DBRS Updates Report on British Columbia Hydro and Power Authority

DBRS Limited (DBRS) updated its report on British Columbia Hydro and Power Authority (BC Hydro or the Utility). The Utility’s ratings are a flow-through of the ratings on the Province of British Columbia (the Province; rated AA (high) and R-1 (high) with Stable trends by DBRS; see DBRS’s report on the Province dated April 2, 2018). Pursuant to the B.C. Hydro and Power Authority Act, BC Hydro's Long- and Short-Term Obligations are either direct obligations of, or are guaranteed by, the Province. Please see DBRS’s “Rating Canadian Provincial Agents of the Crown” methodology for further details. DBRS considers BC Hydro to be self-supporting as it is able to fund its own operations and service its debt obligations.

On March 1, 2018, the British Columbia Utilities Commission (BCUC) issued its decision and order on BC Hydro’s F2017 to F2019 Revenue Requirements Application. In its decision, the BCUC approved rate increases of 4.0%, 3.5% and 3.0% effective April 1 of 2016, 2017 and 2018, respectively. DBRS views the decision as positive for the Utility’s financial profile and key ratios as the rate increases are expected to help provide cash flows needed to fund the significant ongoing capital expenditures program, including the $10.7 billion Site C Clean Energy project. DBRS also views the BCUC’s decision not to approve BC Hydro’s amended request of a 0% rate increase for F2019 as positive. While any foregone revenues as a result of the applied-for rate freeze would have been deferred and recovered through future rates, the rate freeze would likely have put additional pressure on cash flow metrics in F2019.

In June 2018, the Province announced that it would conduct a comprehensive review of BC Hydro. Phase one of the review, which is expected to be completed in early 2019, will conclude in a refreshed rates forecast (the Forecast) and inform the Utility’s next Revenue Requirements Application. The Province has indicated that the focus of the Forecast will be reducing growth in rates and ensuring that BC Hydro has sound financial and regulatory oversight. DBRS viewed the current Ten Year-Rates Plan as positive for the Utility as initiatives, such as reducing dividends until leverage reaches 60% from the current level of 80% and eliminating Tier 3 water rental rates (which represent savings of $50 million annually), would help strengthen its financial ratios. DBRS will review how the Forecast will affect BC Hydro’s financial profile going forward once it is available. Phase two of the review, which will not begin until phase one is concluded, will address trends in the utilities sector, including technological advancements and climate action, and how BC Hydro will tackle these changes.

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

The principal methodologies are Rating Canadian Provincial Agents of the Crown (April 2018) and Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (September 2018), which can be found on dbrs.com under Methodologies & Criteria.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below 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.