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. OPA’s rating reflects its strong ties with the Province of Ontario (the Province, rated AA (low)). The rating of OPA is closely aligned with the credit profile of the Province, as evidenced by the explicit and implicit support from the Province. If the Province’s rating is downgraded (or upgraded), negative (or positive) rating action could be warranted for OPA.

Although the Province does not explicitly guarantee OPA’s obligations, OPA receives strong financial support from the Province to cover its operating costs and potential variances in the Regulated Price Plan (RPP) account, including the $975 million line of credit provided by the Ontario Financing Authority (OFA), a Crown agency of the Province. The line of credit provides adequate liquidity for OPA given the surplus capacity that is currently available in Ontario, which results in relatively predictable market prices and the adjustment mechanism for RPP prices if an unexpected variance of $160 million or more accumulates over a quarter.

OPA also operates under a reasonable regulatory/legislative environment where the Ontario Energy Board (OEB) has continued to allow OPA to recover all necessary operating costs and payments related to contracts for new electricity supply on a timely basis. Furthermore, the OPA’s primary counterparty is the Independent Electricity System Operator (IESO), which is also governed by provincial legislation. Given that 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, OPA’s credit risk exposure remains minimal.

Despite OPA’s integral role in the Province’s electricity market, it remains uncertain whether OPA will continue to be a stand-alone entity. Following the prorogation of the provincial legislature on October 15, 2012, the proposed merger between OPA and IESO will need to be re-introduced and the results remain uncertain. In addition, the possibility of a partial or complete sale of Ontario’s large provincially owned utilities raises uncertainty surrounding OPA’s continued existence.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry, which can be found on our website under Methodologies.