Fortis Inc. · TSX:FTS
Fortis — Q3 2022 Earnings Presentation
35 slides from Fortis's earnings presentation, Oct 28, 2022
Slide 1: Q3 2022 Earnings Conference Call
Q3 2022 EARNINGS CONFERENCE CALL October 28, 2022 1
Slide 2: Forward-Looking Information
FORWARD-LOOKING INFORMATION Fortis includes forward-looking information in this presentation within the meaning of applicable Canadian securities laws and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (collectively referred to as "forward-looki
Slide 3: David Hutchens, President and CEO
David Hutchens President and CEO 3
Slide 4: Q3 Business Highlights
Q3 BUSINESS HIGHLIGHTS Hurricane Fiona $0.71 Q3 2022 $$2.9B Invested $22.3B 2023-2027 ~6% Q4 2022 Response Adjusted EPS Through September Capital Plan Dividend Increase Impacts of Historic Compared to 2022 Capital Plan 4-6% Annual Dividend Largest in Hurricane $0.64 in Q3 2021 on Track Growth Guidan
Slide 5: Five-Year Plan at a Glance
FIVE-YEAR PLAN AT A GLANCE 2023-2027 Capital Plan $22.3B Capital Plan Supports Continued Focus on Up $2.3B From Prior Plan Low-Risk Rate Base Growth Customer Affordability $46.1B • Targeting controllable operating cost increases below inflation, consistent with $34.0B historical practice +$0.5B $22.
Slide 6: $22.3B Five-Year Capital Plan
$22.3B FIVE-YEAR CAPITAL PLAN Average Annual Capital of $4.4B Highly Executable Capital Plan $4.7B $4.6B $4.5B $4.3B $4.2B • 83% Smaller Projects • 17% Major Projects • 55% U.S. • 41% Canada • 4% Caribbean 2023F 2024F 2025F 2026F 2027F • 99% Regulated Regulated - Independent Electric Transmission (I
Slide 7: Capital Plan Concentrated at Three Largest Utilities
CAPITAL PLAN CONCENTRATED AT THREE LARGEST UTILITIES $2.3B • Infrastructure investments including • Reliability and integrity investments • Includes ~$1.2B of renewable and reliability and resiliency upgrades, storage investments to transition to • Natural gas infrastructure including cleaner energy
Slide 8: Capital Plan Supports Cleaner Energy Future
CAPITAL PLAN SUPPORTS CLEANER ENERGY FUTURE Direct Cleaner Energy Investments 35% Transmission $2.7B Delivering Renewables to the Grid • ITC MISO LRTP and wind/ solar interconnections $22.3B $1.8B Renewable Energy Capital Plan • UNS Energy: renewables and energy storage 2023-2027 • Caribbean Utiliti
Slide 9: Beyond the Plan
BEYOND THE PLAN Inflation Reduction Act • A catalyst for MISO’s LRTP Tranche 2 • Renewable generation including TEP’s IRP(1) • Interconnecting renewables to the grid • Electric vehicle infrastructure • Funding for community transition from fossil fuels Climate Adaptation & Grid Resiliency • Investin
Slide 10: Dividend Guidance Supported by Long-Term Growth Strategy
DIVIDEND GUIDANCE SUPPORTED BY LONG-TERM GROWTH STRATEGY 49 YEARS of Consecutive Dividend Increases 4-6% Annual Dividend Growth Guidance 12 through 2027 16 20 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 14 18 22F 10
Slide 11: Jocelyn Perry, Executive Vice President and CFO
JOCELYN PERRY Executive Vice President and CFO 11
Slide 12: Third Quarter and YTD Reported Results
THIRD QUARTER AND YTD REPORTED RESULTS EARNINGS ($M) EPS $326 $0.68 $295 $0.63 Q3 2021 Q3 2022 Q3 2021 Q3 2022 EARNINGS ($M) EPS $960 $2.01 $903 $1.92 YTD 2021 YTD 2022 YTD 2021 YTD 2022 12
Slide 13: Third Quarter and YTD Adjusted Results
THIRD QUARTER AND YTD ADJUSTED RESULTS EARNINGS ($M) EPS $341 $0.71 Q3 EPS DRIVERS: $300 $0.64 • Rate base growth • Higher earnings in Arizona and New York Q3 2021 Q3 2022 Q3 2021 Q3 2022 • Lower stock-based compensation • Increased production in Belize EARNINGS ($M) EPS $982 $2.06 $919 $1.96 YTD 20
