DBRS Morningstar Confirms Ratings on ENMAX Corporation at BBB (high) and R-2 (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Unsecured Debentures rating of ENMAX Corporation (ENMAX or the Company) at BBB (high), and the Commercial Paper rating at R-2 (high). All trends are Stable. The ratings of ENMAX are supported by the Company's regulated electricity distribution and transmission operations around the City of Calgary (100% owner of ENMAX; rated AA (high) with a Stable trend by DBRS Morningstar) and in the State of Maine, offset by the higher-risk competitive energy segment . The Stable trends reflect the Company's key credit metrics, which, considering the mix of the regulated and non-rate regulated businesses, are in line with the current ratings.

On a long-term basis, DBRS Morningstar expects ENMAX's regulated business to contribute around 70% of consolidated EBITDA, with the remainder coming from the competitive energy segment. In 2022, the competitive energy segment contributed 44% of the Company's consolidated EBITDA, as earnings benefitted from the higher average pool prices, which improved realized margins for the generation business. DBRS Morningstar notes that earnings from the competitive energy segment are expected to remain elevated in 2023 because of continued higher wholesale prices and wider spark spreads. However, ENMAX remains committed to its strategy of focusing on its regulated businesses, with the Company forecasting that around 90% of its capital expenditures (capex) in the next three years will be for regulated operations, with mainly maintenance capex planned for the competitive energy segment. Should ENMAX revise its strategy and begin to grow its non-rate regulated operations and permanently shift its business mix, this could have a negative impact on its current ratings.

ENMAX has continued to execute its plan to deleverage as in October 2022 the Company repaid a $300 million maturity of debentures issued for the acquisition of Versant Power. DBRS Morningstar expects the pace of debt repayment to moderate going forward, however, as the capex needs of the regulated businesses over the medium term will likely require some debt financing. Overall, DBRS Morningstar expects the Company's key credit metrics to continue to improve modestly year over year, benefitting from growth in the rate base. Given the current financial risk assessment, DBRS Morningstar considers a positive rating action unlikely at this time. However, a negative rating action may occur if, considering the mix of regulated and non-rated regulated operations, the metrics weaken to a level no longer supportive of the current ratings, such as if the metrics fall into the BB range under the Independent Power Producers methodology, and into the mid or lower end of the BBB range under the Regulated Utilities methodology

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/416784 (July 4, 2023).

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

DBRS Morningstar applied the following principal methodologies:
-- Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022; https://www.dbrsmorningstar.com/research/402616).
-- Global Methodology for Rating Companies in the Independent Power Producer Industry (May 9, 2023; https://www.dbrsmorningstar.com/research/413646/).

The following methodologies have also been applied:
-- DBRS Morningstar Global Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (February 24, 2023; https://www.dbrsmorningstar.com/research/410196/).

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

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 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.

DBRS Morningstar 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. DBRS Morningstar trends and credit ratings are under regular surveillance.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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