N.B. Power rate increase announcement cancelled, province retracts debt reduction target
Minister denies pre-election motive behind change in 2019 order
The
New Brunswick government has formally released N.B. Power from having
to meet a hard 2027 debt reduction target it set for the utility four
years ago, but the province insists it is not a political manoeuvre to
avoid the announcement of a large power-rate increase on the eve of a
potential election call.
"Not politicking at all, not so," said Mike Holland, minister of natural resources and energy development, about a sudden cabinet decision made last week to add two years of breathing room to N.B. Power's efforts to get its $5.4-billion debt under control.
"We've been working to do these initiatives for three election cycles now. This has been a part of our daily work — not something that we dream up off the cuff," Holland said.
Last spring, N.B. Power was ordered by the New Brunswick Energy and Utilities Board to submit its budget for the 2024-2025 fiscal year by Oct. 4, including any rate increase it might need.
Natural
Resources and Energy Development Minister Mike Holland said a decision
made by cabinet last week to release N.B. Power from a four-year-old
debt reduction target had nothing to do with a potential early election
call. (Jacques Poitras/CBC)
But in a letter to the board on Thursday, N.B. Power said it had to cancel this week's rate application and announcement indefinitely because in a cabinet order signed by Blaine Higgs on Sept. 25, the province relaxed N.B. Power's debt reduction target date by two years, from 2027 to 2029.
That upended months of planning and budgeting around the 2027 date, including amounts that will be needed by N.B. Power in a rate increase to meet it.
"Based on this I wanted to advise the Board as quickly as possible that NB Power will not be in a position to file the GRA [General Rate Application] by October 4, 2023," wrote N.B. Power's senior vice-president and chief financial officer, Darren Murphy, in the letter to the board.
The utilities board has asked N.B. Power to file a budget and rate proposal by Oct. 31, or ask for an extension by Oct. 25. The utility is not saying how long it thinks it will take to rework its numbers, or if they would be released if an election is called.
Neither the province nor N.B. Power will reveal what kind of increase the utility was preparing to ask for this week but it was almost certainly a large one.
Following miserable financial results last year, and the looming 2027 debt reduction target that the utility is still far from reaching, N.B. Power had few choices but to raise money quickly through significantly higher rates.
N.B.
Power is supposed to be reducing debt but it increased, by $468
million, to more than $5.4 billion last year, largely due to a
mid-winter breakdown of the Point Lepreau nuclear generating station and
other operational problems. (Submitted by N.B. Power)
Holland, who has condemned political meddling in N.B. Power's rate requests in the past as a major cause of the utility's current debt problems, denied that is what is happening again.
Nevertheless, he openly acknowledged the point of deferring debt reduction is so N.B. Power will not raise rates as high as it was planning, in the short term.
"We've been very clear saying that we're not going to meddle with rates," said Holland.
"But … we want to do our part to do what we can — to try to bring relief where we can."
Holland wouldn't say if moving the debt reduction target was N.B. Power's idea or a government initiative.
N.B. Power's escalating debt has been an ongoing financial worry for the province for years. It's been highlighted as a concern by the last two auditors general and pointed at by credit rating agencies as a problem.
In 2019, Holland sent N.B. Power a mandate letter ordering it to lessen its reliance on debt to finance itself. He told the utility to increase earnings enough to achieve a target of 80 per cent debt and 20 per cent equity in its capital structure by March 31, 2027.
But, since 2019, what the utility owes has only increased, and by March 31 of this year its net debt had passed $5.4 billion, 94 per cent of the utility's total worth.
In its latest annual report, N.B. Power acknowledged its debt levels are a serious problem, but said it could still meet the 2027 deadline.
"If NB Power does not make meaningful progress toward reducing debt and increasing equity, then NB Power's ability to remain a financially viable organization will be challenged," it wrote in a stark assessment of its own financial position.
Lori
Clark, president of N.B. Power, welcomed the decision to give the
utility an extra two years to reduce its debt to targeted levels. (Jacques Poitras/CBC)
Earlier this year. N.B. Power president Lori Clark told MLAs that the utility's rates have been kept artificially low "for the past 12 years" and needed to come up to deal with its debt troubles.
