Newsprint firm fights upgrades

Two decades ago, when Ponderay Newsprint Co. built a plant on the Pend Oreille River in Usk, Wash., cheap electricity was one of the draws.

The plant makes paper for more than 100 newspapers, including publications of McClatchy Co. and Gannett Co. Inc., which are part owners of the plant. In this rural corner of northeastern Washington, Ponderay Newsprint paid one of the lowest electrical rates in the state as a customer of the Pend Oreille County Public Utility District.

For years, the relationship was cordial. The utility district owns the Box Canyon Dam, which generates more electricity than the county’s 13,000 residents can use. Ponderay Newsprint became the utility’s largest customer, purchasing half of the dam’s electricity.

Last week, however, attorneys and managers for the utility and Ponderay Newsprint sat stiffly across from each other in Spokane County Superior Court.

The divisive issue: $122 million worth of upgrades to Box Canyon Dam.

The utility says the 50-year-old dam needs new turbines, which will boost the dam’s electric output by 8 percent and improve fish passage for endangered bull trout, plus a host of other improvements. Ponderay Newsprint says it can’t afford the higher electric rates that will result from the work, some of which is required in the dam’s new federal license.

According to Ponderay Newsprint’s estimates, the work will cost the plant $8 million annually in higher electric rates, amounting to a 50 percent rate increase. That threatens the viability of the plant, which employs 180 people in an economically distressed area, company officials said in court documents.

“It makes it more difficult for us to remain competitive in our industry,” added Tom Garrett, Ponderay Newsprint’s human relations manager.

On Wednesday, the company will ask Judge Kathleen O’Connor for an injunction. Ponderay Newsprint wants the court to prevent the utility district from signing a mediated agreement with the federal government to complete the dam’s relicensing requirements, until the $122 million in improvements can be vetted at a civil trial.

“The escalating costs of this project are alarming,” said Garrett, who said the initial cost of upgrading the turbines was $17 million. “This spring … it was clear to us that the public utility district was going ahead with the turbines, with or without our approval. That’s when we went to court.”

Officials at the utility district acknowledge that costs have risen dramatically since the late 1990s, when the turbine project was first discussed. The new turbines now carry a $76 million price tag. The utility plans to spend another $46 million to replace other 1950s-era equipment at the dam.

“Unfortunately, there’s been kind of a perfect storm here in the commodity market,” said Jack Snyder, a consultant for the utility district who says higher metal prices are partly to blame.

The turbines are made of stainless steel and the generators are mostly copper wiring. Copper prices have tripled in the past five years, and steel prices have also shot up, Synder said.

Protecting endangered bull trout was also costlier than anticipated, he said.

The utility planned to install one fish-friendly turbine to aid bull trout migration on the Pend Oreille River and reduce the dissolved gases that give young fish gas-bubble disease – a condition similar to the diver’s disease known as the bends.

The Federal Energy Regulatory Commission, however, required two fish-friendly turbines as part of the relicensing. Snyder said the utility eventually opted to make all four turbines fish-friendly so it wouldn’t have to pay for two turbine designs.

While the turbines are being replaced, Synder said it also makes sense to replace other aging equipment at the dam. Pend Oreille Public Utility District is planning for the next 50 years, he said. “You’ve got to have the long-term view.”

Bob Geddes, the utility’s manager, hasn’t penciled out how the improvements would affect Ponderay Newsprint’s annual electric bill, but he said he thinks the $8 million figure quoted by company officials is high.

“I don’t agree with it, but I haven’t had time to analyze it,” Geddes said last week.

The utility expects to receive a $2 million rebate from the U.S. Department of Energy for installing the fish-friendly turbines, plus an annual credit from the state for updating Box Canyon Dam to produce more renewable energy. Both will help offset the cost of the upgrades, utility officials said.

Geddes also questioned whether a court injunction could stop the utility from installing the new turbines. They were ordered last year from an Austrian firm. The first of the four turbines will arrive next year for installation.

Ponderay Newsprint pays 2 to 3 cents per kilowatt hour for electricity, which is even less than the 3.4 cents per kilowatt hour paid by the utility’s residential customers, Geddes said.

While there’s no doubt electric rates will rise, Geddes said he’s confident that the utility’s rates will remain competitive.

Ponderay Newsprint, meanwhile, has hired its own engineering firm to scrutinize the $122 million in upgrades.

“We don’t believe that due diligence has been done,” said Ponderay Newprint’s Garrett. “We want a second opinion.”

Geddes said he still hopes the firm and the utility will reach an amicable resolution.

“It’s been a good working relationship,” he said, “and I’d like to see it continue that way.”