DBRS Morningstar Confirms FortisBC Inc.’s Ratings at A (low)/R-1 (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating, Secured Debentures rating, and Unsecured Debentures rating of FortisBC Inc. (FBC or the Company) at A (low). DBRS Morningstar also confirmed FBC’s Commercial Paper rating at R-1 (low). All trends are Stable. The confirmations reflect FBC’s stable business risk profile and stable financial performance. The Unsecured Debentures have the same rating as the Secured Debentures because the amount of Secured Debentures outstanding is minimal (approximately 3.4% of total long-term debt).

The Stable trends reflect DBRS Morningstar’s expectation that the Multi-Year Rate Plan for 2020 to 2024 (MRP) will not materially affect the Company’s business risk profile and will continue to provide FBC good opportunities to earn its allowed returns on equity (ROE) and recover base capital costs. In March 2019, FBC filed an MRP application, which proposes a rate-setting framework that includes, among other items, a level of operation and maintenance expense per customer indexed for inflation; a forecast approach to growth and sustained capital; a 50/50 sharing with customers of variances from the allowed ROE; and targeted incentives for FBC related to power supply costs, emissions reduction, and an innovation fund to accelerate investment in clean energy innovation. DBRS Morningstar believes that the MRP application is not materially different from the Performance Based Ratemaking Plan for 2014–19. The British Columbia Utilities Commission’s decision is expected by mid-2020.

FBC’s credit metrics in 2019 remained solidly supportive of the current ratings despite the cash flow-to-debt and interest coverage ratios declining modestly from the 2018 level. The decline of these two ratios were temporary and a result of the timing of the power purchase cost recovery. Capital expenditure for 2020 is expected to be approximately $140 million (including the allowance for funds used during construction but excluding customer contributions in aid of construction), which will result in a modest free cash flow deficit. DBRS Morningstar expects FBC to finance the cash flow deficit in a manner that will maintain the regulatory capital structure of 40% equity and 60% debt. As a result, DBRS Morningstar expects FBC’s credit metrics to remain stable over the near to medium term. If FBC’s credit metrics weaken significantly from the current level on a sustained basis, it could negatively affect the Company’s ratings. However, DBRS Morningstar considers this scenario unlikely.

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 Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships, and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, 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 relevant 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 addi¬tional 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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