DBRS Updates Report on Enbridge Gas Distribution Inc.

DBRS today published a report on Enbridge Gas Distribution Inc. (EGD or the Company). The credit profile of the Company has remained stable in Q1 2012, based on the latest financial results and regulatory development. The Company’s rating is based on its 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 will be under the cost-of-service (COS) year in 2013, which is expected to provide it an opportunity to obtain a larger rate base, higher allowed ROE (currently 8.39%) and higher deemed equity (currently 36%).

EGD’s financial profile continued to remain stable in Q1 2012, 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 64% debt/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.

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.