Looking at NB Power numbers

(Aug. 28) Norm Rubin with the Toronto-based energy watchdog group Energy Probe  says he is concerned that NB Power might be forced to go too far in cost-cutting efforts in order to freeze the power rate, postponing such things as required maintenance, writes W.E. (Bill) Belliveau in the Times and Transcript.

As Prime Minister Harper rattles around the Arctic pumping the need for fighter planes and Arctic sovereignty and warning of Russian bomber threats that justify the recently announced $9 billion dollar purchase of U.S. manufactured fighter planes, NORAD, the North American Aerospace Defense Command says that at no time did Russian bombers enter Canadian airspace this week.

Coincidently, a few miles away in Nunavut a huge chunk of ice broke off Ellesmere Island. Scientists estimate the size of the ice chunk at roughly the size of Bermuda. Could this be another piece of the global warming threat and is anybody paying attention?

On another matter, notes to the 2009 (year ending March 31, 2009) Financial Statements of NB Power relating to refurbishment of the Point Lepreau Generating Station say that “costs of replacement power will be recovered from customers over the station’s operating life and reflected in . . . charges, rates and tolls to customers.” Meanwhile, it will defer costs and capitalize interest payments – a method of creating paper profits. It does not reduce the need for cash. In an early 2010 election undertaking, Progressive Conservative Leader David Alward has promised voters a three-year freeze on power rates if his party wins the Sept. 27 election.

With the greatest respect for Mr. Alward, one has to wonder about the feasibility of his promise. Cost over-runs and power replacement costs for the Lepreau refurbishment could be $2- to $3-billion before it’s finished, if it is ever finished.

Let’s be optimistic and assume the nuclear generator will be up and running by January 2012 and total costs of over-runs and power replacement costs prove to be as little as $3 billion. Based on notes to the financial statements referred to above and assuming a plant life of 25 years, the charge to ratepayers for capital recovery would be $120 million a year (not including interest costs). With five per cent interest rates the annual cost of interest would be another $150 million, more than double the reported profit of NB Power in 2009 ($70 million). How does a rate freeze fit into that scenario?

NB Power has already warned that it needs future rate increases to pay for the financial setbacks of the $1.4-billion refurbishment at Point Lepreau. Interest and capital recovery alone would require a rate increase of at least seven per cent ($40 million per point) and that could be on top of revenue-losses over three years – the result of a rate freeze – short-term gain for long-term pain.

Norm Rubin with the Toronto-based energy watchdog group Energy Probe
says he is concerned that NB Power might be forced to go too far in cost-cutting efforts in order to freeze the power rate, postponing such things as required maintenance. “You have to be careful that you don’t put too much financial pressure on a utility, especially one that’s always been Crown-owned and hasn’t been pressed before,” he said.

Rubin says freezing rates without knowing when Atomic Energy of Canada Ltd. will complete the refurbishment of the Point Lepreau nuclear power plant (2.5 years behind schedule) is “a recipe for disaster.”

To be clear, Energy Probe has an agenda. Founded in 1969, the organization believes that nuclear power is uneconomic. It claims to have been successful in stopping the construction of all nuclear plants in Canada proposed since that date.

Even though the province’s 90-year-old power utility is saddled with a debt of $4.75 billion, Alward says his idea is feasible based on an analysis done by a former NB Power vice-president and two consultants.

Mr. Alward is also promising to appoint an energy commission to map the province’s energy strategy for the next decade if he wins the Sept. 27 election. His party’s “discussion paper”, including the recommended three-year rate freeze, relies on analysis by Darrell Bishop, a former vice-president at NB Power. Bishop told a news conference that “lower fuel prices, combined with a recent three per cent rate increase” has put NB Power in a position where it can operate profitably despite the rate freeze.

Nobody in the world can guarantee future energy prices. Any cost assumptions based on future energy prices are guesstimates at best and wishful thinking at worst. David Alward’s counterpoint: “NB Power is in good shape and is able to allow rate freezes going forward over the next three years and still pay down the debt (because) it is still a profitable company.”

Energy Minister Jack Keir says he is astonished at Bishop’s participation on the Tory panel considering that just a year ago, when he was NB Power’s vice-president of generation, he was requesting rate increases for the utility. Bishop is not a financial analyst or a cost accountant; he is an engineer with some high-level experience in customer service and marketing.

W.E. (Bill) Belliveau, August 20, 2010, Times and Transcript

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