Six-year-old accounting change adding millions to cost of early Belledune closure

Severe financial consequences facing N.B. Power over a requirement to shut the Belledune coal-fired generating station by 2030 are being aggravated by a controversial accounting decision the utility made years ago to slow down retirement of debt tied to the plant.

Last week, the federal government formally announced it was rejecting a New Brunswick government request that N.B. Power be allowed to operate Belledune until 2040, 10 years past a national deadline forbidding the generation of electricity using coal. 

It's a decision the utility has said will cost it up to $1.2 billion in financing and new energy expenses, and last week Premier Blaine Higgs said that could force the utility to look for up to $280 million a year more from its in-province customers to maintain service.

"Without Belledune, we could have electricity rates that go up 15 or 20 per cent," said Higgs Friday.

Part of that enormous price tag is linked to unretired debt from the original construction of Belledune.

That debt was supposed to be eliminated prior to 2030, but won't be because of an accounting change the utility made several years ago under then-CEO Gaëtan Thomas.

Belledune opened in December 1993 after several years of construction, at a final cost of $1.17 billion.

That expense was to be depreciated, or fully settled, over 35 years and was on schedule to be retired in 2028, until the utility suddenly changed course in 2016.

With only 12 years to go until Belledune was fully paid off, the utility conducted an assessment of the plant's physical condition, determined it could operate until December 2040, and added 12 more years to its accounting life and depreciation retirement schedule.  

The change at Belledune, and a similar one made at Saint John's Coleson Cove oil-fired generating  station, instantly saved N.B. Power $19.8 million per year in finance charges on the two plants at a time the utility's finances were struggling.   

In the 2016 fiscal year the accounting manoeuver suddenly turned what was going to be an $8-million loss at the utility into a profit. That allowed Thomas to announce $12 million in net earnings for the year.

But it also pushed Belledune's debt retirement from 2028 to 2040, a move critics warned at the time would saddle the utility with a steep bill if Belledune was forced to close in 2030.

U.S.-based utility expert Robert Knecht argued at N.B. Power rate hearings held by the Energy and Utilities Board in 2017 that slowing down depreciation at both Belledune and Coleson Cove was a poor idea.

Knecht, who was hired by New Brunswick public intervener Heather Black to evaluate N.B. Power's budget numbers, said that given federal government plans announced in late 2016 to impose carbon taxes and phase out coal, the utility could not bank on either generating station surviving until 2040.