Mr. David Hutchens reports

FORTIS INC. RELEASES THIRD QUARTER 2023 RESULTS

Fortis Inc. has released its third quarter results.

Highlights:

• Third quarter net earnings of $394-million or 81 cents per common share, up from $326-million or 68 cents per common share in 2022;
• Adjusted net earnings per common share of 84 cents, up from 71 cents in the third quarter of 2022;
• Released 2024 to 2028 capital plan of $25-billion, representing 6.3-per-cent average annualized rate base growth;
• Capital expenditures of $3-billion through September; $4.3-billion annual capital plan on track;
• Key regulatory decisions received in Western Canada and Arizona.

"The fundamentals of our North American regulated energy delivery businesses remain resilient despite volatility in the macroenvironment in which we operate," said David Hutchens, president and chief executive officer of Fortis. "We have delivered strong results for the third quarter, driven by the continued execution of our annual capital plan and the completion of key regulatory proceedings in Arizona and British Columbia."

Net earnings

The corporation reported net earnings attributable to common equity shareholders of $394-million for the third quarter, or 81 cents per common share, compared with $326-million, or 68 cents per common share for the third quarter of 2022. The increase reflects the new cost of capital parameters approved for the FortisBC utilities in September, 2023, retroactive to Jan. 1, 2023. Also contributing to earnings was higher retail revenue in Arizona, due to warmer weather and new customer rates at Tucson Electric Power (TEP) effective Sept. 1, 2023, and rate base growth across the company's utilities. A higher U.S.-to-Canadian-dollar foreign exchange rate and higher earnings at Aitken Creek, reflecting market conditions, also favourably impacted earnings. Earnings were tempered by lower long-term wholesale and transmission revenue, as well as higher operating and corporate finance costs. In addition, earnings per share for the quarter reflects 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 $1.1-billion, or $2.32 per common share, an increase of $165-million, or 31 cents per common share compared with the same period in 2022. The increase reflects the same factors discussed for the quarter except that an increase in the market value of certain investments that support retirement benefits, and lower depreciation expense at UNS Energy associated with the retirement of the San Juan generating station in 2022, also favourably impacted results.

Adjusted net earnings

Adjusted net earnings attributable to common equity shareholders of $411-million for the third quarter, or 84 cents per common share, were $70-million, or 13 cents per common share higher than the same period in 2022. On a year-to-date basis, adjusted net earnings were $1.2-billion, or $2.37 per common share, an increase of $170-million, or 31 cents per common share compared with the same period in 2022. The increase for the quarter and year-to-date periods reflects the same factors discussed for net earnings.

In May, 2023, FortisBC Holdings Inc. entered into a definitive share purchase and sale agreement with a subsidiary of Enbridge Inc. to sell its Aitken Creek business for approximately $400-million, subject to customary closing conditions and adjustments. In October, 2023, the British Columbia Utilities Commission (BCUC) approved the sale, satisfying all regulatory requirements. The sale is expected to close in the fourth quarter of 2023 with a March 31, 2023, effective date. Fortis continues to recognize earnings associated with Aitken Creek, post the effective date of the pending sale, in accordance with U.S. generally accepted accounting principles as the transaction has not yet closed. For the third quarter of 2023, and the six-month period since March 31, 2023, Aitken Creek contributed $13-million and $24-million, respectively, to adjusted net earnings. Upon close of the transaction, management expects to exclude the gain to be recorded on the sale, as well as the earnings recognized since the March 31 effective date, in arriving at adjusted net earnings and adjusted net earnings per share.

2023 capital expenditures and new five-year capital plan

Fortis's $4.3-billion annual capital plan is on track with $3-billion invested through September.

The corporation's new 2024 to 2028 capital plan totals $25-billion, $2.7-billion higher than the previous five-year plan. The increase is driven by organic growth, largely reflecting regional transmission projects at ITC associated with tranche one of the Midcontinent Independent System Operator (MISO) long-range transmission plan (LRTP), as well as investments in Arizona to support TEP's exit from coal. Investments supporting system adaptation and resiliency, customer growth, and economic development are also driving capital growth across the corporation's regulated utilities.

