DBRS Confirms Ontario Power Authority at A (high) with a Stable Trend

DBRS has today confirmed the Issuer 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: (1) the OPA’s minimal credit risk exposure, since its principal counterparty is the Independent Electric System Operator (IESO) (also governed by provincial legislation) and (2) its strong liquidity profile, including a $975 million line of credit with the Ontario Financing Authority, a Crown agency of the Province.

The OPA’s Issuer Rating is one notch lower than the Province’s rating for two main reasons: (1) there is no explicit guarantee from the Province and (2) 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 a reliable and clean supply of electricity in the medium to long term, DBRS views this risk as minimal.

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 (the OEB). 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 collected by the IESO through market operations and remitted to the OPA.

In April 2012, the Province proposed to merge the operations of the OPA and IESO to eliminate duplication and save operating costs. This event is considered credit neutral, as no change in the OPA’s policy mandates or authorizations is expected. The financial profile of the merged entity should improve slightly as a result of cost savings. The proposal is currently under review and approval in the provincial legislature.

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 (May 2011), which can be found on our website under Methodologies.