DBRS Morningstar Confirms FortisBC Inc.’s Ratings at A (low)/R-1 (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed FortisBC Inc.’s (FBC) Issuer Rating, Secured Debentures rating, and Unsecured Debentures rating at A (low) and confirmed FBC’s Commercial Paper rating at R-1 (low). All trends are Stable. The confirmations reflect (1) FBC's stable regulatory risk profile through the Multiyear Rate Plan (MRP) until the end of 2024, (2) the strong credit metrics in 2022 and DBRS Morningstar’s expectation that the metrics will remain relatively stable over the medium term, (3) solid liquidity, and (4) good operational efficiency and reliability. DBRS Morningstar rates FBC's Unsecured Debentures the same as its Secured Debentures because the $25 million Secured Debentures due August 2023 are insignificant as a percentage of total debt.

The regulatory framework in the Province of British Columbia (BC; rated AA (high) with a Stable trend by DBRS Morningstar) remained stable, with FBC operating in the fourth year of the five-year MRP. The British Columbia Utilities Commission has initiated generic cost of capital (GCOC) proceedings for regulated utilities in BC. GCOC proceedings will include a review of the deemed equity component of total capital structure and allowed return on equity (ROE) for FBC, which are at 40% and 9.15%, respectively. The GCOC proceedings could affect FBC's capital structure and allowed ROE.

FBC’s credit metrics in 2022 remained relatively stable and strong, supported by stable cash flow and reasonable debt leverage in the capital structure. FBC’s projected capital expenditures for 2023 (excluding contribution in aid of construction) are approximately $132 million and are only modestly higher than 2022. FBC should have no material capital expenditure financing issues. DBRS Morningstar expects FBC's credit metrics to remain relatively stable throughout the remainder of the MRP term as FBC continues to maintain the regulatory capital structure of 40% equity and 60% debt.

DBRS Morningstar could consider a positive rating action if FBC's business risk profile improves significantly from the current level while maintaining strong credit metrics. Conversely, FBC’s rating may be affected if its business risk profile deteriorates materially and/or its credit metrics weaken significantly from the current level on a sustained basis. However, DBRS Morningstar considers this scenario unlikely.

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

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

The principal methodologies applicable to the ratings are Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022; https://www.dbrsmorningstar.com/research/402616) and DBRS Morningstar Global Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (February 24, 2023; https://www.dbrsmorningstar.com/research/410196).

The rating methodologies used in the analysis of this transaction can be found at:
https://www.dbrsmorningstar.com/about/methodologies.

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 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.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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