Mr. Stan Marshall reports

FORTIS INC. RELEASED THIRD QUARTER RESULTS

Fortis Inc. released its third-quarter results today. "The third quarter was a period of significant transition for Fortis," said Barry Perry, president, Fortis. "We closed the acquisition of UNS Energy, announced a strategic review of Fortis Properties and implemented our new organizational structure."

Net earnings attributable to common equity shareholders for the third quarter were $14-million, or six cents per common share, compared with $48-million, or 23 cents per common share, for the third quarter of 2013. Results for the third quarter of 2014 were impacted by a number of non-recurring expenses associated with the acquisition of UNS Energy Corp. Earnings for the third quarter were reduced by $35-million, or 16 cents per common share, due to one-time acquisition-related expenses and customer benefits offered to obtain regulatory approval of the acquisition of UNS Energy. Interest expense of $23-million after tax, or 11 cents per common share, including the make-whole payment, associated with convertible debentures issued to finance a portion of the acquisition of UNS Energy was recognized in the third quarter. Excluding the above-noted impacts, net earnings attributable to common equity shareholders for the third quarter of 2014 were $72-million, or 33 cents per common share, an increase of $24-million, or 10 cents per common share, from the same period last year.

On Aug. 15, 2014, Fortis acquired UNS Energy for $60.25 (U.S.) per common share in cash, for a purchase price of approximately $4.5-billion (U.S.), including the assumption of approximately $2.0-billion (U.S.) of debt. UNS Energy, headquartered in Tucson, Ariz., is engaged through its primary subsidiaries in the regulated electric generation and energy delivery business, primarily in Arizona, and serves approximately 658,000 electricity and gas customers. The net cash purchase price of approximately $2.7-billion ($2.5-billion (U.S.)) was initially financed through:

1. Drawings of $2-billion under the corporation's acquisition credit facilities, consisting of a $1.7-billion short-term bridge facility, repayable in full nine months following its advance, and a $300-million medium-term bridge facility, repayable in full on the second anniversary of its advance;
2. Available cash on hand;
3. Drawings of $265-million (U.S.) under the corporation's revolving credit facility.

"Closing the acquisition of UNS Energy was a major milestone for Fortis. It further diversifies regulated assets and enhances our presence significantly in the United States," said Stan Marshall, chief executive officer, Fortis.

The corporation's regulated utilities contributed earnings of $89-million, an increase of $34-million from the third quarter of 2013. The increase was driven by earnings contribution of $37-million at UNS Energy from the date of acquisition. Earnings for UNS Energy's electric utilities are generally highest in the second and third quarters due to the use of air conditioning and other cooling equipment. FortisAlberta's earnings were $2-million higher quarter over quarter mainly due to restoration costs of approximately $1.5-million recognized in the third quarter of 2013 related to flooding in Southern Alberta in June, 2013. Earnings at Caribbean-regulated electric utilities were $2-million higher than the third quarter of 2013, driven by electricity sales growth. The increases were partially offset by lower earnings at Central Hudson, due to the impact of higher depreciation and operating expenses during the two-year rate-freeze period postacquisition in June, 2013, and at FortisBC Electric, due to the impact of lower-than-expected finance charges in 2013, which were not subject to regulatory deferral mechanisms last year.

"Fortis regulated utilities performed well during the quarter. The expedited closing of the UNS Energy transaction contributed significantly during the quarter. Excluding the one-time acquisition-related expenses, the acquisition of UNS Energy was immediately accretive to earnings per common share," stated Mr. Perry.

Non-regulated Fortis Generation contributed $4-million to earnings, compared with $8-million for the third quarter of 2013. The decrease was associated with decreased production in Belize, due to lower rainfall.