The corporation's major capital projects continue to progress. In August, 2023, FortisBC Energy commenced construction of the Eagle Mountain Woodfibre gas line project.

In October, 2023, TEP announced the Roadrunner Reserve project, the largest battery energy storage system in TEP's portfolio. 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 approximately $400-million, and is scheduled for completion in 2025.

The five-year capital plan is expected to be financed primarily by cash from operations and regulated utility debt. Common equity proceeds are expected to be sourced from the corporation's dividend reinvestment plan and at-the-market common equity program.

Regulatory updates

In August, 2023, the Arizona Corp. Commission issued a decision on TEP's general rate application approving an increase in non-fuel revenue of $100-million (U.S.), a 9.55-per-cent rate of return on common equity (ROE) and a 54.32-per-cent common equity component of capital structure. New customer rates became effective on Sept. 1, 2023.

In September, 2023, the BCUC issued a decision on the generic cost of capital (GCOC) proceeding. The decision resulted in a 9.65-per-cent ROE and a 45-per-cent common equity component of capital structure for FortisBC Energy, and a 9.65-per-cent ROE and a 41-per-cent common equity component of capital structure for FortisBC Electric. The new cost of capital parameters are retroactive to Jan. 1, 2023.

In October, 2023, the Alberta Utilities Commission (AUC) issued decisions on the third performance-based rate-setting (PBR) term and 2024 GCOC proceedings. Both decisions are effective Jan. 1, 2024. The PBR decision establishes the parameters for the third PBR term for the period 2024 to 2028. In the GCOC decision, the AUC adopted a formulaic approach in determining the ROE which will adjust the notional ROE of 9 per cent with reference to forecast long-term government of Canada bond and utility bond yields. The ROE for 2024 is expected to be determined in the fourth quarter of 2023, with updates annually thereafter.

Sustainability

FortisBC has been awarded silver-level designation in Progressive Aboriginal Relations (PAR) from the Canadian Council of Aboriginal Business. The PAR certification program is an internationally recognized, indigenous-led program that confirms corporate performance in indigenous relations at the bronze, silver or gold level. Earning a PAR designation marks a significant achievement in FortisBC's long-standing commitment to fostering strong, respectful and mutually beneficial relationships with indigenous communities.

Fortis is executing on the transition to a cleaner energy future and is on track to achieve its corporate-wide targets to reduce greenhouse gas (GHG) emissions by 50 per cent by 2030 and 75 per cent by 2035 from a 2019 base year. Fortis expects to achieve these targets primarily through TEP's plan to reduce carbon emissions by exiting coal generation. TEP is expected to file its next integrated resource plan in November, 2023, with a preferred portfolio that aligns with the corporation's carbon reduction objectives, while maintaining customer affordability and reliability. The corporation's additional 2050 net-zero direct GHG emissions target reinforces Fortis's commitment to further decarbonize over the long term, while continuing its focus on reliability and affordability.

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.

The corporation's $25-billion five-year capital plan is expected to increase midyear rate base from $36.8-billion in 2023 to $49.4-billion by 2028, translating into a five-year compound annual growth rate of 6.3 per cent.

Beyond the five-year capital plan, additional opportunities to expand and extend growth include: further expansion of the electric transmission grid in the United States 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 the company's jurisdictions.

Fortis expects its long-term growth in rate base will drive earnings that support dividend growth guidance of 4 to 6 per cent annually through 2028.

About Fortis Inc.

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 $66-billion as at Sept. 30, 2023. The corporation's 9,200 employees serve utility customers in five Canadian provinces, 10 U.S. states and three Caribbean countries.

Teleconference and webcast to discuss third quarter 2023 results

A teleconference and webcast will be held on Oct. 27, 2023, at 8:30 a.m. (Eastern Time) during which Mr. Hutchens, president and chief executive officer, and Jocelyn Perry, executive vice-president and chief financial officer, will discuss the corporation's third 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.

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 two hours after the conclusion of the call until Nov. 27, 2023. Please call 1-877-674-7070 or 1-416-764-8692 and enter passcode 107521 followed by the pound key.

We seek Safe Harbor.