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 2020 fourth quarter and
annual financial results1 today.
Highlights
- Reported annual net earnings of
$1,209 million, or $2.60 per common share in 2020
- Delivered adjusted net earnings2 of
$1,195 million, or $2.57 per common share, up from
$1,115 million, or $2.55 per common share in 2019
- Executed record capital
expenditures of $4.2 billion yielding annual rate base growth of
8.2%3
- Received constructive final order
on Tucson Electric Power's general rate application with new
customer rates effective January 1, 2021
- Established a new corporate-wide
emissions reduction target of 75% by 2035
"2020 proved to be a successful year on many
fronts. Despite the challenges presented by the pandemic, our 9,000
dedicated employees continued to reliably provide essential energy
service to our customers and executed our largest annual capital
program while achieving our best safety performance on record,"
said David Hutchens, President and Chief Executive Officer, Fortis.
"Our teams also worked with their regulators and communities
to help customers who have been most impacted by the pandemic,
demonstrating our core values and the benefits of our local
business model."
Net EarningsThe Corporation
reported net earnings attributable to common equity shareholders
for 2020 of $1,209 million, compared to $1,655 million for
2019. The change in net earnings reflects significant one-time
items related to: (i) a $484 million gain on the disposition
of the Waneta Expansion hydroelectric generating facility ("Waneta
Expansion") in April 2019; and (ii) the $56 million net impact
associated with the reversal of prior period liabilities as a
result of the base return on common equity ("ROE") decisions made
by the Federal Energy Regulatory Commission ("FERC") in
November 2019 and May 2020.
Excluding these one-time items, earnings grew by
$94 million in 2020 reflecting: (i) rate base growth of 8.2%; (ii)
increased retail electricity sales at UNS Energy, driven largely by
weather; and (iii) higher earnings from Belize, mainly from
increased hydroelectric production. Earnings were also favourably
impacted by mark-to-market accounting of natural gas derivatives at
Aitken Creek which resulted in unrealized losses of $15 million in
2019. Fortis delivered this growth despite: (i) the delay in Tucson
Electric Power's ("TEP") general rate application, resulting in
approximately $1 billion of rate base not reflected in customer
rates in 2020; and (ii) the impact of the COVID-19 pandemic,
reflecting lower sales in the Caribbean and higher net operational
expenses, including increased credit loss expense, largely at
Central Hudson and UNS Energy.
For the fourth quarter of 2020, net earnings
attributable to common equity shareholders were $331 million,
compared to $346 million for the same period in 2019. The decrease
was due to the reversal of prior period liabilities of $83
million in the fourth quarter of 2019 associated with the November
2019 FERC base ROE decision. Excluding this one-time item,
quarterly earnings grew by $68 million reflecting: (i) the timing
of earnings at ITC associated with the implementation of the
November 2019 base ROE decision; (ii) rate base growth; (iii) the
impact of mark-to-market accounting of natural gas derivatives at
Aitken Creek; and (iv) higher earnings from Belize, mainly from
increased hydroelectric production.
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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 ("US GAAP") 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 in this media release. |
3 |
Calculated on a constant United States dollar-to-Canadian dollar
exchange rate. |
Earnings per common share decreased by $0.06 and
$1.19 for the fourth quarter and annual periods, respectively, as
compared to 2019. In addition to the above-noted items, the
decrease in earnings per common share also reflected a higher
weighted average number of common shares outstanding, largely
associated with the Corporation's $1.2 billion common equity
issuance in the fourth quarter of 2019. The impact was a decrease
in earnings per common share for the fourth quarter and annual
periods of $0.03 and $0.15, respectively.
The common equity issuance and the Waneta
Expansion disposition generated a significant portion of the equity
funding required to execute our five-year capital plan, and
strengthened the Corporation's balance sheet, liquidity and credit
metrics. As at December 31, 2020, total consolidated credit
facilities were $5.6 billion with $4.3 billion unutilized.
