DBRS Confirms NOVA Gas Transmission Ltd. at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Medium Term Notes and Unsecured Debentures rating of NOVA Gas Transmission Ltd. (NGTL or the Company) at A (low) with a Stable trend. NGTL’s rating reflects the strong financial and liquidity support from its parent, TransCanada Pipelines Limited (TCPL: rated A (low)), and the Company’s growing regulated investment base providing stable and predictable earnings.

NGTL’s business risk is relatively low as its earnings are regulated by the National Energy Board (NEB) based on cost recovery plus a return on equity (ROE) providing the Company with predictable cash flows. Under the current regulatory model, NGTL’s earnings are not exposed to short-term fluctuations in the commodity price of natural gas, changes in throughput volumes or changes in contracted capacity levels. In February 2015, the NEB approved the NGTL System’s 2015 Revenue Requirement Settlement Application (RSS). The Settlement structure is similar to the previous 2013–2014 Settlement with fixed annual operating, maintenance and administration (OM&A) costs, allowed ROE and deemed common equity. Any variance between fixed OM&A costs in the Settlement and actual costs accrue to both NGTL and shippers on a sliding scale. DBRS notes that the current regulatory model is supportive and provides the Company a transparent framework to recover costs and earn an adequate return on its investment base over a reasonable timeframe.

The NGTL System is the major natural gas gathering and transportation system for the Western Canadian Sedimentary Basin, connecting most of the natural gas processing plants in Western Canada to domestic and export markets. The Company’s large and growing investment base supports its strong financial profile. NGTL has announced medium-term plans to develop approximately $6.7 billion of commercially secured expansion projects, including the North Montney Mainline ($1.7 billion project, approved by NEB in April 2015 and the federal government in June 2015), 2016/2017 Facilities ($2.7 billion) and the Merrick Mainline Pipeline ($1.9 billion). The Company’s investment base is set to grow as these new expansion projects, connecting new natural gas supplies in northeastern British Columbia and western Alberta are completed in the medium term (2016–2020), and placed in service. NGTL’s credit metrics are expected to be pressured in the medium term (last 12 months March 31, 2015: debt-to-capital 72.4%; Cash flow-to-debt: 12.3%) due to the high planned capital expenditures; however, DBRS expects the metrics to improve as these major largely contracted projects are completed and placed in service providing NGTL with incremental earnings and cash flows.

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 Pipeline and Diversified Energy Industry (January 2015) which can be found on our website under Methodologies.