NB Power is falling short of $ 1 billion debt settlement plan
NB Power’s seven-year-old plan to repay $ 1 billion in debt is so behind schedule that it will require cumulative rate hikes for customers of 22.3 percent over the next five years – more than double the expected rate of inflation – if the utility by 2025, debt reduction should be achieved.
The utility says it hasn’t made a decision to force rate hikes this magnitude to meet its financial targets for 2025, but documents filed with the Energy and Utilities Board suggest that the dual corporate goals of low debt and low interest rates are conflicting and possibly force an election soon.
“NB Power still believes that these (2025 debt targets) are reasonable financial targets but need to be weighed against the goals of low and stable interest rates,” it said of the size of the rate hikes that would be required to meet its current debt payments Time schedule.
NB Power has been committed to reducing debt by $ 1 billion since 2011 and building a 20 percent equity cushion into its financial structure. She initially chose 2021 as the target date, but made almost no progress in the first few years and eventually shifted the deadline to 2024 and then back to 2025.
In 2012, the utility included deleveraging as one of “three pillars” in its strategic plan that would determine its future direction. NB Power President Gaetan Thomas promised there would be steady improvement once the Point Lepreau core generator completed renovations and came back online later this year.
“After the restructuring, the net debt is expected (sic) to decrease gradually in order to reach the reduction target of 1 billion US dollars by 2020/21,” wrote Thomas in his “Message from the President” in the 2012 annual report of the utility company.
After peaking at $ 5.06 billion in March 2013, the utility put forward a plan to reduce its net debt to $ 3.95 billion by 2021, but faced various issues including Lepreau’s poor performance, violent storm damage and other unexpected expenses nullified those commitments.
New estimates show that NB Power’s debt is projected to be $ 4.98 billion in 2021, nearly $ 1 billion higher than originally planned, and will not improve much through 2025 without major rate hikes or significant internal cost cuts .
A third option is to postpone the deleveraging targets a third time to 2026 or 2029, depending on the level of interest rate hikes in the coming years.
NB Power spokesman Marc Belliveau said in an email that no course of action was taken. The utility has requested an interest rate hike of 2.5 percent this year, and decisions on whether to move debt forward over low interest rates in the coming years or vice versa will not be made in the coming years.
“The numbers presented in the report are not options – they are presented as a sensitivity to show how fiscal pressures have impacted utilities over the past year and the various scenarios should not be interpreted as either / or options.” wrote Belliveau.
“Any requests made beyond 2019-2020 would take in new information to provide stable prices, cover our costs and pay off debts.”