Sagging profits, hidden financial info loom over NB Power's rate hearing

NB Power's ongoing rate hearing resumes Wednesday and will switch gears as the Energy and Utilities Board attempts to navigate fiscal mysteries and poor results that have suddenly engulfed the proceeding.

In addition to unprecedented secrecy surrounding the utility's basic financial condition caused by a secret lawsuit settlement before the board, the hearing will also be coping with fresh revelations NB Power has missed profit targets by a wide margin for the third year in a row.

"It is apparent that the financial results for 2017/18 will not be as favourable as anticipated," the utility revealed last week in new and heavily censored evidence filed with the EUB.

Most of the new material relates to the effects of a lawsuit settlement NB Power reached with insurance companies over cost overruns suffered during the refurbishment of the Point Lepreau nuclear generating station.

The utility won permission to keep the settlement amount secret and that has had a cascading effect of forcing other key financial information like NB Power's future profitability and debt levels to be disguised as well.

'We are too optimistic'

But not everything is under wraps as the new evidence package also contains a brief note warning of yet another earnings shortfall of a "material nature" in the fiscal year just ended.

That will be unwelcome news among hearing participants who were already grilling utility executives on why millions of dollars in internal cost savings promised over the last three years have not materialized as predicted

"It's been indicated by some that maybe we are too optimistic," Diane Fraser, NB Power's director of financial planning, told the hearing last month about failures to find and eliminate inefficiencies the utility itself acknowledges are a problem.

NB Power has been learning as we go.- Diane Fraser, NB Power's director of financial planning

Several years ago, NB Power launched a plan of "continuous improvement" that promised to uncover and eliminate millions of dollars in inefficient internal costs.

It qualified a squadron of employees as so called "Lean Six Sigma Black Belt" practitioners a management system designed to optimize efficiency and dispatched them internally to find waste where they could and devise ways to eliminate it.

Black belts fall short

Last year, the utility acknowledged the black belts were coming up short identifying and fixing the number of efficiency problems expected and it reduced probable savings from the initiative over a nine-year period by $211 million.

This year it reduced the figure even further.

"NB Power has been learning as we go," explained Fraser.

"We are still anticipating continuous improvement savings in the future. The timing was optimistic on NB Power's behalf."

But the failure to find and implement internal savings quickly has helped cause some of NB Power's problem meeting profit targets, which according to the new evidence has worsened.

Last year the EUB approved a budget for NB Power for the fiscal year just finished that included expected profits of $90.6 million.

During most of the current hearing, the utility was estimating it would fall about $23 million short of that target, but last week's new evidence showed the shortfall will be more than $70 million.

The utility previously missed profit targets by $60.4 million the year before last and by $74.4 million the year before that.