B.C. Hydro debt puts credit rating at risk

A top investment firm continues to sound alarm bells about B.C. Hydro’s finances, saying the Crown electricity provider’s rising debt level is a risk to B.C.’s credit rating.

Moody’s Investors Service reconfirmed B.C.’s AAA credit rating Monday, in a report Premier Christy Clark and Jobs Minister Shirley Bond both trumpeted as vindication of their jobs plan to diversify the economy. “It recognized British Columbia’s fiscal prudence and also its focus on diversifying our economy,” said Bond. “That’s exactly what the jobs plan was meant to do.”

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Moody’s report noted: “The large and diverse economy provides the province with a large base on which to apply a productive tax base, ensuring that provincial revenues are not strongly impacted by a decline in one particular sector.”

Clark said her newly refocused jobs targets will include support for rural communities and “getting to yes on economic development projects” such as the $9-billion Site C dam.

But projects like Site C are pushing up B.C. Hydro’s debt levels, and adding to concerns about the province’s overall “high debt burden” compared to its peers, Moody’s also wrote in its credit opinion. B.C. Hydro’s debt has increased from $8.1 billion in 2008 to a projected $18.1 billion last year, and there is a further $20 billion expected in the future for infrastructure projects, a $2-billion annual upgrade program and the Site C dam.

“The anticipated increase in debt continues to pressure the province’s rating since it raises the contingent liability of British Columbia,” wrote Moody’s, which has expressed similar concerns the past three years. Hydro’s debt is ultimately backstopped by taxpayers if the situation worsens, noted Moody’s.

Hydro does have the flexibility to raise electricity rates to pay its debts, but its finances are nonetheless “among the weakest of Canadian provincial utilities,” said Moody’s.

Finance Minister Mike de Jong said Moody’s is “appropriately mindful” of Hydro’s big projects and their impact on the province.

“We need to be very cautious and very focused on ensuing the projects are completed on time and on budget, because a problem in either one of those areas begins to affect the rate at which that debt begins to be repaid,” he said.

B.C.’s auditor general has noted that Hydro uses deferral accounts to push off costs into future years and give the artificial appearance of annual profitability.

In addition, Hydro been forced to borrow $3.8 billion since 1992 to pay the province a mandatory annual dividend that it was unable afford, and is expected to borrow another $852 million over the next three years as well.

The government has promised to start weaning itself off the dividend in 2018. The corporation’s 10-year rates plan will help pay off much of its regulatory account as well, said Moody’s.

NDP critic Adrian Dix said the report is an indictment of government’s handling of B.C. Hydro.

“It says what’s obvious, that B.C. Hydro has gone from being one of the strongest Canadian utilities to one of the weakest under Christy Clark,” he said. “That they have very high debt levels, their performance is relatively poor, and should it deteriorate they will be in very serious trouble.”

 

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