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Fortis Reports First Quarter Earnings of $294 million – Part 3


CENTRAL HUDSON

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---------------------------------------------------------------------------- Financial Highlights (Unaudited) Quarter Ended March 31 2017 2016 Variance ---------------------------------------------------------------------------- Average US:CAD Exchange Rate (1) 1.32 1.37 (0.05) ---------------------------------------------------------------------------- Electricity Sales (GWh) 1,244 1,255 (11) Gas Volumes (PJ) 9 9 - Revenue ($ millions) 258 249 9 Earnings ($ millions) 23 24 (1) ---------------------------------------------------------------------------- (1) The reporting currency of Central Hudson is the US dollar.

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Electricity Sales & Gas Volumes

The decrease in electricity sales was primarily due to lower average consumption as a result of warmer temperatures. Gas volumes were comparable with the same period in 2016.

Changes in electricity sales and gas volumes at Central Hudson are subject to regulatory revenue decoupling mechanisms and, as a result, do not have a material impact on revenue and earnings.

Revenue

The increase in revenue was due to higher delivery revenue from increases in base electricity rates effective July 1, 2016 and the recovery from customers of higher gas commodity costs, partially offset by approximately $9 million of unfavourable foreign exchange associated with the translation of US dollar-denominated revenue.

Earnings

The decrease in earnings was primarily due to approximately $1 million of unfavourable foreign exchange associated with the translation of US dollar-denominated earnings and higher-than-expected storm restoration costs incurred in the first quarter of 2017, partially offset by increases in delivery revenue.

REGULATED GAS UTILITY - CANADIAN

FORTISBC ENERGY

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---------------------------------------------------------------------------- Financial Highlights (Unaudited) Quarter Ended March 31 2017 2016 Variance ---------------------------------------------------------------------------- Gas Volumes (PJ) 83 68 15 Revenue ($ millions) 449 406 43 Earnings ($ millions) 97 92 5 ----------------------------------------------------------------------------

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Gas Volumes

The increase in gas volumes was primarily due to growth in the number of customers and higher average consumption by residential and commercial customers as a result of colder temperatures. Also contributing to the increase was higher volumes for transportation customers due to additional customers switching to natural gas compared to alternative fuel sources.

Revenue

The increase in revenue was primarily due to higher gas volumes and a higher commodity cost of natural gas charged to customers.

Earnings

The increase in earnings was primarily due to the timing of quarterly revenue and operating expenses as compared to the same period in 2016. Also contributing to the increase was higher AFUDC.

FortisBC Energy earns approximately the same margin regardless of whether a customer contracts for the purchase and delivery of natural gas or only for the delivery of natural gas. As a result of the operation of regulatory deferral mechanisms, changes in consumption levels and the cost of natural gas do not materially affect earnings.

REGULATED ELECTRIC UTILITIES - CANADIAN

FORTISALBERTA

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---------------------------------------------------------------------------- Financial Highlights (Unaudited) Quarter Ended March 31 2017 2016 Variance ---------------------------------------------------------------------------- Energy Deliveries (GWh) 4,551 4,556 (5) Revenue ($ millions) 147 142 5 Earnings ($ millions) 25 31 (6) ----------------------------------------------------------------------------

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Energy Deliveries

The decrease in energy deliveries was primarily due to lower average consumption by oil and gas customers as a result of decreased oil and gas activity in Alberta. The decrease was largely offset by higher average consumption by residential, commercial and farm customers as a result of colder temperatures and growth in the numbers of customers.

Revenue

The increase in revenue was primarily due to an increase in capital tracker revenue and higher revenue related to the flow through of costs to customers. The increase was partially offset by a decrease in customer rates effective January 1, 2017 based on a combined inflation and productivity factor of negative 1.9% and lower average consumption.

Earnings

The decrease in earnings was primarily due to a decrease in customer rates, as discussed above, and higher operating expenses, partially offset by an increase in capital tracker revenue.

FORTISBC ELECTRIC (1)

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---------------------------------------------------------------------------- Financial Highlights (Unaudited) Quarter Ended March 31 2017 2016 Variance ---------------------------------------------------------------------------- Electricity Sales (GWh) 945 851 94 Revenue ($ millions) 113 104 9 Earnings ($ millions) 15 15 - ---------------------------------------------------------------------------- (1) Includes the regulated operations of FortisBC Inc. and operating, maintenance and management services related to the Waneta, Brilliant and Arrow Lakes hydroelectric generating plants.

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Electricity Sales

The increase in electricity sales was primarily due to higher average consumption as a result of colder temperatures.

