NB Power debt claim to MLAs appears to be untrue

NB Power president Gaetan Thomas's claim to MLAs that the Energy and Utilities Board once told the utility profits should be kept below $80 million, despite its need to pay off debt, appears to be untrue.

The EUB has never issued a directive to NB Power to keep earnings below $80 million and the utility has been unable to explain who made the statement Thomas is referring to or when, if ever, it was said.  

Thomas, chairman Ed Barrett and other NB Power executives made a presentation on Jan. 5 to the legislature's Crown corporations committee to discuss the utility's latest financial results and MLAs questioned them about NB Power's debt problems.  

Both Barrett and Thomas told the committee the Energy and Utilities Board has stood in the way of the utility earning sufficient profits to substantially reduce its $4.9 billion debt load, instead forcing it to keep rates low.  

Thomas said even modest profit targets are frowned on by the EUB.

"Every time we're confronted with a low rate," Thomas told MLAs. 

"That is the dominant factor for the regulator. Even if we can show, lets say, we can make say $80 million earnings the point is they say you don't really need that much earnings."   

However, all profit requests NB Power management has made to the EUB in the last four years have been approved, three for more than $80 million, the amount Thomas claims the EUB has said is too much.

Heather Black has represented the public at NB Power's last four rate hearings and says the utility has set its own profit target each year and has never had any part of the amounts rejected by the EUB.

"In each case, the board has approved NB Power's proposed earnings in the full amount NB Power requested," Black wrote in an email to CBC News.   

Marc Belliveau, a spokesman for NB Power, said in an email the comment Thomas made about the EUB telling the utility an $80 million profit is too high should not be taken literally.

"I don't have a transcript of the (MLA) proceedings but this was a general statement/example not a specific one," he wrote.

It's the second statement Thomas has made in the last month that has needed clarification, and both were in relation to the utility's debt problem.

In January, Thomas told CBC News that NB Power is applying for a $36 million rate increase for the next fiscal year to help generate a profit and "most of it would go to debt reduction".  

But NB Power figures show the utility is planning no debt reduction next year, even with a rate increase. Expected profits at the utility are budgeted to be spent on capital projects with none applied to its $4.9 billion debt. 

It is scheduled to increase by $6 million.

NB Power has failed to meet  earnings targets in each of the last four years, mostly because expenses have been higher than anticipated, but the EUB has never opposed the targets themselves.

The board approved a combined $329.5 million in profit over the four-year period but NB Power expects to generate less than 25 percent of that — just $71.3 million - once the current year is factored in.

Black says NB Power's failure to pay down its debt is not a problem with the EUB.

"While the board cuts NB Power's proposed spending where it determines that the spending is imprudent, this has not been the cause of NB Power's failure to meet its earnings targets," said Black, citing performance problems at Lepreau, unbudgeted storm damage and other issues.

"NB Power's earnings erode when its costs are over budget or when it fails to earn its budgeted revenue."

The EUB is declining to comment but the organization has openly expressed concerns about NB Power's debt in the past.

At hearings last April, Ellen Desmond, the EUB's lawyer, questioned Darren Murphy, NB Power vice-president, in detail about whether the utility's profits are too low and its debt retirement schedule too slow.

She suggested the utility consider reducing its spending to generate higher profits in years its financial projections are coming up short.

"Why not perhaps delay spending where necessary to meet other objectives, including your reduction in net debt which we have heard a lot about in the last three years," said Desmond.

"I mean if that is a priority, if that is a target, why not perhaps adjust the plan? Why not adjust that so that we can see reduction -- larger reductions on the net debt?"

NB Power' Belliveau said in an email the utility believes rate hearings focus too much on questioning spending and not enough on the bottom line.

"The underlying tone of recent rate hearings has been focused on low and stable rates as opposed to a more balanced view," said Belliveau.