A formal report from a three-person panel on the review of NB Power says its largest power generator, Point Lepreau, should be separated from the Crown corporation, as well as forgiving a large part of the utility’s growing debt.
Michael Bernstein, Duncan Hawthorne and Anne Bertrand have been working to provide recommendations to the government on how to improve performance, reliability and deal with the utility’s debt.
Its debt is estimated to be around $5.9 billion.
The 70-page report outlines 50 recommendations about the operation of the Crown corporation, noting there are no easy solutions.
“Let us start with the bad news: there is no silver bullet or easy answer to achieve the overriding goal to have affordable, reliable and sustainable electricity while meeting New Brunswickers’ expectations,” the report reads. “Electricity rates will inevitably rise due to the need for significant investments in new generation capacity and the upkeep of ageing infrastructure.”
Reducing the debt
One of its key recommendations is for the provincial government to absorb some of the utility’s debt to reduce the burden on ratepayers.
That includes the variance account, an account that makes up for what NB Power does not recoup in revenue as projected.
The report recommends writing off the variance account and forgiving matching debt.
Bernstein said that because of performance issues, including Point Lepreau being offline, the account was used to recoup costs from the ratepayer.
“Our view is when you’re both the owner, the regulator, [and] the operator of the asset, you can do what you want,” he said.
He said the burden of the performance shortfalls should be with the taxpayer because NB Power is owned by the government.
“They would be able to, essentially, write it off that account, which I think is around $300 million, and forgive the amount, because they are on-lending to the company the matching amount of debt,” he said.
It also noted the amount of debt being added by the Point Lepreau Nuclear Generating Station in Lepreau. The report said $1.3 billion in debt is attached to the nuclear facility.
“This would be a measure that could be done in the near term to help reduce a portion of NB Power’s current debt load and provide some rate relief,” the report said.
The report also said a series of “constraints” on rate hikes since 2012 have resulted in power rates not growing “enough to keep pace with rising capital costs, contributing to the persistent debt pressures the utility faces today.”
It said political decisions that ignored legislated requirements for rates, which cost the utility $1.5 billion — leading to its inability to maintain aging infrastructure, meet system demands and reduce its debt over time.
It said accountability across the utility has to be improved.
“This focus has been difficult, and it’s difficult to achieve at the best of times,” said reviewer Duncan Hawthorne. “The situation is made more difficult when NB Power is asked by the government to manage a complex and ever-expanding list of objectives. Many [are] outside of its core business of running an efficient electricity system.”
Separating Point Lepreau
The report recommends the nuclear generating station be separated from NB Power’s assets.
“We are recommending that a new entity, Point Lepreau Nuclear, be set up that will have its own governance arrangement specifically focused on nuclear plant performance,” the report said. “There should be an operating board populated by experienced nuclear professionals in non-executive roles and with sufficient gravitas and structure to satisfy the regulator of their ability to assume the Nuclear Site License under their purview.”
It did not provide specific recommendations on how to make that change, saying there are different options available to the utility.
“Our view is that the relationship between Point Lepreau and NB Power should be more contractual than it is governance,” Hawthorne, who is an industry expert in nuclear power generation, said.
The panel also said a second nuclear facility is needed.
“We recommend that the Government of New Brunswick (GNB) consider initiating the planning assessment phase for an additional large scale, proven-technology nuclear plant to be sited alongside the Point Lepreau facility,” the report said.
It recommends developing a closer relationship with CANDU 9, particularly the Cernavoda facility in Romania, which is the sister plant to Point Lepreau.
The report said the government undertaking this assessment now will save it when the generating station needs another refurbishment in 2040.
“In our view, it is this sort of long-term planning that we find lacking, and we are recommending that this option and other longer-term scenarios receive a level of attention in the short term in recognition that nothing in the sector moves at pace,” the report said.
Corporatization of NB Power
The report did not recommend the complete sale of NB Power or privatization, but a hybrid model that would keep the utility as a Crown corporation.
It would remain under the ownership of the province, but operate under a privatized business model.
“If you pursue corporatization, it allows you to borrow on its own credit,” Bernstein said. “Our thesis is that the company will run better if it can focus on its operations [and] less on policy issues.”
Hawthorne said he understands that once a government is in power, they can make their policy decisions, even with the report.
“We have to acknowledge that there is an intent here to create stability,” he said. “Everything we are saying is about — in terms [of] fit for the future — trying to put the utility into the best position to perform.
“I think our view is that if we have the utility on a good, stable financial foot with improved operational performance, then there is less likelihood of political interference.”
The report directly acknowledged seven mandate letters in the last 10 years with differing priorities.
“We noted that there is also a stream of unofficial, sometimes daily, contacts with government officials, as well as with other elected officials including municipal leaders, which can divert NB Power’s executives from their responsibilities and agreed priorities,” it said.
Other recommendations included:
- A modernization of the Electricity Act
- NB Power should not be in the business of leading economic development activities
- A review of the compensation model, including implementing a bonus for meeting performance metrics
- An increased deployment of natural gas for heating purposes should be considered
NB Power CEO Lori Clark said in a statement that she understands New Brunswickers feel anxious about the future.
“We want to assure our customers that they are at the heart of everything we do and every decision we make. As the report acknowledges, the challenges faced by NB Power have been decades in the making, and we need to be deliberate about planning for the future,” she said.
She said the utility is committed to making the changes that are needed.
“This independent review reflects input from New Brunswickers who care deeply about the future of their utility,” Andrew MacGillivray, chair of the board of directors, said in a statement. “As a board, we respect the process and the perspectives that were shared. We will take some time to review the report in full before providing our response. We will work with the shareholder and management to act with urgency on the report.”
Energy Minister René Legacy also issued a statement on Monday following the report.
“After almost a year, I am happy to have the final report from the comprehensive review of NB Power,” he said. “The leads have identified some significant challenges and recommendations for how to address them.”
It said it would create an action plan to address the 50 recommendations. Legacy said the department is committed to delivering the next steps by the end of May.
“New Brunswickers can trust that we will act on these recommendations in a timely and transparent way,” he said.
The full report is available online.
