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 third quarter results1 and
2023-2027 capital investment plan.
Highlights
- Third quarter net earnings of
$326 million, or $0.68 per common share, up from $295 million,
or $0.63 per common share in 2021
- Adjusted third quarter net earnings
per common share2 of $0.71, up from $0.64 in 2021
- Invested capital expenditures2 of
$2.9 billion through September; $4.0 billion annual capital plan on
track
- Released 2023-2027 capital plan of
$22.3 billion, representing 6.2% rate base growth; no discrete
equity funding required
- Increased fourth quarter common
share dividend by approximately 6%, marking 49 years of consecutive
increases
- Announced annual dividend growth
guidance of 4-6%; guidance period extended through 2027
"Over the past month, several of our utilities
performed significant restoration efforts following the historic
devastation caused by Hurricane Fiona," said David Hutchens,
President and Chief Executive Officer, Fortis. "I want to thank our
employees for their dedication, government and industry partners
for their cooperation, and customers for their patience as we
worked through the recovery."
"During the third quarter, our utilities
delivered earnings growth in line with our expectations, and
continued to execute capital investments consistent with plan,"
continued Mr. Hutchens. "Our low-risk organic growth strategy
remains a key fundamental during these volatile macroeconomic
times."
"Today we are unveiling our largest five-year
capital plan of $22.3 billion, an increase of $2.3 billion over our
prior plan, and announcing annual dividend growth guidance of 4-6%
through 2027. Together, our regulated growth strategy and long-term
dividend growth guidance are expected to produce premium North
American utility returns over the long run," said Mr. Hutchens.
"The new five-year capital plan includes $5.9 billion of cleaner
energy investments to connect renewables to the grid at ITC,
transition to renewable generation in Arizona and the Caribbean,
and deliver cleaner fuel solutions in British Columbia."
Net Earnings
The Corporation reported net earnings
attributable to common equity shareholders ("Net Earnings") of
$326 million for the third quarter, or $0.68 per common share,
compared to $295 million, or $0.63 per common share in the third
quarter of 2021. The increase was driven by rate base growth,
mainly at ITC, as well as higher retail sales, transmission revenue
and earnings associated with the Oso Grande generating facility in
Arizona. New customer rates at Central Hudson and the
mark-to-market accounting of natural gas derivatives at Aitken
Creek also favourably contributed to results.
Growth in earnings was tempered by the timing of
expenses in Alberta and a favourable adjustment recognized in 2021
related to interest rate swaps at ITC. Results for the third
quarter of 2022 were also impacted by significant items at ITC,
including costs associated with the suspension of the Lake Erie
Connector project, and the revaluation of deferred income tax
assets due to a reduction in the corporate income tax rate in the
state of Iowa. The impact of mark-to-market losses associated with
hedging activities was more than offset by lower stock-based
compensation costs and the translation of U.S. dollar-denominated
subsidiary earnings at the higher U.S.-to-Canadian dollar foreign
exchange rate.
An increase in the weighted average number of
common shares outstanding, largely associated with the
Corporation's dividend reinvestment plan, also impacted earnings
per share for the quarter.
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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
uses them in evaluating the Corporation's financial performance and
prospects. Refer to the Non-U.S. GAAP Reconciliation provided
herein. |
On a year-to-date basis, Net Earnings were $960
million, or $2.01 per common share, compared to $903 million, or
$1.92 per common share for the nine-month period of 2021. The
increase in Net Earnings and earnings per common share was due to
the same factors discussed for the quarter but also reflected
higher long-term wholesale sales at UNS Energy. Losses on
investments that support retirement benefits at UNS Energy and ITC,
and higher operating costs at Central Hudson related to the
implementation of a new customer information system, unfavourably
impacted year-to-date results. The operation of the Oso Grande
generating facility did not impact year-to-date earnings as
compared to 2021.
Adjusted Net
Earnings2
Adjusted net earnings attributable to common
equity shareholders ("Adjusted Net Earnings") excludes
non-recurring items and the impact of mark-to-market accounting of
natural gas derivatives at Aitken Creek. Adjusted Net Earnings of
$341 million for the third quarter, or $0.71 per common share, were
$41 million, or $0.07 per common share higher than the same
period in 2021. On a year-to-date basis, Adjusted Net Earnings were
$982 million, or $2.06 per common share, an increase of $63
million, or $0.10 per common share compared to the same period in
2021. The increase in adjusted earnings for the quarter and
year-to-date periods was driven by the same factors discussed for
Net Earnings.