Adjusted Net EarningsOn an
adjusted basis, net earnings attributable to common equity
shareholders for 2020 were $1,195 million, or $2.57 per common
share, an increase of $0.02 per common share compared to 2019. The
increase reflected rate base growth as well as higher retail sales
in Arizona and earnings from Belize. Fortis delivered growth in
earnings per common share despite the delay in TEP's general rate
application and the COVID-19 pandemic, as well as a higher weighted
average number of common shares outstanding.
On an adjusted basis, for the fourth quarter of
2020, net earnings attributable to common equity shareholders were
$320 million, or $0.69 per common share, an increase of $43
million, or $0.07 per common share compared to the fourth quarter
of 2019. The increase in adjusted quarterly earnings was due to the
timing of earnings at ITC associated with the implementation of the
November 2019 base ROE decision, rate base growth and higher
earnings from Belize, partially offset by a higher weighted average
number of common shares outstanding.
COVID-19 PandemicFortis
continues to monitor developments and take 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 temporary suspension of
non-payment disconnects and late fees, delayed customer rate
increases and the deferred recovery of costs. Community investments
by Fortis and our utilities were more than $15 million in 2020,
including approximately $5 million for community support in
response to the COVID-19 pandemic.
In addition to the efforts across the Fortis
group to control costs during 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 83% 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.
Excluding the impact of the delay in TEP's
general rate application, the COVID-19 pandemic did not have a
material impact on the Corporation's capital expenditures, revenue
or earnings in 2020. The financial impact to Fortis
approximated $0.05 per common share, reflecting reduced sales in
the Caribbean and higher net operational expenses, including an
increase in credit loss expense, largely at Central Hudson and UNS
Energy.
Regulatory ProceedingsThe
Corporation's significant regulatory proceedings were concluded by
the end of 2020.
In December 2020, the Arizona Corporation
Commission issued a rate order on TEP's general rate application.
The order established new customer rates effective
January 1, 2021, including: (i) an increase in
non-fuel revenue of $77 million (US$58 million); (ii) an allowed
ROE of 9.15%, with a 0.20% return on the fair value increment and a
capital structure of 53% common equity; and (iii) a rate
base of approximately $3.5 billion (US$2.7 billion). The
approved rate base includes the Gila River natural gas generation
station Unit 2 and ten natural gas reciprocating internal
combustion engine units that will help TEP transition its
generation mix to more than 70% renewable by 2035.
In October 2020, the Alberta Utilities
Commission ("AUC") concluded the 2021 generic cost of capital
proceeding and set FortisAlberta's ROE for 2021 at 8.50% using a
capital structure of 37% common equity, consistent with 2020.
In November 2020, the AUC issued a decision
reversing proposed changes to the Alberta Electric System
Operator's customer contribution policy resulting in FortisAlberta
retaining approximately $400 million of unamortized customer
contributions in its rate base.
Capital ExpendituresCapital
expenditures in 2020 were $4.2 billion, $0.4 billion higher than in
2019 and broadly consistent with the 2020 capital plan.
The Corporation's five-year capital plan for
2021 through 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.
Focus on SustainabilityFortis
has targeted a reduction in carbon emissions of 75% by 2035 from a
2019 base year. The Corporation expects to achieve the
majority of this target through delivering on TEP's plan to exit
coal generation and replace it with wind, solar and energy storage.
Clean energy initiatives across the Corporation's other utilities
will also contribute to achieving this goal.
"Sustainability remains front and center across
our utilities," said David Hutchens. "With the strength of our
low-risk growth outlook and the talent of our North American team,
we are positioned well to deliver a cleaner energy future."
OutlookThe Corporation
maintains its positive long-term 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 uncertainty exists due to the
COVID-19 pandemic, the Corporation does not currently expect it to
have a material financial impact in 2021.