Slide 14: Third Quarter EPS Drivers
THIRD QUARTER EPS DRIVERS $0.02 ($0.05) $0.02 $0.01 $0.08 ($0.01) $0.71 $0.64 Rate base growth, higher earnings in Arizona and New York, lower stock-based compensation and increased production in Belize Q3 2021 U.S. Energy U.S. Foreign Corporate Weighted Q3 2022 Adjusted Electric & Infrastructure Tr
Slide 15: Year-to-Date September EPS Drivers
YEAR-TO-DATE SEPTEMBER EPS DRIVERS YTD EPS Drivers $0.02 $0.03 ($0.05) $0.13 ($0.03) Largely aligned with Q3 drivers as well as: $2.06 $1.96 • Rate base growth at Western Canadian utilities • Losses on retirement assets at UNS Energy and ITC ($0.05) • Customer information system costs at YTD 2021 Re
Slide 16: No Discrete Equity Required to Fund 2023-2027 Capital Plan
NO DISCRETE EQUITY REQUIRED TO FUND 2023-2027 CAPITAL PLAN Predictable Funding Plan Capital Plan Funded Primarily with Cash from Operations and Debt at Regulated Subsidiaries Net Debt(2) • Regulated debt used to repay maturing debt, and fund capital 33% expenditures and operating requirements Equity
Slide 17: Current Regulatory Calendar
Q3 REGULATORY CURRENT UPDATE & REGULATORY CALENDAR OUTLOOK Q3 UPDATE REGULATORY CALENDAR FERC MISO Base ROE (1) • In August 2022, the DC Circuit Court vacated certain FERC orders that established the methodology used to calculate the MISO base ROE • Matter dates back to complaints filed at FERC in 2
Slide 18: Macro Outlook & Assumptions
MACRO OUTLOOK & ASSUMPTIONS Foreign Exchange Interest Rates • USD:CAD FX Rate of 1.30 for 2023-2027 • Primary exposure to rising rates at Fortis Inc. • 65% of operating earnings(1) / 60% of capital and ITC Holdings (non-regulated) plan from U.S. & Caribbean • Average annual near-term non-regulated •
Slide 19: Why Invest in Fortis?
WHY INVEST IN FORTIS? Focused on Geographic & 4-6% SAFE, ENERGY Regulatory ANNUAL DIVIDEND WELL-RUN DELIVERY DIVERSITY Growth Guidance Local Utilities LOW-RISK Virtually ESG Growth All INNOVATIVE REGULATED Leader Profile 19
Slide 20: Upcoming Events
UPCOMING EVENTS EXPECTED EARNINGS RELEASE DATES • Q4 2022 – February 10, 2023 20
Slide 21: Q3 2022 Earnings Conference Call
Q3 2022 EARNINGS CONFERENCE CALL October 28, 2022 21
Slide 22: Non-U.S. GAAP Reconciliation
NON-U.S. GAAP RECONCILIATION YTD YTD ($MILLIONS, EXCEPT EPS) Q3 2022 Q3 2021 VARIANCE September September VARIANCE 2022 2021 Adjusted Net Earnings Net Earnings 326 295 31 960 903 57 Adjusting Items: Unrealized (gain) loss on mark-to-market of derivatives(1) (4) 5 (9) 3 16 (13) Lake Erie Connector pr
Slide 23: Q3 2022 Results by Business Unit
Q3 2022 RESULTS BY BUSINESS UNIT THIRD QUARTER EARNINGS VARIANCE ANALYSIS BY BUSINESS UNIT ($MILLIONS, EXCEPT WEIGHTED AVERAGE SHARES ADJUSTED ADJUSTED Q3 2022 ADJUSTMENT (1) Q3 2021 ADJUSTMENT (1) VARIANCE AND EPS) Q3 2022 Q3 2021 Regulated – Independent Electric Transmission ITC 105 19 124 117 - 1
Slide 24: YTD September 2022 Results by Business Unit
YTD SEPTEMBER 2022 RESULTS BY BUSINESS UNIT YEAR-TO-DATE SEPTEMBER EARNINGS VARIANCE ANALYSIS BY BUSINESS UNIT ($MILLIONS, EXCEPT WEIGHTED AVERAGE SHARES ADJUSTED ADJUSTED YTD 2022 ADJUSTMENT (1) YTD 2021 ADJUSTMENT (1) VARIANCE AND EPS) YTD 2022 YTD 2021 Regulated – Independent Electric Transmissio
Slide 25: 2022-2027 Rate Base by Business Unit
