DBRS Morningstar Comments on the British Columbia Government’s Update on the Site C Project

DBRS Limited (DBRS Morningstar) notes that the Province of British Columbia’s (the Province; rated AA (high) with a Stable trend by DBRS Morningstar) decision that it will complete construction on the Site C Clean Energy project (Site C or the Project), a 1,100 megawatt hydroelectric generating station, has no impact on the Province’s ratings.

The decision to continue with Site C does not have any impact on the Province’s ratings as DBRS Morningstar expects the debt associated with the Project will be recovered through ratepayers and that the Project will remain self-supporting within its crown agent, the British Columbia Hydro and Power Authority (BC Hydro or the Utility; rated AA (high) with a Stable trend by DBRS Morningstar). This is consistent with DBRS Morningstar’s expectations at the time of the 2017 announcement when the NDP government decided to continue with the Project (see the DBRS Morningstar press release “DBRS Comments on the British Columbia Government’s Decision to Complete Site C Construction,” dated December 12, 2017).

On February 26, 2021, the Province announced that the cost estimate for the Project had been revised to $16 billion from $10 billion (excluding $700 million of reserves) and the target in-service date had been delayed by one year to 2025. The cost increase is attributed primarily to timing delays related to the ongoing Coronavirus Disease (COVID-19) pandemic, geotechnical issues, and other unspecified cost and schedule pressures. The revised cost estimate includes a project contingency although the amount has not been disclosed for commercial reasons.

Similarly, this decision has no impact on BC Hydro’s ratings as they are a flow-through of the Province’s ratings. DBRS Morningstar notes that, as a response to the challenges from Site C, the Province has appointed a new chair to the Utility’s board of directors. As well, the Province will improve the oversight and governance of BC Hydro and the Project by implementing 17 recommendations from an independent review, such as changes to the Project Assurance Board. While the delay in completing Site C is negative for BC Hydro because the cost increases will likely be debt funded and lead to a delay in the Utility’s deleveraging plan, DBRS Morningstar is encouraged by the enhancements to be implemented that should help support progress on the Project. DBRS Morningstar will continue to monitor the Site C Project for its impact on BC Hydro’s financial outlook.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodologies are Rating Canadian Provincial and Territorial Governments (May 13, 2020; https://www.dbrsmorningstar.com/research/360938/rating-canadian-provincial-and-territorial-governments) and Global Methodology for Government Related Entities (March 10, 2020; https://www.dbrsmorningstar.com/research/357803/global-methodology-for-government-related-entities), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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