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 2022 fourth quarter and
annual financial results1.
Highlights
- Reported net earnings of $1.3
billion, or $2.78 per common share in 2022
- Adjusted net earnings per common
share2 of $2.78, up from $2.59 in 2021, representing ~7% annual EPS
growth
- Capital expenditures2 of $4.0 billion, with over $600 million
focused on delivering cleaner energy, yielding ~7% rate base
growth3
- Scope 1 emissions 28% below 2019
levels; 75% emissions reduction by 2035 target on track in support
of 2050 net-zero goal
- Capital structure complaint filed
against ITC Midwest denied by FERC
"2022 was a year of execution with strong
financial, operational and sustainability results across our
utilities," said David Hutchens, President and Chief Executive
Officer, Fortis Inc. "We invested over $4 billion in capital,
delivered strong EPS and rate base growth, and further reduced our
carbon emissions. We also outperformed safety and reliability
industry averages and were recognized as a leader in Canada for our
governance practices."
"With a focus on organic growth, we also
announced our largest five-year capital plan of $22.3 billion
representing steady rate base growth of 6% and supporting annual
dividend growth guidance of 4-6% through 2027," said Mr. Hutchens.
"We appreciate the dedication and hard work of our people to make
2022 another successful year."
Net Earnings
The Corporation reported net earnings
attributable to common equity shareholders ("Net Earnings") for
2022 of $1.3 billion, or $2.78 per common share, compared to $1.2
billion, or $2.61 per common share for 2021. The increase was
primarily driven by rate base growth across our utilities. The
increase was also due to higher electricity sales and transmission
revenue in Arizona, and higher earnings at Aitken Creek. The
translation of U.S. dollar-denominated subsidiary earnings at
a higher U.S.-to-Canadian dollar foreign exchange rate and lower
stock based compensation costs also contributed to results.
Growth in earnings was tempered by certain
discrete items at ITC, including costs associated with the
suspension of the Lake Erie Connector project, the revaluation of
deferred income tax assets, and an adjustment in 2021 related to
interest rate swaps. Losses on investments that support retirement
benefits at UNS Energy and ITC, higher operating costs at Central
Hudson related to the implementation of a new customer information
system, and higher corporate costs also impacted results. In
addition, net earnings per common share reflected an increase in
the weighted average number of common shares outstanding largely
associated with the Corporation's dividend reinvestment plan.
For the fourth quarter of 2022, Net Earnings
were $370 million, or $0.77 per common share, compared to $328
million or $0.69 per common share for the same period in 2021. The
increase was due to rate base growth, higher retail electricity
sales and transmission revenue at UNS Energy, higher hydroelectric
production in Belize, and the timing of expenses at FortisAlberta.
The higher foreign exchange rate and lower stock based compensation
costs, as discussed above, also favourably impacted results. The
increase was partially offset by higher corporate costs as well as
lower earnings at Central Hudson due to the timing of approval of
its rate application in 2021, and for net earnings per common
share, an increase in the weighted average number of common
shares.
____________________________
1 |
Financial information is presented in Canadian dollars unless
otherwise specified. |
2 |
Non-U.S. 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-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 |
Calculated using a constant United States dollar-to-Canadian dollar
exchange rate. |
Adjusted Net
Earnings2
Adjusted net earnings attributable to common
equity shareholders ("Adjusted Net Earnings") excludes
non-recurring items and the impact of mark-to-market accounting of
natural gas derivatives at Aitken Creek. Adjusted Net Earnings of
$1.3 billion for 2022, or $2.78 per common share, were $110
million, or $0.19 per common share higher than 2021. For the fourth
quarter of 2022, Adjusted Net Earnings were $347 million, or $0.72
per common share, an increase of $47 million, or $0.09 per common
share compared to the same period in 2021. The increase in adjusted
earnings for the fourth quarter and the year was driven by the same
factors discussed for Net Earnings.
Capital
Expenditures2
Capital expenditures were $4.0 billion,
consistent with the 2022 capital plan, and mainly consisted of
regulated investments focused on system resiliency, grid
modernization and sustainable energy, including more than $600
million in cleaner energy investments. Capital expenditures
increased midyear rate base to $34.1 billion, representing 7%
growth over 20213.
