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 first quarter results today.
Highlights
- Fortis continues to provide safe, reliable service during the
COVID-19 pandemic
- First quarter 2020 net earnings were $312 million, or
$0.67 per common share
- Strong rate base growth during the quarter was tempered by
delayed rates and charges associated with financial market
volatility in Arizona
- Capital expenditures of $1.2 billion, representing 28% of the
2020 capital plan, were completed during the first quarter
- The Corporation's five-year capital plan of $18.8 billion and
dividend growth guidance remain unchanged
"The strength of our diversified business model
was evident in the first quarter as our business performed well,
reflecting modest impacts associated with the COVID-19 pandemic,"
said Barry Perry, President and Chief Executive Officer, Fortis.
"Given the critical infrastructure we operate and the need to keep
the lights on and natural gas flowing, we are focused on the health
and safety of our employees, customers and communities, and the
continued reliability of our systems."
Net EarningsThe Corporation
reported first quarter net earnings attributable to common equity
shareholders of $312 million, or $0.67 per common share,
compared to $311 million, or $0.72 per common share, for the same
period in 2019. Rate base growth at the regulated utilities, led by
ITC and the Corporation's Western Canadian utilities, was tempered
by a higher weighted average number of common shares outstanding,
due to the Corporation's $1.2 billion common equity issuance in
late 2019, and lower earnings at UNS Energy resulting from costs
associated with approximately $1 billion of utility infrastructure
investments spent over the past few years that have not yet been
reflected in rates. While later than expected, UNS Energy
anticipates new rates to be approved at Tucson Electric Power
("TEP") prior to the end of 2020. Financial market volatility also
caused a decline in the market value of certain investments that
support retirement benefits at UNS Energy.
Adjusted Net Earnings2On an
adjusted basis, first quarter net earnings attributable to common
equity shareholders were $315 million, or $0.68 per common
share, compared to $316 million, or $0.74 per common share, for the
same period in 2019.
COVID-19 PandemicThe
uncertainty surrounding the evolution of the pandemic makes it
difficult to predict the ultimate operational and financial impacts
on Fortis. The Corporation's utilities continue to operate critical
infrastructure and generally have regulatory mechanisms that
stabilize cash flow and earnings in order for the business to
continue to deliver reliable service.
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. |
As businesses have scaled back or closed and
residential customers are spending more time at home, the COVID-19
pandemic has impacted energy sales across all of the Corporation's
utilities. However, regulatory mechanisms function to protect
approximately 63% of the Corporation's annual revenue from changes
in sales, with the remaining 37% of revenue not protected from
changes in sales, principally at UNS Energy and the Other Electric
segment. Of this 37%, approximately 19% is residential and 18% is
commercial and industrial. Commercial sales have decreased but are
expected to be partially offset by increased residential sales as
more people are expected to be working from home during the summer
months. Revenue from industrial customers typically has a low
contribution margin. Taken together, approximately 82% of the
Corporation's revenues are protected by regulatory mechanisms or
derived from residential sales.
The Corporation is well positioned from a
liquidity standpoint given its debt repayments in 2019 using
proceeds from its recent $1.2 billion common equity issuance and $1
billion sale of its Waneta Expansion Hydroelectric Facility. The
Corporation's liquidity ranks high in its sector with
$4.9 billion of liquidity available on the Corporation's
consolidated credit facilities. A number of the Corporation's
utilities have been active in the debt capital markets so far in
2020 and have achieved attractive outcomes. All the Corporation's
utilities are in a strong financial position and will continue to
fund the capital plan and work with customers and their respective
regulators.
The capital plan is progressing with $1.2
billion, or 28% of the $4.3 billion 2020 capital plan, spent
during the first quarter. Currently, the Corporation does not
expect any material change in the 2020 capital plan; however, the
impact of the COVID-19 pandemic on forecast capital expenditures
will continue to be evaluated. Depending on the length and severity
of the pandemic, any change in 2020 capital expenditures is
expected to be shifted to subsequent years with no change to the
five-year capital plan anticipated.
Fortis will continue to monitor developments and
take measures it believes are warranted to protect the health and
safety of employees, customers and communities, including actions
based on guidance from health and other authorities.
"I'm grateful for our team and the way we
quickly responded to the COVID-19 pandemic," said Mr. Perry. "Thank
you to all our employees who have shown great commitment as we
manage through these difficult times."
Regulatory ProceedingsIn March
2020 the Federal Energy Regulatory Commission ("FERC") issued a
Notice of Proposed Rulemaking proposing to update its transmission
incentives policy for transmission owners, including ITC, to grant
incentives to projects based upon benefits to customers regarding
reliability and cost savings through the reduction of transmission
congestion. FERC has proposed total return on equity ("ROE")
incentives of up to 250 basis points that would not be limited
by the upper end of the base ROE zone of reasonableness. The
outcome of this proceeding may impact the future incentive adders
that are included in transmission rates charged by transmission
owners, including ITC.
