Mr. David Hutchens reports

FORTIS INC. REPORTS FOURTH QUARTER & ANNUAL 2023 RESULTS

Fortis Inc. has released its 2023 fourth quarter and annual financial results.

Highlights:

• Reported annual net earnings of $1.5-billion, or $3.10 per common share, for 2023;
• Annual adjusted net earnings per common share of $3.09, up from $2.78 for 2022;
• Capital expenditures of $4.3-billion, yielding approximately 6-per-cent annual rate base growth;
• Sale of Aitken Creek closed in November, 2023 -- proceeds further strengthened the balance sheet;
• Achieved 50 years of common share dividend increases;
• Scope 1 emissions 33 per cent below 2019 levels -- emissions reduction targets on target in support of 2050 net-zero goal.

"We delivered another year of strong financial results reflecting the execution of our regulated growth strategy," said David Hutchens, president and chief executive officer, Fortis. "Rate base growth and the conclusion of key regulatory proceedings supported year-over-year earnings growth. We invested $4.3-billion of capital to enhance reliability, modernize the grid and deliver cleaner energy for customers, while further reducing our carbon footprint.

"Last year, Fortis was proud to celebrate 50 consecutive years of increases in dividends paid to shareholders," said Mr. Hutchens. "We remain focused on extending this track record as we execute our $25-billion five-year capital plan in support of our annual dividend growth guidance of 4 to 6 per cent through 2028."

Sale of Aitken Creek

On Nov. 1, 2023, the sale of Aitken Creek closed for approximately $470-million, including working capital and closing adjustments. The transaction reflected a March 31, 2023, effective date. Net proceeds from the transaction further strengthened the balance sheet and provided additional financing flexibility in support of the company's regulated utility growth strategy.

In accordance with United States GAAP (generally accepted accounting principles), reported net earnings attributable to common equity shareholders includes the results for Aitken Creek until the Nov. 1, 2023, date of disposition. Adjusted net earnings attributable to common equity shareholders reflects results for Aitken Creek through the March 31, 2023, effective date.

Net earnings

The corporation reported net earnings of $1.5-billion, or $3.10 per common share, for 2023, compared with $1.3-billion, or $2.78 per common share, for 2022. Growth in earnings was primarily driven by rate base growth across Fortis's utilities and the new cost of capital parameters approved for FortisBC effective Jan. 1, 2023. Higher earnings in Arizona also contributed to earnings growth, reflecting higher retail electricity sales, new customer rates at Tucson Electric Power (TEP), effective Sept. 1, 2023, and lower depreciation expense associated with the retirement of the San Juan generating station in 2022. An increase in the market value of certain investments that support retirement benefits, and the higher U.S.-to-Canadian dollar exchange rate, also favourably impacted earnings year-over-year. The increase was partially offset by higher corporate finance costs and lower earnings associated with Aitken Creek. 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 2023, net earnings were $381-million, or 78 cents per common share, compared with $370-million, or 77 cents per common share, for the same period in 2022. The increase was due to rate base growth, higher retail revenue in Arizona due to new customer rates at TEP and the new cost of capital parameters at FortisBC. The increase was partially offset by lower earnings at Aitken Creek, due to the Nov. 1, 2023, disposition, as well as the recognition of mark-to-market accounting gains on natural gas derivatives and margins on gas sold in the fourth quarter of 2022. Net earnings per common share was also impacted by an increase in the weighted-average number of common shares.

Adjusted net earnings

Adjusted net earnings of $1.5-billion for 2023, or $3.09 per common share, were $173-million, or 31 cents per common share, higher than 2022, largely due to the same factors discussed for net earnings.

For the fourth quarter of 2023, adjusted net earnings were $350-million, or 72 cents per common share, comparable with the same period in 2022. Adjusted net earnings for the fourth quarter of 2023 was unfavourably impacted by the timing of adjustments associated with the disposition of Aitken Creek, including $24-million, or five cents per common share, associated with the March 31, 2023, to Nov. 1, 2023, stub period that was excluded from adjusted net earnings upon close of the transaction in the fourth quarter. Excluding this adjustment, the increase in adjusted net earnings for the fourth quarter was due mainly to rate base growth, higher retail revenue in Arizona associated with new customer rates at TEP and the new cost of capital parameters at FortisBC.

