Fortis Inc. Releases Third Quarter 2024 Results
This news release constitutes a "Designated News Release" incorporated by reference in the prospectus supplement dated September 19, 2023 to Fortis' short form base shelf prospectus dated November 21, 2022.
ST. JOHN'S, Newfoundland and Labrador, Nov. 05, 2024 (GLOBE NEWSWIRE) -- 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 third quarter results.1
Highlights
Third quarter net earnings of $420 million or $0.85 per common share, up from $394 million or $0.81 per common share in 2023
Adjusted net earnings per common share2 of $0.85, up from $0.84 in the third quarter of 2023
Capital expenditures2 of $3.6 billion through September; capital expenditures of $5.2 billion expected for 2024
Released 2025-2029 capital plan of $26 billion, representing 6.5% average annual rate base growth
MISO's long-range transmission plan continues to advance; ITC expects at least US$3.0 billion of investments for tranche 2.1
Declared 4.2% increase in fourth quarter common share dividend
"Our strong third quarter results reflect the growth of our utilities as they continue to execute their capital programs," said David Hutchens, President and Chief Executive Officer, Fortis. "In September, our Board of Directors declared a 4.2% increase in the fourth quarter dividend that will mark 51 years of consecutive increases in dividends paid. We remain committed to our regulated growth strategy, focused on annual dividend growth of 4-6% through 2029 for shareholders, while delivering affordable and reliable energy to our customers."
Net Earnings The Corporation reported net earnings attributable to common equity shareholders ("Net Earnings") of $420 million for the third quarter of 2024, or $0.85 per common share, an increase of $26 million, or $0.04 per common share compared to the third quarter of 2023. The increase was driven by rate base growth across our utilities, and strong earnings in Arizona largely reflecting new customer rates at Tucson Electric Power ("TEP") effective September 1, 2023. Unrealized gains on derivative contracts recognized in the third quarter of 2024, as well an unfavourable deferred income tax adjustment recognized by ITC in the third quarter of 2023, also contributed to earnings growth. The increase was partially offset by the timing of recognition of new cost of capital parameters approved for FortisBC in 2023 as well as higher holding company finance costs.
On a year-to-date basis, Net Earnings were $1.2 billion, or $2.45 per common share, an increase of $85 million, or $0.13 per common share compared to the same period in 2023. The increase was due to rate base growth, higher earnings in Arizona, unrealized gains on derivative contracts, and the unfavourable deferred income tax adjustment recognized by ITC in 2023, as discussed above. Growth was partially offset by higher operating costs at Central Hudson, higher holding company finance costs, and the November 1, 2023 disposition of Aitken Creek. Although the disposition of Aitken Creek was unfavourable in comparison to the same period in 2023, the impact will be neutral for the annual period.
The change in earnings per share for both the third quarter and year-to-date periods also reflected an increase in the weighted average number of common shares outstanding, largely associated with the Corporation's dividend reinvestment plan.
Adjusted Net Earnings2There were no adjustments to Net Earnings for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, favourable adjustments totaling $17 million and $27 million, respectively, were recognized to Net Earnings related to the mark-to-market accounting of natural gas derivatives at Aitken Creek and the revaluation of deferred income tax assets at ITC.
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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 ("U.S. GAAP") 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.
Capital Expenditures2Capital expenditures for 2024 are expected to be approximately $5.2 billion, up from $4.8 billion previously anticipated for the year. The increase is driven by the timing of expenditures associated with the Eagle Mountain Pipeline project at FortisBC Energy and a higher forecast U.S.-to-Canadian dollar exchange rate. The annual capital program is on track with $3.6 billion invested through September.
In August 2024, TEP announced the development of the Roadrunner Reserve 2 battery energy storage system facility. The 200 megawatt ("MW") system will store 800 MW hours of energy, enough to serve approximately 42,000 homes for four hours when deployed at full capacity. TEP will own and operate the system, which is included in the Corporation's five-year capital plan, has a total project cost of more than $400 million and is scheduled for completion in 2026.
The Corporation's new 2025-2029 capital plan totals $26 billion, $1.0 billion higher than the previous five-year plan. The increase is driven by projects associated with the Midcontinent Independent System Operator ("MISO") long-range transmission plan ("LRTP") and resiliency investments at ITC, as well as distribution investments largely due to customer growth at FortisAlberta. The plan is low-risk and highly executable, with nearly all investments being regulated and only 23% relating to major capital projects.
The five-year capital plan is expected to be funded primarily by cash from operations and regulated debt. Common equity proceeds are expected to be provided by the Corporation's dividend reinvestment plan, assuming current participation levels. The Corporation's $500 million at-the-market common equity program remains available and provides funding flexibility as required.
Significant opportunities remain beyond the five-year plan, including incremental investments associated with the MISO LRTP. Based on the final portfolio provided by MISO in September 2024, and subject to MISO Board approval anticipated in December 2024, ITC estimates at least US$3 billion in capital expenditures for the MISO LRTP tranche 2.1 projects located in Michigan and Minnesota where rights of first refusal are in effect. The majority of this investment is expected beyond 2029.
Regulatory Updates
In August 2024, Central Hudson filed a general rate application with the New York State Public Service Commission ("PSC") requesting new customer rates effective July 1, 2025. The timing and outcome of this proceeding is unknown.
In August 2024, MISO concluded its variance analysis associated with LRTP tranche 1 projects in Iowa, reaffirming the original allocation of projects, including the allocation to ITC. As a result, work on all ITC tranche 1 projects in Iowa has resumed. The variance analysis was conducted by MISO as a result of the inability to construct LRTP tranche 1 projects in Iowa due to ongoing legal proceedings. Total tranche 1 investments of US$1.2 billion are included in the 2025-2029 capital plan, with approximately US$800 million located in Iowa.
In October 2024, the Federal Energy Regulatory Commission ("FERC") issued an order in response to the 2022 D.C. Circuit Court decision vacating certain FERC orders that had established the methodology for setting the base return on equity ("ROE") for transmission owners operating in the MISO region, including ITC. The order revised the base ROE of ITC's MISO utilities from 10.02% to 9.98% and also directed the payment of certain refunds, with interest, by December 1, 2025. The application of the order will result in a regulatory liability of approximately $35 million (US$26 million) to be recognized by ITC in the fourth quarter of 2024. Fortis' 80.1% share of the related after-tax earnings impact will be approximately $22 million, of which the vast majority relates to periods prior to January 1, 2024.
In October 2024, the PSC issued a Show Cause Order which directed Central Hudson to explain why the PSC should not initiate a proceeding in connection with a gas-related explosion that occurred in November 2023. Central Hudson will file a response to the order within 30 days.
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. The Corporation's $26 billion five-year capital plan is expected to increase midyear rate base from $38.8 billion in 2024 to $53.0 billion by 2029, translating into a five-year compound annual growth rate of 6.5%.3
Beyond the five-year capital plan, 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, transmission investments associated with the MISO LRTP tranches 1, 2.1 and 2.2 as well as regional transmission in ...
