DBRS Morningstar Confirms FortisBC Energy Inc. Ratings at “A” and R-1 (low), Stable TrendsUtilities & Independent Power
DBRS Limited (DBRS Morningstar) confirmed FortisBC Energy Inc.’s (FEI or the Company) Issuer Rating and MTNs & Unsecured Debentures rating at “A” and its Commercial Paper rating at R-1 (low). All trends are Stable. The confirmations reflect FEI’s strong financial and business risk profile. The confirmations also reflect DBRS Morningstar’s expectation that current floods in British Columbia (BC; see below for the details) will not have a material impact on the Company's financial and operational performance. DBRS Morningstar also notes that FEI is in the second year of its 2020–24 Multi-Year Rate Plan (MRP). DBRS Morningstar expects that the MRP will not materially change FEI’s business risk profile over the medium term. The allowed return on equity (ROE) and the deemed equity component of the capital structure remain unchanged at 8.75% and 38.5%, respectively.
DBRS Morningstar notes that the gas delivery was interrupted in a small portion of FEI's service area due to 2021 Pacific Northwest floods due to heavy rains in parts of southern BC. However, the Company has now restored gas delivery to the majority of impacted customers. DBRS Morningstar does not expect these floods to materially disrupt the Company's gas supply or the system's resiliency for the winter season. DBRS Morningstar notes that the Company is permitted to recover costs due to exogenous factors if it crosses the materiality threshold of $500,000, subject to British Columbia Utilities Commission (BCUC) approval. DBRS Morningstar also notes that the ongoing Coronavirus Disease (COVID-19) pandemic has had no material impact on FEI’s financial and operational performance to date because FEI operates a critical infrastructure and provides essential services.
BCUC has initiated a generic cost of capital (GCC) proceedings, which will include a review of the deemed equity component of total capital structure and allowed ROE for FEI and other regulated utilities. DBRS Morningstar notes that any material changes in the allowed ROE or deemed equity as a result of the GCC proceedings may affect FEI’s credit profile.
FEI’s financial profile remained solid in the last 12 months to September 30, 2021 (LTM 2021). The increase in the cash flow is in line with FEI’s growing rate base, largely reflecting customer growth. As at September 30, 2021, the debt-to-capital ratio remained within regulatory capital structure. FEI’s LTM 2021 key credit metrics remained relatively stable and consistent with DBRS Morningstar’s required levels to support the current ratings. FEI’s liquidity was viewed as solid, reflecting stable cash flows, sizable credit facility availability, and the next long-term debt maturity is in 2026.
FEI is currently undertaking a number of major capital projects that will require high capital expenditure (capex) in the next few years. DBRS Morningstar expects that the Company will manage and complete its capital projects on time and within budget. DBRS Morningstar also expects FEI to finance its capex and maintain its debt-to-capital ratio consistent with the regulatory capital structure. Given the current regulatory environment and FEI’s financing plan, a rating upgrade is unlikely. DBRS Morningstar expects the regulatory environment in BC to remain stable during the term of the MRP. However, any regulatory decisions or FEI business decisions that may have a material adverse effect on the Company’s business risk profile or a material weakening of FEI’s credit metrics for a sustained period could result in a negative rating action. DBRS Morningstar considers these events as unlikely.
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.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (September 24, 2021; https://www.dbrsmorningstar.com/research/384922) and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 9, 2021; https://www.dbrsmorningstar.com/research/375001), 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; https://www.dbrsmorningstar.com/research/373262 )
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at email@example.com.
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.
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- Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (Archived) / September 24, 2021
- DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (Archived) / March 9, 2021
- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (Archived) / February 3, 2021