Capital expenditures

Capital expenditures were $4.3-billion for 2023, in line with the annual capital plan, and consisted of regulated investments mainly focused on system resiliency and grid modernization, including more than $700-million in cleaner-energy investments. Capital expenditures increased mid-year rate base to $37-billion, representing approximately 6 per cent growth over 2022.

The corporation's 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, reflecting regional transmission projects at ITC associated with tranche 1 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 five-year capital plan is expected to be financed primarily by cash from operations and regulated utility debt, with common equity proceeds expected to be sourced from the corporation's dividend reinvestment plan and at-the-market common equity program.

FortisBC Energy's total anticipated investment in the Eagle Mountain Woodfibre Gas Line project has increased to $750-million, net of customer contributions, as compared with $420-million previously expected. The increase was due to amendments to previous construction, transportation and other commercial agreements with Woodfibre LNG Ltd., and other partners, and has been approved by the British Columbia Utilities Commission.

Regulatory updates

In December, 2023, the Iowa District Court ruled that the manner in which Iowa's right of first refusal (ROFR) statute was passed is unconstitutional and issued a permanent injunction preventing ITC and others from taking further action to construct the MISO LRTP tranche 1 Iowa projects in reliance on the ROFR. ITC has filed for reconsideration of the District Court's decision with respect to the scope of the injunction.

MISO's decision with respect to the assignment of the tranche 1 LRTP projects was finalized in July, 2022, and the company believes it is unlikely that MISO will change this designation. In addition, under the MISO tariff, approximately 70 per cent of the Iowa tranche 1 projects are upgrades to ITC facilities along existing rights-of-way, which, under MISO's tariff, grants ITC the option to construct the upgrades regardless of the outcome of the ROFR legislation. The corporation's 2024 to 2028 capital plan includes $900-million (U.S.) associated with the first tranche of MISO's LRTP in Iowa. The timing and outcome of the filing for reconsideration, and any other subsequent legal proceedings, as well as the impact on the five-year capital plan and the potential for future projects, are unknown.

In January, 2024, the Arizona Corp. Commission issued a decision on UNS Electric's general rate application, approving a 9.75-per-cent rate of return on common equity and a 53.72 per cent common equity component of capital structure. The decision also approved the system reliability benefit mechanism, which allows UNS Electric to recover qualifying generation and energy storage investments between rate cases, subject to an annual cap and earnings test. New customer rates became effective on Feb. 1, 2024.

Focused on reducing carbon emissions

Fortis achieved a 33-per-cent reduction in Scope 1 emissions through 2023 compared with 2019 levels. Continued progress in Arizona, including the commencement of seasonal operations at the Springerville generating station and the retirement of the San Juan generating station in 2022, were the key drivers of the incremental decrease in greenhouse gas (GHG) emissions in 2023.

In November, 2023, TEP filed an integrated resource plan calling for over 3,500 megawatts of renewable generation and energy storage, and 400 megawatts of hydrogen-ready natural gas generation. TEP continues to expect that it will complete its exit from coal-fired generation by 2032. Fortis remains on target to achieve its corporate-wide targets to reduce direct GHG emissions by 50 per cent by 2030, and 75 per cent by 2035, from a 2019 base year, as well as its 2050 net-zero direct GHG emissions target.

As Fortis transitions to a cleaner energy future, customer affordability, safety and reliability remain top priorities. Fortis utilities continue to focus on controlling costs, identifying efficiencies and implementing innovative practices to maintain 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. The corporation's $25-billion five-year capital plan is expected to increase mid-year rate base from $37-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 natural 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 per cent 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 2023 revenue of $12-billion and total assets of $66-billion as at Dec. 31, 2023. The corporation's 9,600 employees serve utility customers in five Canadian provinces, 10 U.S. states and three Caribbean countries.

Teleconference to discuss 2023 annual results

A teleconference and webcast will be held on Feb. 9, 2024, at 8:30 a.m. (ET). David Hutchens, president and chief executive officer, and Jocelyn Perry, executive vice-president and chief financial officer, will discuss the corporation's 2023 annual 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 March 9, 2024. Please call 1-877-674-7070 or 1-416-764-8692 and enter passcode 045834 followed by the pound key.

Additional information

This news release should be read in conjunction with the corporation's management's discussion and analysis, and consolidated financial statements. This and additional information can be accessed at the company's website, on SEDAR+ or at the SEC website.

We seek Safe Harbor.