I. INTRODUCTION AND SUMMARY

1. Through its Canadian affiliates, Zellstoff Celgar Limited and Zellstoff Celgar Limited Partnership (collectively “Celgar”), Mercer owns and operates an industrial plant in Castlegar, British Columbia (the “Celgar Mill” or the “Mill”) that utilizes an integrated, joint production process to produce Northern Bleached Softwood Kraft (“NBSK”) market pulp and to generate biomass-based, “green” electricity.

2. The regulatory issue in dispute concerns the extent and conditions under which the British Columbia Province permits the Celgar Mill to purchase electricity to meet the needs of its pulp operations from its local electric utility, at normal rates based on the actual “embedded costs” of service,1 while the Mill is selling its self-generated electricity.2 This industry practice is referred to as “arbitrage.”3 Arbitrage in the form of simultaneous sales and purchases of electricity by self-generators occurs because the market price for biomass-based green electricity has at times been significantly higher than the embedded cost rates that electric utilities in British Columbia charge their industrial customers, as these utilities benefit from relatively low-cost hydroelectric generating stations installed many decades ago.