NB Power management at fault for missed debt targets, says auditor general

Wishful thinking and poor forecasting have led NB Power to consistently miss profit and debt reduction targets in recent years with major new expenditures on the horizon, according to an unflattering assessment of the utility's financial management by New Brunswick Auditor General Kim Adair-MacPherson.

"It is ultimately management's decision to reduce debt," said Adair-MacPherson, in a 65-page review of the utility she presented to MLAs on Tuesday.

NB Power ended the 2020 fiscal year with $4.9 billion in net debt, about $700 million higher than targets set for it by the Legislature in 2013. That's a concern, according to the auditor general, because the province guarantees what NB Power owes and significant new spending requirements are approaching.

"It's the largest contingent risk to the province,"  she told MLAs, about NB Power's liabilities.

Debt reduction, her report said, is "not a top priority" of utility management, who she said failed to meet financial targets "year after year" by engaging in "optimistic" and "inaccurate forecasting" of utility expenses.

The report notes how in 2016 the utility projected $549 million in profits for itself over the following four years in its planning but managed to achieve actual profits over the period of just $54 million, less than 10 per cent of what it had suggested.

Damaging storms, spotty performance by the Point Lepreau nuclear generating station, low hydro production during dry summers and other problems have all taken turns upsetting the utility's financial plans, but Adair-MacPherson said those risks need to be better accounted for in corporate planning.

She also expressed concern about whether the utility will be able to significantly improve its finances before 2027, when up to $4 billion in major expenditures will be needed for a rebuild of the Mactaquac Dam and other projects.

"NB Power does not have a definitive plan to do this," she wrote about the need for significant short term debt reduction.

Although NB Power charges some of the lowest rates for electricity in Atlantic Canada, Adair-MacPherson questioned whether that makes business sense given its financial position.

"While maintaining a consistently low annual rate may be advantageous to NB Power consumers, it is likely contributing to its failure to meet the debt to equity target and ever-increasing debt level," she said.

Adair-MacPherson's report comes as NB Power is coping with yet another major unbudgeted cost, the unexpected breakdown of the Point Lepreau nuclear generating station last month.

Turbine problems forced a shutdown of the plant in mid January and more than a month later it remains offline at an approximate cost to the utility of $1 million per day.

In its response to the report, NB Power defended its forecasting practices and expressed confidence it will get its debt level down to the required 80 per cent level by 2027. However, it also promised to do better budgeting for trouble.

"NB Power agrees to evaluate additional means to quantify the impact of significant future cost uncertainties outside management's control and to include this information in its planning process," said the utility's response.