Non-utility operations contributed earnings of $9-million, an increase of $3-million from the third quarter of 2013. Earnings for the third quarter of 2013 reflected a net loss of approximately $2.5-million at non-regulated Griffith Energy Services Inc., which was sold in March, 2014. In September, 2014, the corporation announced that it will engage in a review of strategic options for its hotel and commercial real estate business, operating as Fortis Properties. Strategic options may include, but are not limited to, a sale of all or a portion of the assets, a sale of shares of Fortis Properties, or an initial public offering. This review process commenced in October, 2014, and is expected to continue through the balance of 2014 and into 2015.

Corporate and other expenses were $9-million higher quarter over quarter, excluding the impacts of interest expense on the convertible debentures and acquisition-related expenses. The increase for the quarter was primarily due to higher finance charges, largely due to the acquisition of UNS Energy, and higher operating expenses. The increase in operating expenses was mainly due to employee-related expenses, including approximately $8-million in after-tax retirement expenses recognized in the third quarter of 2014 and share-based compensation expenses as a result of share price appreciation, combined with higher legal and consulting fees and general inflationary increases. The increase in corporate and other expenses was partially offset by a $5-million foreign exchange gain in the third quarter of 2014 compared with a $2-million foreign exchange loss in the same quarter last year, a higher income tax recovery and interest income.

A decision on multiyear performance-based rate-setting applications in British Columbia was received in September, 2014, and did not have a material impact on earnings in the quarter. A generic cost-of-capital proceeding is continuing in Alberta, and the outcome is expected in the fourth quarter of 2014. A hearing related to FortisAlberta's combined capital tracker application for 2013 through 2015, which is an application for revenue increases related to its capital expenditure program, was held in October, 2014. FortisAlberta continues to recognize capital tracker revenue based on the interim regulatory decision granting 60 per cent of the applied-for capital tracker amounts. A decision on the combined capital tracker application is expected in the first quarter of 2015. In July, 2014, Central Hudson filed a general rate application to establish rates effective mid-2015.

The financing associated with the acquisition of UNS Energy is substantially complete. Fortis completed the sale of $1.8-billion 4-per-cent convertible unsecured subordinated debentures represented by instalment receipts. Proceeds from the first instalment of approximately $599-million were received in January, 2014. A significant portion of these cash proceeds were used to finance a portion of the UNS Energy acquisition. Proceeds from the final instalment of approximately $1.2-billion were received on Oct. 28, 2014, and were used to repay borrowings under the corporation's acquisition credit facilities initially used to finance a portion of the UNS Energy acquisition. Following the receipt of the final instalment, on Oct. 28, 2014, approximately 58.2 million common shares of Fortis were issued on conversion of the debentures. In September, 2014, Fortis issued 24 million 4.1-per-cent cumulative redeemable fixed rate reset first preference shares, Series M, for gross proceeds of $600-million. The net proceeds were used to repay a portion of borrowings under the acquisition credit facilities used to initially finance the acquisition of UNS Energy.

The corporation and its regulated utilities raised over $1-billion in long-term debt year-to-date 2014. In March, 2014, Fortis priced a private placement of $500-million (U.S.) in senior unsecured notes. The notes were issued in multiple tranches with terms to maturity ranging from five years to 30 years and coupon rates ranging from 2.92 per cent to 5.03 per cent. On June 30, 2014, Fortis issued $213-million (U.S.) of the senior unsecured notes, the net proceeds of which were used to repay U.S.-dollar-denominated borrowings on the corporation's credit facility and for general corporate purposes. The remaining $287-million (U.S.) of the senior unsecured notes were issued on Sept. 15, 2014. Net proceeds were used to refinance existing indebtedness, including the $150-million (U.S.) 5.74-per-cent senior unsecured notes of Fortis that matured in October, 2014, and $125-million 5.56-per-cent unsecured debentures of a subsidiary that matured in September, 2014, and for general corporate purposes. In September, 2014, FortisAlberta issued $275-million unsecured debentures in two tranches, composed of 10-year $150-million unsecured debentures at 3.30 per cent and 30-year $125-million unsecured debentures at 4.11 per cent. Net proceeds were used to repay $200-million 5.33-per-cent unsecured debentures that matured in October, 2014, to finance capital expenditures and for general corporate purposes. In October, 2014, FortisBC Electric issued 30-year $200-million unsecured debentures at 4.00 per cent. Net proceeds will be used to repay $140-million 5.48-per-cent unsecured debentures maturing in November, 2014, to finance capital expenditures and for general corporate purposes.

