Fortis Inc. ("Fortis" or the "Corporation") (TSX/NYSE: FTS), a
well-diversified leader in the North American regulated electric
and gas utility industry, released its second quarter results1 and
2022 Sustainability Report.
Highlights
- Second quarter net earnings of $284 million, or $0.59 per
common share
- Adjusted net earnings2 of $0.57 per common share, up from $0.55
in the second quarter of 2021
- 2022 Sustainability Report released today highlighting the
Corporation's progress on key sustainability initiatives
- Capital expenditures2 of $1.9 billion in the first half of
2022; $4.0 billion annual capital plan on track
- MISO board has approved first tranche of projects associated
with LRTP; ITC's estimated range of LRTP investments increased to
between US$1.4 billion and US$1.8 billion
- Tucson Electric Power filed general rate application seeking
new rates in 2023 supporting reliable service and cleaner
energy
"We are pleased to report another strong
quarter, with financial results reflecting the underlying growth of
our utilities as they continue to execute capital investments
consistent with our 2022 capital plan. Affordability remains a key
focus for our companies as we invest in safe and reliable electric
and natural gas delivery infrastructure, and we are committed to
ensuring the essential services we provide remain affordable for
our customers," said David Hutchens, President and Chief Executive
Officer, Fortis.
The 2022 Sustainability Report, released today,
fully aligns with applicable Sustainability Accounting Standards
Board standards, provides an update on the Corporation's
sustainability strategy, and includes more than 35 new key
indicators. "The report describes our progress on key
sustainability priorities including climate and diversity," said
Mr. Hutchens. "Our utilities are reducing emissions and investing
in low carbon technologies. Last month we retired the coal-fired
San Juan Generating Facility in Arizona and we now have several
hydrogen pilot projects announced or underway in British Columbia.
I'm proud of our strong governance practices and progress on
diversity, equity and inclusion initiatives, and how we are moving
forward by engaging with key stakeholders."
Net EarningsThe Corporation
reported net earnings attributable to common equity shareholders
("Net Earnings") of $284 million for the second quarter, or
$0.59 per common share, compared to $253 million, or $0.54 per
common share in the second quarter of 2021. Growth in earnings was
driven by rate base growth as well as higher earnings from the
energy infrastructure segment, largely reflecting mark-to-market
accounting of natural gas derivatives at Aitken Creek. A higher
U.S.-to-Canadian foreign exchange rate also favourably impacted
results. Growth in earnings was partially offset by losses on
investments that support retirement benefits at UNS Energy and ITC,
reflecting market conditions, as well as the timing of earnings
from Arizona and Alberta. In comparison to the same period in 2021,
results from UNS Energy were tempered, as expected, by the timing
of earnings related to the Oso Grande generating facility, and
earnings from FortisAlberta were lower due to the timing of
operating expenses. In addition, earnings per share for the quarter
reflected an increase in the weighted average number of common
shares outstanding, largely associated with the Corporation's
dividend reinvestment program.
On a year-to-date basis, Net Earnings were $634
million, or $1.33 per common share, an increase of $26 million, or
$0.03 per common share compared to the same period in 2021. The
increase in earnings and earnings per common share reflected the
same factors discussed for the quarter but also reflected lower
hydroelectric production in Belize, and higher operating costs at
Central Hudson associated with the implementation of a new customer
information system.
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1 |
Financial information is presented in Canadian dollars unless
otherwise specified. |
2 |
Non-U.S. GAAP Financial Measures - Fortis uses financial measures
that do not have a standardized meaning under generally accepted
accounting principles in the United States of America and may not
be comparable to similar measures presented by other entities.
Fortis presents these non-U.S. GAAP measures because management and
external stakeholders use them in evaluating the Corporation's
financial performance and prospects. Refer to the Non-U.S. GAAP
Reconciliation provided herein. |
Adjusted Net Earnings2Adjusted
net earnings attributable to common equity shareholders ("Adjusted
Net Earnings") excludes the impact of mark-to-market accounting of
natural gas derivatives at Aitken Creek. Adjusted Net Earnings of
$272 million for the second quarter, or $0.57 per common share,
were $13 million, or $0.02 per common share higher than the
same period in 2021. On a year-to-date basis, Adjusted Net Earnings
were $641 million, or $1.34 per common share, an increase of $22
million, or $0.02 per common share compared to the same period in
2021. The increase in adjusted earnings for the quarter and
year-to-date periods reflected the same factors discussed for Net
Earnings.
