Energy: Government report states amount of money owed biggest challenge faced by NB Power

A1

Brett Bundale
Telegraph-Journal

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

36 Comment(s)

FREDERICTON - A government energy report from the late 1990s warned that NB Power's debt was the most significant challenge facing the utility.

The report, prepared by the Department of Natural Resources and Energy, stated NB Power's high debt was the result of an aggressive program to build new generation facilities and a failure to raise electricity rates.

"This debt level is the number one challenge facing NB Power," the Feb. 1998 report stated. "In the future, NB Power must have a balance between revenue and costs sufficient to meet its financial obligations and to reduce its debt to more appropriate levels."

The report stated operational problems at the Point Lepreau Nuclear Generating Station would add an increasing strain on the finances of NB Power in the future.

"This poor performance has a major financial impact on NB Power," the report stated.

The report, a discussion paper called Electricity in New Brunswick Beyond 2000, spurred the province to create a task force to consult with stakeholder groups and make recommendations to the government.

The task force - co-chaired by David Hay, at the time the managing director of a financial services advisory firm and the current president and CEO of NB Power, and Donald Savoie, a public administration and governance expert at the Université de Moncton - prepared a report weighing the pros and cons of restructuring the utility and other electricity issues.

The Hay-Savoie report, called Electricity in New Brunswick and Options for its Future, stated that maintaining the status quo would likely be untenable over the long term.

The Hay-Savoie document, published in July 1998, said NB Power was carrying a debt load of $3.57 billion, representing a debt-to-equity ratio of 88.8 per cent.

"It is important to note that, if it were not for the release of reserves, NB Power would be losing money," the report stated. "Over the last three years, NB Power has lost $212 million. It made up the loss through the release of $226 million from its reserves. Those reserves are now largely allocated."

The Dominion Bond Rating Service reported that, in 1996, NB Power lost 0.67 of one cent for every kilowatt-hour sold - the only government-owned utility in Canada to sell electricity for less than it costs to produce, the DBRS report stated.

"NB Power's business plan for 1997-2002 predicts a return to profitability," the DBRS report stated. "But the plan is based on rate increases and a trouble-free Point Lepreau."

The Hay-Savoie report stated the government examine three restructuring options, including public versus private ownership, monopoly versus competitive market, and an integrated versus a segmented industry.

The Hay-Savoie report also examined the possibility of maintaining the status quo. However, the report suggested that could be problematic because of the utility's large debt and its ability to adapt to the rapidly changing North American energy market.

"One can easily appreciate why some New Brunswickers would want to embrace the status quo," the report said. "New Brunswick has, comparatively speaking, low electricity prices "¦ there is also no denying that the corporation enjoys a solid track record in providing stable and reliable service."

But the report went on to say that "powerful forces are at play just below the veneer of the status quo. Whether one agrees with the direction or not, there is no denying that the shift away from the status quo elsewhere is well on its way and gaining momentum."

In 2004, NB Power was restructured into a holding company with four subsidiary companies. But the utility's debt has continued to grow and is currently at approximately $4.75 billion.