DBRS Confirms Newfoundland Power Inc. at “A” and Pfd-2, Stable Trends

DBRS has today confirmed the Issuer Rating, the First Mortgage Bonds and the Preferred Shares of Newfoundland Power Inc. (Newfoundland Power or the Company) at “A,” “A” and Pfd-2, respectively, all with Stable trends. The rating confirmations reflect Newfoundland Power’s low business risk, which stems from the regulated nature of its operations, supported by a reasonable regulatory environment, stable financial profile and strong customer base.

The Company’s business risk profile is viewed as strong, as virtually all of its earnings are generated from its regulated electricity business, which operates under a reasonably stable regulatory framework in Newfoundland and Labrador (regulated by the Board of Commissioners of Public Utilities (PUB)). The Company had an approved return on equity (ROE) of 8.80% for 2012. On September 14, 2012, the Company filed its 2013/2014 General Rate Application seeking approval for an average rate increase of approximately 6.0%, with effect from March 1, 2013, and ROE of 10.4% for 2013 and 2014. The Company has an approved equity component at a maximum of 45% and recovers prudently incurred capital expenditures (capex) in a timely manner. In addition, the Company has relatively limited exposure to power price risk, as the Company continues to benefit from (1) a weather normalization reserve account that stabilizes earnings during extreme weather conditions and (2) a rate stabilization account that absorbs fluctuations in purchased power costs.

Newfoundland Power’s financial profile has been reasonable for the rating category, supported by stable earnings and cash flow, as well as reasonable debt leverage. The growth in earnings has benefited from higher sales that were supported by new home constructions and economic growth in mining and oil and gas. Newfoundland Power continues to generate sufficient cash flow internally to fund the bulk of its capex and dividends. The Company’s modest cash flow deficit is expected to continue to be funded through debt and is not expected to have a material impact on key metrics.

Notes:
All figures are in Canadian unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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.