Slide 1: Fixed Income Investor Presentation
Fixed Income Investor Presentation August 2016
Slide 2: Forward-looking Statement
Forward-looking Statement Fortis Inc. (“Fortis” or, the “Corporation”) includes forward-looking statements in this presentation within the meaning of applicable securities laws including the Private Securities Litigation Reform Act of 1995. Forward-looking statements included in this presentation re
Slide 3: Agenda and Presenters
Agenda and Presenters 1. Fortis Today 2. ITC Acquisition Overview Appendix Presenters Karl Smith – Executive Vice President, Chief Financial Officer Jim Spinney – Vice President, Treasurer Karen Gosse – Vice President, Planning and Forecasting 3
Slide 4: Fortis Today
va FORTIS.. Fortis Today
Slide 5: A Leader in North American Utility Operations
A Leader in North American Utility Operations Based in St. John’s, NL Fortis’ Utility Operations 9 Operations Utility in Canada, U.S. and Caribbean BC AB 283 million C$12.3 billion ON PEI NL Weighted Average Shares Market Cap (YTD June 30, 2016) (as of August 1, 2016) NY AZ C$6.7 billion C$17.3 bill
Slide 6: Our Strategic Focus Delivers Results
Our Strategic Focus Delivers Results Strategy Leverage the operating model, footprint of our utilities, operating expertise, reputation and financial strength to develop growth opportunities Dividend Target: Investment-Grade 6% Average Annual Credit Ratings Growth Through 2020 Strategic Initiatives
Slide 7: Strategy Delivers Low-Risk Superior Returns
Strategy Delivers Low-Risk Superior Returns • Consistent and predictable returns Strong Financial • Adjusted EPS grew at a CAGR of 5% over past 10 years Metrics • Investment-grade credit ratings and strong liquidity Consistent • 42 consecutive years of annual dividend increases Dividend Growth • Com
Slide 8: Economic, Geographic and Regulatory Diversification Contributes to Fortis' Strength
Economic, Geographic and Regulatory Diversification Contributes to Fortis’ Strength Diversity in Operating Earnings (1) TTM Q2 2016 Non-Regulated Energy Infrastructure Regulated Electric 7% Caribbean 5% Regulated Electric Canada 32% Regulated Electric & Gas U.S. 36% Regulated Gas Canada 20% Strong F
Slide 9: Virtually All Assets are Regulated, Producing Predictable Returns
Virtually All Assets are Regulated, Producing Predictable Returns Future Test Year 94% Regulated Assets Today, Allowed 2016 ROE (%): 8.75-9.15 Greater than 95% Pro Forma Equity in Capital (%): 38.5-40 for the Pending ITC Acquisition As at June 30, 2016 Historic Test Year Allowed 2016 ROE (%): 9.50-1
Slide 10: Capital Program Drives Rate Base Expansion
Capital Program Drives Rate Base Expansion Base Capital Plan Delivers Growth ~4.5% CAGR Midyear Rate Base 2.2 2.0 2.0 1.9 1.7 1.7 ($ billions) 20.3 19.8 18.1 18.9 17.3 16.4 2015A 2016F 2017F 2018F 2019F 2020F Capital Spend by Year Midyear Rate Base Note: US dollar denominated CAPEX and midyear rate
Slide 11: Ample Liquidity and Investment-Grade Credit Ratings
Ample Liquidity and Investment-Grade Credit Ratings Investment-Grade Credit Ratings (1) Consolidated Credit Facilities (2) 4.0 Fortis Inc. S&P(1) A- / BBB+ 3.0 DBRS(1) A(low) 2.4 2.1 ($ billions) 2.0 Capital Structure June 30, 2016 % 1.0 Debt 55 1.4 1.2 Preferred 8 Common 37 0.0 Dec 31/15 Jun 30/16
Slide 12: Proven Acquisition Track Record
Proven Acquisition Track Record (1) Fortis C$/share $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 (1) Indicates date of announcement by Fortis that it had entered into an agreement
Slide 13: ITC Acquisition Overview
\ FORTIS.. — ITC Acquisition Overview
Slide 14: Credit Enhancing Aspects of the Acquisition
Credit Enhancing Aspects of the Acquisition Acquisition of the largest independent fully-regulated electric transmission utility in the Increased U.S. with rates regulated by FERC Scale & Growth Positions Fortis as a top 15 North American Utility. Establishes scale and an additional Opportunitie
Slide 15: ITC Acquisition Financing Plan
ITC Acquisition Financing Plan Issue ~US$3.5B in Fortis shares (1) ~US$11.3B Assume ~US$4.4B in ITC debt Transaction Issue ~US$2.0B in new debt Funded through Raise US$1.228B through minority investment Fortis to maintain consistent capital structure and investment-grade credit ratings Accelerating
Slide 16: ITC Holdings Corp. Overview
ITC Holdings Corp. Overview Largest U.S. Independent Transmission Company • ITC’s business model creates a unique, structurally ITC Operations advantaged infrastructure portfolio • Rate construct supports efficient capitalization of needed investment and timely return of capital − Forward-looking ra
Slide 17: ITC Acquisition Strategic Rationale
