DBRS Limited (DBRS Morningstar) confirmed TriSummit Utilities Inc.’s (TSU or the Company) Issuer Rating and Unsecured Medium-Term Notes rating at BBB (high) with Stable trends. The rating confirmations reflect TSU’s stable business risk profile underpinned by its ownership of regulated natural gas distribution utilities, diversified asset base, and support from largely unsubordinated cash flows generated at its regulated utilities and contracted renewable power assets. Key challenges include the Company’s relatively small size, operational risks at its regulated utilities, exposure to contracted but unregulated renewable power operations, and the impact of weather on natural gas consumption and electricity generation.
The regulatory environment at TSU’s regulated utilities—including Pacific Northern Gas Ltd. (PNG), Heritage Gas Limited, and Apex Utilities Inc. (AUI; formerly AltaGas Utilities Inc.)—remained relatively stable over the last year with no changes in deemed equity or return on equity parameters. AUI is in the final two years of the five-year Performance-Based Regulation (PBR) term. In the June 2021 decision issued by the Alberta Utilities Commission (AUC), Electricity Distribution and Natural Gas Distribution will be under a one-year cost-of-service in 2023 and will be under the third term of the PBR starting in 2024.
DBRS Morningstar expects future growth to come from the Company's regulated business as all the capital expenditure (capex) will be spent on its regulated utilities. The Company expects to spend up to $680 million from 2021 to 2025. The majority of the capex is expected to be for planned system improvements at AUI and new growth opportunities at PNG arising from the development of liquefied natural gas export projects in Western Canada. The growth capital program at PNG includes projects such as the PNG Reactivation Project and the Salvus to Galloway Project. DBRS Morningstar notes that the British Columbia Utilities Commission (BCUC) approved the Certificate of Public Convenience and Necessity for Salvus to Galloway Project in July 2021; the expected capital cost of this project is $84.8 million.
The Coronavirus Disease (COVID-19) pandemic did not have a material impact on the Company in YE2020 and year-to-date 2021 because the Company operates critical infrastructure and provides an essential service. The AUC, BCUC, and the Nova Scotia Utility and Review Board approved various deferral accounts to support the customers and the utilities from the impact of the coronavirus pandemic. DBRS Morningstar notes that the balances in those deferral accounts are immaterial for the Company from a credit perspective.
TSU’s financial performance has remained relatively stable, underscoring the regulated and contractual nature of its earnings. DBRS Morningstar expects the Company’s operating cash flow (OCF) to increase because of the growth in the rate base. DBRS Morningstar also expects TSU to fund its capex and dividend payments with OCF and debt while maintaining TSU’s capital structure close to the regulatory approved capital structures at its utilities. The Stable trends reflect DBRS Morningstar’s expectation that the Company’s key credit metrics will remain supportive of the current ratings. DBRS Morningstar anticipates that TSU will continue to be the primary debt issuer with no material external debt at the operating companies.
Given that the Company’s size constrains its rating, a positive rating action would require a material improvement in scale. However, DBRS Morningstar may take a negative rating action if there is a substantial deterioration in its credit metrics from its current level or there is a material change in the business risk profile because of (1) an unlikely adverse change in the regulatory environment and/or (2) an acquisition or disposition.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
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 24, 2021; https://www.dbrsmorningstar.com/research/384922) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (October 29, 2021; https://www.dbrsmorningstar.com/research/386615), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).
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@example.com.
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.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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