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 and
2023 Sustainability Update Report.
Highlights
- Second quarter net earnings of
$294 million or $0.61 per common share, up from $284 million
or $0.59 per common share in 2022
- Adjusted net earnings per common
share2 of $0.62, up from $0.57 in the second quarter of 2022
- Capital expenditures2 of $2.0
billion in the first half of 2023; $4.3 billion annual capital plan
on track
- 2023 Sustainability Update Report
released highlighting the Corporation's progress on key
sustainability initiatives
- Tucson Electric Power's rate
application continues to progress with a decision anticipated in
Q3
"We are pleased to report our second quarter
results which reflect the growth of our utilities as they continue
to execute the 2023 capital plan," said David Hutchens, President
and Chief Executive Officer, Fortis. "Our strong financial results
demonstrate the success of our regulated growth strategy, and the
sale of Aitken Creek, expected to close later this year, reflects
our focus on that strategy."
"From an operational perspective, our systems
performed well during the quarter, even when faced with extreme
weather events in Western Canada," said Mr. Hutchens. "Our 2023
Sustainability Report, released today, highlights progress on our
climate, diversity and other ESG priorities. The foundation of our
sustainability strategy is to deliver cleaner energy to our
customers by making investments in a safe, reliable energy grid
without compromising on affordability."
Net Earnings
The Corporation reported net earnings
attributable to common equity shareholders ("Net Earnings") of
$294 million for the second quarter, or $0.61 per common
share, compared to $284 million, or $0.59 per common share for the
second quarter of 2022. The increase primarily reflected rate base
growth, largely at ITC and the western Canadian utilities. Also
contributing to earnings growth was the timing of operating
expenses at Central Hudson and FortisAlberta, an increase in the
market value of certain investments that support retirement
benefits, and a higher U.S.-to-Canadian dollar foreign exchange
rate. Growth was tempered by lower earnings in Arizona, mainly
driven by a decrease in retail electricity sales due to milder
weather and the timing of wholesale sales. Lower earnings from
Aitken Creek due to the mark-to-market accounting of natural gas
derivatives, as well as higher corporate finance costs, also
impacted earnings as compared to the second quarter of 2022. In
addition, earnings per share for the quarter reflected an increase
in the weighted average number of common shares outstanding,
largely associated with the Corporation's dividend reinvestment
plan.
On a year-to-date basis, Net Earnings were $731
million, or $1.51 per common share, an increase of $97 million, or
$0.18 per common share compared to the same six-month period in
2022. The increase in earnings and earnings per common share
reflected the same factors discussed for the quarter, except that
UNS Energy and Aitken Creek contributed to earnings growth for the
six-month period. Year-to-date results in Arizona reflected
favourable margins on long-term wholesale sales and higher
transmission revenue, and results for Aitken Creek reflected higher
volumes and margins on gas sold.
Adjusted Net
Earnings2
Adjusted net earnings attributable to common
equity shareholders ("Adjusted Net Earnings") excludes the impact
of mark-to-market accounting of natural gas derivatives at Aitken
Creek. Adjusted Net Earnings of $302 million for the second
quarter, or $0.62 per common share, were $30 million, or $0.05
per common share higher than the same period in 2022. On a
year-to-date basis, Adjusted Net Earnings were $741 million, or
$1.53 per common share, an increase of $100 million, or $0.19 per
common share compared to the same six-month period in 2022. The
increase for the quarter and year-to-date periods reflected the
same factors discussed for Net Earnings, except that there was an
increase in adjusted earnings at Aitken Creek for both the quarter
and year-to-date periods due to higher margins on gas sold.
Non-U.S.
GAAP Reconciliation |
Periods ended June
30 |
Quarter |
|
Year-to-Date |
($ millions, except as indicated) |
2023 |
2022 |
Variance |
|
2023 |
2022 |
Variance |
Adjusted Net
Earnings: |
|
|
|
|
|
|
|
Net Earnings |
294 |
284 |
10 |
|
731 |
634 |
97 |
Adjusting item: |
|
|
|
|
|
|
|
Unrealized loss (gain) on
mark-to-market of derivatives3 |
8 |
(12) |
20 |
|
10 |
7 |
3 |
Adjusted Net Earnings |
302 |
272 |
30 |
|
741 |
641 |
100 |
Adjusted net earnings per share($) |
0.62 |
0.57 |
0.05 |
|
1.53 |
1.34 |
0.19 |
|
|
|
|
|
|
|
|
Capital
Expenditures: |
|
|
|
|
|
|
|
Additions to property, plant
and equipment |
938 |
827 |
111 |
|
1,845 |
1,693 |
152 |
Additions to intangible
assets |
44 |
58 |
(14) |
|
91 |
107 |
(16) |
Adjusting item: |
|
|
|
|
|
|
|
Wataynikaneyap Transmission Power Project4 |
43 |
45 |
(2) |
|
84 |
94 |
(10) |
Capital Expenditures |
1,025 |
930 |
95 |
|
2,020 |
1,894 |
126 |
Capital Expenditures
Our $4.3 billion annual capital plan is on track
with $2.0 billion invested during the first half of 2023.
