State lawmakers have backed off a controversial, and potentially unconstitutional, bill that would have forced Maine’s largest provider of hydroelectric power to give a portion of its profits to the owner of a paper mill in East Millinocket that has been idle since January.

The Legislature’s Energy, Utilities and Technology Committee voted unanimously Tuesday to send a significantly watered-down version of the bill, L.D. 1792, to the Legislature for consideration.

The original language of the bill, introduced in February, would have forced Brookfield Renewable Energy Partners, the mill’s power provider, to pay Great Northern Paper the profits it has made from selling excess power since the mill’s closure.

The amended bill includes no language to force Brookfield to share its profits. It merely would encourage the two companies to reach an agreement on sharing revenue from wholesale sales of the excess power. It also calls for a one-time exemption to an existing law that otherwise would prohibit any profit-sharing as long as the mill is shut down.

Because of an arrangement that allowed Great Northern Paper to buy power at a reduced rate, Brookfield Renewable Energy Partners has increased its profits since the mill closed by selling excess power on the wholesale market.

Harold Pachios, the attorney for Brookfield Renewable Energy Partners, called the original bill a “gun to the head” of his client and argued that it would be unconstitutional because it would have interfered with a contract between two private companies. He said it also would have violated the Federal Power Act, which governs the regulation of hydroelectric dams in the U.S.

Sen. John Cleveland, D-Auburn, a co-chair of the Energy, Utilities and Technology Committee, said Tuesday that the bill’s new language was drafted to address legal issues raised by Pachios.

The original bill was drafted by the paper mill’s attorneys, but the new language was drafted by Jon Clark, deputy director of the Legislature’s Office of Policy and Legal Analysis, Cleveland said.

“The original bill was mandatory and prescriptive,” he said. “It very likely would have resulted in litigation.”

Cleveland said the potential legal battle resulting from the original bill’s language could have lasted months or years and prevented the mill from reopening, which was the bill’s intended purpose.

“So that bill would not have accomplished its purpose and would not have been useful,” he said.

SOME WORKERS WON’T BE REHIRED

Brookfield Renewable Energy Partners is a Canadian company that owns three hydroelectric dams on the Penobscot River and dozens of similar dams elsewhere in Maine.

Great Northern Paper, a subsidiary of the New Hampshire-based private equity firm Cate Street Capital, signed a 10-year agreement with Brookfield in August 2011 to buy power for the mill in East Millinocket at a discount rate.

Despite its reduced power costs, the mill’s owner shut down the operation Jan. 23, citing burdensome costs for energy and wood. In early February, it laid off 212 of the mill’s 252 employees.

Cate Street Capital then floated a plan to restart the mill in four months. The plan called for Brookfield Renewable Energy Partners to enter into “load-shedding” agreements, in which the mill would reduce its production at times of peak electricity demand to allow Brookfield to sell electricity onto the wholesale market for a significantly higher price. Brookfield then would have shared some of its profits with the mill.

Cleveland said the amended bill is intended to make it explicit that short-term load-shedding agreements are allowable, and to encourage the two parties to come to an agreement.

“We lay that out very clearly,” Cleveland said, and he expects the bill will be “very strongly supported” by the Legislature.

The committee made one small change to the bill before endorsing it Tuesday. At the request of Alex Ritchie, Cate Street Capital’s director of community and government relations, the committee removed language that would have required the paper mill to reopen by June 30 with the same number of employees it had when it closed.

Ritchie said Cate Street Capital does not anticipate being able to rehire all 212 of the laid-off workers.

“There is an employee reduction component with the plan,” she said at Tuesday’s committee meeting. “Not a dramatic employee reduction, but there will be a reduction, so tying it to the same number of employees won’t work with the restructuring plan in place.”

Duane Lugdon, a United Steelworkers representative, said the union anticipates that 36 fewer workers will be employed by the mill when it reopens.

NEED FOR AMENDED BILL QUESTIONED

Scott Tranchemontagne, Cate Street Capital’s spokesman, said Tuesday that the company was pleased with the committee’s vote.

“We hope the full Legislature will support L.D. 1792 as well, as its approval is a critical component of (Great Northern Paper’s) multi-point plan to restart the mill and remain viable into the future,” he said in an email. “A vote to allow (the mill owner) to benefit from load-shedding, which other Maine mills currently do, is a vote for preserving jobs, creating a level playing field … and supporting the Katahdin region’s economy.”

Pachios, Brookfield’s attorney, said he didn’t see the point of the amended bill, because short-term load-shedding is allowed under current law for operating mills. The bill’s only effect would be to give Cate Street Capital an exemption for its current closure, he said.

As for whether Brookfield is willing to enter into a load-shedding agreement, Pachios said he made an offer to Cate Street Capital’s attorneys that would have required the private equity firm to turn over financial information proving that it has a viable long-term business plan for the mill. He said Brookfield also offered to forgive $2.5 million that Cate Street Capital owes for electricity. The firm turned down the offer.

“Any restructuring cannot be conditioned upon review of financial information or other due diligence,” Christoper Howard, an attorney for Cate Street Capital, wrote in a memo dated March 21 and provided to the Portland Press Herald by Pachios.

“We would engage in load-shedding if it made business sense for Brookfield,” Pachios said.

Whit Richardson can be contacted at 791-6463 or at:

wrichardson@pressherald.com

Twitter: whit_richardson

This story was corrected on Wednesday, March 26, 2014 to clarify information about Alex Richie and to correct the market on which the energy is sold.