Disaster Averted, Meddling Potential Persists: A Valuation & Strategic Appraisal of BC Hydro

Valuation of Crown Corporations, Crown Corporations, Ian Madsen

BC Hydro is the electric power generating holding company and retail utility supplying the province of British Columbia (BC). As its name implies, it is nearly entirely a hydro-electric generation-based provider. The Peace River Site C project is scheduled to be completed sometime in 2024, with full service in 2025. Valuing the company at this point is misleading, as the output from the project will not be fully online for the whole year until 2025.

Using an intrinsic value method, and discounting to the ‘present’, i.e., 2025, shareholder equity in BC Hydro’s projected future free cash flows (as BC Hydro will be with Site C in full operation and paying full cash interest on the debt accumulated to build it), but taxed at statutory rates, is estimated at a minimum of $2.36B to a maximum of $16.52B, with a tighter, more plausible range of a median (midpoint of all the relevant values) of $4.13B to a mean (simple average of all the relevant values) of $5.32B.

Under the market-based valuation system, using seven viable, standard valuation metrics (such as trailing and forward Price/Earnings, Price/Sales, Price/Book Value, Price/Operating Cash Flow), and comparisons with six Canadian and seven US exchange publicly listed electric-dominated utilities with substantial renewable energy generation capacity, the 2025 value ranges from $2.71B to positive $9.61B, with a median of $5.76B and a median of $5.79B. Renewable energy companies have a premium valuation.

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