Statistics tell the story:
• NB Power is presently financed almost entirely by debt. This is not sustainable for a high performance corporation and restricts our ability to make sound long term business decision.
• When Point Lepreau Generating Station returns to service this fall, NB Power will have an estimated debt in excess of $5 billion (including the debt of the New Brunswick Electric Finance Corporation).
• Mactaquac Generating Station could cost close to $2 billion to decommission or approximately $4 billion to refurbish when it reaches the end of its current service life-cycle around 2028.
Furthermore, the ongoing instability of the international economy has raised the risks of credit availability and exposure to interest rate increases. And, while we have a mandate to operate like a commercial entity, we also have a mandate to keep rates as low as possible and are in the middle of a three-year rate freeze.
That is why our 30-year strategic plan calls for us to “systematically reduce debt to ensure that NB Power is in a financial position to invest in new generation that will sustain safe, reliable service and stable rates for New Brunswick.”
This is a most opportune time for the utility to focus on debt reduction. The return to service of the Point Lepreau Generation Station this fall means the utility will have 400MW of generation capacity. Based on electricity load growth projections, that means New Brunswick has enough generation capacity to reliably meet the province’s electricity needs for the next 10 to 15 years. Also, when Point Lepreau refurbishment is completed, the overall NB Power system will only need manageable additional investment. At the same time, the utility only requires normal maintenance capital in operations, transmission and distribution for the next 10 years.
Our long-term plan to reduce debt has several components:
• Tightly manage investment spending on infrastructure;
• Stringently control internal costs;
• Meet annual revenue and earnings targets.
• Manage modest rate increases.
First NB Power is implementing an investment governance process that will assess and prioritize infrastructure investments. We are in a unique position to manage capital spending as no new generation is required or major refurbishments scheduled for the next 10 years. Furthermore, reducing debt will provide the utility with options when considering future plant replacement, fuel purchases or purchased power agreements. Prudent financial management will mean the utility will have some flexibility when considering what to do about refurbishing Mactaquac. Similarly the utility will be in a better position when markets and technologies change and fuel costs fluctuate.
Through this strategic plan the corporation is also focused on cost control through productivity and process improvement. This is possible only with the dedication of our employees. Since last fall, the utility has aggressively been identifying opportunities to streamline the organization the organization and control costs. This work has yield annualized savings of $50 million.
NB Power will also improve its cash flow by maintaining and expanding its export sales to make optimal use of its assets. While the utility needs its full fleet of generation in the winter, it has surplus capacity the rest of the year. Although the export market has been changing in recent years due to such factors as new market rules in New England, declining natural gas prices, surplus generation in the region, difficult economic conditions and the strength of the Canadian dollar, NB Power has continued to be a successful export marketer. Since 2006/07 NB Power’s export sales have averaged $200 million a year. The result of those sales is that power rates for New Brunswickers were seven per cent lower than they otherwise would have been.
It goes without saying that systematic debt reduction is critical to the utility’s future-and to the future of New Brunswick. As well as reducing debt, the strategic plan guides the utility to target top quartile performance compared to other North American utilities and to reduce and shift electricity demand. Together, these elements will allow NB Power to help New Brunswick achieve economic and environmental prosperity across the province.
Ed Barrett is Chairman of the Board of Directors of NB Power.