DBRS Confirms FortisBC Energy Inc. at “A,” Stable Trend

DBRS Limited (DBRS) confirmed FortisBC Energy Inc.’s (FEI of the Company) Issuer Rating and Medium-Term Notes rating at “A” and the Commercial Paper rating at R-1 (low). All trends remain Stable.

The confirmations reflect FEI’s solid financial performance over the last 12 months ended September 30, 2017 (LTM 2017). FEI’s earnings and cash flows have shown modest but steady increases, reflecting its growing rate base, good operational efficiency and tax recovery. All of FEI’s key credit metrics remained supportive of the current ratings in LTM 2017. FEI’s liquidity remained solid at the end of Q3 2017, reflecting stable cash flows, sizable credit facility availability and no long-term debt maturing within the next five years.

The regulatory framework in British Columbia (BC) remained stable in 2017, with allowed return on equity (ROE) and deemed equity component of the capital structure remaining unchanged from 2016 at 8.75% and 38.5%, respectively. FEI is in its fourth year of the 2014–2019 Performance Based Ratemaking (PBR) plan. 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 and to set up deferral accounts to ameliorate unanticipated changes in certain forecast items, including the variances in volume consumption by customers, which reduces forecast risk. Although FEI’s current allowed ROE is viewed as low, compared with the average allowed ROE in North America, DBRS believes that the PBR plan continues to provide FEI the opportunity to earn a return on its investment beyond the allowed ROE and support its cash flow stability. Given the current regulatory environment, a rating upgrade is unlikely. However, DBRS could take a negative rating action if the allowed ROE and deemed equity is significantly reduced.

DBRS notes that FEI is currently undertaking a number of capital projects, including the Tilbury Phase 1A Expansion project (in-service date expected to be in the first half of 2018), Coastal Transmission System project and the Lower Mainland Intermediate Pressure System Upgrade project. Completing these projects on time and within budget is important. Any significant cost overruns beyond the upper limit may not be recovered and could negatively affect FEI’s credit metrics. DBRS expects FEI’s current credit metrics to remain stable in the medium term. A material weakening of these credit metrics for a sustainable period could result in a negative rating action.

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 methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process for this action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.