The Corporation's major capital projects
continue to progress. In May 2023, FortisBC Energy received
approval from the British Columbia Utilities Commission
("BCUC") for its Advanced Metering Infrastructure project. The
project includes replacement of residential and small commercial
meters with advanced meters to support the safety, resiliency, and
efficient operation of the gas distribution system. The project is
expected to commence in the second half of 2023.
FortisBC Energy also received approval from the
BCUC in May 2023 for amended transportation rate schedules for the
Eagle Mountain Woodfibre Gas Line project. This approval
brings the project one-step closer to commencement of construction.
FortisBC Energy continues to receive deposit funding from
Woodfibre LNG Limited for development expenditures to be
incurred for the project.
The Corporation's potential growth opportunities
outside of the capital plan includes Central Hudson's minority
equity interest in New York Transco LLC ("Transco"), a joint
venture with affiliates of other investor-owned utilities in New
York State, which was created to develop, own, and operate electric
transmission projects in the state. In June 2023, the New York
Independent System Operator selected a proposal by Transco, in
partnership with the New York Power Authority, to construct
transmission infrastructure to deliver at least 3,000 MW from Long
Island offshore wind facilities to the rest of the state by 2030.
Transco's portion of the project is estimated to cost approximately
US$2.2 billion, of which Central Hudson will contribute
approximately 10%.
Sustainability
The Corporation released its 2023 Sustainability
Update Report today, which summarizes recent progress and includes
key performance indicators for 2022. Fortis utilities continue to
add new renewable energy resources and decarbonize operations while
advancing a cleaner energy transition for customers. The
Corporation has reduced direct greenhouse gas ("GHG") emissions by
29% through 2022 compared to 2019 levels, marking significant
progress towards our interim targets to reduce GHG emissions 50% by
2030 and 75% by 2035, as well as our 2050 net-zero direct GHG
emissions target. In addition, over the last four years, the GHG
intensity of delivered energy has consistently decreased, while net
electricity generated by renewable sources and avoided emissions
from the use of renewable natural gas has increased
significantly.
The report highlights Fortis' advancements in
diversity, equity and inclusion ("DEI"). The Corporation has
achieved its Board of Director diversity targets, with 58% of the
board comprised of women and two of twelve members identifying as
visible minorities. Our commitment to advancing DEI is reflected in
our leadership at Fortis Inc., where 50% of our executive team are
women. In addition, to further support Fortis' sustainability
reporting, limited third-party assurance was obtained on select
2022 GHG emissions data and board diversity metrics.
As we transition to a cleaner energy future,
customer affordability, safety and reliability remain top
priorities and are the cornerstones of our sustainability strategy.
Fortis utilities continue to focus on controlling costs,
identifying efficiencies and implementing innovative practices to
maintain affordability.
The 2023 Sustainability Update Report can be
accessed at
www.fortisinc.com/sustainability/sustainability-reporting.
Regulatory Updates
In May 2023, the Arizona Corporation Commission
("ACC") approved rate adjustments at Tucson Electric Power ("TEP")
and UNS Electric, Inc. to collect the purchase power fuel
adjustor clause balances over 12- and 33-month periods,
respectively.
In July 2023, the administrative law judge
issued a recommended opinion and order on TEP's general rate
application, recommending an increase in non-fuel revenue of
US$102 million, a 9.4% ROE with a 0.2% return on the fair
value increment, and a 54.32% common equity component of capital
structure. A decision from the ACC is expected in the third quarter
of 2023.
Central Hudson filed a rate application with the
New York State Public Service Commission in July 2023, requesting
an increase in electric and gas delivery rates effective July 1,
2024. The application requests an allowed ROE of 9.8% and a 50%
common equity component of capital structure. The timing and
outcome of this proceeding is unknown.
Outlook
Fortis continues to enhance shareholder value
through the execution of its capital plan, the balance and strength
of its diversified portfolio of regulated utility businesses, and
growth opportunities within and proximate to its service
territories. While energy price volatility, global supply chain
constraints, increasing interest rates and inflation represent
potential concerns, the Corporation does not expect these factors
to have a material impact on its operations or financial results in
2023.
Fortis is executing on the transition to a
cleaner energy future and is on track to achieve its corporate-wide
targets to reduce GHG emissions by 50% by 2030 and 75% by 2035. The
Corporation's additional 2050 net-zero direct GHG emissions target
reinforces Fortis' commitment to further 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 $34.1
billion in 2022 to $46.1 billion by 2027, translating into a
five-year compound annual growth rate of 6.2%5.
