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 NB Power

Five-Year Financial Forecast


Financial Overview

The Business Plan focuses on expenditure restraint to improve competitive position and debt reduction to improve flexibility. Significant improvements in the financial health of the company over the plan period are evident in the following:

  • Net income will increase from $15 million in fiscal year 1997-98 to $71 million in fiscal year 2001-02. Cash flow from operations will increase from $196.4 million to $287.5 million over the same period.
  • Debt will decrease to $2.5 billion by March, 2002, a decrease of $0.9 billion since the December, 1995, high of $3.4 billion.
  • The interest coverage ratio will increase from 1.05 times in fiscal year 1997-98 to 1.30 times in 2001-02.
  • The debt ratio will improve to 81% by 2002.
Financial Indicators

97-98 98-99 99-00 00-01 01-02
Net income ($ millions) $15.0 $41.6 $30.8 $56.1 $71.0
Interest coverage ratio 1.05 1.14 1.11 1.21 1.30
Debt ratio 88% 87% 85% 83% 81%
Cash flow/capital expenditures 2.6 2.8 3.1 3.5 4.1

Net Income

The graph to the right shows the net income forecast over the term of the business plan. Over the period, revenues increase as a result of modest growth in loads and rates. Fuel and purchased power follow load growth. OM&A expenses remain relatively flat as efficiency improvements offset increased costs. Depreciation expense increases slightly, reflecting ongoing capital expenditures mainly in the transmission and distribution systems. Finance charges decline significantly as debt is paid down.

NET INCOME FORECAST

Revenues

Forecast revenues increase from $1.0 billion in 1997-98 to $1.1 billion in 2001-02.

In-province sales assume an average rate increase of 2.9% in each of the first two fiscal years, followed by three years of no rate increases. Load growth is assumed at 1.4% annually based on assessments of economic, demographic and technological factors, including an assumed provincial economic growth rate of 2.2% annually.

Load forecasts include the expected effects of energy efficiency and conservation measures. Revenue forecasts include the expected effects of deregulation and competition. Rate design will attempt to reduce the degree of cross-subsidization within and across classes.

ENERGY SALES BY SECTOR (GWh)

In-province customers are divided into four main groups: Residential, General Service, Industrial and Wholesale. Relative sales for each of the four groups are shown in the pie chart above.

Net export benefits are expected to remain relatively constant over the plan period (except for the reduction in capacity sales under NB Power's agreement with another utility for 400 MW at Millbank until October of 1998 and 300 MW until October of 2002.). Interconnection sales have been modeled on the basis of NB Power purchasing power for resale. Although this may not continue under open access, the economic benefits of interconnection transactions are expected to remain the same.

INCOME STATEMENT COMPONENTS

Expenses

Operations, maintenance and administrative expenses: OM&A expenses represent almost 25% of total costs and are consequently a major focus in achieving NB Power's overall financial objectives. Significant reductions have been made in OM&A in recent years, particularly in employment costs where salaries and benefits will have decreased by $16.4 million or 10% from 1995-96 to 1997-98.

OM&A is projected to remain constant at $259 million over the plan period, except for 1999-00 where provision has been made for a special planned maintenance program at Point Lepreau. OM&A expenses, at $259 million, are at their lowest level in seven years in nominal dollars and at their lowest level in ten years in inflation-adjusted 1986 dollars.

OM&A FORECAST

Forecast

Fuel and Purchased Power: Fuel and purchased power increase gradually over the plan period, responding to load growth increases. NB Power has a diversified fuel mix, including heavy fuel oil, hydro, imported coal, domestic coal, Orimulsion«, and uranium. The most volatile of these fuels in terms of price is heavy fuel oil. Prices for heavy fuel oil are expected to average near US$15 per barrel over the term of the business plan.

Fixed costs: NB Power's fixed costs, including depreciation, decommissioning and debt financing, currently represent 51% of total revenue. This high level follows a major capital renewal and expansion in the early- to mid-1990s. The targeted debt reduction program will reduce that fixed cost component to 42% by 2001-02.

