BANGOR – Brascan Corp. of Toronto, the company scheduled to buy bankrupt Great Northern Paper Inc., soon will have the connection it has sought since 2001 to the New England power grid to sell its electricity and earn at least $15 million a year.
Brascan owns subsidiary Great Lakes Power Inc., which purchased Great Northern’s massive hydroelectric system in October 2001 for an undisclosed price. The hydro system consists of six hydroelectric power stations and 11 dams, which have a generating capacity of 130 megawatts.
Proceeds of the sale of the hydro system were used to finance Great Northern’s $156 million upgrade of its No. 11 supercalendared paper machine in Millinocket.
Shortly after Brascan bought the generators, the Canadian company asked the state Legislature to change a century-old charter stating that the power from the generators could only be used by Great Northern. The Legislature changed the charter.
All that was left for Brascan to do was secure a transmission line that would connect the generators to the New England power grid. Bangor Hydro-Electric Co. agreed to build the line for Brascan, and the construction already is ongoing under two interim orders by the Maine Public Utilities Commission.
The interim orders were put in place while the PUC considered whether the transmission line was beneficial to Maine ratepayers.
On Wednesday, the commission said “yes,” and approved a certificate of public convenience that clears the way for construction of the line to be completed by as early as June.
Under the state’s deregulated electricity industry, the PUC only regulates companies that transmit power, such as Bangor Hydro, and does not have any oversight over companies that produce it, such as Great Lakes Hydro.
The line, which will transmit 126 megawatts of electricity, will run between a new substation in Chester and a new substation in East Millinocket. Under a deal between Brascan and Bangor Hydro to build the line, Brascan subsidiary Brascan Energy Marketing Inc. will reimburse Bangor Hydro the nearly $15 million it is costing to construct the line, and will give Bangor Hydro a letter of credit to solidify the agreement.
Eric Bryant, an attorney with the Public Advocate’s office, on Wednesday called the letter of credit “a guarantee we found very attractive.”
“If Brascan wants to take a risk, that’s fine with us as long as ratepayers are left holding the bag,” said Bryant, about the cost to construct the line.
For Brascan and subsidiary Great Lakes Hydro, the financial benefits of the transmission line’s construction are substantial. According to industry estimates, Brascan and Great Lakes could earn at least $15 million a year if it sells all of the power it produces at wholesale rates of 4 cents per kilowatt hour.
In late January, the Industrial Energy Consumers Group (IECG) and the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE), which represents most of Great Northern’s workers, objected to the construction of the transmission line. According to documents filed with the PUC, the two groups were concerned that Brascan was more interested in selling electricity in the New England Power Pool than in selling power to Great Northern because it could generate more revenue in the wholesale marketplace.
Great Northern is bankrupt and its two mills have been idle since late December. A new buyer has been sought through U.S. Bankruptcy Court proceeding since January.
The groups expressed worry that if the transmission line were completed, Brascan might charge electricity rates that were too high and too cost prohibitive for any new owner of Great Northern, and that the mills might not be reopened, according to documents filed with the PUC. Great Northern’s current owner, Inexcon Maine, has stated in recent months that the rate Great Lakes Hydro charged the company for electricity costs the papermaker an additional $500,000 a year.
If the mills weren’t reopened, some of Great Northern’s 1,116 workers could leave the Katahdin region, and no longer be customers of Bangor Hydro, the groups argued. Bangor Hydro would have to pick up the lost revenue by increasing its transmission rates to other customers, and that would not be in the public’s best interest, the groups argued.
In late March, the bankruptcy court named Brascan the buyer of Great Northern, and the sale was expected to close Monday. Now the completion of the sale is scheduled for May 5 at the latest.
Brascan met with PACE officials in March about their plans to operate Great Northern, and PACE withdrew its objection to the transmission line after that discussion. IECG withdrew its objection after a special electricity delivery rate contract was negotiated between Bangor Hydro and Georgia-Pacific Corp. in Old Town to protect the papermaker from rate increases that could be attributed to a loss of customers.
Brascan officials have stated that once they are owners of Great Northern, it will reopen the East Millinocket within a few weeks of the sale and will employ up to 360 people. The company has said it could reopen the Millinocket mill in about a year, but that depends on market conditions for the supercalendared paper that’s produced at the facility. Currently prices for the paper are depressed, and Brascan has stated that it would need to install a new $65 million pulping operation before it could reopen the Millinocket mill so that the entire production process was cost effective.
In Millinocket and East Millinocket, however, residents are concerned that Brascan might not open Millinocket at all or may even cancel its planned purchase of Great Northern because the company now has the transmission line that it wanted.
In separate interviews at the end of March, Richard Legault, executive vice president of Brascan, said the company intends to operate the paper mills. On Wednesday, Jacob Manheimer, a Portland attorney representing Brascan, said it is “absolutely correct” that Brascan will close the sale and reopen the East Millinocket mill as planned.
“I am very confident that this deal will close,” Manheimer said.
Correction: Because of a typographical error, a word was missing from a quote in an article about Brascan Corp. in April 24 editions. The quote by Eric Bryant, an attorney with the Maine Public Advocate Office, should have read, "If Brascan wants to take a risk, that's fine with us as long as ratepayers are not left holding the bag."