NB Power spending on private sector projects questioned

NB Power is spending $1.3 million this year helping the cash challenged backers of a proposed iron ore processing facility in Belledune investigate its feasibility. The expense has triggered a debate whether the utility is properly following directivesfrom the Higgs government to focus on its own debt problem.

Last November, NB Power received a "mandate letter" from Mike Holland,provincial natural resources and energy minister, laying out how the Higgs government expects the utility to conduct itself, emphasizing debt reduction "first and foremost."

In his letter, Holland said he wanted NB Power to pay off about $500 million of its $4.8 billion debtby 2027 to increase equity in the company to "at least" 20 per cent of its total worth.

"This target should come first and foremost in utility planning and may require eliminating investmentsin other endeavours such as research and business developmentopportunities until the equity target is met," wrote Holland.

Last month Premier Blaine Higgs reinforced that directive during his televised state of the province address.

"I have asked NB Power to immediately develop a plan to reduce their unacceptable debt level without impacting rates," said Higgs.

Recent spending questioned

At NB Power'songoing rate hearing in Saint John, Holland'sletter and the premier's comments have led the Energy and Utilities Board to question the appropriateness of some recent spending, including $1.3 million used by the utility this year to study elements of the Belledune project being proposed by Maritime Iron.

The $1.3 million is quadruple what was budgeted and approved by the EUB last spring and comes even though the project is the responsibility of a private company and not yetfinanced or approved.NB Power is also proposing to spend an additional $300,000 studying the project further next year.

EUB vice-chairman Francois Beaulieu questioned whether money NB Power is spending in support of a number of potential private sector projects, including small modular nuclear reactors and the iron ore facility, with no certainty they will move forward, should instead be used to retire debt given recentinstructions coming from the province.

"If I read the letter from the Minister isn't it quite clear that what he is saying or what the mandate that he is suggesting is that until you reach your equity target, that this Board may consider eliminating investments in research and business development, which may include SMRs (small modular nuclear reactors), and Maritime Iron Works," saidBeaulieu.

Wiggle room in letter

Keith Cronkhite, the utility's senior vice president for strategicplanning and business development told Beaulieu the Higgs government has given signals it wants NB Power to help projects like Maritime Iron and believes Holland's letter had some wiggle room in it by only saying debt reduction "may require" eliminating certain projects.

"We would interpret this [letter]that if there is any chance of not achieving the 20 per cent by 2027, that we take the appropriate measures associated withensuring that we do get there and that would entail eliminating some other activities," said Cronkhite.

"As New Brunswick Power, we are an important component in the business structures and the business opportunities that could occur within the province.We need to support those to ensure that they have a reasonable opportunity of success. That has many spinoffs to the province beyond just electricity sales."

Maritime Iron's proposed plant would process iron ore into pig iron, andpipe a byproduct gas to the adjacent NB Power generating station to generate electricity. That gas would allow the utility to replace some of the station's coal consumption and NB Power has been paying for studies into what modifications would be required in plant boilers to accommodatethat change.

EUB lawyer Ellen Desmond questioned why those studies are NB Power's responsibility, given the project is being initiated by Maritime Iron.

"Has NB Power ever considered asking Maritime Iron to pay for the costs NB Power is incurring," asked Desmond.

Utility picks up costs for now

Cronkhite said Maritime Iron would pay if the project proceeds and renovations to NB Power's generating station are required, but until then the utility is pickingup costs.

"We see that as a NB Power expense at this particular point in time," said Cronkhite.

"Isn't it still a risk that this project may not unfold as anticipated or hoped and that these costs that are currently being incurred would not have futurebenefit for ratepayers," pressed Desmond.

"There is always the potential, whether it is this initiative or other customer opportunities or new businesses coming to the province, that 100 percent of them do not proceed," said Cronkhite.

Maritime Ironsubmitted environmental impact documents in June for what is supposed to be a $1.5-billion project, but there have been ongoingquestions about where that money will come from.

Brian Gallant's former Liberal government had to forward Maritime Iron about $625,000 in grants to help finance "pre-feasibility" studies of its idea and the company has acknowledged in media reports it is looking for $30 million in federal grant money to make the project work.

Although NB Power has been spending significant amounts on it for several months, in late November, Higgs told the legislature the province was still unsure how realistic the proposal is.

"We will make sure we understand whether that project is real or not," he said in question period. "How real is this project? Does it have traction?"

An additionalhurdle is the MaritimeIron project, if approved, will emit substantial amounts of greenhouse gas and Holland's letter to NB Power directs the utility to "help support the province in achieving a low-carbon economy" and "work with the province to reduce greenhouse gas emissions".

The rate hearing continues Monday.