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
today.
Highlights
- Continued to deliver safe and reliable service throughout the
pandemic
- Second quarter 2020 net earnings were $274 million, or
$0.59 per common share
- Adjusted net earnings2 of $0.56 per common share, up from $0.54
in the same quarter last year
- Capital expenditures of $2.0 billion, representing 47% of the
2020 annual capital plan, were completed in the first half of the
year
- The Corporation's five-year capital plan of $18.8 billion and
dividend growth guidance remain unchanged
- Announced a new 80% greenhouse gas ("GHG") emission reduction
target in Arizona
"Our family of utilities delivered reliable
service to our customers during the quarter while remaining focused
on the safety of our employees and communities during the
pandemic," said Barry Perry, President and Chief Executive Officer,
Fortis. "We maintained operational and financial performance for
the first half of 2020 as well as progressed key sustainability
initiatives to deliver cleaner energy".
Net EarningsThe Corporation
reported second quarter net earnings attributable to common equity
shareholders of $274 million, or $0.59 per common share,
compared to $720 million, or $1.66 per common share, for the same
period in 2019. On a year-to-date basis, net earnings attributable
to common equity shareholders were $586 million, or $1.26 per
common share, compared to $1,031 million, or $2.39 per common
share, for the same period in 2019.
Earnings for the quarter and year to date
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 of anti-hybrid regulations in April 2020
associated with U.S. tax reform; partially offset by (iii) a $27
million favourable base ROE adjustment at ITC reflecting the
reversal of liabilities established in prior years as a result of a
May 2020 Order issued by the Federal Energy Regulatory Commission
("FERC").
Notwithstanding the significant one-time items,
the regulated utilities delivered improved financial results during
the second quarter, increasing earnings per common share ("EPS")
due to: (i) rate base growth, led by ITC; (ii) increased retail
sales at UNS Energy, driven by weather; (iii) favourable foreign
exchange; and (iv) the timing of operating expenses at FortisBC
Energy. This growth was tempered by: (i) lower earnings in the
Caribbean due to the impact of the COVID-19 pandemic on
tourism-related activities; (ii) higher COVID-related costs,
including credit losses, driven by Central Hudson; and (iii) a
higher weighted average number of common shares outstanding.
On a year-to-date basis, EPS reflected the same
factors discussed above for the quarter but was further tempered by
lower earnings at Tucson Electric Power ("TEP"), which reflect
higher costs associated with approximately $1 billion of utility
infrastructure investments spent over the past few years that have
not yet been reflected in rates and a decline in the market value
of certain investments that support retirement benefits caused by
financial market volatility. While later than expected, new rates
at TEP that recover these investments are anticipated to be
approved prior to the end of
2020._______________________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.
Adjusted Net Earnings2On an
adjusted basis, second quarter net earnings attributable to common
equity shareholders were $258 million, or $0.56 per common
share, compared to $235 million, or $0.54 per common share, for the
same period in 2019.
Year-to-date adjusted net earnings attributable
to common equity shareholders were $573 million, or $1.23 per
common share, compared to $551 million, or $1.28 per common
share, for the same period in 2019.
COVID-19 PandemicFortis
continues to monitor developments and take measures it believes are
warranted to protect the health and safety of employees, customers
and communities. In addition to the efforts across the Corporation
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. The regulatory mechanisms function to protect
approximately 63% of the Corporation's annual revenue from changes
in sales. Of the remaining 37%, principally at UNS Energy and the
Other Electric segment, approximately 19% is residential and 18% is
commercial and industrial. During the second quarter of 2020, sales
not protected by regulatory mechanisms increased approximately 3%,
driven by higher residential sales as more people were working from
home and warmer temperatures in Arizona.
Fortis is well positioned with strong liquidity
due, in part, to a $1.2 billion common equity offering and the sale
of the Waneta Expansion in 2019. As at June 30, 2020, total
consolidated credit facilities were $5.9 billion with
$4.8 billion unutilized. The Corporation's utilities have
issued approximately $2 billion of long-term debt since March 2020.
They are in a strong financial position and will continue to fund
their capital plans and work with customers and their respective
regulators to ensure reliable service during the pandemic.
Overall, the capital plan is progressing well
with $2.0 billion, or 47% of the $4.3 billion 2020 annual
capital plan, spent during the first six months. 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.
Regulatory ProceedingsIn May
2020 FERC issued an order establishing the Midcontinent Independent
System Operator ("MISO") base rate of return on common equity
("ROE") for November 2013 through February 2015 and from September
2016 onward at 10.02%. Including existing incentive adders, this
implies an all-in ROE of 10.77% for ITC's subsidiaries operating in
the MISO region, up from 10.63% based on a November 2019
decision.
