DBRS Confirms BC Hydro at AA (high), Trend Stable

DBRS has today confirmed the ratings of the Long-Term Obligations and Short-Term Obligations of British Columbia Hydro & Power Authority (BC Hydro or the Utility) at AA (high) and R-1 (high), respectively, with Stable trends. The confirmation of BC Hydro reflects the ratings of the Province of British Columbia (the Province, rated AA (high)), which owns 100% of BC Hydro’s equity. Both the Short-Term Obligations and the Long-Term Obligations of BC Hydro are based on the implicit support of the Province as, pursuant to the B.C. Hydro and Power Authority Act, BC Hydro “is for all purposes an agent of the government.”

BC Hydro’s operating performance is supported by low-cost hydroelectric generation and capabilities to participate in energy trading with the United States and Alberta through Powerex Corp. BC Hydro’s earnings have benefited from steady domestic electricity consumption and trading volumes over the past two years. The earnings growth has also been due to an 8% increase in the interim average rate approved by the British Columbia Utilities Commission effective May 1, 2011. With the continued high level of capital expenditure spending, BC Hydro has proposed, in the Amended Revenue Rate Application, average rate increases of 8% effective May 1, 2011, and 3.91% in each of April 1, 2012, and April 1, 2013. Results from the application are expected to be released by the fall of 2012.

BC Hydro is undergoing a substantial capex program which calls for an increase in debt levels. Capex has increased over the past five years, well above historical depreciation levels, as the Company continues to spend on growth and sustaining projects. As a result, the Company generated negative free cash flow of $822 million for the last 12 months ending December 31 2011. Free cash flow deficits were funded through debt, and this trend is expected to continue over the next several years. DBRS expects free cash flow deficits to be manageable.

Notes:
All figures are in Canadian dollars unless otherwise noted.

These obligations are based on the status of British Columbia Hydro & Power Authority as a Crown agent of the Province of British Columbia and reflect the Province’s debt ratings. The rating assigned to the Long-Term Obligations is applicable to $10 million of debt issued by BC Hydro and guaranteed by the Province.

The applicable methodology is Rating Companies in the North American Energy Utilities (Electric and Natural Gas) Industry, which can be found on our website under Methodologies.