Downward turn in N.B. Power finances stuns the utility's rate hearing

An American utility expert who has been sounding alarms about N.B. Power's finances for several years told its rate hearing on Tuesday he initially could not grasp how much worse things have gotten this year.

Robert Knecht was called to testify Tuesday afternoon,but prior to his testimonyN.B. Power filedupdatedfinancial information for the current year that showed a quarter-billion-dollar deterioration in the company's fortunes just since September.

The decline is sosharp,Knecht told N.B. Power lawyerJohn Furey,he initially thought it was a mistake when the amount first began to emerge last week.

"That's a pretty significant change in three months, isn't it?" asked Furey.

"Yes, when I saw it I did not believe it," said Knecht.

Doing quick calculations on the fly as he testified,Knecht estimated that N.B. Power is $260 million worse off since the fall, due to higher than expected fuel costs and untimely outages at the Bayside natural gas and Point Lepreau nucleargenerating stations.

"I see a variance $260 million worse than what was in the filing, which was based on the budget, if I understand this correctly," he said.

Knecht is a senior consultant with Industrial Economics in Cambridge, Mass.

He has appearedat multiple N.B. Power rate hearings over several years and has consistently, and for the most part correctly, predicted the utility was courting financial trouble by being too optimistic in its company forecasts.

In 2017he raised doubts the utility's long-term plan to pay down $1 billion in debt by raising rates 2 per cent per year would work. He believedit relied too much on good things happeningsuch as the Point Lepreau nuclear generating station operating without troubleand bad things not happening, such asdamaging major storm events.

"I have concerns that the N.B. Power 10-year plan may be more of an optimistic rather than an expectedvalue forecast,"he said at the time.

Since then, instead of N.B. Power's net debt falling to $4.5 billion this year as the utility was predicting in 2017, it has surged past $5 billion as Knecht feared itmight.

He was hired to give his opinion on N.B. Power's proposed rate increase this year by acting public intervenor Rick Williams and has expressed concerns again the utility is still underestimating what it needs to do to move to a more stable financial footing.

"I have had a longstanding concern with respect to this utility that it is simply not making any progress towards[debt reduction]." said Knecht.

He pointed out N.B. Power is budgeting for Point Lepreauto operate trouble free next year and said that tells him the utility is still using too much wishful thinking in its planning.

"As you know, I have expressed these concerns in a number of proceedings," he said.

"That [budgeted]level is higher than anything that the plant has achieved since it was refurbished."

Knecht said he thinks there are opportunitiesto cut costs inside N.B. Power, but that its stubbornly high debtlevels and recent financial setbacks require more revenuefrom customers, and he endorsed the rate increase request in full.

"I recommended that theboard accept the company's proposed rate increase of 8.9 percent," said Knecht.