Non-U.S. GAAP
Reconciliation |
Quarter |
|
|
Year-to-Date |
|
($ millions, except earnings per share) |
2022 |
|
2021 |
|
Variance |
|
|
2022 |
|
2021 |
|
Variance |
|
Periods ended June
30 |
|
|
|
|
|
|
|
|
|
|
Adjusted Net
Earnings |
|
|
|
|
|
|
|
|
|
|
Net Earnings |
284 |
|
253 |
|
31 |
|
|
634 |
|
608 |
|
26 |
|
Adjusting item: |
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on mark-to-market of derivatives3 |
(12 |
) |
6 |
|
(18 |
) |
|
7 |
|
11 |
|
(4 |
) |
Adjusted Net Earnings |
272 |
|
259 |
|
13 |
|
|
641 |
|
619 |
|
22 |
|
Adjusted net earnings per share($) |
0.57 |
|
0.55 |
|
0.02 |
|
|
1.34 |
|
1.32 |
|
0.02 |
|
Capital
Expenditures: |
|
|
|
|
|
|
|
|
|
|
Additions to property, plant
and equipment |
827 |
|
751 |
|
76 |
|
|
1,693 |
|
1,515 |
|
178 |
|
Additions to intangible
assets |
58 |
|
39 |
|
19 |
|
|
107 |
|
79 |
|
28 |
|
Adjusting item: |
|
|
|
|
|
|
|
|
|
|
Wataynikaneyap Transmission Power Project4 |
45 |
|
50 |
|
(5 |
) |
|
94 |
|
126 |
|
(32 |
) |
Capital
Expenditures |
930 |
|
840 |
|
90 |
|
|
1,894 |
|
1,720 |
|
174 |
|
SustainabilityThe Corporation
released its 2022 Sustainability Report today highlighting progress
made to reduce the Corporation's greenhouse gas emissions, and
advance diversity, equity and inclusion ("DEI"). The report is
fully aligned with applicable Sustainability Accounting Standards
Board standards and contains more than 35 new key performance
indicators. The report also details amendments to the Corporation's
revolving credit facility to incorporate sustainability-linked loan
provisions, with pricing adjustments based on achieving certain
goals related to carbon emissions reductions and board
diversity.
Fortis achieved a 20% reduction in Scope 1
emissions through 2021 compared to 2019 levels. In 2021, renewable
electricity generation capacity increased by approximately 50%
compared to 2020, due in large part to new wind and solar
generation at Tucson Electric Power ("TEP"). TEP continues to
execute on its planned coal retirements, and recently closed 170 MW
of coal-fired generation at the San Juan Generating Station. Fortis
is on track to achieve its target to reduce GHG emissions by 75% by
2035. Upon achieving this target, 99% of the Corporation's assets
will be focused on energy delivery and renewable, carbon-free
generation. The Corporation's additional 2050 net-zero direct GHG
emissions target reinforces Fortis' commitment to decarbonize over
the long term, while preserving customer reliability and
affordability.
For the first time, the report includes
comprehensive diversity data on employees across the Fortis group
of companies, which will advance DEI strategies and inform
objective-setting. The report also details the Corporation's
actions to develop long-term partnerships with Indigenous
communities, including through joint ownership opportunities and
working relationships with Indigenous-owned businesses.
The complete 2022 Sustainability Report can be accessed at
www.fortisinc.com/sustainability/sustainability-reporting.
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3 |
Represents timing differences related to the accounting of natural
gas derivatives at Aitken Creek, net of income tax expense of $5
million and income tax recovery of $3 million for the three and six
months ended June 30, 2022, respectively (income tax recovery of $2
million and $4 million for the three and six months ended June 30,
2021, respectively) |
4 |
Represents Fortis' 39% share of capital spending for the
Wataynikaneyap Transmission Power Project |
Capital ExpendituresFortis'
$4.0 billion annual capital plan remains on track with
approximately $1.9 billion invested during the first half of
2022.
