DBRS Confirms FortisBC Energy Inc. at “A,” Stable

DBRS Limited (DBRS) confirmed FortisBC Energy Inc.’s (FEI or the Company) Issuer Rating and Medium-Term Notes rating at “A” and the Commercial Paper rating at R-1 (low). All trends remain Stable. The confirmations reflect FEI’s solid credit metrics, strong liquidity and a stable regulatory environment in British Columbia. The Stable trends incorporate DBRS’s expectation that the Company continues to maintain its credit metrics consistent with the current ratings.

FEI’s financial profile remained solid in the last 12 months to September 30, 2018. EBITDA and cash flow increased modestly from the 2017 levels, largely reflecting a growing rate base. All of FEI’s key credit metrics remained stable and were consistent with DBRS’s required levels to support the current ratings. FEI’s liquidity remained solid at the end of Q3 2018, reflecting stable cash flows, sizable credit facility availability and no long-term debt maturing within the next five years.

FEI is regulated by the British Columbia Utilities Commission (BCUC). The regulatory framework in British Columbia remained stable in 2018, with no change in allowed return on equity and deemed equity component of the capital structure, which remained at 8.75% and 38.5%, respectively. FEI is in its fifth year of the 2014–2019 Performance Based Ratemaking (PBR) plan. FEI has a number of deferral accounts that are used to stabilize the impact of volatility of gas volume sales, cost of gas and midstream delivery charges for the benefit of its customers.

DBRS notes that FEI is currently undertaking a number of capital projects, including the Tilbury Phase 1A Expansion project (near completion) and the Lower Mainland Intermediate Pressure System Upgrade (LMIPSU) project. Following the Company’s further review of engineering work, construction bids and other costs, the revised cost estimate of the LMIPSU project increased to approximately $500 million. However, this project has been approved by the BCUC and the revised cost estimate was provided to the BCUC. After the project is completed and in service, the final project costs remain subject to the BCUC’s review process. DBRS’s confirmations factor in its expectation that FEI will manage and complete its capital projects on time and within budget. Any potential unrecovered costs would have a negative impact on FEI’s credit metrics. Given the current regulatory environment, a rating upgrade is unlikely. However, any regulatory decision that may have a material adverse effect on FEI’s business risk profile or a material weakening of these credit metrics for a sustainable period could result in a negative rating action.

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

The principal methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on dbrs.com under Methodologies.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS 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 info@dbrs.com.