DBRS Morningstar Confirms Ontario Power Generation Inc. at A (low)/R-1 (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Unsecured Debt rating of Ontario Power Generation Inc. (OPG or the Company) at A (low), and the Commercial Paper rating at R-1 (low). All trends are Stable. The ratings of OPG are based on its regulated generation operations in Ontario. The Stable trend reflects the Company's reasonable key credit metrics, given the complex and substantial capital expenditures (capex) program, for the current ratings.

OPG's business risk assessment has remained steady since the most recent ratings confirmation. There were no material regulatory changes by the Ontario Energy Board to the Company's in-service nuclear and hydroelectric power plants. For 2022 to 2026, payment amounts for regulated nuclear operations will increase annually as set under the Custom Incentive Rate-setting framework approved while hydroelectric payment amounts remain frozen at 2021 levels. DBRS Morningstar notes that OPG is currently conducting a feasibility study on the refurbishment of four units at the Pickering Nuclear Generating Station in order to extend its operating life by 30 years, and is undertaking preparation work to deploy a 300-megawatt Small Modular Reactor (SMR) at the Darlington site. While these projects will be fully regulated and will substantially increase the Company's rate base when completed, there is significant execution risk because of the complexity and scale of the projects. DBRS Morningstar is encouraged by OPG's current track record with the ongoing Darlington Refurbishment project (total capex of $12.8 billion), which remains on budget and on schedule. DBRS Morningstar will continue to monitor progress on the Darlington Refurbishment and the approval process for the Pickering Refurbishment and SMR project, and expects that the Company will not undertake any major capex without having financing and a cost-recovery mechanism in place to minimize financial risks.

OPG's financial risk assessment remains supportive of the current ratings given the substantial capex program ($3.7 billion for 2023). DBRS Morningstar expects the Company's cash flows and key credit metrics to fluctuate moderately over the near term as the Darlington Refurbishment continues, with capacity to vary during this period as units are taken out or placed back in service. DBRS Morningstar also expects the Company's metrics to remain in line with the current ratings even as debt increases to fund the capex program. A positive rating action is unlikely over the medium term given OPG's business profile and the ongoing significant and complex capex program. A negative rating action is also considered unlikely but may occur should there be cost overruns that result in significant stranded costs for the Company.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022; https://www.dbrsmorningstar.com/research/402616).

The following methodologies have also been applied:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694/); and
-- DBRS Morningstar Global Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (February 24, 2023; https://www.dbrsmorningstar.com/research/410196/).

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions

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 info@dbrsmorningstar.com.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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