DBRS Confirms Enbridge Gas Distribution at “A,” Stable Trends

DBRS has today confirmed the Issuer Rating and the ratings of the Commercial Paper, Unsecured Debentures & Medium-Term Notes and Cum. & Cum. Redeemable Convertible Preferred Shares of Enbridge Gas Distribution Inc. (EGD or the Company) at “A,” R-1 (low), “A” and Pfd-2 (low), respectively. The trends on all ratings are Stable. The Company’s rating is based on its low business risk, 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 stable earnings and cash flow. In 2013, the rebasing year, EGD’s approved return on equity increased to 8.93% (8.39% in 2012) and distribution rates increased to $1,021 million ($1,004 million in 2012). However, the deemed equity component of the Company’s capital structure remained unchanged at 36%. The Company benefits from a stable regulatory system, having no exposure to gas price risk in Ontario, where it generates approximately 98% of its revenue. 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 94% of the Company’s earnings are generated from relatively stable regulated distribution, transportation and storage business. The remainder is generated from the unregulated storage business, which benefits from strong demand due to its strategic locations.

EGD’s financial profile remained stable in 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 the large capital expenditures program. However, EGD’s current debt leverage of 55% is well within DBRS’s “A” rating category, providing it with significant financial flexibility. DBRS expects the Company to remain prudent in funding its cash shortfalls and maintain its credit metrics within the “A” rating category

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 North American Energy Utilities (Electric and Natural Gas) Industry (May 2011), which can be found on our website under Methodologies.