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 announced the acquisition of a hydroelectric generation station at Chaudière Falls and the remaining 33% interest in the Ring Dam from Hydro-Québec (the Acquisition). While DBRS views the Acquisition, which will increase Hydro Ottawa’s generation capacity by approximately 27 megawatts, as modestly negative to the Company’s credit profile, it will not be material enough to warrant a negative rating action.

As per a ministerial direction issued in December 2015, Hydro Ottawa is currently in negotiations with the Independent Electricity System Operator (rated A (high), Stable by DBRS) for a power purchase agreement (PPA) for the generation station. DBRS notes that although a PPA will eliminate price risk, volume risk will still remain, which could potentially result in more volatile earnings going forward. Following the Acquisition, DBRS expects EBIT contributed by the Company’s non-regulated segment to remain below the 20% threshold for the current rating (13.7% in 2015). Should earnings from the non-regulated segment exceed 20%, Hydro Ottawa’s business risk profile could be negatively affected.

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.