Fortis Reports First Quarter Earnings of $294 million – Part 1

FOR: FORTIS INC.
TSX SYMBOL: FTS
NYSE SYMBOL: FTS

Date issue: May 02, 2017
Time in: 6:00 AM e

Attention:

ST. JOHN'S, NEWFOUNDLAND AND LABRADOR--(Marketwired - May 2, 2017) - Fortis Inc. ("Fortis" or the "Corporation") (TSX:FTS)(NYSE:FTS), a leader in the North American regulated electric and gas utility industry, released its first quarter results today. The Corporation's net earnings attributable to common equity shareholders for the first quarter of 2017 were $294 million, or $0.72 per common share, compared to $162 million, or $0.57 per common share, for the first quarter of 2016. The quarterly results were heavily influenced by the addition of electric transmission company ITC Holdings Corp. ("ITC"), acquired in October 2016.

On an adjusted basis, net earnings attributable to common equity shareholders for the first quarter were $281 million, or $0.69 per common share, an increase of $0.02 per common share over the first quarter of 2016. A reconciliation of adjusted net earnings and adjusted earnings per common share is provided in the Corporation's Interim Management Discussion and Analysis for the three months ended March 31, 2017.

"We had good first quarter earnings and remain on plan for the year," said Barry Perry, President and Chief Executive Officer, Fortis. "Increased earnings at UNS, driven by the rate settlement, and accretion from ITC will contribute to strong results for the remainder of 2017."

"The integration of ITC is going well. The final piece of permanent financing was put in place during the first quarter as we raised $500 million in common equity through a private placement. In addition, we are on track to deliver our capital plan for the year," said Mr. Perry.

Strong first quarter adjusted earnings per share and cash flow; capital expenditure plan on track

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-- Adjusted earnings per common share benefited from the impact of the rate

case at UNS and the accretion associated with the acquisition of ITC, partially offset by lower earnings at FortisAlberta and unfavourable foreign exchange associated with US dollar-denominated earnings. -- Earnings per common share growth was tempered by a higher weighted average number of common shares due to the sale of 12.2 million common shares, for gross proceeds of $500 million, to an institutional investor in March 2017. -- Cash flow from operating activities totalled $0.5 billion, an increase of 12% over the first quarter of 2016. The increase reflects higher earnings at the regulated utilities, driven by ITC, partially offset by unfavourable changes in working capital. Operating cash flow from ITC was less than the normal run rate due to the payment of the United States Federal Energy Regulatory Commission ordered return on equity refunds. -- Capital expenditures were $0.7 billion, representing almost one quarter of the consolidated capital expenditure forecast of $3.0 billion for 2017.

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Execution of growth strategy

The Corporation's capital program continues to address the infrastructure needs of customers. The Corporation's five-year consolidated capital expenditures through 2021 are expected to be approximately $13 billion, including more than $3.5 billion of capital expenditures at ITC.

Construction continues on the Tilbury liquefied natural gas ("LNG") facility expansion in British Columbia, the Corporation's largest ongoing capital project, at an estimated capital cost of $400 million, before allowance for funds used during construction and development costs. During the quarter the LNG storage tank was commissioned and key components continue to be installed, with an expected in-service date of mid-2017.

The Corporation continues to invest in four Multi-Value Projects ("MVPs") at ITC, which are regional electric transmission projects that have been identified by the Midcontinent Independent System Operator to address system capacity needs and reliability in various states. Approximately US$119 million was invested in the MVPs from the date of acquisition of ITC and an additional US$159 million is expected to be spent in 2017. Three of the MVPs are expected to be completed by the end of 2018, with the fourth scheduled for completion in 2023.

In addition to the Corporation's base consolidated capital expenditure forecast, management is pursuing additional investment opportunities within existing service territories. Specifically, the Corporation continues to pursue additional LNG infrastructure investment opportunities in British Columbia, including the potential pipeline expansion to the proposed Woodfibre LNG export facility and further expansion of its Tilbury LNG facility.

Two significant electric transmission investment opportunities are being pursued. The Lake Erie Connector project at ITC would connect the Ontario and PJM Interconnection, LLC grids for the first time, and the Wataynikaneyap Power project in Northwestern Ontario involves construction of new transmission lines to connect remote First Nation communities to the electricity grid. During the quarter a significant milestone was achieved with respect to the Wataynikaneyap Power project with the approval by the Ontario Energy Board of a deferral account to recognize development costs incurred between November 2010 and the commencement of construction. Fortis and its utilities are focused on achieving key milestones in 2017 to further advance these opportunities.

Regulatory proceedings

Fortis is focused on maintaining constructive regulatory relationships and outcomes across its utilities.