In June 2020 the British Columbia Utilities
Commission ("BCUC") issued a decision on FortisBC Energy's and
FortisBC Electric's multi-year rate plan applications for 2020
to 2024. The decision sets the rate-setting framework for the next
five years, including: (i) the level of operation and maintenance
expense and capital to be included in customer rates, subject to an
incentive formula; (ii) the level of investment in gas
innovation initiatives to be included in customer rates; and (iii)
a 50/50 sharing between customers and the utilities of variances
from the allowed ROE. During the third quarter of 2020, the
FortisBC utilities will provide the BCUC with updated 2020 rate
filings reflecting the terms of this decision. Current interim
rates will remain in effect pending a final determination of 2020
rates by the BCUC.
SustainabilityEarlier this
month, Fortis released its 2020 Sustainability Report which
highlights the Corporation's focus on the regulated delivery of
energy and the setting of ambitious emission reduction goals at two
of the Corporation's largest utilities. In Arizona, TEP announced a
new GHG reduction target to reduce its emissions by 80% by 2035,
from 2005 levels. Renewable generation in Arizona is expected to
comprise more than 70% of its generation mix by exiting coal-fired
electricity generation and installing approximately 3,800 megawatts
of wind and solar generation and battery storage. In British
Columbia, FortisBC's 30BY30 goal aims to reduce GHG emissions
associated with customer use by 30% by 2030.
During the second quarter, ITC received approval
from the Iowa Utilities Board for the Cardinal-Hickory Creek
Transmission Line Project. The 345-kilovolt transmission line will
help expand system capacity and respond to consumer demands for
more cost-effective renewable energy.Fortis recently joined senior
business leaders from Canadian public companies in a pledge to take
action to end systemic anti-Black racism. The pledge is part of the
BlackNorth Initiative and the newly formed Canadian Council of
Business Leaders Against Anti-Black Systemic Racism. During the
second quarter, Fortis was also recognized by Corporate Knights as
a Best 50 Corporate Citizen in Canada.
"At Fortis, every action we take is influenced
by our respect for the environment, our desire to deliver cleaner
energy and our dedication to employees and the communities we
serve," said Mr. Perry. "Our safety and reliability performance
during the pandemic and the steps we are taking to advance key
sustainability initiatives are strong evidence that we are on the
right path."
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 $38.4
billion by 2024, translating into three- and five-year compound
annual growth rates of 7.2% and 6.5%, respectively. The capital
plan reflects the continuation of key industry trends including
grid modernization and the delivery of cleaner energy, which Fortis
believes will continue to be drivers of investment over the
planning period. Beyond the base capital plan, Fortis continues to
pursue additional energy infrastructure opportunities. Key
opportunities not yet included in the five-year capital plan
include: further expansion of liquefied natural gas infrastructure
in British Columbia; the fully permitted, cross-border, Lake Erie
Connector electric transmission project in Ontario; and the
acceleration of cleaner energy goals in Arizona.
Fortis expects long-term growth in rate base to
support continuing growth in earnings and dividends. As such, the
Corporation's dividend guidance remains unchanged. The continuation
of dividend growth guidance is premised on the assumptions listed
under "Forward-Looking Information" below, including the continued
good performance of the Corporation's utilities, no material impact
from the COVID-19 pandemic, the expectation of reasonable outcomes
for regulatory proceedings and the successful execution of the
five-year capital plan.
Non-US GAAP Reconciliation
Periods ended June 30 |
Quarter |
Year-to-Date |
($ millions, except earnings per share) |
2020 |
|
2019 |
|
Variance |
|
2020 |
|
2019 |
|
Variance |
|
Common Equity Earnings |
274 |
|
720 |
|
(446 |
) |
586 |
|
1,031 |
|
(445 |
) |
Adjusting
Items: |
|
|
|
|
|
|
May 2020 FERC Order (1) |
(27 |
) |
— |
|
(27 |
) |
(27 |
) |
— |
|
(27 |
) |
Anti-hybrid tax regulations (2) |
13 |
|
— |
|
13 |
|
13 |
|
— |
|
13 |
|
Unrealized (gain) loss on mark-to- |
|
|
|
|
|
— |
|
market of derivatives (3) |
(2 |
) |
(1 |
) |
(1 |
) |
1 |
|
4 |
|
(3 |
) |
Gain on disposition (4) |
— |
|
(484 |
) |
484 |
|
— |
|
(484 |
) |
484 |
|
Adjusted Common Equity Earnings |
258 |
|
235 |
|
23 |
|
573 |
|
551 |
|
22 |
|
Adjusted Basic EPS ($) |
0.56 |
|
0.54 |
|
0.02 |
|
1.23 |
|
1.28 |
|
(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
rate of return on common equity, 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 June 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 for the period
from 2020 through 2024; targeted average annual dividend growth
through 2024; 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; the expected
timing and outcome of regulatory decisions; TEP's carbon emissions
reduction target, 2035 generation mix, and coal-fired generation
retirements; FortisBC's 2030 greenhouse gas emissions and renewable
gas targets; 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 Second Quarter 2020
Results A teleconference and
webcast will be held on July 30, 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 second 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 August 30, 2020. Please call 1.800.585.8367 or
416.621.4642 and enter pass code 5294849. |
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/d7a6bd85-1b23-4e53-af60-3de3242c9f53
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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