DBRS Morningstar Confirms Ratings on ENMAX Corporation at BBB (high) and R-2 (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Unsecured Debentures rating of ENMAX Corporation (ENMAX or the Company) at BBB (high) and the Commercial Paper rating at R-2 (high). All trends are Stable. ENMAX's ratings are based on the Company's regulated electricity distribution and transmission businesses in the Province of Alberta (rated AA (low) with a Stable trend by DBRS Morningstar) and the State of Maine, offset by its higher-risk nonregulated electricity generation business. The Stable trends reflect ENMAX's reasonable financial risk assessment, which, given the mix of regulated and nonregulated operations, is supportive of the current ratings.

ENMAX's business risk assessment remained stable in 2021 and the first half of 2022. Following the acquisition of Versant Power in March 2020, regulated operations are targeted to contribute, on average, 70% of annual earnings, with the remaining contributed by the nonregulated business. In 2021, the Alberta Utilities Commission (AUC) finalized the 2022 deemed equity and return on equity for Alberta regulated utilities at 37% and 8.5%, unchanged from the previous year. The AUC also approved the Company's negotiated settlement for 2023 distribution rates; this serves as a one-year cost-of-service rebasing year before the third generation of the performance-based regulation plan. Additionally, the Maine Public Utilities Commission approved a 17.5% rate increase for Versant Power effective November 1, 2021, as well as a new decoupling mechanism. Given these regulatory decisions, DBRS Morningstar expects ENMAX's earnings and cash flows to remain steady and predictable through at least 2023.

ENMAX's key credit metrics strengthened modestly in 2021 and the last 12 months ended March 31, 2022, largely because of a full year's contribution from Versant Power, stronger results from the nonregulated generation segment, and the Company executing its plan to deleverage and reduce the debt issued for the Versant Power acquisition. ENMAX's key credit metrics remained in line with the BBB rating category. However, a negative rating action may occur if the metrics, considering the mix of regulated and nonregulated operations, weaken to a level no longer supportive of the current ratings. A negative rating action could also occur if significant investments are made in the nonregulated businesses that lead to a material shift in the earnings mix. Given the current financial risk assessment, DBRS Morningstar considers a positive rating action unlikely at this time.

There were no Environmental/Social/Governance (ESG) 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.

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), Rating Companies in the Independent Power Producer Industry (May 18, 2022; https://www.dbrsmorningstar.com/research/396971), DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683) 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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