N.B. Power rate increase announcement cancelled, province retracts debt reduction target

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.  

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.

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.

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.