In March 2020 the Arizona Corporation Commission
extended the procedural schedule by 60 days related to TEP's
general rate application due to the ongoing COVID-19 pandemic.
Hearings are expected to resume in June with new rates approved
prior to the end of 2020.
In March 2020 the Alberta Utility Commission
("AUC") suspended the generic cost of capital proceeding in
response to the COVID-19 pandemic. Expert evidence was filed in
January 2020 and public hearings were originally scheduled to
commence in April 2020 to establish the allowed ROEs and capital
structures for 2021 and 2022. The AUC will reassess this suspension
every 30 to 60 days going forward.
Credit RatingsIn March 2020 Standard &
Poor's Financial Services ("S&P") affirmed the Corporation's
"A-" issuer and "BBB+" senior unsecured debt credit ratings.
S&P recognized the steps the Corporation took in 2019 to
strengthen its financial position, including the disposition of the
Waneta Expansion Hydroelectric Facility and the $1.2 billion
common equity issuance. S&P maintained a negative outlook
reflecting uncertainty due to the COVID-19 pandemic. This negative
outlook is consistent with S&P's outlook for the entire North
American regulated utility industry.
In May 2020 DBRS Morningstar affirmed the
Corporation's "BBB (high)" issuer and senior unsecured debt credit
ratings and revised its trend to positive from stable, also
recognizing the Corporation's steps to strengthen its financial
position in 2019 and its continued strong business risk
profile.
OutlookWhile uncertainty exists due to the
COVID-19 pandemic, the Corporation's long-term outlook is
unchanged. Fortis continues to be well positioned 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.
The Corporation's $18.8 billion five-year
capital plan is expected to increase rate base from
$28.0 billion in 2019 to $34.5 billion by 2022 and $38.4
billion by 2024, translating into three- and five-year compound
annual growth rates of 7.2% and 6.5%, respectively. The capital
plan reflects the continuation of key industry trends including
grid modernization and the delivery of cleaner energy, which Fortis
believes will continue to be drivers of investment over the
planning period. Beyond the base capital plan, Fortis continues to
pursue additional energy infrastructure opportunities. Key
opportunities not yet included in the five-year capital plan
include: further expansion of liquefied natural gas infrastructure
in British Columbia; the fully permitted, cross-border, Lake Erie
connector electric transmission project in Ontario; and the
acceleration of cleaner energy goals in Arizona.
Fortis expects long-term growth in rate base to
support continuing growth in earnings and dividends. As such, the
Corporation's dividend guidance remains unchanged. The continuation
of dividend growth guidance is premised on the assumptions listed
under "Forward-Looking Information" below, including the continued
good performance of the Corporation's utilities, no material impact
from the COVID-19 pandemic, the expectation of reasonable outcomes
for regulatory proceedings and the successful execution of the
five-year capital plan.
Non-US
GAAP Reconciliation |
Periods ended March 31 |
Quarter |
($
millions, except earnings per share) |
2020 |
2019 |
Variance |
Net Earnings Attributable to Common Equity Shareholders |
312 |
311 |
1 |
|
Adjusting
Item: |
|
|
|
Unrealized loss on mark-to-market of derivatives (1) |
3 |
5 |
(2 |
) |
Adjusted
Net Earnings Attributable to Common Equity Shareholders |
315 |
316 |
(1 |
) |
Adjusted Basic Earnings per Share |
0.68 |
0.74 |
(0.06 |
) |
(1) Represents timing differences related
to the accounting of Aitken Creek derivatives, included in the
Energy Infrastructure 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 $57 billion as at March 31, 2020. The
Corporation's 9,000 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 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 the period from 2020 through 2024; targeted
average annual dividend growth through 2024; the expected timing
and outcome of regulatory decisions, including the expectation that
new rates will be approved at TEP prior to the end of 2020; the
expectation that a decrease in commercial sales will be partially
offset by increased residential sales; the expectation that the
Corporation's utilities will continue to fund the capital plan; the
expectation that depending on the length and severity of the
pandemic, any change in 2020 capital expenditures is expected to be
shifted to subsequent years with no change to the five-year capital
plan; forecast rate base for 2022 and 2024; and the expectation
that long-term growth in rate base will support continuing growth
in earnings and dividends.
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 First Quarter 2020
Results |
|
A teleconference and webcast will be held on May 6, 2020 at
8:30 a.m. (Eastern). Barry Perry, President and Chief
Executive Officer, and Jocelyn Perry, Executive Vice President,
Chief Financial Officer, will discuss the Corporation's first
quarter 2020 results. |
|
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 June 5, 2020. Please call
1.800.585.8367 or 416.621.4642 and enter pass code
4883528. |
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/1aa253d3-fbad-49b9-be08-9ac7c886a966
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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