DBRS Confirms Ontario Power Authority at A (high)

DBRS has today confirmed the rating of the Ontario Power Authority (the OPA) at A (high) with a Stable trend. The rating confirmation is based largely on the rating of the Province of Ontario (the Province), because the OPA is a creation of the Province and thereby receives its powers through provincial legislation and regulation. This provides the OPA with the ability to recover its operating costs in a timely manner, including any cost associated with financing. The confirmation is further supported by (1) the OPA’s minimal credit risk exposure, since its principal counterparty is the Independent Electric System Operator (IESO), also supported by provincial legislation, and (2) its strong liquidity profile, with a line of credit totalling $975 million with the Ontario Financing Authority (OFA).

In October 2009, DBRS downgraded the Issuer Rating of the OPA to A (high) from AA (low). The trend was also changed to Stable from Negative. This action followed a downgrade of the Long-Term Debt rating of the Province from AA to AA (low), with a trend change to Stable from Negative.

The OPA’s Issuer Rating is one rating category lower than the Province (rated AA (low)) due to the fact that (1) there is no explicit guarantee from the Province, and (2) there is a potential risk of political intervention by way of ministerial directive or changes to legislation or regulation, consequently affecting the OPA’s operations or ability to recover its costs and payments on a timely basis. Since the OPA is a critical component in the Province’s strategy for addressing Ontario’s medium- to longer-term generation capacity challenges, DBRS views the risk as very modest, but there is a precedent for such political intervention in the energy markets in the past.

In October 2009, the OPA successfully launched the Feed-in Tariff (FIT) Program. This program and a consortium agreement signed in early 2010 are expected to result in another 2,500 megawatts (MW) of renewable energy supply by 2013. The OPA’s FIT Program provides incentives for electricity consumers to become generators. This program promotes the expansion of distributed generation across the electricity system, while the smart grid will enable the connection of these local generating facilities.

The OPA’s operational and financial performance remains in line with DBRS’s expectations, as legislated cost recovery mechanisms through charges levied on all ratepayers continue to provide timely recovery of all its operating costs. The recovery of the OPA’s operating costs is subject to approval by the OEB, while the recovery of contract costs and payments is deemed to be approved by the OEB in accordance with legislation, with only the procurement process requiring OEB approval. DBRS notes that both the OEB-approved costs and the payments and recoveries related to contracts entered into for new electricity supply, conservation and demand management are recovered by the IESO through market operations and remitted by the IESO to the OPA.

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

The applicable methodology is Rating North American Energy Utilities (Electric, Natural Gas, and Pipelines), which can be found on our website under Methodologies.

This is a Corporate rating.