The Corporation's five-year capital plan for
2023 through 2027 is $22.3 billion, the largest in the
Corporation's history. In total, Fortis expects to invest $5.9
billion in cleaner energy over the next five years. These
investments will focus on connecting renewables to the grid,
including Tranche 1 of the Midcontinent Independent System Operator
("MISO") long-range transmission plan ("LRTP"), renewable and
storage investments in Arizona and the Caribbean, and cleaner fuel
solutions in British Columbia. The plan incorporates key customer
affordability considerations, recognizing the impacts of inflation
and elevated commodity costs on customer rates, while ensuring
reliable and resilient energy delivery service as we transition to
a cleaner energy future.
The five-year capital plan is expected to be
funded primarily by cash from operations, debt issued at the
regulated utilities and common equity from the Corporation's
dividend reinvestment plan.
Non-U.S. GAAP Reconciliation |
|
|
|
|
|
|
|
Periods ended December
31 |
Quarter |
|
Annual |
($
millions, except earnings per share) |
2022 |
|
2021 |
|
Variance |
|
2022 |
|
2021 |
|
Variance |
Adjusted Net Earnings |
|
|
|
|
|
|
|
Net Earnings |
370 |
|
328 |
|
42 |
|
|
1,330 |
|
1,231 |
|
99 |
|
Adjusting items: |
|
|
|
|
|
|
|
Unrealized gain on mark-to-market of derivatives4 |
(23 |
) |
(28 |
) |
5 |
|
|
(20 |
) |
(12 |
) |
(8 |
) |
Lake Erie Connector project suspension costs5 |
— |
|
— |
|
— |
|
|
10 |
|
— |
|
10 |
|
Revaluation of deferred income tax assets6 |
— |
|
— |
|
— |
|
|
9 |
|
— |
|
9 |
|
Adjusted Net Earnings |
347 |
|
300 |
|
47 |
|
|
1,329 |
|
1,219 |
|
110 |
|
Adjusted Basic EPS ($) |
0.72 |
|
0.63 |
|
0.09 |
|
|
2.78 |
|
2.59 |
|
0.19 |
|
|
|
|
|
|
|
|
|
Capital
Expenditures |
|
|
|
|
|
|
|
Additions to property, plant
and equipment |
987 |
|
897 |
|
90 |
|
|
3,587 |
|
3,189 |
|
398 |
|
Additions to intangible
assets |
127 |
|
77 |
|
50 |
|
|
278 |
|
197 |
|
81 |
|
Adjusting item: |
|
|
|
|
|
|
|
Wataynikaneyap Transmission Power Project7 |
34 |
|
35 |
|
(1 |
) |
|
169 |
|
178 |
|
(9 |
) |
Capital Expenditures |
1,148 |
|
1,009 |
|
139 |
|
|
4,034 |
|
3,564 |
|
470 |
|
_________________________________
4 |
Represents timing differences related to the accounting of natural
gas derivatives at Aitken Creek, net of income tax expense of $8
million and $7 million for the three and twelve months ended
December 31, 2022, respectively ($11 million and
$5 million for the three and twelve months ended December 31,
2021, respectively). |
5 |
Represents costs incurred upon the suspension of the Lake Erie
Connector project, net of income tax recovery of $nil and $4
million for the three and twelve months ended December 31, 2022,
respectively. |
6 |
Represents the revaluation of deferred income tax assets resulting
from the reduction in the corporate income tax rate in the state of
Iowa. |
7 |
Represents Fortis' 39% share of capital spending for the
Wataynikaneyap Transmission Power Project. |
Regulatory Updates
In November 2022, FERC issued an order denying
the complaint filed by the Iowa Coalition for Affordable
Transmission ("ICAT"), which sought to lower ITC Midwest’s equity
ratio from 60% to 53%. FERC concluded that ICAT had not
demonstrated that ITC Midwest failed to meet the three-part
test for authorizing the use of the utility’s actual capital
structure for rate-making purposes. In December 2022, ICAT
filed a request for rehearing with FERC. The Corporation continues
to believe the complaint is without merit.
