DBRS Confirms Enbridge Gas Distribution Inc. at “A”, R-1 (low) and Pfd-2 (low)

DBRS has today confirmed the Unsecured Debentures & Medium-Term Notes, Commercial Paper, and Cumulative & Cumulative Redeemable Convertible Preferred Share ratings of Enbridge Gas Distribution Inc. (EGD or the Company) at “A”, R-1 (low) and Pfd-2 (low), respectively, all with Stable trends. The rating confirmation is based on EGD’s low business risk operations, stable regulatory environment in Ontario, strong franchise area and stable financial profile.

EGD’s low business risk profile is supported by a large customer base (approximately two million customers, the largest in Canada), which has allowed the Company to achieve operational efficiency and generate earnings in excess of approved return on equity (ROE) under the incentive regulation (IR) framework since 2008. The Company benefits from a stable regulatory system, having no exposure to gas price risk in Ontario, where it generates approximately 98% of its revenues. EGD’s franchise area (largely in the Greater Toronto Area) is viewed as one of the most rapidly growing and economically strong service areas in Canada. Approximately 95% of the Company’s earnings are contributed by relatively stable regulated distributions, transportation and storage, with the remainder contributed by unregulated storage business, which benefits from strong demand, due to its strategic locations.

EGD’s financial profile remained stable in 2011, with all credit metrics being commensurate with DBRS’s “A” rating guidelines. DBRS notes that the Company requires significant liquidity to finance working capital (mostly gas inventory for winter distributions). Given the low gas price environment, EGD’s liquidity remains adequate to meet its operational needs. Over the medium term, moderate cash flow deficits are expected, due to a large capex program. However, EGD’s current debt leverage is well below the regulatory capital structure of 36% equity, providing EGD with significant financial flexibility. DBRS expects the Company to remain prudent in funding its cash shortfalls and maintaining its credit metrics within the “A” rating category. In August 2011, the Company financed its $66 million acquisition of 15-megawatt (MW) solar power assets from its parent, Enbridge Inc., with equity, which was viewed as positive to the financial profile.

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.