Morningstar DBRS Confirms Credit Ratings on ENMAX Corporation at BBB (high) and R-2 (high) With Stable Trends
Utilities & Independent PowerDBRS Limited (Morningstar DBRS) confirmed ENMAX Corporation's (ENMAX or the Company) Issuer Rating and Unsecured Debentures credit rating at BBB (high), as well as the Company's Commercial Paper credit rating at R-2 (high). All trends are Stable.
KEY CREDIT RATING CONSIDERATIONS
ENMAX's credit ratings are supported by the Company's regulated electricity distribution and transmission operations around the City of Calgary (Calgary or the City, 100% owner of ENMAX; rated AA (high) with a Stable trend) and in the U.S. state of Maine (Maine), offset by the higher-risk nonregulated competitive energy segment. The Stable trends reflect Morningstar DBRS' expectation that the Company's key credit metrics, which, considering the mix of the regulated and competitive businesses, will remain commensurate with the current credit rating categories and that a gradual business shift towards the regulatory business would result in higher earnings stability over the medium to long term.
The Company has revised its financial objectives to align with a low-risk, regulated growth strategy, setting a long-term business mix target of 85% EBITDA contribution from regulated business compared with 70% previously. Morningstar DBRS expects EBITDA contribution from ENMAX's regulated business to increase towards 70% of consolidated EBITDA in the medium term, from an approximately 59% contribution in 2024, with the remainder from the Company's competitive businesses. ENMAX has also revised its capital investment target to allocate at least 80% (previously 70%) of annual investment in the regulated businesses and does not expect any growth investments or new generation investments in the competitive businesses. Morningstar DBRS forecasts that around 85% to 90% of the Company's capital expenditures (capex) in the next three years will focus on regulated operations, with mainly maintenance capex planned for the competitive energy segment.
CREDIT RATING DRIVERS
Morningstar DBRS may consider a positive credit rating action if ENMAX's business risk profile strengthens, with regulated business contributing more than 80% to the total Company's EBITDA on a sustained business, while financial risk assessment (FRA) becomes commensurate with a higher credit rating category, even during periods of normalized earnings from the nonregulated competitive energy business. Morningstar DBRS could take a negative credit rating action should ENMAX revise its strategy and grow its nonregulated operations, permanently shifting its business risk as a result, and/or the key credit metrics weaken to a level that no longer supports the current credit ratings (i.e., cash flow-to-debt below 12.5% and debt-to-capital above 65%) for a sustained period.
EARNINGS OUTLOOK
Morningstar DBRS expects that earnings contribution from regulated operations in Calgary and Maine will increase towards 70% over the medium term, providing more predictability to the Company's earnings profile. Earnings from regulated operations improved over 2024 on account of higher transmission and distribution margins, partially offset by higher storm restoration costs related to Versant Power. Morningstar DBRS expects ENMAX Power's earnings to see modest increases year over year, in line with growth in the rate base. Morningstar DBRS notes that regulatory audits and pending investigation findings at Versant Power could result in ROE revisions for future rate cases but expects the earnings impact to be manageable, considering the 20% to 25% overall earnings contribution from this business segment. Morningstar DBRS expects variability in earnings will mostly relate to nonregulated business (i.e., ENMAX Energy), where generation is partly exposed to volatile wholesale electricity prices. Earnings from ENMAX Energy should remain relatively flat in 2025 but begin to normalize in 2026 due to major planned outages, normalization in spark spreads, and the Company's decision to exit the more competitive commercial and industrial power retail business.
FINANCIAL OUTLOOK
Morningstar DBRS expects ENMAX's financial profile to remain relatively stable over the forecast period and its key credit metrics, considering the mix of regulated and nonregulated operations, to remain adequate for the current BBB (high) credit rating. The Company's key credit metrics improved considerably over 2024, with cashflow-to-debt ratio improving to 17.6% compared with 16.7% in 2023. While Morningstar DBRS expects coverage ratios to moderate in the near term on account of earnings moderation in the nonregulated business, these should remain supportive of the current credit rating. Additionally, the higher proportion of cashflows generated through regulated business are more stable, and Morningstar DBRS views this favourably. Morningstar DBRS also expects the Company to manage its capex (around $650 million each for 2025 and 2026) largely through cash generation from regulated and nonregulated businesses, such that debt remains relatively stable throughout this period. ENMAX has updated its dividend policy to generate additional equity funding reserves, which aligns with the Company's more conservative financial objectives.
CREDIT RATING RATIONALE
ENMAX's low-risk regulated electricity operations in Alberta and Maine, integration of electricity generation with retail customer base, and financial support from the City support its credit ratings, although they are partly offset by regulatory risks in Alberta and Maine, exposure to wholesale electricity price volatility, and other underperformance and market risks related to the generation assets.
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 (May 16, 2025), https://dbrs.morningstar.com/research/454196.
BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
A) Weighting of BRA Factors
In the analysis of ENMAX, the BRA factors were considered in the order of importance contemplated in the methodology.
B) Weighting of FRA Factors
In the analysis of ENMAX, the FRA factors were considered in the order of importance contemplated in the methodology.
C) Weighting of the BRA and the FRA
In the analysis of ENMAX, 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 Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025),
https://dbrs.morningstar.com/research/454196
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.
For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings
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.
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