DBRS Limited (DBRS Morningstar) confirmed ENMAX Corporation's (ENMAX or the Company) Issuer Rating and Unsecured Debentures rating at BBB (high) and its Commercial Paper rating at R-2 (high).
All trends are Stable. ENMAX's ratings reflect the stability of the Company's regulated electricity transmission and distribution operations in the Province of Alberta (rated AA (low) with a Negative trend by DBRS Morningstar) and the state of Maine, offset by its higher-risk nonregulated generation business.
Following the Company's acquisition of Versant Power in March 2020 (the Acquisition), DBRS Morningstar expects ENMAX's regulated operations to contribute around 70% of consolidated earnings going forward. DBRS Morningstar considers this shift, from around 55% previously, as positive for the Company's business risk assessment, as the Company's regulated operations provide more predictable cash flows than its nonregulated generation segment. In 2020, the Alberta Utilities Commission finalized 2021 and 2022 deemed equity of 37% and return on equity (ROE) of 8.5% for the Alberta regulated utilities. This continuation of the current deemed equity and allowed ROE removes uncertainty for ENMAX and should also help provide further stability to earnings.
In January 2021, Versant Power applied to the Maine Public Utilities Commission to increase rates effective October 2021 and October 2022. DBRS Morningstar notes that if the rate increase is approved, this would be beneficial to ENMAX's financial risk assessment, as the Company's key credit metrics weakened significantly because of the substantial debt funding required for the Acquisition (debt issuances totalling $1.1 billion). Considering the mix of regulated and nonregulated businesses, ENMAX's key credit metrics remain in line with the BBB rating category.
The ongoing Coronavirus Disease (COVID-19) pandemic has not materially affected the Company's earnings given the essential nature of its regulated operations and the hedging strategy employed by the generation business. Overall, DBRS Morningstar expects ENMAX's key credit metrics to see modest improvement for 2021 from a full year's contribution from Versant Power and continued growth in the rate base. The Company has also noted its intention to modestly deleverage over the next two to three years, which would further improve its key credit metrics.
DBRS Morningstar considers a positive rating action unlikely in the near term given ENMAX's key credit metrics. However, a negative rating action could occur if credit metrics weaken significantly to a level that is no longer commensurate with the current ratings after considering the mix of regulated and nonregulated operations. A negative rating action could also occur if significant investments are made in the nonregulated businesses that lead to a material shift in the earnings mix.
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/373262.
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 (October 27, 2020; https://www.dbrsmorningstar.com/research/368939), Rating Companies in the Independent Power Producer Industry (May 10, 2021; https://www.dbrsmorningstar.com/research/378166), and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 9, 2021; https://www.dbrsmorningstar.com/research/375001), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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@dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
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Ratings
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in Canada
EU = Lead Analyst based in EU
UK = Lead Analyst based in UK
E = EU endorsed
U = UK endorsed
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Unsolicited Participating Without Access
Unsolicited Non-participating
08-Jul-21 Issuer Rating Confirmed BBB (high) Stb CA
08-Jul-21 Unsecured Debentures Confirmed BBB (high) Stb CA
08-Jul-21 Commercial Paper Confirmed R-2 (high) Stb CA
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VERSANT POWER 