In July 2022, the Midwest Independent System
Operator ("MISO") board approved the first tranche of projects
associated with the long-range transmission plan ("LRTP"). Total
associated costs for the first tranche of projects is estimated at
US$10 billion. Based on recent cost refinements and visibility on
scope, ITC estimates transmission investments of US$1.4 billion to
US$1.8 billion through 2030 associated with six of the 18 projects,
up from US$1.0 billion to US$1.5 billion previously estimated.
Given the preliminary analysis around the transmission investment,
its timing and uncertainties regarding the awarding of projects,
Fortis cannot state with certainty the impact of the estimated LRTP
capital expenditures on the Corporation's five-year, $20 billion
capital plan.
In late July 2022, ITC suspended development
activities and commercial negotiations relating to the $1.7 billion
Lake Erie Connector project due to recent macroeconomic conditions.
These conditions impacted our ability to secure a viable
transmission service agreement within the required timeline. This
project has never been included in the Corporation’s five-year
capital plan.
Credit RatingsIn May 2022, DBRS
Morningstar confirmed the Corporation's 'A (low)' issuer and debt
credit ratings and stable outlook.
Regulatory UpdatesIn May 2022,
the Iowa Coalition for Affordable Transmission filed a complaint
with the Federal Energy Regulatory Commission ("FERC"), requesting
that ITC Midwest's common equity component of capital structure be
reduced from 60% to 53%. The complaint alleges that ITC Midwest
does not meet FERC's three-part test for authorizing the use of a
utility's actual capital structure for rate-making purposes. We
believe the complaint is without merit as it does not demonstrate
that ITC Midwest fails to meet FERC's three-part test. ITC
Midwest filed a response to the complaint in June 2022. The timing
and outcome of this proceeding is unknown.
In June 2022, TEP filed a general rate
application with the Arizona Corporation Commission requesting new
rates effective September 1, 2023 using a December 31, 2021
test year. The application reflects an allowed rate of return on
common equity of 10.25%, an equity component of capital structure
of 54%, and rate base of US$3.6 billion. The application also
includes a US$136 million net increase in non-fuel and
fuel-related revenue, as well as proposals to eliminate certain
adjustor mechanisms, and modify an existing adjustor to provide
more timely recovery of clean energy investments. The application
supports the continuation of safe and reliable service, key
technology and security upgrades, and the transition to cleaner
energy, including new wind and solar energy resources.
OutlookThe Corporation's
long-term outlook remains unchanged. Fortis continues to enhance
shareholder value through the execution of its capital plan, the
balance and strength of its diversified portfolio of utility
businesses, and growth opportunities within and proximate to its
service territories. While energy price volatility, global supply
chain constraints and rising inflation are issues of potential
concern that continue to evolve, including from the effects of the
COVID-19 pandemic, war in Eastern Europe, economic sanctions and
geopolitical tensions, the Corporation does not currently expect
there to be a material impact on its operations or financial
results in 2022.
The Corporation's $20 billion five-year capital
plan is expected to increase midyear rate base from
$31.1 billion in 2021 to $41.6 billion by 2026,
translating into a five-year compound annual growth rate of
approximately 6%. Above and beyond the five-year capital plan,
Fortis continues to pursue additional energy infrastructure
opportunities.
Additional opportunities to expand and extend
growth include: further expansion of the electric transmission grid
in the United States to facilitate the interconnection of cleaner
energy including infrastructure investments associated with MISO's
LRTP; natural gas resiliency investments in pipelines and liquefied
natural gas infrastructure in British Columbia; and the
acceleration of cleaner energy infrastructure investments across
our jurisdictions.
Fortis expects long-term growth in rate base
will support earnings and dividend growth. Fortis is targeting
average annual dividend growth of approximately 6% through 2025.
This dividend growth guidance is premised on the assumptions
listed under "Forward-Looking Information".
About FortisFortis is a
well-diversified leader in the North American regulated electric
and gas utility industry with 2021 revenue of $9.4 billion and
total assets of $60 billion as at June 30, 2022.
The Corporation's 9,100 employees serve utility customers in
five Canadian provinces, nine U.S. states and three Caribbean
countries.
