DBRS Morningstar Confirms Newfoundland Power Inc. at “A” With Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Newfoundland Power Inc.'s (Newfoundland Power or the Company) Issuer Rating and First Mortgage Bonds credit rating at "A." All trends remain Stable. The confirmations are based on the Company's stable regulated electricity operations, mainly consisting of electricity distribution, and the reasonable regulatory framework under the Board of Commissioners of Public Utilities. The Stable trends reflect Newfoundland Power's key credit metrics, which have been steady and in line with the “A” credit rating range.

There have been no material changes to Newfoundland Power's business risk assessment since the most recent review a year ago. The Company operates under a cost-of-service framework where it can recover all prudent expenditures. DBRS Morningstar continues to consider the greatest uncertainty for Newfoundland Power to be the potential rate shock from Newfoundland and Labrador Hydro’s (Hydro; 100% owned by the Province of Newfoundland and Labrador; both rated "A" with a Stable trend by DBRS Morningstar) Muskrat Falls Project (Muskrat Falls). While the generating units were completed in 2021 and the associated Labrador-Island Link transmission line was officially commissioned in April 2023, the impact on customer rates remains subject to Hydro’s future general rate applications. Should the upward pressure on rates affect the Company's ability to pass on costs, this would negatively affect its credit profile. DBRS Morningstar will continue to monitor the situation and treat a potential rate shock as an event risk.

Newfoundland Power's financial risk assessment has remained stable, with all key credit metrics supportive of the current credit rating. DBRS Morningstar expects the Company to continue managing any free cash flow deficits from the capital expenditures program and dividends in a prudent manner in order to maintain leverage in line with the regulatory capital structure of 55% debt. A positive credit rating action is unlikely because of the weaker franchise area and uncertainty regarding the rate impact from Muskrat Falls. A negative credit rating action is also unlikely, but if ratepayers' ability to pay bills or Newfoundland Power's ability to fully pass on costs is negatively affected, a multinotch downgrade may occur.

ENVIRONMENTAL, SOCIAL, AND 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (July 4, 2023).

Notes:
DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 27, 2023; https://www.dbrsmorningstar.com/research/421106/global-methodology-for-rating-companies-in-the-regulated-electric-natural-gas-and-water-utilities-industry).

The credit 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.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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 credit ratings are under regular surveillance.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577