DBRS Confirms FortisBC Energy Inc. at “A,” R-1 (low), Stable Trends

DBRS Limited (DBRS) has today confirmed the Issuer Rating, the MTNs & Unsecured Debentures rating and the Purchase Money Mortgages rating of FortisBC Energy Inc. (FEI or the Company) at “A” as well as its Commercial Paper rating at R-1 (low). All trends are Stable. The rating confirmations reflect the following factors:

(1) The financial risk profile has remained relatively stable since the completion of the amalgamation of FEI, FortisBC Energy (Vancouver Island) Inc. (FEVI), FortisBC Energy (Whistler) Inc. (FEW) and Terasen Gas Holdings Inc. on December 31, 2014. Amalgamated FEI’s nine months to September 30, 2015, earnings were modestly lower than the same period in 2014 largely because of lower return on equity (ROE) and deemed equity in the capital structure related to the former FEVI and FEW operations; however, the impact was not material. Based on the last 12 months to September 30, 2015, results, FEI’s credit metrics remain consistent with the “A” rating category.

(2) FEI is in its third year of the six-year Performance Base Ratemaking (PBR) plan as approved by the British Columbia Utilities Commission (BCUC) (2014 through 2019). FEI’s operational and financial performance to date has been reasonably efficient because of its large base of customers and strong franchise areas. Amalgamated FEI’s ROE of 8.75% and a deemed equity component of the capital structure of 38.5% are lower than those of the 2009-2012 period, but remain reasonable. During the current PBR period, FEI is allowed to pass through natural gas costs and regulated forecast cost items outside of formulaic operation and maintenance costs, which reduces forecast risk.

(3) The construction of Tilbury Expansion Project Phase 1A is in good progress. The cost of the project, estimated to be $440 million including allowance for funds used during construction, will be added to the rate base. This project is currently on budget and is expected to be completed on time (by the end of 2016).

(4) The Company has filed a 2016 rate application and an application to review its 2016 ROE and capital structure. The BCUC issued a decision in December 2015 on the 2016 rate application allowing an interim delivery rate increase of 1.79% for 2016 and making FEI’s existing ROE and deemed equity interim for 2016. Final decisions are expected in H1 2016. The Stable trend is based on DBRS’s expectation that there will be no adverse decisions that would have a material impact on the Company’s current credit profile.

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 (October 2015) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015), which can be found on our website under Methodologies.