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

DBRS, Inc. (DBRS Morningstar) confirmed FortisBC Energy Inc.’s (FEI or the Company) Issuer Rating and MTNs & Unsecured Debentures rating at “A” and its Commercial Paper rating at R-1 (low). All trends are Stable. The rating confirmations reflect FEI’s strong financial and business risk profile. DBRS Morningstar notes that FEI is in the second year of its 2020–24 Multi-Year Rate Plan (MRP). DBRS Morningstar expects that the MRP will not materially change FEI’s business risk profile over the medium term. The allowed return on equity (ROE) and the deemed equity component of the capital structure remain unchanged at 8.75% and 38.5%, respectively.

The British Columbia Utilities Commission (BCUC) initiated a generic cost of capital (GCC) proceeding in January 2021, which includes a review of the deemed equity component of total capital structure and allowed ROE for FEI and other regulated utilities. The GCC proceeding is expected to conclude in early to mid-2023. DBRS Morningstar notes that any material changes in the allowed ROE or deemed equity as a result of the GCC proceedings may affect FEI’s credit profile.

FEI’s financial profile remained solid in the last 12 months to September 30, 2022 (LTM 2022). The increase in the cash flow is in line with FEI’s growing rate base, largely reflecting customer growth. As at September 30, 2022, the debt-to-capital ratio remained within regulatory capital structure. FEI’s LTM 2022 key credit metrics remained relatively stable and consistent with DBRS Morningstar’s required levels to support the current ratings. FEI’s liquidity was viewed as solid, reflecting stable cash flows, sizable credit facility availability, and the next long-term debt maturity is in 2026.

FEI is currently undertaking a number of major capital projects that will require high capital expenditure (capex) in the next few years, including the Inland Gas Upgrade project and the Tilbury Phase 1B Expansion project. DBRS Morningstar expects that the Company will manage and complete its capital projects on time and within budget. DBRS Morningstar also expects FEI to finance its capex and maintain its debt-to-capital ratio consistent with the regulatory capital structure.

Given the current regulatory environment and FEI’s financing plan, a rating upgrade is unlikely. DBRS Morningstar expects the regulatory environment in British Columbia to remain stable during the term of the MRP. However, any regulatory decisions or FEI business decisions that may have a material adverse effect on the Company’s business risk profile or a material weakening of FEI’s credit metrics for a sustained period could result in a negative rating action. DBRS Morningstar considers these events unlikely.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 (May 17, 2022).

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

The principal methodologies are Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022) and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 1, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

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/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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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