ITC Acquisition Strategic Rationale Increases Diversification Premier Electric Accretive to EPS Transmission Utility Accretive in First Full Pro Forma, more than Year Following Close(1) one-third FERC- Fully Regulated Regulated Earnings Supportive FERC Long-Term Rate Base Proven Management Regulatio
Slide 18: Achieves Scale Relative to North American Peers
Achieves Scale Relative to North American Peers • Following the acquisition, Fortis will be among the top 15 North American public utilities by enterprise value(1) Top 25 North American Utilities by Enterprise Value $160 $140 $134 $122 $120 $120 $102 $100 $91 (C$ Billions) (2) $80 $72 $66 $58 $57 $6
Slide 19: Addition of ITC Enhances Diversity
Addition of ITC Enhances Diversity Fortis Pro Forma 2017 Midyear Rate Base • Addition of ITC’s rate base significantly enhances diversity • ITC’s expected rate base growth supports FERC Fortis’ long-term regulated growth strategy Regulated Regulated Electric Transmission Canada(1) - ITC • Significan
Slide 20: Electric Transmission Represents a Significant Long-term Growth Opportunity
Electric Transmission Represents a Significant Long-term Growth Opportunity In Infancy of Multi-Decade Investment Cycle – Projected System Needs Require US$120 - US$160 billion of Investment per Decade Through 2030(1) Changing RPS Mandates & Power Market Reliability Historical Generation Fleet Inter
Slide 21: Supportive FERC Regulation
Supportive SupportiveFERC Regulation FERC Regulation FERC construct is additive to Fortis’ regulatory profile ITC Regulated Operating Companies Rates and Rate Setting Rate Construct and Returns Formula rates Supportive return on equity to facilitate investment FERC-approved forward-looking rate-sett
Slide 22: Acquisition Increases U.S. Presence and Exposure to Attractive FERC Regulated Returns
Acquisition Increases U.S. Presence and Exposure to Attractive FERC Regulated Returns • Singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix • Based on the twelve months ended December 31, 2015,
Slide 23: Milestones Are Being Met to Close The Acquisition by the End of 2016
Milestones Are Being Met to Close The Acquisition by the End of 2016 Secured minority investor. GIC Private Limited to acquire a 19.9% equity interest in ITC for US$1.228B. The process was completed in April 2016 and took approximately 70 days. Received Fortis shareholder approval on May 5, 2016 Com
Slide 24: Summary Pro Forma Fortis Corporate Structure
Summary Pro Forma Fortis Corporate Structure(1) (Long-Term Debt(2) in C$M, Credit Ratings from S&P/DBRS/Moody’s) Fortis Inc. Issuer Ratings: A-(3) / A (low)(4) / - Issuance Ratings: BBB+(3) / A (low)(4) / - GIC $1,782 100% 80.1% 19.9% ITC Holdings Corp.(5) Western Canadian Gas US Gas and Electric Ea
Slide 25: Credit Enhancing Aspects of the Acquisition
Credit Enhancing Aspects of the Acquisition Acquisition of the largest independent fully-regulated electric transmission utility in the Increased U.S. with rates regulated by FERC Scale & Growth Positions Fortis as a top 15 North American Utility. Establishes scale and an additional Opportunitie
Slide 26: Appendix
Appendix
Slide 27: ITC Overview
ITC Overview • Significant historical investment in the electric transmission grid to improve reliability, expand access to power markets, allow new generating resources to interconnect to the transmission system and lower the overall cost of delivered energy • ITC has broadened its platform over ti
Slide 28: Focused on Constructive Regulatory Relationships
Focused on Constructive Regulatory Relationships Significant Filings and Applications Regulated Utility Application / Proceeding Filing Date Expected Decision TEP 2017 General Rate Application November 2015 Q4 2016 UNS Electric 2016 General Rate Application May 2015 Q3 2016 FortisBC Energy 2016 Cost
Slide 29: ITC - Historical Financial Results
ITC - Historical Financial Results Last Twelve Fiscal Year-Ended December 31, Months Ended June 30, (US$ in millions) 2012 2013 2014(3) 2015(3) 2016(3),(4) Revenues 831 941 1,023 1,045 1,075 EBITDA(1) 538 615 721 706 713 CFO(2) 328 449 502 556 615 (1) EBITDA is a non-GAAP measure. EBITDA is defined
Slide 30: Fortis Standalone - Historical Financial Results
Fortis Standalone - Historical Financial Results Last Twelve Fiscal Year-Ended December 31, Months Ended June 30, (C$ in millions) 2012 2013 2014 2015 2016(1) Revenues 3,654 4,047 5,401 6,727 6,508 EBITDA(2) 1,264 1,393 1,711 2,293 2,331 CFO(3) 992 899 982 1,673 1,686 (1) Unaudited for the last twel
Slide 31: Fortis Standalone Regulatory Overview
Fortis Standalone Regulatory Overview Equity in Allowed 2016 Rate Capital ROE Company Jurisdiction Methodology Test Year (%) (%) Comments No earnings cap, UNS Energy Arizona COS Historic 43.5-52.6(1) 9.50-10.0(1) Jurisdiction supports 50% equity thickness COS Earnings sharing above Central Hudson Ne