N.L. Hydro profits soar to $543M, driven by oil, electricity revenue and non-cash transactions
Profits at Newfoundland and Labrador Hydro have soared, driven by increased oil and electricity export revenue, but mostly from non-cash transactions.
The Crown-owned utility corporation released its latest financial statements on Monday, and they show profits for the first nine months of 2022 came in at $543 million, a staggering increase of $505 million over the same period in 2021.
"We are pleased to see positive results in in our net income," said Hydro's chief financial officer Lisa Hutchens in a press release.
The profit is predominantly non-cash, though cash profits for the first nine months are up by $78 million, powered by higher export prices for oil and electricity that contributed nearly $120 million in year-to-date earnings.
Hydro's subsidiary, Nalcor Oil and Gas, has ownership interest in three offshore oil projects, while Hydro also exports hydroelectricity from two projects — Churchill Falls and Muskrat Falls — on the Churchill River.
Hydro says the extra cash will be used to service the debt until the troubled Labrador-Island Link, which brings Muskrat Falls electricity to Newfoundland and Nova Scotia, is commissioned. The date for commissioning is unknown because the LIL, as it's known, continues to suffer setbacks to everything from computer software and synchronous condensers to concern over reliability of the 1,100-kilometre link.
"Our organization is going through a significant amount of change and continuing to evolve. Our financial reporting is complex and a direct result of the ongoing changes," added Hutchens.
There are three non-cash transactions that contributed to the strong financial situation:
- Bringing Muskrat Falls assets online: Hydro has not yet begun recovering Muskrat Falls costs — now estimated at more than $13.3 billion — from customers, and these costs are being placed in deferral accounts while a plan to prevent power rates from skyrocketing is finalized. The deferral of costs for the nine months ended Sept. 30 was about $290 million and does not result in additional cash for the company.
- Reversal of a writedown of oil and gas assets: Two years ago, the corporation was hit with a $171-million writedown in value of its oil investments as the COVID-19 pandemic ravaged oil markets. But in the second quarter of 2022, due to the rebound of oil and gas prices, $118 million of the writedown was reversed, and the oil and gas assets increased in value. Although they do not directly impact cash flow, impairments and reversals can lead to large fluctuations in profit or loss between financial reporting periods.
- Hibernia Southern Extension redetermination: Hydro's ownership interest in this oil project dropped from 10 per cent to 8.7 per cent in early 2021 because of what's called a redetermination. Therefore, the financial picture for this year is being compared with a year in which the project's revenues were unusually low. The non-cash impact is roughly $100 million.
Hydro's profits for the third quarter, meanwhile, were $180 million, an increase of $147 million compared with the same period in 2021.
According to Hydro's press release, efforts to cut costs continue. Through a combination of reducing executive and full-time positions, eliminating redundancies and implementing other cost-cutting measures, Hydro has reduced its operating costs by about $19 million.