Slide 1: Largest Investor-Owned Distribution Utility in Canada: Investor Presentation
Largest Investor-Owned Distribution Utility in Canada Investor Presentation December 2013 A preliminary short form prospectus containing important information relating to the securities described in this document has not yet been filed with the securities regulatory authorities in each of the provin
Slide 2: Forward-Looking Statement
Forward-Looking Statement Fortis includes forward-looking information in these materials within the meaning of applicable securities laws in Canada (“forward-looking information”), including forward-looking statements regarding, among other things, a potential acquisition opportunity, receipt of all
Slide 3: Agenda
Agenda 1. Fortis Today 2. Acquisition Rationale 3. UNS Energy Overview 4. Details of the Acquisition 5. Conclusion 3
Slide 4: Fortis Today
Largest Investor-Owned Distribution Utility in Canada Fortis Today 4
Slide 5: Fortis Today
Fortis Today • Largest investor-owned distribution utility in Canada 90% Regulated Assets (1) Total assets of $17.6 billion ; ~90% are regulated utility assets Fiscal 2012 revenue of $3.7 billion(2) Gas 34% Electic $10.2 billion in midyear 2013 rate base 56% More than 2.4 million electricity
Slide 6: Strong EPS and Dividend Growth
Strong EPS and Dividend Growth • Record 41 years of consecutive dividend increases • Over the past 10 years: Dividends increased by a CAGR of ~9.7% Average annualized total shareholder return of ~11.4% Increasing Dividends Paid to Shareholders 10-Year Average Annualized Total Return $1.60 (As at
Slide 7: Rate Base Growth Drives Organic Earnings Growth
Rate Base Growth Drives Organic Earnings Growth • Investment in energy infrastructure (rate base) to provide safe, reliable, cost-effective service to customers is the primary driver of earnings growth • 6-year capital spending program through 2018 is forecasted at $7.5 billion; resulting in a CAGR
Slide 8: Acquisition Rationale
Largest Investor-Owned Distribution Utility in Canada Acquisition Rationale 8
Slide 9: Fortis Acquisition Offer
Fortis Acquisition Offer • UNS Energy is a vertically integrated regulated utility operating in Arizona with ~505,000 electric and ~149,000 gas customers as at September 30, 2013 • US$60.25 per UNS Energy common share Net purchase price of US$2.5 billion Gross purchase price of US$4.3 billion(1)
Slide 10: Fortis Acquisition Strategy
Fortis Acquisition Strategy • Fortis has substantial experience in integrating newly acquired enterprises into the Fortis group CH Energy (US$1.5 billion in EV) – Announced February 2012, closed June 2013 Terasen(1) ($3.7 billion in EV) – Announced February 2007, closed May 2007 Aquila(2) ($1.
Slide 11: Acquisition Rationale
Acquisition Rationale • Accretive to earnings per common share in first full year (1) • Diversification of regulated earnings • Supportive regulatory environment • Capital expenditures drive significant rate base growth Generation diversification • Favourable local economic conditions support grow
Slide 12: UNS Energy Overview
Largest Investor-Owned Distribution Utility in Canada UNS Energy Overview 12
Slide 13: UNS Energy Overview
UNS Energy Overview • Vertically integrated regulated utility UNS Energy Arizona Service Territory operating across Arizona, headquartered in Tucson, serving ~505,000 electric and ~149,000 gas customers • Operates three regulated utilities: Tucson Electric Power (“TEP”) UNS Electric UNS Gas •
Slide 14: UNS Energy Overview (continued)
UNS Energy Overview (continued) Subsidiary Total Assets Net Income(1) (as at Sept 30, 2013) (9 months ended Sept 30, 2013) US$B % US$MM % TEP $3.6 84 $96 85 UNS Electric $0.4 9 $11 10 UNS Gas $0.3 7 $6 5 Total $4.3 100 $113 100 (1) Does not include non-reportable segments 14
Slide 15: Strong Historic Performance
Strong Historic Performance • UNS Energy has generated strong cash flows from its regulated asset base and has provided its investors with stable dividend growth • Over the past 10 fiscal years through 2012: Dividends per share have increased from US$0.60 to US$1.72, representing a CAGR of ~12.4%
Slide 16: Current Generation Portfolio
Current Generation Portfolio • UNS Energy currently owns or leases a combined generation resource of 2,420 MW(1) • Arizona state utilities primarily operate gas and coal generation UNS Energy Generating Capacity Total Generating Capacity of Arizona Utilities(2) Total: 2,420 MW Total: 16,200 MW 36% 3
Slide 17: Details of Acquisition
Largest Investor-Owned Distribution Utility in Canada Details of Acquisition 17
Slide 18: Accretive to Fortis EPS
Accretive to Fortis EPS • Accretive to Fortis earnings per common share in the first full year, excluding one-time acquisition-related expenses • TEP’s US$76 million rate order, primarily related to prior infrastructure investment, and the expiration and buyout of Springerville leases are the key dr
Slide 19: Increased Diversification
Increased Diversification • Significant opportunity to further diversify Fortis’ regulated assets, earnings and cash flows and improve risk profile • Based on financial information as at September 30, 2013, pro forma the Acquisition: UNS Energy will represent 25% of total assets and 28% of operati
Slide 20: Supportive Arizona Regulatory Environment
Supportive Arizona Regulatory Environment • Arizona Corporation Commission (“ACC”) has constructive rate design structures for cost recovery: Mechanism Benefit Purchased Power and Designed to recover fuel and purchased power costs Fuel Adjustor Clause Environmental Designed to recover compliance cos
Slide 21: Organic Growth through Capital Investments
Organic Growth through Capital Investments • UNS Energy rate base is expected to continue to grow through additional capital investment in future years Based on the projected increase in TEP’s ACC jurisdictional rate base to ~US$2.0 billion by 2015, from the current US$1.5 billion • UNS Energy has
Slide 22: Generation Resource Diversification
Generation Resource Diversification TEP Generation Capacity Mix Current 2020 Forecasted 28% 38% 49% 53% 9% 6% 3% 14% Utility Scale Renewables Natural Gas and Purchased Power Coal Energy Efficiency and Distributed Generation 22
Slide 23: Generation Resource Diversification
Generation Resource Diversification Springerville Unit 1 Gila River • TEP has elected to purchase leased interests • In August 2013, UNS Energy entered into comprising of 35.4% of Unit 1 of the exclusive negotiations with Entegra to Springerville generating station purchase Unit 3 of the Gila River
Slide 24: Growth Opportunities in Arizona
Growth Opportunities in Arizona • The Arizona economy continues to generate solid economic growth, with job growth at 2.0% over the past year, above the national rate of 1.6% • Favourable state economic drivers will support Arizona growth opportunity Annual growth in jobs, retail sales and persona
Slide 25: Experienced Management Team
Experienced Management Team Key Executives Paul Bonavia – Chairman & CEO David Hutchens – President & COO Paul J. Bonavia is Chairman and Mr. Hutchens is President and Chief Chief Executive Officer of UNS Operating Officer of UNS Energy, Energy, TEP and UniSource Energy TEP and UniSource Energy Serv
Slide 26: Conclusion
Largest Investor-Owned Distribution Utility in Canada Conclusion 26
Slide 27: UNS Energy Acquisition Summary
UNS Energy Acquisition Summary • Acquiring UNS Energy provides Fortis with a significant opportunity to expand its US utility presence in the US southwest and includes the following benefits: Accretive to earnings per common share in first full year (1) Diversification of regulated earnings Su