Revenue

The increase in revenue was primarily due to higher electricity sales and an increase in base electricity rates effective January 1, 2017, partially offset by higher flow-through adjustments owing to customers.

Earnings

Earnings were comparable with the same period in 2016.

Variances from regulated forecasts used to set rates for electricity revenue and power purchase costs are flowed back to customers in future rates through approved regulatory deferral mechanisms and, therefore, these variances do not have an impact on earnings.

EASTERN CANADIAN ELECTRIC UTILITIES (1)

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---------------------------------------------------------------------------- Financial Highlights (Unaudited) Quarter Ended March 31 2017 2016 Variance ---------------------------------------------------------------------------- Electricity Sales (GWh) 2,737 2,706 31 Revenue ($ millions) 332 329 3 Earnings ($ millions) 18 18 - ---------------------------------------------------------------------------- (1) Comprised of Newfoundland Power Inc., Maritime Electric Company, Limited and FortisOntario Inc. ("FortisOntario").

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Electricity Sales

The increase in electricity sales was due to higher average consumption and growth in the number of customers.

Revenue

The increase in revenue was due to higher electricity sales and an increase in customer rates effective July 1, 2016 at Newfoundland Power, partially offset by the flow through in customer electricity rates of lower energy supply costs.

Earnings

Earnings were comparable with the same period in 2016.

REGULATED ELECTRIC UTILITIES - CARIBBEAN (1)

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---------------------------------------------------------------------------- Financial Highlights (Unaudited) Quarter Ended March 31 2017 2016 Variance ---------------------------------------------------------------------------- Average US:CAD Exchange Rate (2) 1.32 1.37 (0.05) ---------------------------------------------------------------------------- Electricity Sales (GWh) 191 190 1 Revenue ($ millions) 70 75 (5) Earnings ($ millions) 8 10 (2) ---------------------------------------------------------------------------- (1) Comprised of Caribbean Utilities Company, Ltd. ("Caribbean Utilities"), in which Fortis holds an approximate 60% controlling interest, and two wholly owned utilities, FortisTCI Limited and Turks and Caicos Utilities Limited (collectively "Fortis Turks and Caicos"). Also includes the Corporation's 33% equity investment in Belize Electricity Limited ("Belize Electricity"). (2) The reporting currency of Caribbean Utilities and Fortis Turks and Caicos is the US dollar. The reporting currency of Belize Electricity is the Belizean dollar, which is pegged to the US dollar at BZ$2.00=US$1.00.

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Electricity Sales

Electricity sales were comparable with the same period in 2016.

Revenue

The decrease in revenue was mainly due to approximately $3 million of unfavourable foreign exchange associated with the translation of US dollar-denominated revenue and the flow through in customer electricity rates of lower fuel costs.

Earnings

The decrease in earnings was primarily due to a decrease in equity income from Belize Electricity.

NON-REGULATED - ENERGY INFRASTRUCTURE (1)

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---------------------------------------------------------------------------- Financial Highlights (Unaudited) Quarter Ended March 31 2017 2016 Variance ---------------------------------------------------------------------------- Energy Sales (GWh) 82 89 (7) Revenue ($ millions) 56 29 27 Earnings ($ millions) 23 11 12 ---------------------------------------------------------------------------- (1) Primarily comprised of long-term contracted generation assets in British Columbia and Belize, with a combined generating capacity of 391 MW, and the Aitken Creek natural gas storage facility in British Columbia, with a total working gas capacity of 77 billion cubic feet.

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Energy Sales

The decrease in energy sales was primarily due to decreased production in Belize due to lower rainfall.

Revenue

The increase in revenue was driven by the acquisition of Aitken Creek in April 2016, with revenue of $26 million recognized in the first quarter of 2017.

Earnings

The increase in earnings was driven by earnings contribution of $13 million from Aitken Creek, which includes an after-tax $6 million unrealized gain on the mark-to-market of derivatives.

CORPORATE AND OTHER (1)

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---------------------------------------------------------------------------- Financial Highlights (Unaudited) Quarter Ended March 31 ($ millions) 2017 2016 Variance ---------------------------------------------------------------------------- Revenue - 1 (1) Operating Expenses 12 25 (13) Other Income (Expenses), Net - 3 (3) Finance Charges 50 28 22 Income Tax Recovery (31) (17) (14) ---------------------------------------------------------------------------- (31) (32) 1 Preference Share Dividends 16 19 (3) ---------------------------------------------------------------------------- Net Corporate and Other Expenses (47) (51) 4 ---------------------------------------------------------------------------- (1) Includes Fortis net Corporate expenses and non-regulated holding company expenses.

