DBRS Confirms FortisBC Energy Inc. at “A,” R-1 (low), with Stable Trends and Discontinues Purchase Money Mortgages Rating

DBRS Limited (DBRS) has today confirmed the following ratings of FortisBC Energy Inc. (FEI or the Company): (1) the Issuer Rating at “A,” (2) the rating of the MTNs & Unsecured Debentures at “A” and (3) the Commercial Paper rating at R-1 (low). All trends remain Stable. DBRS has concurrently discontinued the rating of Purchase Money Mortgages (PMMs) since the PMMs were repaid at their maturity at the end of September 2016 and the Company currently has no intention to issue additional PMMs.

The confirmations reflect FEI’s solid financial performance over the 12 months ended September 30, 2016 (LTM 2016). FEI’s earnings and cash flow have shown modest but steady increases reflecting its growing rate base and good operational efficiency. All FEI’s key credit metrics remained supportive of the current ratings in LTM 2016. In Q3 2016, the Company repaid $200 million of PMMs with proceeds from the issuance of short-term notes. FEI’s liquidity remained solid at the end of Q3 2016, reflecting stable cash flows, sizable credit facility availability and no long-term debt maturing within the next five years.

FEI has nearly completed its third year of the six-year Performance Base Ratemaking (PBR) plan as approved by the British Columbia Utilities Commission (BCUC) (2014 through 2019). In August 2016, the BCUC issued its decision to confirm that FEI’s existing common equity component of capital structure and ROE will remain at 38.5% and 8.75%, respectively (unchanged since 2013), until otherwise determined by the BCUC. 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. DBRS notes that on December 7, 2016, the BCUC issued a decision to allow FEI to maintain 2017 delivery rates at the approved 2016 rate levels (before consideration of rate riders), effective January 1, 2017. As a result, DBRS expects FEI’s credit metrics to remain stable over the next twelve months.

The Tilbury Expansion Project Phase 1A is estimated to cost approximately $400 million, prior to allowance for funds used during construction and development costs. The project is expected to be completed by mid-2017.

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.

The applicable methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (October 2016) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Financial Issuers (April 2016), which can be found on our website under Methodologies.