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
today.
Highlights
- Continued to deliver safe and reliable service throughout the
pandemic
- Delivered third quarter 2020 net earnings of $0.63 per common
share and adjusted net earnings2 of $0.65 per common share
- Execution of $4.3 billion annual capital plan on track with
$2.9 billion invested through September
- Released new five-year capital plan of $19.6 billion, up $0.8
billion from prior five-year plan
- Announced common share dividend increase of 5.8%, marking 47
years of consecutive increases
- Established new corporate-wide carbon emissions reduction
target of 75% by 2035
"Our teams have been keeping the health and
safety of employees, customers and communities top of mind as we
continue to deliver reliable service during the pandemic. The
Fortis business model, with its use of local teams and focus on
local decision making, has never been more valuable," said Barry
Perry, President and Chief Executive Officer, Fortis. "With our new
five-year capital plan and substantially all of our assets focused
on the transmission and distribution of energy, Fortis is in a
strong position to continue to grow and deliver on a cleaner energy
future. We are excited by the opportunities ahead."
Net EarningsThe Corporation
reported third quarter net earnings attributable to common equity
shareholders of $292 million, compared to $278 million for the same
period in 2019. The $14 million increase reflects: (i) rate base
growth at the regulated utilities; (ii) higher sales at UNS Energy,
driven largely by weather; and (iii) higher hydroelectric
production and equity income in Belize. Fortis delivered this
growth despite cost pressure at UNS Energy associated with
approximately $1 billion of utility infrastructure investments made
by Tucson Electric Power ("TEP") that have not yet been reflected
in customer rates. While later than expected due to the pandemic,
new rates at TEP that will begin to recover these costs are
anticipated to be approved prior to the end of 2020. Third quarter
2020 results were also unfavourably impacted by ITC due to the
timing of earnings associated with the return on common equity
("ROE") decisions made by the Federal Energy Regulatory Commission
("FERC"), as well as a lower effective tax rate in 2019. Except for
the delay in TEP's general rate application, earnings for the
quarter were not materially impacted by the COVID-19 pandemic.
Year-to-date earnings as compared to 2019
reflect significant one-time items: (i) a $484 million gain on the
disposition of the Waneta Expansion hydroelectric generating
facility ("Waneta Expansion") in April 2019; and (ii) the reversal
of a $13 million tax recovery, originally recognized in 2019, due
to the finalization in April 2020 of anti-hybrid regulations
associated with US tax reform; partially offset by (iii) a $27
million favourable base ROE adjustment at ITC as a result of a May
2020 FERC decision reflecting the reversal of liabilities accrued
in prior years.
Notwithstanding these one-time items, earnings
grew by $39 million during the first nine months of 2020,
reflecting the factors discussed above for the third quarter but
further tempered by: (i) lower sales in the Caribbean and higher
operational expenses, largely incurred at Central Hudson,
associated with the COVID-19 pandemic; and (ii) a decline in the
market value of certain investments that support retirement
benefits caused by financial market volatility.
_______________________1
Financial information is presented in Canadian dollars unless
otherwise specified.2 Non-US GAAP 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-US GAAP measures because
management and external stakeholders use them in evaluating the
Corporation's financial performance and prospects. Refer to the
Non-US GAAP Reconciliation provided herein.
An increase in the weighted average number of
common shares outstanding, mainly associated with the Corporation's
$1.2 billion common equity issuance in the fourth quarter of 2019,
resulted in a decrease in earnings per common share for the quarter
and year to date of $0.04 and $0.13, respectively. The common
equity offering and the Waneta Expansion disposition generated a
significant portion of the equity funding required to execute our
five-year capital plan and significantly strengthened the
Corporation's liquidity. As at September 30, 2020, total
consolidated credit facilities were $5.8 billion with $4.8 billion
unutilized.
Adjusted Net EarningsOn an
adjusted basis, third quarter net earnings attributable to common
equity shareholders were $302 million, or $0.65 per common share,
compared to $287 million, or $0.66 per common share, for the same
period in 2019.
Year-to-date adjusted net earnings attributable
to common equity shareholders were $875 million, or $1.88 per
common share, compared to $838 million, or $1.93 per common share,
for the same period in 2019.
