DBRS Comments on Hydro Ottawa’s Acquisition

DBRS Limited (DBRS) notes that Hydro Ottawa Holding Inc. (Hydro Ottawa or the Company; rated “A” with a Stable trend by DBRS) has today announced the acquisition of ten run-of-the-river hydroelectric facilities from Fortis Inc. in Ontario and New York State. While DBRS views these assets, which will increase Hydro Ottawa’s generation capacity by approximately 30.9 megawatts, as negative to the Company’s credit profile, they will not warrant any negative rating action. Although earnings and cash flows contributed by the more volatile non-regulated segment will increase, these assets are not expected to have a material impact on the mix of earnings generated by regulated and non-regulated operations (approximately 83.0% of 2014 EBIT was from the regulated segment). Additionally, the regulated distribution business is expected to continue to grow, benefiting from a growing rate base. As noted on the DBRS rating report dated May 29, 2015, Hydro Ottawa’s business risk profile may be negatively affected should earnings from the non-regulated operations exceed the 20% threshold for the current rating category. Additionally, should the Company acquire assets that are exposed to the merchant market and have a material impact on Hydro Ottawa’s business and financial risk profiles, a negative rating action may occur.

Notes:
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.

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