NB Power is a “crippled utility” that has been “shooting itself in the foot for years and now needs to be rescued,” says Tom Adams, an energy analyst who has been covering the provincial utility’s affairs since 1995.
“NB Power has come to the end of its rope,” Adams said in an interview. “They have spent themselves into the ground.”
Adams cites a long-running series of “huge business screw-ups” that have plagued the provincial utility and contributed to the provincial government agreeing Thursday to a $4.75-billion deal under which Hydro-Quebec will take over NB Power’s distribution, transmission and generation assets and its $4.75 billion in debt.
Adams — who has testified on NB Power before the Crown Corporation Committee of the provincial legislature and the province’s Energy and Utilities Board, as well as writing numerous analyses for newspapers and the Atlantic Institute for Market Studies — said while “some of the utility’s assets are sound . . . many other aspects of NB Power’s systems are a mess.”
Some, such as the company’s obsolete Grand Lake generating station, are highly polluting, while others, such as the Point Lepreau nuclear generating station, are highly inefficient, with operating costs per unit substantially higher then the Darlington station in Ontario, which itself performs in the lower quartile of reactors in North America, Adams wrote in a blog posting Wednesday for the energy consultancy he now runs.
The result is that “those assets are going to need renewal in the very near term . . . There are going to be major expenses to get some of these things into service,” Adams said.
To some extent, Adams said, NB Power was restricted by the political culture in New Brunswick and can’t he held entirely to blame for the utility’s tattered state of affairs.
“The focus was on maximizing the number of employees, which prohibited the utility from making decisions to shut down money-losing units to achieve greater efficiencies,” Adams said.
Nevertheless, he added, there is “a train of identifiable and individual decisions” made by the utility’s managers that led to the current state of affairs.
One of those decisions was made by an outgoing chief executive who struck a memorandum of understanding to purchase a heavy oil product known as Orimulsion from Venezuela that would be used at the Coleson Cove generating station.
“On the basis of an MOU, the utility undertook at $750-million refurbishment of the oil-fired generating station and undertook another quarter billion of expenses to build a wharf to receive the bitumen shipments,” Adams recounts.
“A few years into the story, they’re getting a little past the half way point in this billion dollars in spending and the Venezuelans come under pressure from OPEC not to sell any more of the tar product because it’s hurting oil prices.
“So Venezuela announced to the world that anybody who didn’t have a signed contract for Orimulsion would not receive any.”
“So, New Brunswick looks in its books and they discover that they have only an MOU — they don’t have signed contract. This is a screwup of a spectacular scale.”
A future chief executive managed later to negotiate a purchase agreement, although other operational problems would continue to plague the utility.
One was the refurbishment of the Point Lepreau generating station, whose budget has ballooned from an original estimate of $865 million to $1.8 billion and whose timeline has doubled from 18 months to 36 months.
Costs were driven up, in part, when low-pressure turbines were being overhauled by a company out of the UK.
“These are massive pieces of delicate rotating equipment that were shipped across the Atlantic. They were sitting in the harbour in Saint John ready to deliver to the Lepreau site. They were sitting on barges and they were shifting them around.
“And oh my gosh, darn it — the barge flipped over, and don’t they have their turbines sitting on the bottom of the bay.”
Through its four holding companies, NB Power operates distribution and transmission facilities, as well as 15 hydro, coal, oil and diesel-powered generating stations with an installed net capacity of 3,324 MW, according to the company’s website.