Focus on Sustainability
Fortis achieved a 28% reduction in Scope 1
emissions through 2022 compared to 2019 levels, equivalent to
taking approximately 760,000 vehicles off the road in one year. The
closure of the 170-megawatt coal-fired San Juan Generating Station
in Arizona in mid-2022 contributed to the reduction. The
Corporation is more than halfway to achieving its target to reduce
greenhouse gas ("GHG") emissions 50% by 2030, and remains on track
to reduce GHG emissions 75% by 2035. Upon achieving these targets,
99% of the Corporation's assets will be focused on energy delivery
and renewable, carbon-free generation. Additionally, in 2022,
Fortis established a 2050 net-zero direct GHG emissions target,
reinforcing the Corporation's commitment to long-term
decarbonization, while preserving customer reliability and
affordability.
During the year, Fortis released its inaugural
Task Force for Climate-Related Financial Disclosures ("TCFD") and
Climate Assessment Report and its 2022 Sustainability Report. The
TCFD and Climate Assessment Report advanced the Corporation’s
commitment as a TCFD supporter and included an analysis of risks
and opportunities associated with four climate-related scenarios.
The 2022 Sustainability Report fully aligned with applicable
Sustainability Accounting Standards Board standards and included
over 35 new key performance indicators. The report also provided an
update on efforts to increase renewable generation sources,
including new wind and solar generation at Tucson Electric
Power.
Progress continued on the Wataynikaneyap
Transmission Power Project during 2022. In August 2022, Phase 1 of
the project was completed, energizing the 230 kV line from Dinorwic
to Pickle Lake, Ontario. At the end of 2022, the project was 73%
complete, with 700 kilometers of transmission line energized and
three First Nation communities connected to the Ontario electric
grid. Construction is expected to be completed in 2024.
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 and persistent inflation are issues of potential
concern that continue to evolve, the Corporation does not currently
expect there to be a material impact on its operations or financial
results in 2023.
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%3.
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 MISO LRTP; 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. This dividend growth guidance will also
provide flexibility to fund more capital with internally-generated
funds and is premised on the assumptions and material factors
listed under "Forward-Looking Information".
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
December 31, 2022. The Corporation's 9,200 employees serve
utility customers in five Canadian provinces, nine 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, including cleaner energy investments; forecast rate base
and rate base growth through 2027; targeted annual dividend growth
through 2027; the expected sources of funding for the 2023-2027
capital plan; the nature, timing, benefits and expected costs of
certain capital projects, including the Wataynikaneyap Transmission
Power project, ITC's transmission projects associated with the MISO
LRTP, renewable energy and storage investments in Arizona and the
Caribbean, and investments in cleaner fuel solutions in British
Columbia, and additional opportunities beyond the capital plan,
including investments related to the Inflation Reduction Act of
2022, the MISO LRTP, climate adaptation and grid resiliency, and
renewable gas solutions and liquefied natural gas infrastructure in
British Columbia; the expected timing, outcome and impact of
regulatory proceedings and decisions; the 2030 GHG emissions
reduction target; the 2035 GHG emissions reduction target and
projected asset mix; the 2050 net-zero direct GHG emissions target;
the expectation that volatility in energy prices, global supply
chain constraints and persistent inflation will not have a material
impact on operations or financial results in 2023; the expectation
that long-term growth in rate base will drive earnings that support
dividend growth guidance of 4-6% annually through 2027; and the
expectation that the dividend growth guidance will provide
flexibility to fund more capital internally.
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 volatility in energy prices, global supply
chain constraints and persistent 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 to Discuss 2022 Annual
Results
A teleconference and webcast will be held on
February 10, 2023 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 2022 annual results.
Shareholders, analysts, members of the media and
other interested parties in North America are invited
to participate by calling 1.416.764.8658. International
participants may participate by calling 1.888.886.7786. Please dial
in 10 minutes prior to the start of the call. No passcode 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 teleconference will be
available two hours after the conclusion of the call until
March 10, 2023. Please call 1.416.764.8692 or
1.877.674.7070 and enter passcode 760995#.
Additional Information
This 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.
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 |
A .pdf version of this press release is available
at: http://ml.globenewswire.com/Resource/Download/98b81c59-4142-46dc-b885-813d47c23f0d
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