DBRS Confirms FortisBC Inc. at A (low), Stable Trends

DBRS Limited (DBRS) has today confirmed the Issuer Rating, as well as the Secured Debentures and Unsecured Debentures ratings of FortisBC Inc. (FBC or the Company) at A (low) with Stable trends. The confirmations reflect the Company’s stable business risk profile and its solid financial performance in 2016. The Unsecured Debentures have the same rating as the Secured Debentures, reflecting (1) that the amount of Secured Debentures outstanding is minimal (approximately 4% of total long-term debt) and (2) that FBC does not intend to issue additional Secured Debentures.

FBC’s business risk profile remained stable in 2016, with no material regulatory or operational changes to its business profile. The Company is in the fourth year of the six year Performance-Based Ratemaking Plan (PBR) (2014-2019). FBC’s 2017 return on equity and the common equity component of capital structure have remained the same since 2014 at 9.15% and 40%, respectively.

DBRS recognizes that during the term of the PBR plan, FBC is exposed to risk with respect to formulaic operation and maintenance (O&M) costs and base capital expenditures (capex); however, this risk is modest, as only one-half of the variances from formulaic O&M costs and capex are not flowed through to customers. Moreover, the PBR plan provides FBC with incentive for operational efficiency through this 50/50 sharing of the formula-driven O&M costs and capex variances over the PBR period. To date, the Company has managed to control O&M costs and base capex relatively consistent with the forecast.

FBC’s financial results remained solid in 2016, reflecting relatively stable EBITDA and cash flow despite slightly higher debt levels. FBC’s credit metrics in 2016 remained supportive of its current ratings and are not expected to change materially in 2017. The planned capex for 2017 of approximately $100 million (before customer contributions in aid of construction and including cost of removal) will result in a modest cash flow deficit; however, FBC is expected to maintain its regulatory capital structure in financing capex. As a result, DBRS expects that FBC will maintain all of its key credit metrics within DBRS’s “A” rating category.

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 principal methodology is Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry, which can be found on dbrs.com under Methodologies.