Morningstar DBRS Confirms FortisBC Inc.'s Issuer Rating and Unsecured Debentures at A (low), Stable; Confirms Commercial Paper at R-1 (low), Stable

DBRS Limited (Morningstar DBRS) confirmed FortisBC Inc.'s (FBC or the Company) Issuer Rating and Unsecured Debentures at A (low) and Commercial Paper at R-1 (low). All trends remain Stable.

KEY CREDIT RATING CONSIDERATIONS
The rating confirmations reflect (1) FBC's business risk profile, which remains unchanged as a vertically integrated utility under a stable regulatory setting; (2) the strong credit metrics in 2024 and Morningstar DBRS's expectation that the metrics will remain supportive of its current ratings over the medium term; (3) solid liquidity; and (4) good operational efficiency and reliability.

CREDIT RATING DRIVERS
A positive rating action could occur if FBC's business risk profile improves meaningfully from the current level while maintaining strong credit metrics. While unlikely, a negative rating action could occur if the Company's business risk profile significantly deteriorates and/or its key credit metrics weaken to a level no longer supportive of the current credit ratings (i.e., debt-to-capital above 60% and cash flow-to-debt below 12.5% for a sustained period).

EARNINGS OUTLOOK
FBC's earnings have demonstrated modest but steady growth in recent years. Morningstar DBRS anticipates that this positive trend will continue, driven by the projected higher rate base, continuing operational efficiencies, and higher rates resulting from the GCOC Stage 1 Decision.

FINANCIAL OUTLOOK
Morningstar DBRS expects FBC's credit metrics to improve, in line with the higher earnings and cash flow expectation, while remaining within the range of its current rating category for the medium term. FBC's projected capex for 2025 (excluding contributions in aid of construction) is approximately $179 million. Morningstar DBRS expects the Company to prioritize cash flows in its capex program, with actual leverage maintained in line with the approved regulatory capital structure.

CREDIT RATING RATIONALE
FBC's business risk assessment remains unchanged under a reasonable regulatory environment set by the British Columbia Utilities Commission (BCUC). Energy costs are fully passed through to customers, while operating and maintenance (O&M) costs are indexed for inflation with a 50/50 sharing of variances between ratepayers and the Company. Morningstar DBRS views FBC, a vertically integrated utility company with generation assets, as having modestly higher business risk than that of a utility with only transmission and distribution assets. Additionally, Morningstar DBRS considers FBC's franchise and customer mix less favorably given the less economically robust service territory with a load mix heavily weighted towards residential and commercial.

There has been no material change in British Columbia's (BC) regulatory environment since the last review. In April 2024, FBC filed an application with the BCUC for approval of a rate-setting framework for 2025 through 2027. The proposed framework is based on the current Multi-Year Rate Plan (MRP). A decision is expected by the second half of 2025. Based on the filed application, we do not anticipate any material changes in the next MRP period that would have a negative impact on FBC's credit metrics.

Morningstar DBRS notes that FBC has increased its Commercial Paper (CP) program limit to $200 million from $150 million, backstopped by a $200 million committed revolving credit facility maturing in April 2028. Based on our review, we are satisfied that the Company's revised CP program limit and its current credit facilities meet our requirements as outlined in the Commercial Paper Liquidity Support for Nonbank Corporate Issuers section of the Morningstar DBRS Global Corporate Criteria.

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 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 FBC, the BRA factors are considered in the order of importance contemplated in the methodology.

B) Weighting of FRA Factors
In the analysis of FBC, 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 FBC, 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 (November 25, 2024)
https://dbrs.morningstar.com/research/443429

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria [(February 03, 2025) - https://dbrs.morningstar.com/research/447186], 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 Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781

Morningstar DBRS Global Corporate Criteria (February 03, 2025)
https://dbrs.morningstar.com/research/447186

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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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