DBRS Releases Report on SaskPower

On August 1, 2012, DBRS confirmed the ratings of the Long-Term Obligations and Short-Term Obligations of Saskatchewan Power Corporation (SaskPower or the Company) at AA and R-1 (high), respectively. The trends are Stable. Both the outstanding Short-Term Obligations and Long-Term Obligations of SaskPower represent a direct obligation (see the methodology DBRS Criteria: Guarantees and Other Forms of Explicit Support for further detail) of the Province of Saskatchewan (the Province; rated AA; see DBRS’s report on the Province dated August 1, 2012). As a result, the ratings of the Company are a flow-through of the ratings of the Province.

As outlined in its supply strategy plan 2011-2016, SaskPower is undergoing a substantial capital expenditure (capex) program that calls for an increase in debt levels, which will likely cause credit metrics to decline moderately. The Company’s debt-to-capital ratio has risen to approximately 68% (as of June 30, 2012) over the past few years, which is approaching the 70% debt leverage seen among government-owned peers. Operating cash flow decreased to approximately $213 million for the six months ended June 30, 2012 (H1 2012) from $227 million in H1 2011. This decrease was largely due to higher fuel and operating costs. Capex has remained high over the past few years, well above historical depreciation levels, as the Company continues to spend on growth projects. Capex is expected to remain high as the Company executes on growth projects, including new capacity additions to keep pace with growth in demand, as well as environmentally-driven initiatives such as the Boundary Dam Integrated Carbon Capture and Storage Demonstration Project (expected to cost $1.24 billion (net of government contribution of $240 million); $354 million spent to date). Capex increased to $426 million in H1 2012 from $188 million in H1 2011, and is expected to total $998 million in 2012. SaskPower announced that it would pay a special $120 million dividend to Crown Investments Corporation, the holding company of SaskPower, payable in equal quarterly installments, with $60 million paid as of June 30, 2012.

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

The applicable methodologies are Rating Companies in the North American Utilities (Electric and Natural Gas) Industry and DBRS Criteria: Guarantees and Other Forms of Explicit Support, which can be found on our website under Methodologies.