Cash flow from operating activities was $648-million year-to-date 2014, compared with $666-million for the same period last year. The decrease was primarily due to unfavourable changes in working capital.

Consolidated capital expenditures were approximately $875-million year-to-date 2014. Construction of the $900-million, 335-megawatt Waneta expansion hydroelectric generating facility in British Columbia continues on time and on budget, with completion of the facility expected in spring 2015. Approximately $648-million has been invested in the Waneta expansion since construction began in late 2010. In October, 2014, FortisBC started construction of its Tilbury liquefied natural gas facility expansion in British Columbia. The Tilbury expansion will be included in regulated rate base and is estimated to cost approximately $400-million. It will include a second LNG tank and a new liquefier, both to be in service in the second half of 2016.

The corporation's capital program is expected to total $1.8-billion in 2014, which includes capital spending of approximately $450-million ($400-million (U.S.)) at UNS Energy from the date of acquisition. In December, 2014, UNS Energy is expected to purchase Unit 3 of the Gila River generating station, which is a gas-fired combined-cycle unit with a capacity of 550 megawatts, for $219-million (U.S.). Over the five-year period from 2014 through 2018, the corporation's capital program is expected to exceed $9-billion.

"Following a decade of strong growth, primarily achieved through acquisitions, Fortis is now entering a period of significant organic growth, with a four-year compound annual growth rate in rate base through 2018 estimated at 7 per cent," said Mr. Perry. "Fortis is also pursuing significant natural gas investment opportunities, particularly in British Columbia. Two new regulated projects -- further expansion of the Tilbury LNG facility and the Woodfibre pipeline expansion -- could increase the four-year compound annual growth rate in rate base through 2018 to 8.5 per cent," he concluded.

Teleconference to discuss third-quarter 2014 results

A teleconference and webcast will be held on Nov. 7 at 10 a.m. (Eastern Time). Barry Perry, president and incoming chief executive officer, Fortis, and Karl Smith, executive vice-president, chief financial officer, Fortis, will discuss the corporation's third-quarter 2014 results.

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 passcode is required.

A live and archived audio webcast of the teleconference will be available on the corporation's website.

A replay of the conference will be available two hours after the conclusion of the call until Nov. 17, 2014. Please call 1-800-585-8367 or 416-621-4642 and enter passcode 22025223.

    CONSOLIDATED FINANCIAL HIGHLIGHTS,
          PERIODS ENDED SEPT. 30
         (in millions of dollars,        
          except for share data)          

                              2014    2013  

Revenue                     $1,197    $915
Energy supply costs            406     311
Operating expenses             384     286
Depreciation and
amortization                   181     140
Other income (expenses),
net                            (43)      2
Finance charges                159     103
Income tax (recovery)
Expense                         (8)      8
Earnings from continuing
operations                      32      69
(Loss) earnings from
discontinued operations,
net of tax                       -      (2)
Earnings before
extraordinary item              32      67
Extraordinary gain, net of
tax                              -       -
Net earnings                    32      67
Net earnings attributable
to 
non-controlling
interests                        3       3
Preference equity
shareholders                    15      16
Common equity
shareholders                    14      48
Net earnings                    32      67
Earnings per common share
from continuing
operations
Basic ($)                     0.06    0.24     
Diluted ($)                   0.06    0.24     
Earnings per common share
Basic ($)                     0.06    0.23    
Diluted ($)                   0.06    0.23     
Cash flow from operating
activities                      62     106

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