DBRS Updates Its Report on Canadian Utilities Limited

DBRS has today updated its report on Canadian Utilities Limited (CU or the Company). CU continued to generate strong and stable earnings for the nine months ended September 30, 2013 (9M2013), mainly attributable to its regulated entity, CU Inc. (CUI), as it accounts for approximately 57% of CU’s total earnings. The Company’s contributions from CUI continue to benefit from the supportive regulatory environment in Alberta, as evidenced by the regulator’s decision on CUI’s 2013-2014 General Tariff Application. As a result, CU’s earnings are expected to grow over the medium term, primarily due to rate base growth in its regulated utilities operation, which is mainly driven by investments in transmission infrastructure. This will strengthen CU’s business risk profile as DBRS views transmission operations as having the lowest risk among CU’s operations.

Although CU’s non-regulated generating assets benefit from a high level of contracted output (which reduces merchant power risk exposure) about 15% of generating capacity is exposed to volatile Alberta Pool prices. In 9M2013, ATCO Power’s earnings benefited from increased power prices as supply was pressured from unplanned outages. However, going forward, DBRS expects lower power prices in Alberta as additional capacity is added and generators return to service. Nevertheless, DBRS expects the non-regulated business to continue to be self-sustaining and not require any significant funding requirements.

CU is expected to continue to support the significant capital expenditure program at CUI (approximately $6 billion from 2013 to 2015) with debt and preferred shares issuances over the medium term. DBRS assesses CU’s financial profile based on a non-consolidated basis and considers the adjusted debt-to-capital as an important metric. Over 9M2013, CU issued approximately $400 million of preferred shares, increasing total preferred shares to $1,025 million, of which DBRS treats $249 million as debt. This brings the Company’s total adjusted debt-to-capital, on a pro forma basis, to approximately 9%, which is well within the 20% threshold on a non-consolidated basis.

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, which can be found on our website under Methodologies.