COVID-19 PandemicFortis
continues to monitor developments and take all appropriate measures
to protect the health and safety of employees, customers and
communities. The Corporation's utilities have instituted various
customer relief initiatives, including the suspension of
non-payment disconnects and late fees for certain customer classes,
and payment deferral programs.
In addition to the efforts across the Fortis
group to control costs throughout the pandemic, the Corporation's
utilities have regulatory mechanisms that help stabilize cash flow
and earnings which support the continued delivery of reliable
service. Approximately 82% of the Corporation's revenues are either
protected by regulatory mechanisms or are derived from residential
sales which have generally increased as a result of work-from-home
practices.
Executing the Capital PlanThe
capital plan is progressing well with $2.9 billion spent during the
first nine months of 2020. Year- to-date expenditures are
consistent with expectations and in line with the Corporation's
$4.3 billion 2020 annual capital plan. Currently, the Corporation
does not expect any material change in the 2020 capital plan;
however, any reduction in 2020 capital expenditures is expected to
be shifted to subsequent years.
The Oso Grande Wind Project at UNS Energy is 75%
complete with turbine construction now finished and system testing
in progress. Once operational in 2021, the project will add 250
megawatts ("MW") of wind-powered electric generation to UNS
Energy's portfolio, increasing its total renewable generation
capacity to over 500 MW.
Progress on the Wataynikaneyap Transmission
Power Project continued throughout the third quarter with the first
transmission tower erected and substation ground grid installed.
The project is on track for completion by the end of 2023 as
originally planned.
The Corporation's five-year capital plan for
2021 to 2025 is $19.6 billion, up $0.8 billion from the prior
five-year plan. The increase is largely due to: (i) two new major
capital projects at FortisBC Energy; (ii) additional investment in
information technology systems and storm hardening at Central
Hudson; and (iii) interconnections and system rebuilds providing
additional capacity and other improvements at ITC. Capital
expenditures are expected to be funded primarily with cash from
operations, debt issued at the regulated utilities and the
Corporation’s dividend reinvestment plan.
The new five-year plan supports our investment-grade credit
ratings and dividend growth targets.
SustainabilityDelivering a
cleaner energy future is a key priority for Fortis. During the
third quarter, the Corporation announced its target to reduce
carbon emissions across Fortis by 75% by 2035 from a 2019 base
year. Fortis expects to achieve the majority of this aggressive
target through delivering on TEP's goal to exit coal generation and
replace it with approximately 2,400 MW of wind and solar power and
1,400 MW of energy storage. Clean energy initiatives across the
Corporation's other utilities will also contribute to achieving
this goal.
Executing on this carbon emissions target, and
key industry trends including asset resiliency, electrification,
grid modernization and the delivery of cleaner energy, are expected
to enhance our organic growth strategy and drive incremental
investments beyond the five-year capital plan.
Leadership SuccessionIn
September 2020 the Corporation announced the retirement of Barry
Perry, President and CEO, effective December 31, 2020. David
Hutchens, currently Chief Operating Officer of Fortis and CEO of
UNS Energy, will succeed Mr. Perry effective January 1, 2021.
With extensive experience in the electric and
gas sectors, Mr. Hutchens has held progressive executive roles with
the Fortis group of companies since 2018 and advanced through
various management positions over his 25 years with UNS Energy. The
Board's long-term CEO succession plan has well positioned the
Corporation for this transition.
OutlookWhile uncertainty exists
due to the COVID-19 pandemic, the Corporation's long-term outlook
remains unchanged. Fortis continues to enhance shareholder value
through the execution of its capital plan, the strength of its
diversified portfolio of utility businesses, and the growth
opportunities within and proximate to its service territories.
The Corporation's $19.6 billion five-year
capital plan is expected to increase rate base from $30.2 billion
in 2020 to $36.4 billion by 2023 and $40.3 billion by 2025,
translating into three- and five-year compound annual growth rates
of 6.5% and 6.0%, respectively. Beyond the five-year capital plan,
Fortis continues to pursue additional energy infrastructure
opportunities including: further expansion of liquefied natural gas
infrastructure in British Columbia; the fully permitted,
cross-border, Lake Erie Connector electric transmission project in
Ontario; and the acceleration of cleaner energy infrastructure
investments across our jurisdictions.