During the first quarter, Tucson Electric Power Company ("TEP") received a rate order that approved new rates that took effect February 27, 2017 and included an increase in non-fuel base revenue of US$81.5 million, an allowed rate of return on common shareholder's equity ("ROE") of 9.75%, and a common equity component of capital structure of approximately 50%.

Outlook

The Corporation's results for 2017 will continue to benefit from the addition of ITC and the impact of the TEP rate case. Over the long term, Fortis is well positioned to enhance value for shareholders through the execution of its capital plan, the balance and strength of its diversified portfolio of utility businesses, as well as growth opportunities within its franchise regions.

Over the five-year period through 2021, the Corporation's capital program is expected to be approximately $13 billion, increasing rate base to almost $30 billion in 2021. Fortis expects this long-term sustainable growth in rate base to support continuing growth in earnings and dividends.

Fortis has targeted average annual dividend growth of approximately 6% through 2021. This dividend guidance takes into account many factors, including the expectation of reasonable outcomes for regulatory proceedings at the Corporation's utilities, the successful execution of the five-year capital expenditure program, and management's continued confidence in the strength of the Corporation's diversified portfolio of utilities and record of operational excellence.

"Our diversified portfolio of utilities and highly executable capital plan allow us to deliver low-risk growth," commented Mr. Perry. "We remain focused on continuing to achieve strong operational and financial performance in 2017 while we continue to execute on our strategy and integrate ITC into our business."

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Teleconference to Discuss First Quarter 2017 Results

A teleconference and webcast will be held on May 2 at 8:30 a.m. (Eastern). Barry Perry, President and Chief Executive Officer and Karl Smith, Executive Vice President, Chief Financial Officer, will discuss the Corporation's first quarter 2017 results.

Analysts, members of the media and other interested parties in North America are invited to participate by calling 1.877.223.4471. International participants may participate by calling 647.788.4922. Please dial in 10 minutes prior to the start of the call. No pass code is required.

A live and archived audio webcast of the teleconference will be available on the Corporation's website, http://www.fortisinc.com/.

A replay of the conference will be available two hours after the conclusion of the call until June 2, 2017. Please call 1.800.585.8367 or 416.621.4642 and enter pass code 94192862.

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Interim Management Discussion and Analysis

For the three months ended March 31, 2017

Dated May 1, 2017

FORWARD-LOOKING INFORMATION

The following Fortis Inc. ("Fortis" or the "Corporation") Management Discussion and Analysis ("MD&A") has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations. The MD&A should be read in conjunction with the interim unaudited consolidated financial statements and notes thereto for the three months ended March 31, 2017 and the MD&A and audited consolidated financial statements for the year ended December 31, 2016 included in the Corporation's 2016 Annual Report. Financial information contained in the MD&A has been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and is presented in Canadian dollars unless otherwise specified.

Fortis includes forward-looking information in the MD&A within the meaning of
applicable securities laws including the Private Securities Litigation Reform
Act of 1995. Forward-looking information included in the MD&A reflect
expectations of Fortis management regarding future growth, results of
operations, performance and business prospects and opportunities as of May 1,
2017. Wherever possible, words such as "anticipates", "believes", "budgets",
"could", "estimates", "expects", "forecasts", "intends", "may", "might",
"plans", "projects", "schedule", "should", "target", "will", "would" and the
negative of these terms and other similar terminology or expressions have been
used to identify the forward-looking information, which include, without
limitation: the expected timing of filing of regulatory applications and
receipt and outcome of regulatory decisions; the expectation that the
Corporation's 2017 results will continue to benefit from the acquisition of ITC
and the impact of Tucson Electric Power Company's general rate case; the
Corporation's forecast gross consolidated and segmented capital expenditures
for 2017 and from 2017 to 2021; the nature, timing and expected costs of
certain capital projects including, without limitation, expansions of the
Tilbury liquefied natural gas ("LNG") facility and Multi-Value Projects, and
additional opportunities including the pipeline expansion to the Woodfibre LNG
site, the Wataynikaneyap Project and the Lake Erie Connector Project; the
expectation that the Corporation's significant capital expenditure program will
support continuing growth in earnings and dividends; expected consolidated
fixed-term debt maturities and repayments over the next five years; the
expectation that subsidiary operating expenses and interest costs will be paid
out of subsidiary operating cash flows; the expectation that cash required to
complete subsidiary capital expenditure programs will be sourced from a
combination of borrowings under credit facilities, long-term debt offerings and
equity injections from Fortis;
the expectation that borrowings under credit facilities may be required from
time to time to support seasonal working capital requirements; the expectation
that cash required of Fortis to support subsidiary capital expenditure programs
and finance acquisitions will be derived from a combination of borrowings under
the Corporation's committed corporate credit facility and proceeds from the
issuance of common shares, preference shares and long-term debt and advances
from minority investors; the expectation that borrowings under the
Corporation's committed corporate credit facility may be required from time to
time to support the servicing of debt and payment of dividends; the expectation
that maintaining the targeted capital structure of the Corporation's regulated
operating subsidiaries will not have an impact on its ability to pay dividends
in the foreseeable future; the intent of management to refinance certain
borrowings under Corporation's and subsidiaries' long-term committed credit
facilities with long-term permanent financing; the expectation that the
Corporation and its subsidiaries will remain compliant with debt covenants
throughout 2017; the expectation that long-term debt will not be settled prior
to maturity; the expectation that any liability from current legal proceedings
and claims will not have a material adverse effect on the Corporation's
consolidated financial position, results of operations or cash flows; the
expectation that the ITC shareholder litigation settlement, if approved, will
not have a significant impact on the financial condition or results of
operation of ITC Holdings; target average annual dividend growth through 2021;
the Corporation's forecast rate base over the five-year period through 2021;
and the expectation that the adoption of future accounting pronouncements will
not have a material impact on the Corporation's consolidated financial
statements.

