1999 BC Gas Utility Ltd. annual report - FortisBC

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5 BC GAS UTILITY LTD. Management Discussion and Analysis Coverage Ratios Due to the capital intensive nature of the Company’s businesses and the need to raise debt frequently in the fixed income market, maintenance of its financial ratios is a priority for BC Gas. The most significant ratios are considered to be interest coverage and total debt to shareholders’ equity. These are presented below on a consolidated basis: 1999 1998 Interest coverage 2.19 2.19 Debt to shareholders’ equity 1.72:1 1.59:1 Debt Ratings Securities issued by BC Gas are rated by two Canadian bond rating companies, the Dominion Bond Rating Service (“DBRS”) and the Canadian Bond Rating Service (“CBRS”). The ratings assigned to securities issued by BC Gas are reviewed by DBRS and CBRS on an annual basis. In 1999, CBRS raised its rating on the unsecured long-term debt and purchase money mortgages of BC Gas from B++ (High) and A (Low) to A (Low) and A, respectively. In addition, DBRS raised its rating on the preference shares of BC Gas from Pfd-3 (High) to Pfd-2 (Low). The table below summarizes the ratings assigned to the Company’s various securities at December 31, 1999. DBRS CBRS Commercial paper R-1 (Low) A-1 Unsecured debentures A A (Low) Medium term note debentures A A (Low) Purchase money mortgages A A 6.32% Preference shares Pfd-2 (Low) P-3 (High) Projected Capital Expenditures BC Gas has estimated total capital expenditures of $503.3 million in 2000. The Company expects to finance capital expenditures with a combination of long-term debt issuance, short-term borrowings, internally generated funds and equity to be provided by BC Gas’ parent company, BC Gas Inc. The breakdown of projected capital expenditures for 2000 is as follows: In millions of dollars Mains, services and engineering projects $86.5 Land and buildings 3.0 Systems and computer hardware 40.1 Southern Crossing Pipeline 337.0 Other 13.3 Capitalized overhead 23.4 $503.3 Public Issues During the year, BC Gas issued $225 million of medium term note debentures at a weighted average interest rate of 6.70%. This compares with $108 million issued in 1998 at an interest rate of 5.69%. Lines of Credit The Company has lines of credit in place totaling $350 million to finance cash requirements. These lines enable the Company to borrow directly from its bankers, issue bankers’ acceptances and support issued commercial paper. Bank lines of $130 million were unutilized at the end of 1999. Virtually all short-term cash needs are funded through commercial paper and bankers’ acceptances in the Canadian market at rates generally below bank prime. Financial Instruments and Risk Management BC Gas has undertaken a natural gas price risk management program on behalf of its customers to manage the price volatility of its forecast system gas supply. Part of this program involves the use of financial instruments to effectively fix the price of baseload gas supply.
Management Discussion and Analysis OTHER MATTERS Union Settlements In 1999, BC Gas concluded negotiations with its two bargaining units, the Office and Professional Employees International Union (Local 378) and the International Brotherhood of Electrical Workers (Local 213). The contracts are in effect to March 31, 2000 and March 31, 2001, respectively. OUTLOOK Although the economy in British Columbia has been experiencing slower growth than in previous years, BC Gas’ exposure to an economic slowdown is relatively limited, given its mature, diversified customer base and its ability to correct for unanticipated developments in the annual rate resetting process. The Company is optimistic that the provincial economy will recover, with a corresponding increase in customer growth rates. To ensure BC Gas’ long term success in a changing market for utility services, the Company is working to enhance its incentive regulatory arrangements to ensure that long-term value for customers and shareholders is maximized. The Company is also taking steps to ensure that the necessary infrastructure and processes are in place to capitalize on incentive opportunities. These initiatives are a key part of strengthening our base business. In all aspects of the strategic plan, BC Gas is focused on activities that generate shareholder value by providing reasonable returns that are consistent with the existing risk profile of the Company. The Southern Crossing Pipeline is a growth opportunity that is closely tied to BC Gas’ core competencies in natural gas distribution. The actions taken in 1999 and those planned for the future position BC Gas to deliver superior value to customers and shareholders in a competitive energy services market. 1999 ANNUAL REPORT 6
Page 1 and 2: BC GAS UTILITY LTD. Annual Report 9
Page 3 and 4: Management Discussion and Analysis
Page 5: Management Discussion and Analysis
Page 9 and 10: Consolidated Statements of Earnings
Page 11 and 12: Consolidated Statements of Financia
Page 13 and 14: Significant Accounting Policies The
Page 15 and 16: Notes to Consolidated Financial Sta
Page 17 and 18: Notes to Consolidated Financial Sta
Page 19 and 20: Produced by Arlette Communication I

1999 BC Gas Utility Ltd. annual report - FortisBC

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