This webpage is dedicated to information surrounding the closure of Ponderay Newsprint Company ("PNC").
July 28, 2020: Pend Oreille PUD Rate Hearing & Impacts of PNC Closure
July 22, 2020: Miner Article - PUD Rate Increase Likely (Subscription Required)
June 23, 2020: Pend Oreille PUD Statement on Ponderay Newsprint Company
PNC Chapter 7 Bankruptcy Documents
Below are links to several of the primary documents filed in the PNC Chapter 7 bankruptcy related to the PUD:
- PNC Chapter 7 Petition
- PNC’s Bankruptcy Schedules
- PUD’s Motion for Relief from Stay
- Order Granting PUD’s Motion for Relief from Stay
PNC Closure Impacts ~ Frequently Asked Questions & Answers
Question: How will the closure of PNC impact electric rates?
The PUD has been actively preparing for the closure of PNC over the past five years in order to avoid major electric rate impacts to our general service customers. We have reduced staffing by roughly 20%, increased our reserves, created a rate-stabilization fund, tightened our capital budgets, refinanced debt, avoided major construction obligations, and modified operational practices.
The Commission and Management will be evaluating a consolidated long-term approach to managing the utility that focuses on mitigating harm to our general service customers. We feel very fortunate to have options and to have time to make these difficult decisions. Electric rates will likely increase over time (see above 7-28-2020 press release).
Question: How will the PUD fulfill its mission of delivering quality service at low cost?
The PUD is committed to finding solutions that are in the best long-term interest of ratepayers and the community. Our mission is to deliver low-cost reliable power to our customers.
In addition to seeking full recovery of amounts owed to the PUD by PNC under our prior Power Contracts, we will be prudent in making the necessary changes at the PUD to minimize impacts to the costs and service our ratepayers expect. These actions include delaying capital expenditures, exploring cost reductions, reallocating resources, and selling some unneeded assets.
We are determined to strengthen our organization to meet the future needs of our community and our ratepayers.
Question: What actions is the PUD currently taking?
The PUD is taking the following actions:
- We are working with our Commission to set the course for the PUD’s financial success, examining a combination of rate increases, cost cuts, power remarketing activities, and project deferrals to achieve the lowest-impact to our ratepayers in terms of both cost and service quality.
- The PUD has led community efforts to develop a comprehensive economic development and load-growth plan and is working collaboratively with our community partners and the PNC bankruptcy trustee to pursue future development opportunities at the PNC site.
- We are actively seeking alternative purchasers of our hydroelectric resources.
Question: Will the PUD seek full recovery of costs and amounts owed for PNC’s early termination of its power contract?
Yes, the PUD will seek full recovery of costs and amounts owed for PNC early termination of the Power Contracts.
One of the fundamental tenants of the longstanding Power Contracts between the PUD and PNC was that the general service customers would not be harmed by the mill’s operations or eventual closure. The Power Contracts’ liquidated damages clause requires PNC to make the PUD’s customers whole in the event the mill can’t fulfill the contractual promise to purchase power through June 2027 and the PUD is then forced to sell that power into the market at a loss. In 2018, the parties ultimately agreed to fix the amount of liquidated damages owed in a declining annual schedule that incentivized continued operations at the mill.
As of June 23, 2020, PNC’s gross liquidated damages owed to the PUD are $33,000,000, which are estimated to net to $17,399,680 under the resale calculation provided in the Power Contracts. PNC also owes the PUD for the balance-of-year (2020) power costs totaling $14,866,687.57. The total amount owed to the PUD for early termination is $32,266,367.57, plus the June 22 invoice for power that was delivered but not paid for totaling $1,065,009.47. Keep in mind that, while these numbers may seem very large to the average customer, PNC’s monthly power bill averaged around $2 million. The PUD is making a claim for these amounts as a creditor in the Chapter 7 bankruptcy proceedings and has already received $10,000,000 of the amount pursuant to the PUD’s security interest in certain cash collateral. The balance will be subject to the Trustee’s liquidation and distribution of the remaining assets of the estate.
The advanced efforts taken over the past five years, plus the collection of at least a portion of the amounts owed, will mitigate a large percentage of the near-term revenue deficit. The exact percentage, however, is contingent upon the amount collected through the bankruptcy and the price the PUD receives in the market for the resale of the power. We are currently working on longer-term market resale transactions that will provide more certainty and financial stability with our market resales.
The tools in our toolbox for managing revenue deficits certainly include, but aren’t limited to, rates. Again, we are able structure funds from our reserves, make strategic cost adjustments to our budgets, and defer capital projects.
Question: What are the ramifications of the PNC closure for the PUD and what is the PUD doing to mitigate these impacts?
The loss of PNC results in the PUD having a large surplus of power that is overpriced compared to current power markets. Because electricity cannot be stored in the quantities we produce, the PUD will need to sell its surplus power to other parties, which will result in substantial losses.
Again, the PUD has long anticipated a PNC closure and has taken prudent steps to prepare financially. This includes establishing robust cash reserves and a rate stabilization account, keeping costs low, reducing staff through attrition, staggering capital projects, and selling unneeded properties and assets. The PUD has also been in discussions with a third-party power merchant to optimize the value of the District’s power resources in other markets and anticipates entering into a five-year agreement to do so starting in 2021. However, even with these steps, the PUD will still be facing substantial losses by selling its surplus energy into depressed power markets. The PUD will continue to explore cost-saving measures, efficiencies, and the necessity for rate adjustments.
Last, the PUD is also focused intensely on recruiting substantial electric load to Pend Oreille County, and has led the region’s efforts to develop a comprehensive economic development strategic plan. The PUD is committed to building a future for Pend Oreille County that includes family-wage jobs and electric load growth.
Question: How will the PUD will keep employees, ratepayers, and the public informed on current events, progress made and any relevant updates?
The PUD has created a dedicated page on our website to house all PNC-related information so that we can keep customers apprised of the current situation. The page can be found by visiting: PNC Updates & Information
Additionally, we have and will continue to keep residents informed on the status and progress made on this issue during our regular board meetings.
Question: What Energy Assistance resources are available for those experiencing financial hardship due to the closure of PNC?
Customers experiencing financial hardship, including PNC employees who live in Pend Oreille County, can learn about our energy assistance programs by visiting our Community Support & Assistance Page by utilizing the following link: Energy Assistance.
Alternatively, we encourage customers to call the PUD’s customer service representatives to discuss assistance options.
Question: How has the PUD assisted PNC over the years?
The PUD has long sought to keep PNC in our community, and has made significant efforts over the past several years to assist as much as possible. Actions the PUD has taken on behalf of PNC include the following:
- Passed through to PNC more than $1 million in bill credits over the past 12 months by optimizing the carbon-free attributes of Box Canyon power in other markets;
- Provided more than $2.3 million in energy efficiency savings to PNC through our BPA energy conservation program;
- Made more than $86 million in power sales on PNC’s behalf, which significantly reduced PNC’s power bill during high-price market events; and
- Provided PNC with a $50,000 monthly credit on its power bill for every month PNC stayed in business following the 2018 legal settlement.
Question: Why is the price of PUD power higher than market price?
While upgrades to Box Canyon Dam and additional environmental mitigation activities required by our new 50-year license increased the cost of power, the problem actually has more to do with the fact that power prices are at an all-time low. This is due, in large part, to a growing level of heavily subsidized “renewable” resources (wind and solar) that are more intermittent and less reliable than hydropower.