The Corporation's five-year capital plan is
expected to increase rate base from $30.5 billion in 2020 to
$36.4 billion by 2023 and $40.3 billion by 2025, translating into
three- and five-year compound annual growth rates3 of approximately
6.5% and 6.0%, respectively. Beyond the five-year capital plan,
Fortis continues to pursue additional energy infrastructure
opportunities, including: further expansion of liquefied natural
gas infrastructure in British Columbia; the fully permitted,
cross-border, Lake Erie Connector electric transmission project in
Ontario; and the acceleration of cleaner energy infrastructure
investments across our jurisdictions.
Fortis expects long-term growth in rate base
will support earnings and dividend growth. The Corporation is
targeting average annual dividend growth of approximately 6%
through 2025. This dividend growth guidance is premised on the
assumptions listed under "Forward-Looking Information" below,
including no material impact from the COVID-19 pandemic, the
expectation of reasonable outcomes for regulatory proceedings and
the successful execution of the five-year capital plan.
Non-US GAAP Reconciliation
Periods ended December 31 |
|
($ millions, except earnings per share) |
2020 |
|
|
2019 |
|
|
Variance |
|
|
Q4 2020 |
|
|
Q4 2019 |
|
|
Variance |
|
Net
earnings attributable to common equity shareholders |
1,209 |
|
|
1,655 |
|
|
(446 |
) |
|
331 |
|
|
346 |
|
|
(15 |
) |
Adjusting
items: |
|
|
|
|
|
|
|
FERC base ROE decisions (i) |
(27 |
) |
|
(83 |
) |
|
56 |
|
|
— |
|
|
(83 |
) |
|
83 |
|
United States tax reform (ii) |
13 |
|
|
12 |
|
|
1 |
|
|
— |
|
|
12 |
|
|
(12 |
) |
Unrealized loss (gain) on mark-to-market of derivatives (iii) |
— |
|
|
15 |
|
|
(15 |
) |
|
(11 |
) |
|
2 |
|
|
(13 |
) |
Gain on disposition (iv) |
— |
|
|
(484 |
) |
|
484 |
|
|
— |
|
|
— |
|
|
— |
|
Adjusted net earnings attributable to common equity
shareholders |
1,195 |
|
|
1,115 |
|
|
80 |
|
|
320 |
|
|
277 |
|
|
43 |
|
Adjusted basic earnings per share ($) |
2.57 |
|
|
2.55 |
|
|
0.02 |
|
|
0.69 |
|
|
0.62 |
|
|
0.07 |
|
(i) |
Represents prior
period impacts of the May 2020 and November 2019 FERC base ROE
decisions, respectively |
(ii) |
The finalization
of United States tax reform regulations associated with anti-hybrid
regulations in 2020 and base-erosion and anti-abuse tax in
2019 |
(iii) |
Represents timing
differences related to the accounting of natural gas derivatives at
Aitken Creek |
(iv) |
Gain on sale of
the Waneta Expansion, net of expenses, in April 2019 |
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3 |
Calculated on a
constant United States dollar to Canadian dollar exchange
rate. |
About FortisFortis is a
well-diversified leader in the North American regulated electric
and gas utility industry with 2020 revenue of $8.9 billion and
total assets of $55 billion as at December 31, 2020.
The Corporation's 9,000 employees serve utility customers in
five Canadian provinces, nine US 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: the 2035 carbon emissions reduction target;
TEP's targeted 2035 generation mix; forecast capital expenditures
for 2021-2025 and expected funding sources; the expectation that
the COVID-19 pandemic will not have a material financial impact in
2021; forecast rate base and rate base growth for 2023 and 2025;
the expectation that long-term growth in rate base will support
earnings and dividend growth; and targeted average annual dividend
growth through 2025.
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 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 2020 Annual Results |
|
A teleconference and webcast will be held on February 12 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 2020
annual results. |
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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. |
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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 March 14, 2021. Please call
1.800.585.8367 or 416.621.4642 and enter pass code
1887263. |
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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/0a679b0c-ae4e-47f3-ab92-6ad2d637f4cb
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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