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Controlling energy costs

There is some reluctance in Canada to open doors for mills to cogenerate electricity, Lachapelle told the Montreal Forest Industry two years ago. Mills could lower their own energy costs and sell surplus energy to the local power grid.

The major challenge in cogeneration, said Chris Calger, vice-president, Enron Canada Corp., is the utilities have no incentive to purchase excess power. A good cogen project might not be embraced by a company simply because a buyer or market has to be found for the surplus power. However this problem should be resoved as electricity deregulation unfolds, Calger said. Enron, for its part can provide fuel, excess power, or provide financing so a pulp and paper company does not have to put up any capital to start up such a project.

Enron also hedges prices of energy and other commodities including currency as part of risk management. Not all industry players favor the practice but St. Laurent’s Garneau said that hedging decreases the variability of earnings.

A good risk management program, said Edward Ondarza, vice-president, Enron North America Corp.,

understands the objective of each mill,

understands cost basis of each mill,

determines at what price production needs to be hedged at to be able to lock in returns on the mill’s equity investment.

The trend in energy contracts, said Calger, sees companies hedging their energy cost for three to five years, matching the industry cycle.Joan Bailey