DBRS Updates its Report on British Columbia Hydro and Power Authority

DBRS Limited (DBRS) has today updated its report on British Columbia Hydro and Power Authority (BC Hydro or the Utility). The ratings assigned to the Long- and Short-Term Obligations of BC Hydro are a flow-through of the ratings of the Province of British Columbia (the Province; rated AA (high) and R-1 (high) with Stable trends; see DBRS’s report dated April 28, 2016). Pursuant to the B.C. Hydro and Power Authority Act, the Long- and Short-Term Obligations of BC Hydro are either direct obligations of, or are guaranteed by, the Province (please see the DBRS Criteria: Guarantees and Other Forms of Support methodology for further detail). DBRS considers BC Hydro to be self-supporting, as it is able to fund its own operations and service its debt obligations.

BC Hydro’s business profile continues to be supported by its substantial generating capacity (12,044 megawatts (MW)), most of which is in the form of low-cost hydroelectric generation, and its integrated operations. In July 2016, BC Hydro submitted its F2017 to F2019 Revenue Requirement Application to the British Columbia Utilities Commission. The application was in line with the Province’s ten-year plan for the Utility, which capped rate increases at 4.0%, 3.5% and 3.0% for F2017, F2018 and F2019, respectively. DBRS continues to view the Province’s ten-year plan as positive for BC Hydro’s financial profile, as both the elimination of Tier 3 water rentals (cost savings of approximately $50 million a year) and the reduction of dividends beginning F2018 will help the Utility achieve the goal of reducing its debt-to-capital ratio to 60% from the current 80% level. These initiatives will also help improve financial flexibility, especially during this period of significant capital expenditures (capex). Following the Province’s approval in December 2014 to proceed with the Site C Clean Energy project (Site C), BC Hydro began construction in July 2015. Site C, which will have approximately 1,100 MW of capacity, will cost approximately $8.3 billion, with a targeted all-units-in-service date of 2024. Combined with the significant annual net capex program (before Site C) of around $1.8 billion for the next three years, the Utility’s key financial ratios are likely to remain pressured over the next few years. However, should the ten-year plan for BC Hydro be executed as planned, DBRS expects this to result in a strengthening of the Utility’s key financial ratios over the medium term.

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

The applicable methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (October 2015) and DBRS Criteria: Guarantees and Other Forms of Support (February 2016), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.