Nevertheless, she issued a statement Tuesday applauding the two-year extension granted by government to get its debt down to target levels.
"We welcome this directive from the province as it will lessen the short-term rate impact on customers," said the statement from Clark.
"Our financial health remains a priority, and we are continuing to look at all aspects of our operations to ensure we are doing everything we can to improve our bottom line."
A year ago Holland rejected calls from opposition MLAs to intervene in N.B. Power's request for an 8.9 per cent rate increase because it would be hard on consumers. He called that idea irresponsible.
"From the time we took office in 2018, we said that the political games with the utility
had to stop," said Holland.
ABOUT THE AUTHOR
Kurt Strunk, of National Economic Research Associates in New York, was hired by Public Intervener René Basque to review the calculation of additional generation costs during the Lepreau refurbishment. Strunk's report filed as evidence at the hearing claimed that the deferral account was overstated. NB Power disagrees with this assessment and stands by its estimation of the size of the deferral account in this regard.
During cross-examination by NB Power, Strunk was challenged on a number of areas of his evidence. He was questioned on the accuracy of his assumptions and the estimates he used to calculate his suggestion that the deferral account was overstated.
This hearing covers the balance of the deferral account and the projected operating life of the refurbished generating station. The board stated in its order of July 18 that matters relating to rates will be reviewed at a later date. Notwithstanding, NB Power is confident that the current 10-year forecast of modest two per cent rate increases is adequate to recover the balance in the deferral account.
NB Power has 5 billion in debt, can we get them to pay some of that down.
PC supporters: That's different and doesn't count.
Reply to Ronald Miller
Reply to Ronald Miller
Reply to Ronald Miller
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Reply to Ronald Miller
Yeah, right. I can believe that for a whole ten seconds.
Reply to Ronald Miller
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Reply to Johnny Noname
Claude Martel
David R. Amos
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Reply to Claude Martel
"We've been very clear saying that we're not going to meddle with rates," said Holland.
"But … we want to do our part to do what we can — to try to bring relief where we can."
Translation. We are not going to meddle with the rates, but we are going to meddle with the rates.
Louis Leblanc
Reply to Fred Brewer
I CONcur.
David R. Amos
Content Deactivated
Reply to Louis Leblanc
Never believe anything until its officially denied
I find it funny that Higgs is desperate to pay off our provincial debt while allowing NB Power to continue to add to our debt. Over $5 billion of our debt is from NB Power.
Ronald Miller
Reply to Fred Brewer
Higgs does not run NB Power, maybe read up on how it runs.
Kyle Woodman
Reply to Ronald Miller
Why is Mike Holland being interviewed then?
Chris Eidt
Reply to Fred Brewer
"N.B. Power said it had to cancel this week's rate application and announcement indefinitely because in a cabinet order signed by Blaine Higgs on Sept. 25," NB Power is a CROWN Corporation Ronald. Maybe you need to a bit more reading.
Ronald Miller
Reply to Kyle Woodman
He is the Minister of Energy Development, not the Minister of NB Power. NB Power reports to the Leg. through a committee, as they have been for years. Holland is representing cabinet on the debt reduction delay, not rocket science.
Ronald Miller
Reply to Chris Eidt
And you did not finish the rest of the sentence in the article, not surprising. The current gov't does not run the day to day of NB Power, and no gov't has in some time. NB Power applies for rate increases to the EUB, not the current gov't. Based on Higgs' immaculate history in fiscal management and debt reduction you think he would be running a company that keeps racking up debt, it is you who needs to read up on things.
Kyle Woodman
Reply to Ronald Miller
You live in quite the fantasy world Ronald.
David R. Amos
Reply to Ronald Miller
Dream on
David R. Amos
Content Deactivated
Reply to Kyle Woodman
He is well paid to camp there
Ronald Miller
Reply to Kyle Woodman
Prove me wrong, good luck.
David R. Amos
Content Deactivated
Reply to Ronald Miller.
You posted this yesterday correct?
"While the usuals feed on this site's story fueled with little substance and control this, and control that, our PM is actually exerting control by looking to censor podcasts."
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