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 created to design, build, finance, operate, and maintain the Fort McMurray West 500-kilovolt 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 generally progressed smoothly. The Project was de-energized on April 24, 2023, to support a third-party requested system outage. APL used this outage to conduct certain testing works in relation to a designated change in law requirements identified in 2019. During such process, certain vertical bus elements on a gantry failed and fell to the ground. The failure was remediated but resulted in 269 minutes of forced outage and around $70,000 in payment deductions, which was fully passed down to the O&M Contractor. APL conducted a joint inspection with the O&M Contractor and DBJV in May 2023 to identify the root cause of the failure and subsequently developed a remediation plan to prevent the same parts on other sites from similar failures. The O&M Contractor is investigating further for potential latent defect warranty claims.

ProjectCo and the O&M Contractor have made a number of minor warranty claims, 99% of which have been completely remediated by the Design-Build Joint Venture (DBJV) with some minor work 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. Work was completed in 2021, 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 still working with AESO to determine the impact of such change order on maintenance and lifecycle costs, which are expected to be approved by Q1 2024 and be fully refunded.

Maintenance activities performed over the past year mainly included transmission line patrols, access road improvements, and vegetation management. The Coronavirus Disease (COVID-19) pandemic and the wildfires in Alberta have not had a material impact on APL's ability to carry out its operation and maintenance activities.

While it is not currently anticipated, DBRS Morningstar may take a negative credit 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 are fairly straightforward for an experienced contractor such as ATCO Electric. DBRS Morningstar views a positive credit rating action as unlikely in the near term.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
General 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 (July 4, 2023).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Public-Private Partnerships (October 11, 2023) https://www.dbrsmorningstar.com/research/421701

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.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

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

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