NB Power didn't seek escape clause in gypsum contract
Crown utility has paid J.D. Irving Ltd. millions in penalties for not delivering on gypsum from Coleson Cove
The mystery around a 10-year-old gypsum contract signed with J.D. Irving Ltd. that has cost NB Power millions of dollars in penalties deepened at the utility's rate hearing Wednesday as the utility's chief financial officer Darren Murphy tried to explain why the deal was signed without an escape clause.
"So at the time of signing the contract, it was certainly beneficial for NB Power," said Murphy.
Last month, CBC News reported NB Power has had to pay J.D. Irving Ltd. $12.3 million in penalties for failing to deliver promised quantities of gypsum to the Atlantic Wallboard Plant in Saint John over the last six years. NB Power has budgeted another $829,000 penalty payment this year which has made the gypsum contract an issue at its current rate hearing in Fredericton.
Murphy said NB Power did not anticipate the need to escape the 21.5-year contract, even though he said it was signed in 2005. That was in the middle of enormous uncertainty about the future of Coleson Cove after Venezuela backed out of a deal to supply the plant low cost orimulsion in 2003.
NB Power filed suit against the Venezuela state oil company Bitor in February 2004 and then entered negotiations over the following year in a fruitless attempt to try and rescue the deal.
It was while that was unfolding the contract with J.D. Irving Ltd. was signed, committing NB Power to provide substantial quantities of gypsum from Coleson Cove, even though the ability of the plant to operate economically into the future was uncertain.
"Was there an exit provision in this contract," asked Energy and Utilities Board lawyer Ellen Desmond.
"No, I do not believe there is," replied Murphy.
The feeling was that Coleson Cove had a long and successful run ahead of it.- Darren Murphy, NP Power vice-president
"And why not? Why would there not be an exit provision negotiated or contemplated when this contract was entered into," asked Desmond.
"I guess at the time it was entered into, the feeling was that Coleson Cove had a long and successful run ahead of it, and that there was a requirement to deal with this particular by-product at the time, and the economics made a lot of sense in terms of how we were to deal with that. So those would have been kind of the reasons going into it," said Murphy.
NB Power says without some kind of deal it would have been stuck with gypsum produced at Coleson Cove and likely would have had to dispose of it in a landfill at considerable cost.
The contract runs until 2026.
Desmond asked if NB Power could produce the contract for inspection at its rate hearing. Murphy said it would, if it does not have a provision forbidding its disclosure.