DBRS Releases Report on the Manitoba Hydro-Electric Board

DBRS has today released a report on the Manitoba Hydro-Electric Board (Manitoba Hydro or the Utility) providing further detail on the recent confirmation of its Long-Term and Short-Term Obligations at A (high) and R-1 (middle), respectively, with Stable trends. The ratings of the Utility are a flow-through of the ratings of the Province of Manitoba (the Province; rated A (high) by DBRS). Pursuant to The Manitoba Hydro Act, the Province unconditionally guarantees almost all of Manitoba Hydro’s outstanding third-party debt (see the DBRS Criteria: Guarantees and Other Forms of Explicit Support methodology for further details). The Province also provides most of the Utility’s financing through provincial advances (approximately 97% of total debt as at March 31, 2014).

Manitoba Hydro is currently undergoing a period of significant capital expenditure to increase generating capacity and to improve the reliability of its system. On July 2, 2014, the Province released the Public Utilities Board’s Report on the Needs For and Alternatives To (NFAT): Review of Manitoba Hydro’s Preferred Development Plan. The NFAT report recommended that the Province and the Utility proceed with the 695 megawatt (MW) Keeyask Infrastructure and Generating Station Projects (Keeyask Project; approximately $6.5 billion) and the Manitoba-Minnesota Transmission Project (approximately $350 million), but stop spending on the 1,485 MW Conawapa Generating Station (approximately $10.7 billion) and the North-South Transmission Upgrade Project (approximately $500 million). The Province accepted these recommendations but also noted that the Conawapa Generating Station may be brought back for independent review in the future if an improved business case with more confirmed export sales can be made.

The large projects at Manitoba Hydro, including the Keeyask Project and the Bipole III Transmission Reliability Project (approximately $4.6 billion), will likely result in negative free cash flows for the Utility over the medium term and require substantial external funding. The Utility is expected to finance any cash shortfalls through advances from the Province. DBRS expects the Utility’s key financial ratios to remain relatively flat as expected rate increases should improve cash flow and service debt obligations.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are DBRS Criteria: Guarantees and Other Forms of Explicit Support (July 2013) and Rating Agents of the Crown (May 2014), which can be found on our website under Methodologies.