Morningstar DBRS Confirms Credit Ratings on TriSummit Utilities Inc. at BBB (high) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed TriSummit Utilities Inc.'s (TSU or the Company) Issuer Rating and the Unsecured Medium-Term Notes rating at BBB (high) with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
TSU's credit ratings are based on (1) TSU's stable business risk profile underpinned by its ownership of regulated distribution utilities, diversified asset base, and contracted renewable power generation assets; (2) TSU's reasonable financial risk profile with strong credit metrics. Key challenges include the relatively small size of its individual regulated utilities, operational risks at its regulated utilities, and the impact of weather on natural gas consumption and electricity generation. In March 2023, TSU completed its acquisition of the ENSTAR Natural Gas Company (ENSTAR), the Alaska Pipeline Company, the Norstar Pipeline Company, Inc., and a 65% indirect interest in Cook Inlet Natural Gas Storage Alaska, LLC. (CINGSA), (collectively, the Alaska Utilities Business). For additional details, please see Morningstar DBRS' press release dated March 1, 2023. The Stable trends reflect the expectation that TSU's business risk and credit metrics will remain supportive of the current ratings over the medium term.

CREDIT RATING DRIVERS
The Company's size constrains its credit ratings, and, thus, a positive credit rating action would require a material improvement in size. Although it is unlikely, a negative rating action may occur should TSU's business risk profile or its credit metrics weaken significantly to a level that no longer supports the current rating category on a sustained basis (i.e., cash flow-to-debt below 10.0% and debt-to-capital above 65%).

EARNINGS OUTLOOK
TSU's earnings significantly increased in 2023 mainly because of the acquisition of the Alaska Utilities Business. Given its regulated operations, TSU's earnings have been relatively stable and predictable. Morningstar DBRS expects the Company's earnings to remain steady through the current regulatory period, with a modest increase year-over-year as a result of the higher approved rates and rate base, while continuing capital investment in the distribution system and integration activities after the acquisition.

FINANCIAL OUTLOOK
TSU's financial risk profile has remained relatively stable and supportive of the current BBB (high) credit rating, and its liquidity remained solid in 2023, reflecting sizable credit facilities and predictable cash flows. The Company's key credit metrics were slightly weaker than 2022 as a result of the partial year of earnings from the Alaska Utilities because of the timing of the Alaska Utilities acquisition. Over the 2025-29 time period, TSU expects capital investments of approximately $1.3 billion at its utilities. The expected capital program includes investments in system betterment projects to maintain the safety and reliability of TSU's utility infrastructure, new business opportunities, technology improvements, and energy evolution investments. In 2024, TSU expects capital investments to be in the $260 million to $290 million range.

Morningstar DBRS expects TSU's financial performance to remain stable and the operating cash flow to increase because of growth in the rate base. Morningstar DBRS also expects TSU to fund its capex and dividend payments with operating cash flow and debt while maintaining its existing capital structure.

CREDIT RATING RATIONALE
TSU's credit ratings are supported by the low risk regulated business with diversified assets based across different jurisdictions and its solid financial profile. This is partly offset by the size of individual utilities, operational risks at its regulated utilities, and the impact of weather on natural gas consumption and electricity generation. In addition, the Company's credit ratings reflect the solid credit metrics, which are expected to be maintained in the near to medium term.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of TSU, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of TSU, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of TSU, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in the Regulated Utility and Independent Power Producer Industries (June 27, 2024)
https://dbrs.morningstar.com/research/435127

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024; https://dbrs.morningstar.com/research/431186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

Morningstar DBRS Global Corporate Criteria (April 15, 2024)
https://dbrs.morningstar.com/research/431186

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781

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

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 info-DBRS@morningstar.com.

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.

Morningstar DBRS 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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