Non-U.S. GAAP
Reconciliation |
Quarter |
|
Year-to-Date |
($ millions, except earnings per share) |
2022 |
|
|
2021 |
|
Variance |
|
|
2022 |
|
2021 |
|
Variance |
|
Periods ended September 30 |
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|
Adjusted Net
Earnings |
|
|
|
|
|
|
|
|
|
|
|
Net Earnings |
326 |
|
|
295 |
|
31 |
|
|
960 |
|
903 |
|
57 |
|
Adjusting items: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on mark-to-market of derivatives3 |
(4 |
) |
|
5 |
|
(9 |
) |
|
3 |
|
16 |
|
(13 |
) |
Lake Erie Connector project suspension costs4 |
10 |
|
|
— |
|
10 |
|
|
10 |
|
— |
|
10 |
|
Revaluation of deferred income tax assets5 |
9 |
|
|
— |
|
9 |
|
|
9 |
|
— |
|
9 |
|
Adjusted Net Earnings |
341 |
|
|
300 |
|
41 |
|
|
982 |
|
919 |
|
63 |
|
Adjusted net earnings per share($) |
0.71 |
|
|
0.64 |
|
0.07 |
|
|
2.06 |
|
1.96 |
|
0.10 |
|
|
|
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Capital
Expenditures: |
|
|
|
|
|
|
|
|
|
|
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Additions to property, plant
and equipment |
907 |
|
|
777 |
|
130 |
|
|
2,600 |
|
2,292 |
|
308 |
|
Additions to intangible
assets |
44 |
|
|
41 |
|
3 |
|
|
151 |
|
120 |
|
31 |
|
Adjusting item: |
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|
|
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|
|
|
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|
Wataynikaneyap Transmission Power Project6 |
41 |
|
|
17 |
|
24 |
|
|
135 |
|
143 |
|
(8 |
) |
Capital Expenditures |
992 |
|
|
835 |
|
157 |
|
|
2,886 |
|
2,555 |
|
331 |
|
2022 Capital
Expenditures & New Five-Year Capital Plan
Fortis' $4.0 billion annual capital plan remains
on track with $2.9 billion invested through September.
Today the Corporation announced its new
2023-2027 capital plan of $22.3 billion, the largest in the
Corporation’s history, and $2.3 billion higher than the
previous five-year plan. The increase is driven by organic growth,
largely reflecting regional transmission projects associated with
the Midcontinent Independent System Operator ("MISO") long-range
transmission plan ("LRTP") at ITC, additional cleaner energy
investments in Arizona to support Tucson Electric Power's exit from
coal by 2032, and enhancements to distribution reliability and
capacity, as well as investments to support customer growth, across
the Corporation's regulated utilities. Approximately $500 million
of the increase is driven by a higher assumed U.S.-to-Canadian
dollar exchange rate over the five-year period.
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3 |
Represents timing differences related to the accounting of natural
gas derivatives at Aitken Creek, net of income tax (expense)
recovery of $(2) million and $1 million for the three and nine
months ended September 30, 2022, respectively (income tax recovery
of $2 million and $6 million for the three and nine months ended
September 30, 2021, respectively) |
4 |
Represents costs incurred upon the suspension of the Lake Erie
Connector project, net of income tax recovery of $4 million for the
three and nine months ended September 30, 2022 |
5 |
Represents the revaluation of deferred income tax assets resulting
from the reduction in the corporate income tax rate in the state of
Iowa |
6 |
Represents Fortis' 39% share of capital spending for the
Wataynikaneyap Transmission Power Project |
In total, Fortis expects to invest $5.9 billion
in cleaner energy over the next five-years, with investments
focused on connecting renewables to the grid, including Tranche 1
of MISO’s LRTP, renewable and storage investments in Arizona and
the Caribbean, and cleaner fuel solutions in British Columbia. The
plan incorporates key customer affordability considerations, as the
Corporation recognizes the impacts of inflation and elevated
commodity costs on customer rates, while ensuring reliable and
resilient energy delivery service as we transition to a cleaner
energy future.
