DBRS Confirms Ontario Power Authority at A (high), Stable

DBRS has today confirmed the Issuer Rating of the Ontario Power Authority (OPA) at A (high), with a Stable trend. The rating is based on both explicit and implicit support from the Province of Ontario (the Province, rated AA (low)). While the Province does not explicitly guarantee OPA’s obligations, DBRS expects OPA will remain strategically important in the Province’s electricity market and thus, is expected to continue to receive strong financial support to cover its operating costs as well as reasonable liquidity to fund variances in the Regulated Price Plan account. This support is evidenced by the $975 million line of credit provided by the Ontario Financing Authority, a Crown agency of the Province, which provides adequate liquidity for OPA to carry out its legislated mandates. Therefore, OPA’s rating is one notch below the rating of the Province. If the Province’s rating is downgraded (or upgraded), negative (or positive) rating action could be warranted for OPA.

OPA operates under a reasonable regulatory/legislative environment. The Ontario Energy Board has continued to allow OPA to recover all necessary operating costs and payments related to contracts for new electricity supply on a timely basis.

OPA also has minimal credit risk exposure since its principal counterparty is the Independent Electricity System Operator (IESO), which is also governed by provincial legislation. The credit profile for IESO is supported by provincial regulation that allows for full cost-of-service recovery through a rate charged on all electricity consumed in Ontario.

It remains uncertain whether OPA will continue to be a stand-alone entity. As the provincial government continues exploring options to improve efficiency in the power sector, OPA could be merged with another entity. In April 2012, Bill 75 was proposed to merge the operations of OPA with IESO to eliminate duplication and save operating costs. However, after the provincial legislature was prorogued on October 15, 2012, Bill 75 will need to be re-introduced and the results remain uncertain.

Notes:
All figures are in Canadian dollars 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.