DBRS Confirms FortisBC Energy Inc. at A, Stable Trend

DBRS has today confirmed the ratings of FortisBC Energy Inc. (FEI or the Company) as listed above. The Medium-Term Notes (MTNs) and Unsecured Debentures (Debentures) have the same rating as the Purchase Money Mortgages (PMMs) based on the following: (1) the outstanding amount of the PMMs is not significant (16% of the total); and (2) DBRS does not expect FEI to issue additional PMMs in the future. The ratings reflect FEI’s low-risk business, predominantly regulated operations in an economically strong area, strong financial profile and reasonable regulatory environment.

FEI’s low-risk business is underpinned by its regulated gas transmission and distribution operations (virtually all of FEI’s earnings) and large customer base (approximately 841,000 or 90% of British Columbia’s natural gas users at the end of 2012). Competition in the Company’s franchise area remains primarily electricity, with FEI currently having a competitive operating cost advantage due to the current low natural gas price environment. The regulatory framework in British Columbia is viewed as reasonable in terms of cost recovery, returns on equity (ROE of 9.5%) and capital structure (40% equity). However, the Company’s ROE and deemed equity could be affected in 2013 and beyond due to a regulatory review (see Regulation). Any regulatory change that may have a significant negative impact on FEI’s earnings and cash flow could weaken the Company’s credit profile.

The change to U.S. GAAP from Canadian GAAP, effective January 2012, did not have any rating implications (see Transition to U.S. GAAP). In addition, free cash flow, key credit metrics and debt leverage remained relatively stable in 2012. The Company expects to spend approximately $194 million on capital expenditures (capex) in 2013. DBRS expects FEI to continue to maintain its debt-to-capital ratio in line with the current rating category. In the absence of an adverse regulatory decision on FEI’s ROE and capital structure, DBRS expects FEI’s credit metrics to remain relatively stable, supported by higher earnings and cash flow.

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, which can be found on our website under Methodologies.