2022-2027 RATE BASE BY BUSINESS UNIT RATE BASE 5-YEAR CAGR to ($BILLIONS, EXCEPT FOR CAGR) 2022F 2023F 2024F 2025F 2026F 2027F 2027 Regulated - Independent Electric Transmission ITC(1) 10.4 11.1 11.9 12.5 13.2 14.1 6.1% Regulated – U.S. Electric & Gas UNS Energy 6.7 7.1 7.4 7.8 8.5 9.1 6.0% Central
Slide 26: 2023-2027 Capital Plan by Business Unit
2023-2027 CAPITAL PLAN BY BUSINESS UNIT (1) CAPITAL PLAN 2023-2027 ($MILLIONS) 2023F 2024F 2025F 2026F 2027F TOTAL Regulated - Independent Electric Transmission ITC 1,103 1,177 1,137 1,180 1,220 5,817 Regulated – U.S. Electric & Gas UNS Energy 1,006 690 986 1,027 891 4,600 Central Hudson 384 343 418
Slide 27: Major Capital Projects
MAJOR CAPITAL PROJECTS ESTIMATED Smaller 2023-2027 COMPLETION Projects PLAN ($ Millions) DATE 83% ITC MISO Long-Range Transmission Projects(1) New 923 Post-2027 UNS Energy Renewables(2) New UNS Energy Vail-to-Tortolita Transmission Project 417 378 Various 2027 $22.3B FortisBC Tilbury LNG Storage Exp
Slide 28: Executing on a Cleaner Energy Future
PATHWAY TO 2050 NET-ZERO TARGET EXECUTING ON A CLEANER ENERGY FUTURE 2019 Achieved 20% GHG Emissions Reduction Since 2019 2021 50% GHG Emissions Reduction Target Coal-Free Generation Mix 2030 2032 2035 Net-Zero Target (Scope 1) 75% GHG Emissions Reduction Target by 2035 Compared to 2019 Levels ADDIN
Slide 29: ESG Leadership
ESG LEADERSHIP ENVIRONMENTAL SOCIAL GOVERNANCE • 93% energy delivery assets • Strong safety culture and commitment to • Independent chair; 12 of 13 directors are employee well-being independent • Scope 1 GHG emissions reduction target of 75% by 2035 compared to 2019 levels and net zero by 2050 • Mor
Slide 30: Long Capex Runway
LONG CAPEX RUNWAY Responding to stakeholder expectations and capitalizing on opportunities to expand & extend growth Business development in existing footprint Connect more renewable generation to the grid Prepare grid for additional electrification Build more renewable generation Invest in technolo
Slide 31: Q3 Sales Trends
Q3 SALES TRENDS RETAIL Q3 2022 vs. Q3 2021 ELECTRIC SALES SALES TRENDS N/A • Peak load flat • Increase primarily due to higher cooling load associated +1% with warmer temperatures; Excluding weather impacts, (1) retail sales flat • Residential sales down 6% due to lower average -2% consumption and C
Slide 32: Limited Pension Exposure
LIMITED PENSION EXPOSURE DEFINED BENEFIT PENSION PLANS • 95% of $3.9B pension benefit obligation funded at December 31, 2021 • Allocation of plan assets at December 31, 2021 ▪ Equities – 48% ▪ Fixed income – 45% ▪ Other – 7% • ~80% of pension assets subject to regulatory mechanisms ▪ UNS pension pla
Slide 33: Investment-Grade Credit Ratings
INVESTMENT-GRADE CREDIT RATINGS COMPANY Fortis Inc. A-(1) Baa3 A (low) ITC Holdings Corp. A-(1) Baa2 n/a ITC Regulated Subsidiaries A A1 n/a TEP A- A3 n/a Central Hudson A- Baa1 n/a FortisBC Energy n/a A3 A FortisBC Electric n/a Baa1 A (low) FortisAlberta A- Baa1 A (low) Newfoundland Power n/a A2 A
Slide 34: Strong Liquidity
STRONG LIQUIDITY ~$2.5B IN DEBT RAISED YTD CREDIT FACILITIES DEBT MATURITIES • ITC • 5-year average debt maturities of $1.4B for ▪ US$300M secured mortgage bonds(1) 2023-2027 ▪ US$75M secured 30-year 3.05% notes • ~75% of long-term debt, excluding credit ▪ US$600M unsecured 5-year 4.95% notes(2) fac
Slide 35: Debt Maturities
DEBT MATURITIES 10-YEAR AVERAGE: $1.2B $3.0 $2.5 $2.0 billions $1.5 $1.0 $0.5 $- 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F 2032F Non-Regulated (1) Regulated Note: Debt as at September 30, 2022 and excludes any new debt issuances during the forecast period. Excludes repayments of finance