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Net Corporate and Other expenses in the first quarter of 2016 were impacted by acquisition-related expenses associated with ITC totalling $20 million ($17 million after tax). Acquisition-related expenses included: (i) investment banking, legal, consulting and other fees totalling approximately $16 million ($14 million after tax), which were included in operating expenses; and (ii) fees associated with the Corporation's acquisition credit facilities totalling approximately $4 million ($3 million after tax), which were included in finance charges.

Excluding the above-noted items, net Corporate and Other expenses were $47 million for the first quarter of 2017 compared to $34 million for the same period last year. The increase was primarily due to higher finance charges, a decrease in other income, and higher operating expenses, partially offset by a higher income tax recovery and lower preference share dividends.

The increase in finance charges was mainly due to the acquisitions of ITC and Aitken Creek in October 2016 and April 2016, respectively. The decrease in other income was primarily due to the release of provisions on the wind-up of a partnership in the first quarter of 2016. The increase in operating expenses was mainly due to higher compensation-related expenditures, general inflationary increases and ancillary expenses to support the acquisition of ITC and the Corporation's listing on the New York Stock Exchange. The higher income tax recovery was mainly related to the increase in Corporate and Other finance charges. The decrease in preference share dividends was due to the redemption of First Preference Shares, Series E in September 2016.

REGULATORY HIGHLIGHTS

The nature of regulation associated with each of the Corporation's regulated electric and gas utilities is generally consistent with that disclosed in the 2016 Annual MD&A. The following summarizes the significant ongoing regulatory proceedings and significant decisions and applications for the Corporation's regulated utilities in the first quarter of 2017.

ITC

ROE Complaints

Since 2013 two third-party complaints were filed with FERC requesting that FERC find the Midcontinent Independent System Operator ("MISO") regional base ROE for all MISO transmission owners, including some of ITC's operating subsidiaries, for the periods November 2013 through February 2015 (the "Initial Refund Period" or "Initial Complaint") and February 2015 through May 2016 (the "Second Refund Period" or "Second Complaint") to no longer be just and reasonable. In September 2016 FERC issued an order affirming the presiding Administrative Law Judge's ("ALJ") initial decision for the Initial Refund Period and setting the base ROE for the Initial Refund Period at 10.32%, with a maximum ROE of 11.35%. Additionally, the rates established by the September 2016 order will be used prospectively from the date of the order until a new approved rate is established for the Second Refund Period. FERC's September 2016 order regarding the Initial Complaint is currently under appeal by the MISO transmission owners. In June 2016 the presiding ALJ issued an initial decision for the Second Refund Period, which recommended a base ROE of 9.70%, with a maximum ROE of 10.68%, which is a recommendation to FERC.

During the first quarter of 2017, ITC provided a refund of US$121 million, including interest, for the Initial Refund Period. This refund is subject to a final true-up pursuant to the refund process which is expected to be finalized during the second quarter of 2017. As at March 31, 2017, the estimated range of refunds for the Second Refund Period was between US$103 million to US$140 million and ITC has recognized an aggregated estimated regulatory liability of US$140 million.

The estimated regulatory liabilities were accrued by ITC before its acquisition by Fortis. There is uncertainty regarding the final outcome of the Initial and Second Complaints and the timing of the completion of these matters. This is due, in part, to a recent court decision requiring FERC to further justify the methodology used to establish new ROEs. It is possible that the outcome of these matters could differ materially from the estimated range of refunds.

UNS Energy

General Rate Application

In February 2017 the Arizona Corporation Commission issued a rate order for new rates that took effect February 27, 2017 ("2017 Rate Order"). Provisions of the 2017 Rate Order include: (i) an increase in non-fuel base revenue of US$81.5 million, including US$15 million of operating costs related to the 50.5% undivided interest in Unit 1 of Springerville Generating Station purchased by TEP in September 2016; (ii) a 7.04% return on original cost rate base, including a cost of equity of 9.75% and an embedded cost of long-term debt of 4.32%; (iii) a common equity component of capital structure of approximately 50%; and (iv) the adoption of proposed depreciation rates which reflect a reduction in the depreciable life for Unit 1 of San Juan Generating Station. Certain aspects of the general rate application, including net metering and rate design for new distributed generation customers, have been deferred to a second phase of TEP's rate case proceeding, which is expected to be completed by the end of 2017. TEP cannot predict the outcome of this proceeding.



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