The plan is based on the following assumptions:

  • The Canadian dollar is expected to average 75 cents in 1997-98, 75.5 cents in 1998-99, and 76 cents from 1999-00 to 2001-02.
  • New long-term borrowings (average term of 15 years) are expected to cost 7.5% over the term of the business plan. Short-term borrowings (average term of 90 days) are expected to cost 4% over the term of the business plan.
  • The Corporation will continue depreciating its assets at current rates and methods, subject to periodic economic and engineering reviews of service lives.
  • The Corporation will continue to provide for the costs of decommissioning the nuclear unit at Point Lepreau and for the management of spent nuclear fuel as a charge against net income. The Corporation will also continue to provide for the costs of decommissioning thermal generating stations based on annual requirements identified in a decommissioning study completed in 1994. Decommissioning costs are not currently being funded.

Cashflow from operations

Cash flow from operations increases in each year of the plan. Revenues increase from just over $1.0 billion in fiscal 1996-97 to $1.1 billion in fiscal 2001-02, while expenses before depreciation decline from $0.9 billion to $0.8 billion.

Cash flow from operations exceeds capital expenditures in each year of the plan, accelerating over the five years. The excess cash flow will be used for debt reduction.

COMPONENTS OF DEBT REDUCTION

Debt Reduction

Capital Expenditures

Capital spending has declined from peak levels during the capital expansion program, and is forecast to vary between $70 and $85 million annually over the plan period.

As capital expenditures decline and cash flow from operations increases, the debt ratio for NB Power will decline significantly. The debt ratio peaked in 1996 at 89% but is forecast to decline to 81% by the year 2002.

DEBT RATIO TO CAPITAL EXPENDITURES

Debt Ratio

Debt Reduction

The debt is forecast to decline by more than $900 million by March 31, 2002. Total net debt will decrease from its peak of more than $3.4 billion in December, 1995, to approximately $2.5 billion by 2002. Factors in the debt reduction are outlined below.

Net Debt Reduction
Forecast ($ millions)

96-97 97-98 98-99 99-00 00-01 01-02
Beginning net debt* 3,396.1 3,341.5 3,204.9 3,053.1 2,896.2 2,715.2
 
Operating cash flow (123.7) (196.4) (237.7) (238.0) (268.4) (287.5)
Capital spending 71.0 76.7 85.6 78.0 75.6 70.9
Working capital (16.7) 18.4 6.5 8.9 11.8 7.8
 
Reduction before adjustment (69.4) (101.3) (145.6) (151.1) (181.0) (208.8)
Foreign exchange adjustment 14.8 (35.3) (6.2) (5.8) - -
 
Net debt reduction (54.6) (136.6) (151.8) (156.9) (181.0) (208.8)
 
Ending net debt 3,341.5 3,204.9 3,053.1 2,896.2 2,715.2 2,506.4

Represented by:  
Long-term debt 3,247.4 3,076.9 2,925.1 2,768.2 2,587.2 2,378.4
Short-term debt 120.8 130.0 130.0 130.0 130.0 130.0
Cash and investments (26.7) (2.0) (2.0) (2.0) (2.0) (2.0)
 
Total net debt 3,341.5 3,204.9 3,053.1 2,896.2 2,715.2 2,506.4

Cumulative net debt reduction* (86.6) (223.2) (375.0) (531.9) (712.9) (921.7)

*Debt peaked in December, 1995 at $3,428.1 million.

Planned Borrowing Requirements: Financing requirements over the term of the plan arise from maturity of existing debt issues and sinking fund requirements net of withdrawals. Cash flows available for debt reduction cover approximately 70% of financing requirements over the period. The plan assumes early redemption of high-coupon debt issues where call option opportunities exist.

Future borrowings are assumed to be in Canadian dollars at an average interest rate of 7.5% for fifteen-year terms. Approximately $200 million will be maintained as floating-rate debt through a combination of short-term and interest-rate swaps at an average rate of 4.0%. The percentage of US dollar debt in the overall structure is to remain below 35%.

Refinancing Requirements
Forecast ($ millions)

96-97 97-98 98-99 99-00 00-01 01-02 Totals
Debt maturities 177.5 129.6 139.0 251.7 327.7 251.7 1,277.2
Sinking funds net of withdrawals (38.1) 30.9 0.4 (11.6) (19.6) 12.2 (25.8)



139.4 160.5 139.4 240.1 308.1 263.9 1,251.4
Available for debt reduction** (69.4) (101.3) (145.6) (151.1) (181.0) (208.8) (857.2)


Refinancing requirements 70.0 59.2 (6.2) 89.0 127.1 55.1 394.2

**Represents operating cash flow net of capital spending and working capital requirements (from Net Debt Reduction table above).