The five-year capital plan is expected to be
funded primarily by cash from operations, debt issued at the
regulated utilities and common equity from the Corporation's
dividend reinvestment plan.
Regulatory Updates
In August 2022, the U.S. Court of Appeals for
the District of Columbia Circuit issued a decision vacating certain
Federal Energy Regulatory Commission ("FERC") orders that had
established the methodology for setting the base rate of return on
common equity ("ROE") for transmission owners operating in the MISO
region, including ITC. This matter dates back to complaints filed
at FERC in 2013 and 2015 challenging the MISO base ROE then in
effect. The court has remanded the matter to FERC for further
process, the timing and outcome of which is unknown. Although any
potential impact to Fortis is uncertain, every 10-basis point
change in ROE at ITC impacts Fortis' annual EPS by approximately
$0.01.
In July 2022, the Alberta Utilities Commission
("AUC") issued a decision largely accepting the forecast in
FortisAlberta's 2023 cost of service application. The AUC directed
FortisAlberta to update and refile its 2023 revenue requirement,
which was filed in September 2022. A final decision on this filing
is expected in the fourth quarter of 2022.
Outlook
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, the Corporation does not currently expect there to be a
material impact on its operations or financial results in 2022.
Fortis is executing on the transition to a
cleaner energy future and is on track to achieve its corporate-wide
target to reduce greenhouse gas ("GHG") emissions by 75% by 2035.
Upon achieving this target, 99% of the Corporation's assets will
support 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.
The Corporation's $22.3 billion five-year
capital plan is expected to increase midyear rate base from
$34.0 billion in 2022 to $46.1 billion by 2027,
translating into a five-year compound annual growth rate of
6.2%.
Beyond the five-year capital plan, 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 the Inflation Reduction
Act of 2022 and the MISO LRTP; climate adaptation and grid
resiliency investments; renewable gas solutions as well as
liquefied natural gas infrastructure in British Columbia; and the
acceleration of cleaner energy infrastructure investments across
our jurisdictions.
Fortis expects its long-term growth in rate base
will drive earnings that support dividend growth and reduce the
Corporation's dividend payout ratio over time to be in line with
historical levels. The dividend growth guidance of 4-6% annually
through 2027 will also provide the flexibility to fund more capital
with internally generated funds and is premised on the assumptions
listed under "Forward-Looking Information".
About Fortis
Fortis 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 $64 billion as at
September 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 2023-2027, including cleaner energy investments; forecast
rate base and rate base growth for 2022 through 2027; targeted
annual dividend growth through 2027; the expectation that the
regulated growth strategy and long-term dividend guidance will
produce premium North American utility returns and provide capital
funding flexibility; the nature, timing, benefits and expected
costs of certain capital projects, including ITC's transmission
projects associated with the MISO LRTP, renewable energy and
storage investments at UNS Energy and investments in cleaner fuel
solutions in British Columbia; the expectation to exit coal by
2032; additional opportunities beyond the capital plan including
investments associated with the Inflation Reduction Act of 2022,
the MISO LRTP, climate adaptation and grid resiliency, and
renewable gas solutions and liquefied natural gas infrastructure in
British Columbia; the expected sources of funding for the 2023-2027
capital plan; the expected timing, outcome and impact of regulatory
proceedings and decisions; 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; the 2035 GHG emissions reduction target and projected
asset mix; the 2050 net-zero direct GHG emissions target; and the
expectation that long-term growth in rate base will drive earnings,
support dividend growth and reduce the dividend payout ratio over
time to be in line with historical levels.
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; no material changes in the
assumed U.S. dollar to Canadian dollar exchange rate; 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 Third Quarter
2022 Results
A teleconference and webcast will be held on
October 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 third 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 November
28, 2022. Please call 1.416.764.8692 or 1.877.674.7070 and
enter passcode 327938#.
Additional Information
This media release should be read in conjunction
with the Corporation's September 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/1ceaa6f2-b883-4848-bc74-9b3ed6b479f2
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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