DBRS Publishes Report on Saskatchewan Power Corporation

DBRS Limited (DBRS) published a rating report on Saskatchewan Power Corporation (SaskPower or the Company). The ratings of AA and R-1 (high) with Stable trends for the Company’s Long-Term Obligations and Short-Term Obligations, respectively, are a flow-through of the ratings of the Province of Saskatchewan (the Province; rated AA with a Stable trend by DBRS; see DBRS’s report on the Province dated May 2, 2017). Pursuant to “The Power Corporation Act” (the Act), SaskPower does not issue debt directly in the capital markets but obtains funding from the Province’s Ministry of Finance. Please see “DBRS Criteria: Guarantees and Other Forms of Support” for further detail. DBRS considers SaskPower to be self-supporting, as it is able to fund its own operations and service its debt obligations.

In August 2017, SaskPower filed an application with the Saskatchewan Rate Review Panel, requesting a flat rate increase of 5.1% for all customer classes (except contract customers) effective March 1, 2018. If approved by Cabinet, the Company projects that its return on equity will recover to the Crown Investments Corporation (CIC)–approved long-term target of 8.5% for F2018. SaskPower’s profitability has been weak since 2014 largely because of rising debt to fund its significant capital expenditures (capex) program in place to maintain aging infrastructure and connect new customers ($866 million spent in F2017; forecast of around $1.1 billion annually for the next three years) and the Company’s strategy of requesting more moderate and gradual rate increases to avoid rate shocks for customers. This has also placed pressure on the Company’s leverage ratio, which has increased to 75.2% as at June 30, 2017, from 65.4% in 2012, which is above the CIC-approved long-term target of 60.0% to 75.0%. Going forward, SaskPower has forecast leverage to remain near the high end of the target. DBRS expects the Company to manage its debt load in a prudent manner in order to maintain its capital structure in line with the CIC-approved target. DBRS also expects the incremental debt being used to finance the Company’s capex program to continue to be funded by the Province. Pursuant to the Act, SaskPower is authorized to have outstanding borrowings of up to $10 billion, including $2 billion by way of temporary loans through the Province or $51 million from unsecured credit facilities at financial institutions ($3.6 billion unused as at June 30, 2017).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (September 2017), and DBRS Criteria: Guarantees and Other Forms of Support (February 2017), which can be found on dbrs.com under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.