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

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debentures rating of Alectra Inc. (Alectra or the Company) at "A" and the Commercial Paper rating at R-1 (low). All trends are Stable. The ratings of Alectra are based on its regulated electricity distribution business, which provides a predictable stream of earnings and cash flows. The confirmations and trends are based on the Company's reasonable financial risk profile, with all key credit metrics in the "A" rating category.

Alectra's business risk assessment remained stable, supported by the reasonable regulatory framework under the Ontario Energy Board. The Company's distribution business continues to operate under a 10-year rates deferral period until 2027, with productivity gains from the merger and acquisition of the predecessor utilities largely accruing to the shareholders. DBRS Morningstar notes, however, that Alectra has been growing its nonregulated operations and intends to increase this segment to account for up to 15% of EBITDA over the medium term (8% in 2021). While the Company's nonregulated operations are largely complementary to the incumbent regulated business (such as solar generation, submetering, and power restoration services), DBRS Morningstar considers nonregulated operations to be of higher risk because earnings and cash flows are less predictable; this is partly mitigated by the generation portfolio's long-term contracts with the Independent Electricity System Operator. DBRS Morningstar will continue to monitor the growth in Alectra's nonregulated segment. Should earnings from the nonregulated business exceed the 20% threshold on a sustained basis, the Company’s business risk assessment could be negatively affected.

Alectra's financial risk assessment remains supportive of the current ratings, with all key credit metrics in line with the "A" rating category. Given that most of the earnings and cash flows are from regulated activities, DBRS Morningstar expects the Company's key metrics to remain stable for the medium term. However, should key credit metrics weaken further to a level no longer commensurate with the current ratings, a negative rating action could occur.

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 1, 2022; https://www.dbrsmorningstar.com/research/393065), 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 (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

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

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