DBRS Morningstar Confirms Ratings of Alberta PowerLine Limited Partnership at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the ratings on the Long Term Senior Bonds and the Medium Term Senior Bonds (collectively, the Senior Bonds) of Alberta PowerLine Limited Partnership (APL or ProjectCo) at A (low) with Stable trends. ProjectCo is the special-purpose vehicle (SPV) created to design, build, finance, operate, and maintain the Fort McMurray West 500-kilovolt (kV) Transmission Project (the Project) under a 36.8-year Project Agreement (PA) with the Alberta Electric System Operator (AESO or the Authority).

Backed by a parent company guarantee from Canadian Utilities Limited (CU; rated "A" with a Stable trend by DBRS Morningstar), ATCO Electric Ltd. (ATCO Electric) continues as the Operations, Maintenance, and Lifecycle Contractor (O&M Contractor) for APL. Since APL achieved energization on March 29, 2019, operations have progressed smoothly without any unplanned outages or deductions. ProjectCo and the O&M Contractor have made a number of minor warranty claims, 98% of which have been completely remediated by the Design-Build Joint Venture (DBJV) with some minor works pertaining to switch heaters or transformer bladders either being remediated or in the planning stage. The DBJV has not disputed any of the warranty claims.

On September 13, 2021, the AESO issued a change order, which was subsequently confirmed on September 17, 2021, requiring ProjectCo to install protection and control circuit and equipment (the Remedial Action Scheme Installation) to accommodate a system reconfiguration because of a new generator added by the Authority. Works are now complete and all installation costs are fully recovered. Temporary de-energization caused by the execution of such change order was considered a planned third-party outage and therefore did not result in any payment deductions. ProjectCo is currently working with ASEO to determine the impact of such change order on maintenance and lifecycle costs, which are expected to be approved by April 2023 and be fully refunded.

The Coronavirus Disease (COVID-19) pandemic has not had a material or negative impact on APL's ability to carry out its operation and maintenance activities. The Project is considered to be an essential service and therefore not subject to the lockdown restrictions.

While it is not currently anticipated, DBRS Morningstar may take a negative rating action should the Project experience material deterioration in operating performance and a worsening trend of unplanned outages, leading to significant deductions and a deterioration in credit metrics. Notwithstanding, DBRS Morningstar notes that the operating requirements are of low complexity and fairly straightforward for an experienced contractor such as ATCO Electric. DBRS Morningstar views a positive rating action as unlikely in the near term.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
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 (May 17, 2022).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Public-Private Partnerships (August 30, 2022; https://www.dbrsmorningstar.com/research/402155).

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

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 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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