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 OPA is a creation of the Province of Ontario (the Province), receives its powers through provincial legislation and regulation, and within that framework fully recovers its operating and debt costs in a timely manner. The rating confirmation is further supported by: i) the OPA’s minimal credit risk exposure since its principal counterparty is the Independent Electric System Operator (IESO) (also governed by provincial legislation); and ii) its strong liquidity profile, including a $975 million line of credit with the Ontario Financing Authority (OFA), a Crown agency of the Province.

The OPA’s Issuer Rating is one notch lower than the Province’s rating for two main reasons: i) there is no explicit guarantee from the Province and ii) there is a potential risk of political intervention and change to legislation or regulation, that could affect the OPA’s operations or ability to recover costs on a timely basis. Since the OPA is critical to the Province’s strategy for Ontario’s medium- to long-term power generation, DBRS views this risk as minimal.

In October 2009, the OPA launched the Feed-in Tariff (FIT) Program designed to attract investment in renewable generation assets. As of the end of Q1 2011, there were 1,222 FIT contracts executed with a combined capacity of 2,656MW – a material addition to Ontario’s power supply mix. The OPA approval process for FIT applications includes assessment of transmission availability to ensure the connection of new supply. Renewable generation from wind and solar assets is an intermittent source of power and coordination of growth in transmission investment with growth in new renewable generation is an important component of OPA’s management of the FIT program.

The OPA’s operational and financial performance remains in line with DBRS’s expectations, as legislated cost recovery mechanisms meet its operating obligations. The recovery of the OPA’s operating costs is subject to approval by the Ontario Energy Board (OEB), while the recovery of contract costs and payments is deemed to be approved by the OEB, with only the procurement process itself requiring OEB approval. OEB-approved costs as well as payments related to contracts for new electricity supply, conservation and demand management, are recovered by the IESO through market operations and remitted to the OPA.

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

The applicable methodology is Rating Companies in the North American energy Utilities (Electric and Natural Gas) Industry, which can be found on our website under Methodologies.