Certain material factors or assumptions have been applied in drawing the conclusions contained in the forward-looking statements, including, without limitation: the receipt of applicable regulatory approvals and requested rate orders, no material adverse regulatory decisions being received, and the expectation of regulatory stability; no material capital project and financing cost overrun related to any of the Corporation's capital projects; the realization of additional opportunities including natural gas related infrastructure and generation; the Board of Directors exercising its discretion to declare dividends, taking into account the business performance and financial conditions of the Corporation; no significant variability in interest rates; no significant operational disruptions or environmental liability due to a catastrophic event or environmental upset caused by severe weather, other acts of nature or other major events; the continued ability to maintain the electricity and gas systems to ensure their continued performance; no severe and prolonged downturn in economic conditions; no significant decline in capital spending; sufficient liquidity and capital resources; the continuation of regulator-approved mechanisms to flow through the cost of natural gas and energy supply costs in customer rates; the ability to hedge exposures to fluctuations in foreign exchange rates, natural gas prices and electricity prices; no significant changes in tax laws; no significant counterparty defaults; the continued competitiveness of natural gas pricing when compared with electricity and other alternative sources of energy; the continued availability of natural gas, fuel, coal and electricity supply; continuation and regulatory approval of power supply and capacity purchase contracts; the ability to fund defined benefit pension plans, earn the assumed long-term rates of return on the related assets and recover net pension costs in customer rates; no significant changes in government energy plans, environmental laws and regulations that may materially negatively affect the Corporation and its subsidiaries; maintenance of adequate insurance coverage; the ability to obtain and maintain licences and permits; retention of existing service areas; the continued tax deferred treatment of earnings from the Corporation's Caribbean operations; continued maintenance of information technology infrastructure and no material breach of cyber-security; continued favourable relations with First Nations; favourable labour relations; that the Corporation can reasonably assess the merit of and potential liability attributable to ongoing legal proceedings; and sufficient human resources to deliver service and execute the capital program.

Forward-looking statements involve significant risks, uncertainties and assumptions. Fortis cautions readers that a number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and undue reliance should not be placed on the forward-looking statements. Risk factors which could cause results or events to differ from current expectations are detailed under the heading "Business Risk Management" in this MD&A and in continuous disclosure materials filed from time to time with Canadian securities regulatory authorities and the Securities and Exchange Commission. Key risk factors for 2017 include, but are not limited to: uncertainty regarding the outcome of regulatory proceedings at the Corporation's utilities; uncertainty of the impact a continuation of a low interest rate environment may have on the allowed rate of return on common shareholders' equity at the Corporation's regulated utilities; the impact of fluctuations in foreign exchange rates; uncertainty related to proposed tax reform in the United States; risk associated with the impacts of less favourable economic conditions on the Corporation's results of operations; risk that the expected benefits of the acquisition of ITC may fail to materialize, or may not occur within the time periods anticipated; risk associated with the Corporation's ability to comply with Section 404(a) of the Sarbanes-Oxley Act of 2002 and the related rules of the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board; risk associated with the completion of the Corporation's 2017 capital expenditures plan, including completion of major capital projects in the timelines anticipated and at the expected amounts; and uncertainty in the timing and access to capital markets to arrange sufficient and cost-effective financing to finance, among other things, capital expenditures and the repayment of maturing debt.

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