I’m told the Energy Minister, Craig Leonard, is one of the brightest lights in the Alward Cabinet. The strange, almost weird, language used in this article makes me wonder. It is possible the journalist misquoted him or the words got jumbled but.. Here are some passages:
Leonard said NB Power has a debt management plan and is not having difficulty covering its payments.
NB Power has significant stranded debt. ‘Making its payments’ is like you have a $500k mortgage on a house worth $200k but you are able to make your payment every month that cover interest charges and a small portion of principal. Eventually, someone is going to pay big time.
He said it is incorrect to add together the deferral account for Lepreau, which is expected to reach $2.4 billion, and the utility’s net debt of $4.6 billion. The deferral account is where expenses relating to the purchase of replacement power and other administrative costs are placed, to be paid over the next 30 or so years. “You can’t lump them together.” Leonard said of the utility’s debt and deferral account. “It (Lepreau) will be on the books as an asset rather than as debt and the point of that asset is it acts like an account receivable, and over the next 30 years people will pay for the Lepreau refurbishment through their rates.”
That’s about as fishy as a five day old Pickerel washed up on the beach. A deferred revenue account is just an accounting trick – but it still has to be paid back just like debt and it incurs interest payments just like debt.
The deferred revenue account is what is killing Enbridge Gas NB.
As for the refurbishment of Mactaquac, I don’t see this happening at all. It’s too huge a debt load. There’s a reason why the Energy commission made several references to purchasing power from our neighbours. We will eventually be buying our power from Hydro-Quebec and still paying down this huge debt over 30? 40? years.
There are no easy answers but trying to position NB Power as as company in good shape with a business model based on low power rates for customers – is fast becoming fantasy. I think these guys know it and the public posture is meant to reassure New Brunswickers.
Tom Adams, an energy consultant and nuclear safety expert based in Toronto, said the debt levels at NB Power threaten the economic stability of New Brunswick. “The scale of NB Power’s debt casts a shadow over the whole picture of public finance in New Brunswick,” Adams said in an interview Friday. “This debt is guaranteed – it’s sovereign debt. The electricity decision-making in New Brunswick has turned the province into the Greece of Canada.”
I have met Tom Adams – he’s an interesting cat. I think his comments are the flip side of Leonard’s. Leonard would like people to think that a deferred revenue account is an ‘asset’ for New Brunswickers – i.e. a value for taxpayers rather than $2.4 billion more the utility will have to extract from New Brunswickers – and Adams would have us believe we are Greece.
Neither one is right. Because of a variety of decisions, New Brunswickers are going to have pay down a huge debt burden over the next few decades even as more generation assets are mothballed. This is why I disagreed with the three year rate freeze. The government should have imposed reasonable increases and used the money to pay down debt but politics and energy are a toxic mix in this province. Further, we may lose large industrial projects if the rates are not changed or a new workaround is found. We used to have cheap energy – now we do not.
As for Adams, out total debt burden (government and NB Power combined) is still within a reasonable range of the average of Canadian provinces. If the government doesn’t balance the books soon, that could change but right now it is not at a crisis situation. I would put NB Power and power rates at a far higher crisis level than overall sovereign debt in New Brunswick. I would further put Enbridge and natural gas related debt (mostly Leonard’s definition of an asset) at a critical level.