Province's rate-meddling partly to blame for utility troubles, N.B. Power CEO suggests
MLAs receive frank talk on N.B. Power troubles from acting president Lori Clark
"Rates have been lower in hindsight than they otherwise should have been for the past 12 years," said acting N.B. Power president Lori Clark.
"Had we put in higher rate increases our debt would be lower."
N.B. Power was making its annual appearance in front of the Legislature's public accounts committee to answer questions about its most recent financial results.
Lori Clark is the acting N.B. Power CEO. She took over in July 2022 after previous president Keith Cronkhite was fired. She is the first woman to hold the position. (Jacques Poitras/CBC)
Several questions were asked about the utility's net debt load, which in September passed $5.2 billion, along with its plans for an 8.9 per cent rate increase this spring.
Clark provided answers that were more direct than previous N.B. Power presidents have supplied, telling the committee the growing debt and large rate hike are directly linked to issues, some of them political, that go back to 2011.
She acknowledged a number of troubles have battered N.B. Power finances in recent years, like the poor performance of the Point Lepreau nuclear generating station. But she added that years of inadequate rate increases have left N.B. Power financially weak and time is running out on turning that around.
"We recognize rates have been low over the last 12 or 13 years and we had to get to a place where that debt was paid down so that we didn't put the utility at risk for customers" she said
Clark didn't directly criticize any particular government or minister but the time frame she picked as the source of N.B. Power's troubles, 2011 to 2022, began with two rate freezes imposed on the utility by the former government of David Alward.
The back–to–back zero per cent increases in 2011 and 2012 were promised by Progressive Conservatives in the 2010 provincial election. They were implemented despite a troubled refurbishment of the Point Lepreau nuclear station going massively over budget at the time and inflation in the province totalling five per cent over those two years.
N.B. Power executives trace its financial troubles back to 2011. That is when the former government of Premier David Alward, which included then finance minister Blaine Higgs, made good on a campaign promise to freeze rates for two years. (CBC News)
N.B. Power endured a third rate freeze during the 2021 election year despite inflation of 3.81 per cent. Then, with inflation running close to eight per cent this year, it was limited to a two per cent increase as the Higgs government made changes to the Electricity Act.
Over the entire 12 year period, N.B. Power figures show its rates will have have effectively shrunk, in inflation adjusted terms, by 10 per cent this year from where they started in 2011.
N.B. Power senior vice president and chief financial officer Darren Murphy, who sat next to Clark during the four and a half hour session with MLAs, said long term financial plans put together by the utility to deal with its debt did not anticipate those kinds of financial restrictions.
"If we looked at the rate increase profile over that time, it has been below inflation, which we would not have contemplated at that time," said Murphy.
New Brunswick Premier Blaine Higgs called an election in 2020. N.B. Power took a zero per cent rate increase that year but denied it was the result of any political pressures. Earlier in 2020, Higgs had said he wanted the utility to solve its debt problems 'without impacting rates.' (Andrew Vaughan/The Canadian Press)
"We would have contemplated at least keeping up with inflation during that period."
Blaming inadequate rate increases, and by implication the governments behind many of them, has generally been a subject avoided by N.B. Power presidents and other executives in the past.
Clark herself in October declined to talk about the issue, telling reporters she preferred "to focus on going forward," rather than assign blame about what has caused N.B. Power's problems.
But on Thursday she was less diplomatic, gently but firmly challenging MLAs who were expressing simultaneous concerns about the utility's high debt and its request for a large rate increase, to think of them as connected events.
"Can we go back to a question you asked earlier," she said to PC MLA Ross Wetmore as he began to change subjects away from the debt problem.
"We talked about debt but we didn't talk about how debt gets paid down. The way our debt gets paid down is through rates," she said.
Although not a direct challenge to the government, the comment appeared to contradict a January 2020 speech given by Premier Blaine Higgs where he told an audience he had instructed N.B. Power to "reduce their unacceptable debt level without impacting rates."
Three years later the utility's rates have barely moved as government asked, but its debt has climbed by $300 million.
Wetmore appeared to get Clark's point.
"I'm not saying governments in the past probably shouldn't have kept their nose out of the rate increases," he said. "But that's certainly the past."
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Please note below the information for the Virtual Public Forum related to Matter 541 – NB Power 2023-2024 General Rate Application.
Also note, that parties are permitted to observe, but the public forum is for those not participating in the hearing.
The first session of the Virtual Public Forum will take place via Zoom videoconference on January 30th, 2023, from 2 pm until 4 pm.
Join Zoom Meeting via telephone: 855-703-8985 Canada Toll-free
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Meeting ID: 832 8949 3356
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N.B. Power to spend $3.4 million of proposed rate hike on higher industrial subsidies
Utility's planned 8.9 per cent rate increase applies to all customers, except 6 pulp and paper mills
Robert Jones · CBC News · Posted: Oct 11, 2022
No dah SHerlock.
That interference has been going on for decades and took up steam ever since the Mckenna government.
No more sweetheart rate deals for big business.
It's time the Irving's pay up.
Reply to Rosco holt
He keep missing budget predictions by large margins. He's either incompetent or someone else is doing the books.
Reply to Rosco holt
https://www.cbc.ca/news/canada/new-brunswick/nb-power-industrial-subsidies-1.6610492
"The 8.9 per cent is to cover our current costs. We are not making significant progress on debt reduction. It is only to cover our costs," said Clark
"We decided it was in the best interests of all of our customers to put an average rate increase in place."
