Fortis Delivers 1Q 2015 Earnings of $198 mi

The first quarter results of Fortis Inc. (FTS.TO)released today indicate that the company is positioned for a strong 2015 performance. In this regards Barry Perry, President and Chief Executive Officer, Fortis stated, "The $900 million, 335 megawatt Waneta Expansion hydroelectric generating facility in British Columbia came online early April, six weeks ahead of schedule and on budget, while maintaining an excellent safety and environmental protection record.  The facility will contribute to earnings beginning in the second quarter."

Net earnings attributable to common equity shareholders for the first quarter were $198 million, or $0.72 per common share, compared to $143 million, or $0.67 per common share, for the first quarter of 2014. Excluding a number of one-time impacts, adjusted net earnings attributable to common equity shareholders for the first quarter were $179 million, or $0.65 per common share, compared to $146 million, or $0.68 per common share, for the first quarter of 2014.  While UNS Energy contributed $20 million to earnings in the first quarter, as expected the acquisition had a $0.13 dilutive impact on earnings per common share, after considering the common share offering and finance charges associated with the acquisition.  The earnings of UNS Energy are highly seasonal, with approximately 75% of earnings contributed in the second and third quarters.

"Our enterprise-wide capital program is expected to surpass $2 billion this year and is well advanced, with more than $550 million invested in the first quarter," says Perry.  FortisBC's Tilbury liquefied natural gas ("LNG") expansion (known as Tilbury 1A), at an estimated total cost of approximately $440 million, is the largest capital project ongoing.  Tilbury 1A will add 950,000 mmBtus of storage and 34,000 mmBtus daily of liquefaction when the second LNG tank and new liquefier come in service, which is expected to occur by the end of 2016.

In January 2015 UNS Energy closed the purchase of an additional ownership interest in the Springerville Unit 1 generating facility for US$46 million, as expected, following the expiry of the lease agreement.  UNS Energy's ownership interests in Springerville Unit 1 now total 49.5%.  

"A number of significant regulatory processes were concluded in the quarter, ensuring ongoing regulatory stability for our utilities," says Perry.  "In addition to the proceedings concluded in Alberta, our application for new rates in New York State was advanced as well," he explains.

At FortisAlberta, regulatory decisions were received in March 2015 on the utility's Capital Tracker Applications and the Generic Cost of Capital ("GCOC") Proceeding.  The Capital Tracker Decision approved revenue for substantially all of FortisAlberta's capital programs as filed; previously, revenue was recognized on an interim basis at 60% of the applied for amounts.  The GCOC Proceeding set the utility's allowed rate of return on common shareholder's equity ("ROE") for 2013 through 2015 at 8.30%, down from the interim allowed ROE of 8.75%, and set the common equity component of capital structure at 40%, down from 41% approved on an interim basis.  The impact of the decreases in the allowed ROE and common equity component of capital structure only applies to the portion of FortisAlberta's revenue that is associated with capital tracker amounts throughout the term of the performance-based rate setting regulation.  As a result of these regulatory decisions, in the first quarter of 2015, FortisAlberta recognized a positive $10 million capital tracker revenue adjustment associated with 2013 and 2014.

At Central Hudson, a Joint Settlement Proposal was filed in February 2015 that proposes new rates at the utility for a three-year period beginning July 1, 2015, reflecting an allowed ROE of 9.0% and a 48% common equity component of capital structure.  A delivery rate freeze was implemented for electricity and natural gas delivery rates through to June 30, 2015 as part of the regulatory approval of the acquisition of Central Hudson by Fortis. 

Central Hudson committed to invest US$215 million in capital expenditures during the two-year delivery rate freeze period ending June 30, 2015.  Public statement and evidentiary hearings were held in March 2015 and a Final Joint Proposal was executed in April 2015.  The Final Joint Settlement Proposal is targeted to go to the regulator in June for consideration and approval.

"Fortis remains focused on our core regulated utility business and long-term contracted energy infrastructure", explains Perry.  "We expect to make an announcement regarding the outcome of the strategic review of Fortis Properties in the second quarter of 2015," he says.

In March 2015 the Corporation entered into an agreement to sell its non-regulated generation assets in Upstate New York and Ontario.  The sale of the generation assets in Upstate New York and Ontario is expected to close in the second quarter of 2015 and the second half of 2015, respectively.

Fortis continues to be one of the highest-rated utility holding companies in North America, with its corporate debt rated A- by Standard and Poor's and A(low) by DBRS, which helps ensure efficient access to capital. In February 2015 Tucson Electric Power Company, UNS Energy's largest utility, issued US$300 million 10-year senior unsecured notes at 3.05%.  Net proceeds were primarily used to repay long-term debt and credit facility borrowings and to finance capital expenditures.  UNS Energy and its regulated utilities received credit rating upgrades from Moody's Investor Service in the first quarter of 2015.

"Fortis continues to build on its dividend record to shareholders," says Perry.  The Corporation paid a quarterly dividend of $0.34 per common share on March 1, 2015 compared to $0.32 paid on December 1, 2014.  The 6.25% increase extends the Corporation's record of annualized common share dividend increases to 42 consecutive years, the longest record of any public corporation in Canada.

"Following a decade of growth driven mainly by acquisitions, Fortis has entered a period of significant organic growth," says Perry.
Over the five-year period through 2019, the Corporation's capital program is expected to be approximately $9 billion. 

This investment in energy infrastructure is expected to increase midyear rate base by approximately 38% from $14 billion in 2014 to more than $19 billion in 2019 and produce a five-year compound annual growth rate ("CAGR") of approximately 6.5%.  Two new natural gas infrastructure investments in British Columbia that Fortis is pursuing – Tilbury 1B and the pipeline expansion to Woodfibre LNG – could increase the five-year CAGR in rate base to 7.5%.

"Looking out over the five-year horizon, we expect our capital investment to support continuing growth in earnings and dividends," concludes Perry.