Risks to the Forecast

In the process of developing forecasts and annual budgets, NB Power continually evaluates external factors that could have an impact on the Corporation's financial results. The Business Plan incorporates a series of assumptions concerning key economic indicators and other factors based on the best available information. As with all economic forecasts, some of these assumptions are subject to change based on conditions beyond the Corporation's control.

NB Power has evaluated estimates and risks associated with key factors that influence operations. The following table provides a summary of assumptions used in the Business Plan, as well as the estimated impact on net income of changes in these key factors.

Risk Analysis
Economic variable 1997-02 Sensitivity/Variance +/- Impact on net income
Fiscal 1997-98
($ millions)
Canadian dollar (US cents) 75 cents - 76 cents US 1 Cent 4.5
Short-term interest rates 4% 1% 2.0
Long-term interest rates 7.50% 1% 2.0
Load growth 1.40% 1% 4.0
Oil prices ($US per bbl) $15 US$1 per bbl 4.0
Nuclear performance 85% 1% 1.5




The accounting policies used in the forecast are consistent with those used and disclosed in NB Power's 1995-96 annual report. The five-year financial forecast and the underlying assumptions were developed in January, 1997. Since the forecast results are based on assumptions regarding future events, actual results will vary from the information presented and the variations may be significant. The Corporation intends to update the forecast annually in conjunction with the preparation of its annual Business Plan.

Consolidated Statement of Income
Fiscal Year ($ millions)

95-96 96-97 97-98 98-99 99-00 00-01 01-02

Actual Forecast
Revenues
In-province sales 801.5 825.3 872.0 908.7 921.2 923.6 926.7
Out-of-province sales 186.9 181.6 159.7 147.6 142.6 147.2 143.0
Miscellaneous 29.6 30.2 26.9 28.2 28.1 27.8 26.2

1,018.0 1,037.1 1,058.6 1,084.5 1,091.9 1,098.6 1,095.9

Expenditures
Purchased power 149.2 117.2 63.7 63.0 63.6 63.4 63.5
Fuel 208.1 214.9 230.9 222.4 236.7 243.7 249.6
Operations, maintenance and administration 272.6 261.8 259.0 259.0 264.0 259.0 259.0
Early retirement programs 11.0 4.3 - - - - -
Depreciation 140.2 183.7 178.0 181.4 184.6 188.4 192.2

781.1 781.9 731.6 725.8 748.9 754.5 764.3

Income before finance charges 236.9 255.2 327.0 358.7 343.0 344.1 331.6
Finance charges 299.9 342.3 333.9 325.9 312.2 288.0 260.6
Income (loss) before the following (63.0) (87.1) (6.9) 32.8 30.8 56.1 71.0

Generation equalization 49.3 32.9 - - - - -
Fuel channel removal credit 21.9 35.1 21.9 8.8 - - -

71.2 68.0 21.9 8.8 - - -

Net income (loss) 8.2 (19.1) 15.0 41.6 30.8 56.1 71.0




Consolidated Balance Sheet
As at March 31 ($ millions)

1996 1997 1998 1999 2000 2001 2002

Actual Forecast
Fixed assets 3,926.5 3,817.9 3,719.6 3,626.7 3,522.2 3,411.3 3,291.8
Current assets 272.5 260.1 261.3 261.6 262.0 263.9 264.7
Deferred charges 142.0 137.9 90.2 73.1 58.2 49.6 42.8
Total assets 4,341.0 4,215.9 4,071.1 3,961.4 3,842.4 3,724.8 3,599.3

Net debt 3,396.1 3,341.5 3,204.9 3,053.1 2,896.2 2,715.2 2,506.4
Current liabilities 195.1 201.4 187.5 184.5 177.5 169.1 163.5
Deferred liabilities 283.9 226.2 216.9 220.4 234.5 250.1 268.1
Earnings invested in the business 465.9 446.8 461.8 503.4 534.2 590.3 661.3
Total liabilities and equity 4,341.0 4,215.9 4,071.1 3,961.4 3,842.4 3,724.8 3,599.3
Net debt is comprised of long-term debt (including current portion) plus short-term debt net of cash and investments.


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