DBRS Morningstar Confirms FortisBC Energy Inc. at “A” and R-1 (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed FortisBC Energy Inc.’s (FEI) Issuer Rating and MTNs & Unsecured Debentures rating at “A” and the Commercial Paper rating at R-1 (low). All trends remain Stable. The confirmations reflect FEI’s solid credit metrics, strong liquidity, and a stable regulatory environment in British Columbia (BC). DBRS Morningstar expects FEI to continue to maintain its credit metrics consistent with the current ratings.

FEI’s financial profile remained solid in the last 12 months to September 30, 2019. Cash flow remained relatively stable compared with 2018. FEI’s rate base continued to grow modestly, largely reflecting customer growth and the completion of the Tilbury Phase 1A Expansion Project. As at September 30, 2019, debt levels increased marginally from the end of 2018, but the debt-to-capital ratio remained within the regulatory capital structure. FEI’s other key credit metrics remained stable and were consistent with DBRS Morningstar’s required levels to support the current ratings. FEI’s liquidity was viewed as solid, reflecting stable cash flows, sizable credit facility availability, and no long-term debt maturing within the next five years.

FEI is regulated by the BC Utilities Commission (BCUC). The regulatory framework in BC remained stable in 2019, with no change in allowed return on equity and deemed equity component of the capital structure, which remained at 8.75% and 38.5%, respectively, until otherwise determined by the BCUC. FEI is at the end of its final year of the 2014–2019 Performance Based Ratemaking (PBR) plan. FEI’s multiyear rate plan application for 2020–2024 was filed with the BCUC. The BCUC’s decision is expected in the first half of 2020. DBRS Morningstar does not expect any material change in the next PBR period that would have a negative impact on FEI’s business risk profile or its credit metrics. FEI’s credit profile is further supported by the fact that it has a number of deferral accounts that are used to stabilize the impact of volatility in gas volume sales, cost of gas, and midstream delivery charges for the benefit of its customers.

FEI is currently undertaking a number of major capital projects including the Lower Mainland Intermediate System Upgrade and the Inland Gas Upgrades. A substantial amount of capital expenditure for these projects is expected. DBRS Morningstar expects that FEI will manage and complete its capital projects on time and within budget. Final costs of these capital projects are subject to the BCUC’s review, and significant project delays may have a negative impact on FEI’s credit metrics. Given the current regulatory environment and FEI’s financial performance, a rating upgrade is unlikely. However, any regulatory decision that may have a material adverse effect on FEI’s business risk profile or a material weakening of FEI’s credit metrics for a sustainable period could result in a negative rating action.

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; DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers; and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships, which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at [email protected].

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

DBRS Morningstar 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 [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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