DBRS Morningstar Confirms Newfoundland Power Inc. at 'A' with Stable Trends.

ENPNewswire-October 5, 2021--DBRS Morningstar Confirms Newfoundland Power Inc. at 'A' with Stable Trends

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Release date- 04102021 - DBRS Limited (DBRS Morningstar) confirmed Newfoundland Power Inc.'s (Newfoundland Power or the Company) Issuer Rating and First Mortgage Bonds rating at 'A.'

All trends are Stable. The ratings are supported by the Company's stable regulated operations, mainly consisting of electricity distribution; the reasonable regulatory regime under the Board of Commissioners of Public Utilities (PUB); and a solid financial profile.

Newfoundland Power is regulated under cost-of-service (COS) regulation by the PUB and continues to benefit from multiple regulatory deferral accounts, reducing volatility in earnings and cash flow. Effective July 1, 2021, the PUB approved an effective increase of 2.5% in electricity rates charges to customers and on May 27, 2021, the Company has also filed for 2022/2023 general rate application (GRA); the GRA is currently under review by the PUB.

DBRS Morningstar considers the biggest challenge Newfoundland Power faces to be the potential rate shock for ratepayers from the Muskrat Falls project, an 824-megawatt hydroelectric generating facility developed by Nalcor Energy that is expected to be fully commissioned by the end of 2021. A rate shock could severely reduce electricity volumes and affordability for Newfoundland Power's customers and negatively affect the Company's earnings and cash flow. On July 28, 2021, the government of Newfoundland and Labrador and the Government of Canada announced an agreement in principle for the financial restructuring of the Muskrat Falls project. Although, DBRS Morningstar views this as a positive development, the uncertainty on future rates remains. DBRS Morningstar will continue to monitor the situation and treat a potential rate shock as an event risk.

DBRS Morningstar views weak provincial economic conditions with high dependence on volatile commodity prices as another challenge because it could significantly affect the affordability for Newfoundland Power's customers. In 2020, the Coronavirus Disease (COVID-19) pandemic and low oil prices severely affected the provincial economy. The monthly unemployment rate spiked to 17.9% in June 2020 from 12.4% in February 2020. However, DBRS Morningstar notes that provincial economic conditions have improved compared with the previous year because of higher oil...

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