DBRS Confirms PowerStream Inc. at “A,” Stable Trend

DBRS has confirmed the Issuer Rating of PowerStream Inc. (PowerStream or the Company) at “A” with a Stable trend. The rating reflects the Company’s low-risk, regulated electricity distribution operations, its solid financial profile and a strong franchise area with a favourable customer mix.

The business risk profile has improved following the merger with Barrie Hydro Distribution Inc. (Barrie Hydro) in 2009, providing a much larger customer base, greater diversification and strong population growth in the Barrie area. The Company currently operates under the Incentive Regulation Mechanism (IRM), which is viewed by DBRS as reasonable and stable, allowing PowerStream to recover purchased power costs on a timely basis. A cost-of-service application is expected to be filed in the rebasing year, generally every four or five years (the next rebasing year is expected to be 2013). Returns on equity investment and the size of the rate base are expected to increase in the rebasing year. DBRS views the new rate rider, effective January 2011, allowing for the recovering of costs associated with smart meters in 2008 and 2009, as a positive factor to the Company’s cash flow.

The Company’s financial profile has remained stable, underpinned by improved earnings and cash flow, as a result of customer growth and operational efficiency achieved under IRM. However, debt levels were higher in 2010 and 2011 than in previous years, as new debt was issued to finance free cash flow deficits resulting from higher capital spending (capex) to maintain system capacity and reliability. Despite higher debt levels, the Company’s credit metrics have remained well within the current “A” rating category.

DBRS notes that the Company is committed to maintaining its debt-to-capital ratio in line with the regulatory 60% debt to 40% equity structure. This level is reasonable for the current rating. However, the debt leverage ratio is viewed as strong when debt owed to the parents (interest could be deferred) was excluded, providing significant flexibility for the Company going forward, especially when the Debentures owed to EDFIN mature in August 2012.

Notes:
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.