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Globe & Mail - Friday, September 30, 2005.

Relief package leaves tree business way out on a limb

Queenís Park
Murray Campbell

Northwestern Ontario got a measure of relief yesterday with the governmentís aid package for the beleaguered forest-products industry. But there was such a gaping hole in the strategy that it may be safe to say that the tree business is down for the count.

Natural Resources Minister David Ramsay offered a five-year, $330-million package that was mute on the biggest problem faced by the forest industry -- its staggeringly high electricity costs. In the past four years, its energy costs have gone up by more than 30 per cent as special industrial rates were phased out and a market-price system was implemented.

Itís a killer. Pulp mills and paper plants use lots of energy. Ten of the 20 largest energy users in Ontario are in the forest industry.

A further announcement on energy is expected in a few weeks, but itís doubtful that it will get a handle on the situation. Mr. Ramsay said it would offer incentives for industry to produce energy from their own waste products, but the reality is that the region already produces more energy than it can use. It doesnít need more electricity. It needs cheaper electricity. And thatís not going to happen under the pricing system introduced in May. Even worse, the governmentís decision to replace relatively cheap coal-burning plants in Thunder Bay and Atikokan with natural gas Ė a folly of a different category Ė will drive up prices even further.

Instead of tinkering with burning wood waste or bio-mass from the forest floor, the government needs to reconsider one of the most enduring policies in Ontario. It needs to think seriously about abandoning province-wide pricing and allowing northwestern Ontario to operate its own electricity grid.

A made-in-the-north pricing system would allow the forest industry to capitalize on its greatest strength Ė access to numerous hydro-electric dams that provide electricity at about 2 cents a kilowatt-hour. Left to the mercies of the market, they are paying about nine times that price now. This makes it difficult to keep down costs and to compete with upstart forest industries in South America and southeast Asia, never mind Quebec.

The northwestern part of the province Ė that huge expanse west of Wawa Ė is already a separate market anyway, both in psychological and technological terms. Northerners feel hard done by since price caps were lifted because they believe they are paying for the excessive use of electricity in the sultry south. For example, it was a temperate 20 degrees one day in late June in Thunder Bay, but demand from air conditioners stemming from a heat wave in the south pushed up prices in the north, too.

ďItís penalizing our way of life for a problem thatís not ours,Ē said Mayor Don McArthur of Schreiber, who supports a separate grid.

The north generates about 1,350 megawatts of power. About 500 MW of that comes from the coal plants and the rest is from smallish hydro dams. The region uses about 600 to 950 MW on a day like yesterday. Links with the south are limited. The high-capacity 500-kilovolt transmission lines coming from Manitoba and the south do not quite meet in Wawa but are linked by two 230-KV lines. Itís as if highways 401 and 407 were connected by a two-lane road.

The argument against a contained system is that the north needs to be connected to the outside world to assure security of the supply. Thatís true, but it is connected more readily to hydro-rich Manitoba and to Minnesota. Anyway, a separate pricing regime does not mean that the north couldnít occasionally buy power from the south in the way that Ontario buys energy from New York State.

And then thereís the fairness argument raised yesterday by Progressive Conservative Leader John Tory, who suggested that it would lead to the Niagara region wanting preferential rates because of its proximity to the great hydro dams at the Falls. The quick rejoinder here is that Niagara canít approximate the uniqueness of the North.

Premier Dalton McGuinty yesterday ruled out a separate grid, saying that consumers in the south had paid for building transmission lines across the vast north. Besides, he added, high energy costs are just one of the problems facing the forest industry.

Itís a logical argument, but it does nothing to help the dominant industry in the north. This is a pity.

mcampbell@globeandmail.com