But in a 200-page evidence package submitted with the application to the EUB, the utility revealed it will be using $3.4 million of the $135.8 million higher rates are expected to generate to raise subsidies it supplies to six New Brunswick pulp and paper mills. "
N.B. Power to spend $3.4 million of proposed rate hike on higher industrial subsidies
Utility's planned 8.9 per cent rate increase applies to all customers, except 6 pulp and paper mills
Last week the utility announced plans to raise rates 8.9 per cent "across the board" to all customers to address its rising expenses. Acting N.B. Power president Lori Clark said financial problems the utility faces in the next year are significant and require every customer to contribute equally to address them.
"The 8.9 per cent is to cover our current costs. We are not making significant progress on debt reduction. It is only to cover our costs," said Clark
"We decided it was in the best interests of all of our customers to put an average rate increase in place."
But in a 200-page evidence package submitted with the application to the EUB, the utility revealed it will be using $3.4 million of the $135.8 million higher rates are expected to generate to raise subsidies it supplies to six New Brunswick pulp and paper mills.
Under a mandatory provincial requirement, N.B. Power has lost more than $100 million buying electricity from pulp and paper mills at high prices and reselling it back at a discount over the past decade. (Mike Heenan/CBC News file photo)
Part of that will cover an expected increase in the consumption of power by the mills next year, but some will partially shield facilities from having to pay the full cost of increased rates.
The mills include three owned by J.D. Irving Ltd. in east Saint John, west Saint John and Lake Utopia, two owned by the AV group in Nackawic and Atholville and the mill in Edmundston owned by Twin Rivers.
According to N.B. Power's evidence, transfers to the mills will increase 30 per cent, from an estimated $11.3 million this year to $14.7 million next year. That will help keep the price of "firm" power supplied to the mills from rising as much as it does for other N.B. Power customers.
The subsidies are the responsibility of N.B. Power to finance, but the payments are required by provincial regulation, and the increases are not the result of business decisions made by the utility.
"It is not discretionary," N.B. Power communications officer Dominique Couture noted in an email to CBC News.
The Irving Pulp and Paper mill overlooking the Reversing Falls in Saint John is one of six New Brunswick facilities that has electricity costs subsidized by N.B. Power. The group qualified for $10 million last year, but that will jump to $14.7 million next year. (Roger Cosman/CBC News)
The transfers occur under a ten-year-old policy the province calls the "large industrial renewable energy purchase program" that despite its name serves only pulp and paper mills.
The regulation requires N.B. Power to buy green electricity the companies self-generate at elevated prices, and then sell it back instantaneously at a discount.
Most of the power is supplied from generators fuelled by the burning of biomass in mill boilers, with a portion also supplied by J.D. Irving Ltd.'s hydro electric dam in St. George.
Twin Rivers operates a paper mill in Edmundston. It pays power rates that are tied to a Canadian average calculated by the New Brunswick government. The arrangement helps shield mills from rate increases that hit other N.B. Power customers. (CBC)
This year, N.B. Power is paying $110.54 per mega watt hour for what it buys. It then sells it back to the mills at an average of just over $77 per mega watt hour, according to information the Crown corporation has filed with the EUB.
The utility is made to buy and sell at those price differences until it has lost enough money on the transactions to effectively subsidize the total power costs of the six mills, down to a level the province has declared to be a national average for pulp and paper facilities.
The transactions are mostly on paper since electricity generated at the mills is consumed onsite and does not actually enter N.B. Power's transmission system.
Last year the scheme cost N.B. Power $10 million. This year that has increased an estimated 13 per cent to $11.3 million, and next year is budgeted to increase a further 30 per cent to $14.7 million.
According to Couture, N.B. Power has to increase amounts it buys and sells with the mills to accommodate both higher electricity prices and the growing consumption of power by some of the facilities.
"Firm sales to program participants are increasing due to electrification and other growth, and the targeted amount of reduction is increasing, therefore increased purchases are required in order to satisfy the regulation," wrote Couture.
When he was the New Brunswick energy minister in 2012, Craig Leonard introduced subsidies for pulp and paper mills in 2012 to help companies he said were facing 'severe challenges.' Ten years later the department won't say if any updated studies have been done into whether the help is still required.
According to the province, the subsidy program is meant to help New Brunswick mills compete against facilities in other provinces that have access to lower power costs, especially in Quebec and British Columbia.
"The purpose of the Large Industrial Renewable Energy Purchase Program is to make New Brunswick's export-oriented pulp and paper sector competitive with their competitors in other Canadian provinces," the government explains in an online information sheet about the program.
The program only concerns itself with electricity costs and does not attempt to evaluate other expenses of pulp and paper mills, such as wages, wood costs, property taxes or other expenses, to assess if there might be offsetting benefits to operating in New Brunswick.
The Department of Natural Resources and Energy Development oversees the policy but it did not respond to questions about its increasing costs last week.
Last year, J.D. Irving Ltd. issued a statement in support of the program, calling it "critical to the long-term viability of New Brunswick's pulp and paper industry."
Last week, the company's vice president of communications, Anne McInerney, said electricity costs remain a concern. McInerney noted N.B. Power passed along large price spikes this year in the cost of normally cheap non-firm "surplus" energy large industrial customers often access to supplement their firm supplies
"In some of our operations, we're paying as much as $60 million every year," wrote McInerney in an email to CBC News.
"In fact, this summer, (non-firm) rates increased so sharply, four times higher than normal, Irving Paper temporarily ceased operations."
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Methinks she was following Higgy's orders when NB Power tabled the 529 and 541 Matters before the EUB N'esy Pas?