Assembly of New Brunswick
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:
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.
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.
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.
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.
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:
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.
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.
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.
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 $200 million will be maintained as floating-rate debt through a combination of short-term and interest-rate swaps at an average rate of 4.0%. The percentage of US dollar debt in the overall structure is to remain below 35%.
In the process of developing forecasts and annual budgets, NB Power continually evaluates external factors that could have an impact on the Corporation's financial results. The Business Plan incorporates a series of assumptions concerning key economic indicators and other factors based on the best available information. As with all economic forecasts, some of these assumptions are subject to change based on conditions beyond the Corporation's control.
NB Power has evaluated estimates and risks associated with key factors that influence operations. The following table provides a summary of assumptions used in the Business Plan, as well as the estimated impact on net income of changes in these key factors.
The accounting policies used in the forecast are consistent with those used and disclosed in NB Power's 1995-96 annual report. The five-year financial forecast and the underlying assumptions were developed in January, 1997. Since the forecast results are based on assumptions regarding future events, actual results will vary from the information presented and the variations may be significant. The Corporation intends to update the forecast annually in conjunction with the preparation of its annual Business Plan.
|Fiscal Year ($ millions)|
|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||-||-||-||-||-|
|Income before finance charges||236.9||255.2||327.0||358.7||343.0||344.1||331.6|
|Income (loss) before the following||(63.0)||(87.1)||(6.9)||32.8||30.8||56.1||71.0|
|Fuel channel removal credit||21.9||35.1||21.9||8.8||-||-||-|
|Net income (loss)||8.2||(19.1)||15.0||41.6||30.8||56.1||71.0|
|As at March 31 ($ millions)|
|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.|