Fortis expects long-term growth in rate base
will support earnings and dividend growth. The Corporation is
targeting average annual dividend growth of approximately 6%
through 2025. This dividend growth guidance is premised on the
assumptions listed under "Forward-Looking Information" below,
including the continued performance of the Corporation's utilities,
no material impact from the COVID-19 pandemic, the expectation of
reasonable outcomes for regulatory proceedings and the successful
execution of the five-year capital plan.
Non-US GAAP Reconciliation
Periods Ended September 30 |
Quarter |
|
Year-to-Date |
($ millions, except earnings per share) |
2020 |
2019 |
Variance |
|
2020 |
|
2019 |
|
Variance |
|
Common Equity Earnings |
292 |
278 |
14 |
|
878 |
|
1,309 |
|
(431 |
) |
Adjusting Items: |
|
|
|
|
|
|
|
|
May 2020 FERC Order (1) |
— |
— |
— |
|
(27 |
) |
— |
|
(27 |
) |
Anti-hybrid tax regulations (2) |
— |
— |
— |
|
13 |
|
— |
|
13 |
|
Unrealized loss on mark-to- |
|
|
|
|
|
|
|
— |
|
market of derivatives (3) |
10 |
9 |
1 |
|
11 |
|
13 |
|
(2 |
) |
Gain on disposition (4) |
— |
— |
— |
|
— |
|
(484 |
) |
484 |
|
Adjusted Common Equity Earnings |
302 |
287 |
15 |
|
875 |
|
838 |
|
37 |
|
Adjusted Basic EPS ($) |
0.65 |
0.66 |
(0.01 |
) |
1.88 |
|
1.93 |
|
(0.05 |
) |
(1) |
Reversal of regulatory liabilities accrued in prior years as a
result of an order from FERC in May 2020 establishing a new base
ROE, included in the ITC segment |
(2) |
Reversal of a tax recovery, originally recognized in 2019, due to
the finalization of anti-hybrid tax regulations in April 2020
associated with U.S. tax reform, included in the Corporate and
Other segment |
(3) |
Represents timing differences related to the accounting of natural
gas derivatives at Aitken Creek, included in the Energy
Infrastructure segment |
(4) |
Gain on sale of the Waneta Expansion hydroelectric generating
facility, net of expenses, in April 2019, included in the Corporate
and Other segment |
About FortisFortis is a
well-diversified leader in the North American regulated electric
and gas utility industry, with 2019 revenue of $8.8 billion and
total assets of $56 billion as at September 30, 2020. The
Corporation's 9,000 employees serve utility customers in five
Canadian provinces, nine U.S. states and three Caribbean
countries.
Forward-Looking
InformationFortis 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 and expected
funding sources for 2020 and 2021-2025; targeted average annual
dividend growth through 2025; the 2035 carbon emissions reduction
target; the expected timing and outcome of regulatory decisions,
including the expectation that new customer rates will be approved
at TEP prior to the end of 2020; the expectation that there will
not be a material change to the 2020 capital plan; the nature,
timing, benefits and expected costs of certain capital projects
including the Oso Grande Wind Project and Wataynikaneyap
Transmission Power Project; TEP's 2035 carbon emissions reduction
target; the expectation that execution of the carbon emissions
target as well as key industry trends will drive incremental
investments beyond the five-year capital plan; forecast rate base
and rate base growth for 2020, 2023 and 2025; 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. These factors or assumptions
are subject to inherent risks and uncertainties surrounding future
expectations generally, including those identified from time to
time in the forward-looking information. Such factors or
assumptions include, but are not limited to: no material impact
from the COVID-19 pandemic; 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 Third Quarter 2020
Results |
A teleconference and webcast will be held on October 30, 2020 at
8:30 a.m. (Eastern). Barry Perry, President and Chief Executive
Officer; Jocelyn Perry, Executive Vice President and Chief
Financial Officer; and David Hutchens, Chief Operating Officer will
discuss the Corporation's third quarter 2020 results.Shareholders,
analysts, members of the media and other interested parties in
North America are invited to participate by calling 1.877.223.4471.
International participants may participate by calling 647.788.4922.
Please dial in 10 minutes prior to the start of the call. No pass
code 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 conference will be available two
hours after the conclusion of the call until November 29, 2020.
Please call 1.800.585.8367 or 416.621.4642 and enter pass code
1392167. |
Additional InformationThis
media release should be read in conjunction with the Corporation's
Management Discussion and Analysis and 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/97d68a0a-c36e-4667-a3ff-c84be06d2a1c
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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