Forward-Looking Information
Fortis includes forward-looking information in this media release
within the meaning of applicable Canadian securities laws and
forward-looking statements within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 (collectively referred to
as "forward-looking information"). Forward-looking information
reflects expectations of Fortis management regarding future growth,
results of operations, performance and business prospects and
opportunities. Wherever possible, words such as anticipates,
believes, budgets, could, estimates, expects, forecasts, intends,
may, might, plans, projects, schedule, should, target, will, would
and the negative of these terms and other similar terminology or
expressions have been used to identify the forward-looking
information, which includes, without limitation: forecast capital
expenditures for 2022 and 2022-2026; targeted average annual
dividend growth through 2025; the 2050 net-zero direct GHG
emissions target; the 2035 GHG emissions reduction target and
projected asset mix; the expected timing, outcomes and impacts of
regulatory proceedings; opportunities beyond the capital plan,
including the MISO LRTP; the impact of macroeconomic conditions on
additional investment opportunities, including the ability to
secure a viable transmission service agreement within the required
timeline for the Lake Erie Connector project; the expected sources
of funding for the 2022-2026 capital plan; the expectation that
volatility in energy prices, global supply chain constraints and
rising inflation will not have a material impact on operations or
financial results in 2022; forecast rate base and rate base growth
rate; additional growth and expansion opportunities beyond the
capital plan; and the expectation that long-term growth in rate
base will support earnings and dividend growth.
Forward-looking information involves significant
risks, uncertainties and assumptions. Certain material factors or
assumptions have been applied in drawing the conclusions contained
in the forward-looking information, including, without limitation:
no material impact from volatility in energy prices, global supply
chain constraints and rising inflation; reasonable outcomes for
regulatory proceedings and the expectation of regulatory stability;
the successful execution of the five-year capital plan; no material
capital project and financing cost overrun; sufficient human
resources to deliver service and execute the capital plan; the
realization of additional opportunities; the impact of fluctuations
in foreign exchange; no significant variability in interest rates;
and the Board exercising its discretion to declare dividends,
taking into account the business performance and financial
condition of the Corporation. Fortis cautions readers that a number
of factors could cause actual results, performance or achievements
to differ materially from the results discussed or implied in the
forward-looking information. For additional information with
respect to certain risk factors, reference should be made to the
continuous disclosure materials filed from time to time by the
Corporation with Canadian securities regulatory authorities and the
Securities and Exchange Commission. All forward-looking information
herein is given as of the date of this media release. Fortis
disclaims any intention or obligation to update or revise any
forward-looking information, whether as a result of new
information, future events or otherwise.
Teleconference to Discuss Second Quarter
2022 ResultsA teleconference and webcast will be held on
July 28, 2022 at 8:30 a.m. (Eastern). David Hutchens,
President and Chief Executive Officer and Jocelyn Perry, Executive
Vice President and Chief Financial Officer, will discuss the
Corporation's second quarter results.
Shareholders, analysts, members of the media and
other interested parties in North America are invited
to participate by calling 1.416.764.8646. International
participants may participate by calling 1.888.396.8049. Please dial
in 10 minutes prior to the start of the call. No passcode is
required.
A live and archived audio webcast of the
teleconference will be available on the Corporation's website,
www.fortisinc.com. A replay of the teleconference will be available
two hours after the conclusion of the call until August
28, 2022. Please call 1.416.764.8692 or 1.877.674.7070 and
enter passcode 037278#.
Additional Information
This media release should be read in conjunction
with the Corporation's June 30, 2022 Interim Management Discussion
and Analysis and Condensed Consolidated Financial Statements. This
and additional information can be accessed at www.fortisinc.com,
www.sedar.com, or www.sec.gov.
A .pdf version of this press release is
available
at: http://ml.globenewswire.com/Resource/Download/0b6a7c8c-41a3-490e-9dee-c3b2f0199cf8
For more information, please contact:
Investor Enquiries |
Media Enquiries |
Ms. Stephanie Amaimo |
Ms. Karen McCarthy |
Vice President, Investor
Relations |
Vice President, Communications
& Corporate Affairs |
Fortis Inc. |
Fortis Inc. |
248.946.3572 |
709.737.5323 |
investorrelations@fortisinc.com |
media@fortisinc.com |
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