Beyond the five-year capital plan, additional
opportunities to expand and extend growth include: further
expansion of the electric transmission grid in the U.S. to
facilitate the interconnection of cleaner energy, including
infrastructure investments associated with the Inflation Reduction
Act of 2022 and the Midcontinent Independent System Operator, Inc.
long-range transmission plan; climate adaptation and grid
resiliency investments; renewable gas solutions and 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 guidance of 4-6%
annually through 2027, and is premised on the assumptions and
material factors listed under "Forward-Looking Information".
|
|
|
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 and
external stakeholders use them in evaluating the Corporation's
financial performance and prospects. Refer to the Non-U.S. GAAP
Reconciliation provided herein. |
3 |
Represents timing differences related to the accounting of natural
gas derivatives at Aitken Creek, net of income tax recovery of $3
million and $4 million for the three and six months ended June 30,
2023, respectively (income tax expense of $5 million and income tax
recovery of $3 million for the three and six months ended June 30,
2022, respectively) |
4 |
Represents Fortis' 39% share of capital spending for the
Wataynikaneyap Transmission Power Project |
5 |
Calculated using a constant United States dollar-to-Canadian dollar
exchange rate |
|
|
|
About Fortis
Fortis is a well-diversified leader in the North
American regulated electric and gas utility industry with 2022
revenue of $11 billion and total assets of $64 billion as at
June 30, 2023. The Corporation's 9,200 employees
serve utility customers in five Canadian provinces, ten 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
2023-2027; the expected timing and outcome of the sale of Aitken
Creek; the 2030 GHG emissions reduction target; the 2035 GHG
emissions reduction target; the 2050 net-zero direct GHG emissions
target; the expected timing, outcome and impact of regulatory
proceedings and decisions; the expectation that energy price
volatility, global supply chain constraints, increasing interest
rates and inflation will not have a material impact on operations
or financial results in 2023; forecast rate base and rate base
growth through 2027; the nature, timing, benefits and expected
costs of certain capital projects, including FortisBC Energy's
Advanced Metering Infrastructure project and the Eagle Mountain
Woodfibre Gas Line Project, and additional opportunities beyond the
capital plan, including Central Hudson's investment in the Propel
New York Energy project through Transco, investments related to the
Inflation Reduction Act of 2022, the Midcontinent Independent
System Operator, Inc. long-range transmission plan, climate
adaptation and grid resiliency, renewable gas solutions and
liquefied natural gas infrastructure in British Columbia, and the
acceleration of cleaner energy infrastructure; and the expectation
that long-term growth in rate base will drive earnings that support
dividend growth guidance of 4-6% annually through 2027.
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 energy price volatility, global supply
chain constraints and inflation; reasonable outcomes for regulatory
proceedings and the expectation of regulatory stability; the
successful execution of the 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 beyond the capital plan; no significant
variability in interest rates; no material changes in the assumed
U.S. dollar to Canadian dollar exchange rate; 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 and Webcast to Discuss Second Quarter
2023 Results
A teleconference and webcast will be held on
August 2, 2023 at 8:30 a.m. (Eastern) during which David Hutchens,
President and Chief Executive Officer and Jocelyn Perry, Executive
Vice President and Chief Financial Officer will discuss the
Corporation's second quarter financial results.
Shareholders, analysts, members of the media and
other interested parties are invited to listen to the
teleconference via the live webcast on the Corporation's website,
www.fortisinc.com/investor-relations/events-and-presentations.
Those members of the financial community in
North America wishing to ask questions during the call are invited
to participate toll free by calling 1.888.886.7786 while those
outside of North America can participate by calling 1.416.764.8658.
Please dial in 10 minutes prior to the start of the call. No
passcode is required.
An archived audio webcast of the teleconference
will be available on the Corporation's website and will be
available two hours after the conclusion of the call until
September 2, 2023. Please call 1.877.674.7070 or 1.416.764.8692 and
enter passcode 928966#.
Additional Information
This media release should be read in conjunction
with the Corporation's June 30, 2023 Interim Management Discussion
and Analysis and Condensed Consolidated Financial Statements. This
and additional information can be accessed at www.fortisinc.com,
www.sedarplus.ca, or www.sec.gov.
A .pdf version of this press release is available
at:
http://ml.globenewswire.com/Resource/Download/640b81d2-c283-4880-a0f6-497c051dbef5
For more information, please contact:
Investor Enquiries |
Media Enquiries |
Ms. Stephanie Amaimo |
Ms. Karen McCarthy |
Vice President, Investor
Relations |
Vice President, Communications
& Government Relations |
Fortis Inc. |
Fortis Inc. |
248.946.3572 |
709.737.5323 |
investorrelations@fortisinc.com |
media@fortisinc.com |
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