Scotia Power says customers are better off

Nova Scotia Power argues other customers are better off because the proposal gives the utility control over the electricity dispatched to mill, which accounts for 10 per cent of the overall load.

Under the new structure, Ferguson likened Port Hawkesbury Paper to "a resource like a power plant that we will be dispatching to the benefit of all customers."

The proposed rate would follow a seven-year "load retention rate" for the mill that expired at the end of 2019.

The load retention rate was also below the full cost recovery and approved on the grounds of the mill's "economic distress" at the time. (In 2012, the mill was coming out of creditor protection.)

Port Hawkesbury Paper CEO Ron Stern attended the opening day of hearings at the Nova Scotia Utility and Review Board regarding an application for his company to get discounted power from Nova Scotia Power. (Paul Withers/CBC)

Nova Scotia Power insists the replacement is not a load retention rate, which would require it to demonstrate that other customers are better off with the mill operating and contributing to overall costs, rather than not being in business.

"The nature of the relationship has changed so fundamentally and the benefits for our customers have increased so significantly that to my mind I characterize it less as a load retention tariff and more as a demand response to be used to reduce costs for the entire system," Ferguson said.

Bill Mahody, who represented customer groups at the hearing, asked regulators to monitor Port Hawkesbury Paper's financial situation.

"How will this board and other ratepayers know whether the proposed rate provides for the mill's sustainability and not a profit windfall at the mill?" Mahody said.

Company bosses attend, decline comment

The hearing was attended by Nova Scotia Power president Wayne O'Connor and Port Hawkesbury Paper CEO Ron Stern.

Neither would answer questions.

"I'd be pleased to talk to you about it after the board comes out with this decision. Thank you," Stern told CBC News.

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