In the mid-1990s Norman Betts warned of an impending financial crisis at NB Power.

The former finance minister, now a director of New Brunswick Power Holding Corp., said in a discussion paper that the province’s public utility “is in a financial crisis resulting primarily from the financing and fixed cost burden of excess capacity.”

The scathing report outlined NB Power’s financial failures and the potential long-term effect on the utility’s finances and power rates for industrial and residential consumers.

More than a decade later, NB Power’s debt is $4.8 billion and electricity rates are among the highest in the country.

In a deal to be outlined today in Fredericton, the Telegraph-Journal has learned, Hydro-Quebec will erase that debt in exchange for ownership of most of NB Power’s assets and it will guarantee business and homeowners some of the lowest electricity rates in North America.

Betts, an associate professor in the faculty of business administration at the University of New Brunswick in Fredericton, declined an interview request from the Telegraph-Journal this week on the topic of NB Power because he is a director on the utility’s board.

“NB Power’s ability to react to new competitive forces in the marketplace is restricted and its vulnerability to uncontrollable external factors is preeminent,” Betts said in the 1995 report called A Layperson’s Guide to the Impending Financial Crisis at New Brunswick Power.

“In the absence of significant cost control measures, which could include plant closures, rates could increase even further,” he added.

While there have been considerable changes over the last 14 years, his study examined NB Power’s financial performance from 1988 to 1995 and forecasted possible future financial scenarios and the effect on power costs to industrial and residential consumers.

“It is a fair statement that, in the absence of any positive financial trends, the corporation has not performed well,” Betts said in the study. “While reasons for the poor performance are undoubtedly complex, the overshadowing reason is investment in excess capacity.”

Although New Brunswick has since pursued energy exports to the northeastern United States, NB Power’s debt has continued to grow since the 1990s from about $3 billion to nearly $5 billion. As Betts projected, both industrial and residential consumers have faced significant rate increases.

A year after the discussion paper was published, the Atlantic Institute for Market Studies came out with a report that echoed Betts’ concern with the province’s utility.

In a 1996 report called New Brunswick’s Power Failure: Choosing a Competitive Alternative, energy expert Thomas Adams said NB Power “is in a state of operational and financial crisis.”

“The utility is bearing access debt, excess generating capacity and unduly high operating costs,” the report said. “The utility’s accounts do not accurately reflect its actual financial condition “¦ major risks to the utility include a shortfall in future sales.”

The report suggests privatizing parts of NB Power to create a market structure with more competition, reducing payroll costs by at least 10 per cent and rationalizing the utility’s reserve capacity to provide reliability at minimum cost.

“Electricity is not efficiently priced in New Brunswick,” he wrote. “NB Power’s costs are inflated and at the same time the utility is subsidized, neither of which is in the public interest.”

In addition, Adams said in the report that any rate advantage industrial users in New Brunswick may once have enjoyed is “slipping away.”

“While industrial rates in New Brunswick are increasing, rates in the U.S. are dropping and industrial rates in most of the rest of Canada are stable,” Adams said.

The report points out that because of “aggressive accounting practices, NB Power’s reported net income figures exaggerate and distort the utility’s actual profitability.”

Betts raised a similar issue in his discussion paper, explaining that his goal “is to unravel the accounting numbers as officially reported in an attempt to get at the economic substance.

He concluded that because of excessive use of deferral accounts, reported annual net income is a virtually irrelevant indicator of yearly financial performance.