DBRS Morningstar Confirms Ratings on Nova Scotia Power Inc. at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Nova Scotia Power Inc.'s (NSPI or the Company) Issuer Rating and Unsecured Debentures & Medium-Term Notes rating at A (low), and the Commercial Paper rating at R-1 (low). All trends are Stable. The confirmations reflect the stability of the Company's regulated electricity operations and key credit metrics that are in line with the current rating.

NSPI's business risk assessment was steady in 2020 and 2021, with no material changes to its regulatory framework. The Company continues to operate under a reasonable regulatory framework by the Nova Scotia Utility and Review Board where it can recover all prudent expenditures and have the opportunity to earn a return on equity of 8.75% to 9.25%. DBRS Morningstar continues to consider the Company’s transition from reliance on coal-based generation (50% of 2020 installed generation capacity) to lower-emitting sources to be a long-term challenge. In 2021, the Province enacted several pieces of environmental legislation, including the mandate that by 2030, coal-fired generation be phased out and 80% of electricity sales be from renewable sources. For 2022, NSPI expects to reach its 60% renewable requirement partly through contributions from the Muskrat Falls Project. The Company will likely need to fulfill the remaining 20% requirement through investments in renewable-generation projects. DBRS Morningstar expects NSPI to finance in a prudent manner any projects that may arise to maintain its key credit metrics in line with the "A" rating category. However, DBRS Morningstar could take a negative rating action should these capital expenditures lead to a substantial increase in debt and result in the Company's credit metrics weakening to a level no longer in line with the current ratings. DBRS Morningstar could also take a negative rating action should the retirement of the coal-fired generation plants by 2030 lead to stranded costs for NSPI that significantly pressure its balance sheet.

NSPI's key credit metrics have remained supportive of the current A (low) rating. Overall, DBRS Morningstar expects the Company to continue to maintain its key credit metrics in line with the current rating category through prudent dividend and debt management. NSPI has demonstrated a flexible dividend payout policy to its parent company, Emera Inc., in order to maintain its debt-to-capital ratio within regulatory parameters. DBRS Morningstar considers a positive rating action as unlikely in the medium term given the current regulatory framework. A negative rating action is also unlikely, but could occur if the metrics weaken to a level no longer commensurate with the current rating category.

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.

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 24, 2021; https://www.dbrsmorningstar.com/research/384922) and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 9, 2021; https://www.dbrsmorningstar.com/research/375001), 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 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.

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.

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.dbrsmorningstar.com or contact us at [email protected].

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