By John Chilibeck, Local Journalism Initiative Reporter The Daily Gleaner
Lost in some of the news about big electricity price hikes in New Brunswick is a severe and growing financial problem.
NB Power, the Crown corporation that provides electricity to 393,000 residential and business customers, has a ballooning debt load that will only get heavier as it swallows more money for capital projects.
And now one expert is musing that the provincial government will have to step in to take on some of that debt burden, what some would decry as a bailout.
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"There are lots of ways you can restructure the debt," said Duncan Hawthorne in an interview with Brunswick News. "There's a question about how much debt should the utility hold versus how much debt should the government bear? And that's a conversation between the taxpayer and ratepayer. We will be looking at that."
Hawthorne, an engineer from Scotland, has been an executive in the electricity business for four decades, including 16 years as the CEO of Bruce Power in Ontario, running eight nuclear reactors on Lake Huron for a profit. More recently, he was one of three experts hired by the Holt Liberal government to do a comprehensive review of NB Power.
Speaking from the United Kingdom in a recent interview, Hawthorne said NB Power would likely have to spend $20 billion to $30 billion by 2040 to keep up with growing electrical demand. As part of the push for more electricity, utility officials want to refurbish aging power plants such as the Mactaquac Generating Station near Fredericton, at a cost of billions.
"When you look at some of these big capital investments, like Mactaquac and other things, is that a ratepayer burden or a taxpayer burden? Obviously, you could argue it's part of each. Yes, it's about the supply of electricity, but it's also about infrastructure that plays a critical role. We will be commenting on the debt structure and how it might be handled."
Earlier this month, when CEO Lori Clark announced the public utility would be seeking a 4.75 per cent rate increase next year for electricity prices, after raising rates by 24 per cent over the previous three years, she also told reporters that it would ramp up spending to improve its generating stations and replace aging powerlines.
"We're going into a period at NB Power where we'll have significant capital investment," she said at the press conference. "We actually have $1 billion in capital investment coming on in the next year or so that we'll have to fund through a combination of earnings and debt."
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During a technical briefing, utility officials said they'd hike capital spending for big projects such as a re-tooling at the Point Lepreau Nuclear Generating Station near Saint John from around $600 million a year to $1.1 billion next year, with annual spending of $1.5 billion in subsequent years, more than double than normal.
As it stands, NB Power carries a net debt burden of close to $5.7 billion, according to its latest quarterly report released in June, or about $14,500 on average for each of its customers.
The high debt is backstopped by NB Power's only shareholder, the provincial government, which helps the utility get a lower rate of interest when it borrows money.
The Alward Progressive Conservative administration was so concerned about NB Power's debt load 14 years ago, it instructed the utility to reach a debt-to-equity ratio of 80 per cent to 20 per cent. Notably, it came without any pressing deadline.
Such a ratio gives a sense of how financially secure a company might be. It's calculated by dividing its total liabilities by its shareholder's equity, showing how much debt is used to finance assets compared to the amount invested.
A higher figure up front suggests heavier debt dependency and more financial risk. And on this metric, NB Power has been going in the wrong direction. Most recently, its debt-to-equity ratio crept up to 93-7.
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The Higgs Progressive Conservative government in 2019 tried to clamp down, demanding NB Power hit the lower 80 per cent target by 2027. When NB Power officials warned such a deadline would propel rates to skyrocket, the Higgs government backed down and extended the payback period to 2029.
Soon after the Liberals came to power last October, NB Power warned the rates next year would have to climb substantially without extending the deadline further. Indeed, Clark told reporters earlier this month the rates would have had to have moved 15 per cent higher next year without a reprieve.
Sensing the public had no appetite to swallow such an enormously higher price for electricity, the Holt Liberal government got rid of the deadline, but nevertheless said it wanted to see meaningful progress on the ratio.
Clark suggested to reporters on Oct. 1 it may no longer make sense just to look at that one financial metric.
"When the debt-equity target was set we were in a period where we didn't actually have a large capital investment portfolio ahead of us," the CEO said. "And now we have Mactaquac and the investments we've made in Lepreau. So, the timing now is such that it's probably not the most appropriate measure going forward."
For his part, Hawthorne said it was normal for a public utility to have a lot of debt because it needs to borrow to build expensive power stations, power lines and the like.
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But he said the real issue is whether enough money is made from selling electricity to ensure it can pay the debt back.
And as the businessman has told people who have come to the review panel's public consultation sessions, the real challenge is for NB Power to perform better, particularly at its nuclear generator.
Point Lepreau has rated near the bottom of performance for any similar nuclear plant in North America.
"Even if the debt is forgiven, how do we know it's not going to come back again? You just cleared the slate for five years, and in five years, you have another debt burden. So, part of this is recognizing that everything is connected and that strong-performing assets generate revenue. That revenue can be used to keep rates low and pay down debt."
The review panel is scheduled to hear people at public engagement sessions in Miramichi, Caraquet, Bathurst, Edmundston and Woodstock in the last week of October.
Most people in previous sessions have worried about high electricity bills, or talked about the need to get to a net-zero electricity system, free of fossil fuels that harm the planet through greenhouse gas emissions.
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But Hawthorne will keep repeating the same message: if you make job number one maximizing the performance of existing power plants, ratepayers will benefit.
"It will negate the need to buy power from other places, it will allow you to keep rates down for consumers. For me, when you have a lot of assets, you have to start with optimizing the performance of them."
How will all the repairs and improvements at NB Power's fleet of 12 power plants, several hydro stations and nuclear generator be funded?
Hawthorne suggested that besides the provincial government stepping in, there could be a role for Ottawa, through the Canada Infrastructure Bank or other means. He admitted that a $30-billion to $40-billion tab over the next 15 years was enormous.
"Those are big numbers. There are lots of ways to get it. You have to decide if there are alliances and partnerships with the private sector, will some of the large industrials be able to self-generate. Could we have better ties with neighbouring jurisdictions? Because ultimately, these things are coming whether you like it or not. The assets are aging and have to be replaced."
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