Fortis, Inc. Q4 FY2024 earnings call

Key Points

• 2024 was a strong year with $5.2 billion in capital investment, 6% adjusted EPS growth, and 51 consecutive dividend increases.
• Ranked #1 in Canada's corporate governance by The Globe and Mail.
• Reduced Scope 1 emissions by 34% compared to 2019 levels and enhanced wildfire risk awareness.
• Achieved top quartile safety and reliability performance.
• Controllable operating cost per customer increased ~2.8% annually over 5 years below inflation.
• 2024 total shareholder return was ~14%, with a 20-year average of ~10%.
• Five-year capital plan of $26 billion is on track, with rate base expected to increase to $53 billion by 2029.
• ITC's Tranche 2.1 LRTP projects revised to a range of $3.7 billion to $4.2 billion.
• TEP has over 10,000 MW potential load from data center and mining customers, with negotiations for 300 MW in 2027 and 600 MW in 2030.
• Aim to be coal-free by 2032, with interim shutdowns contingent on factors like natural gas generation and demand growth.

Fortis' segments showed varied performance in 2024. ITC delivered strong adjusted earnings growth of 7% over 2023, driven by $1.5 billion in 2024 capital investments. U.S. electric and gas utilities saw EPS increase by $0.12, with UNS Energy contributing $0.08, TEP affected by new rates and production tax credits but higher O&M, and Central Hudson due to rate base growth and higher allowed ROE. Western Canadian Utilities had a $0.09 EPS increase from rate base growth. Other Electric saw a $0.03 EPS increase from rate base growth and higher electricity sales. The Corporate and Other segment had an $0.08 EPS decrease due to higher holding company costs and unrealized losses.

Forward-Looking Statements

• Dividend growth guidance of 4% to 6% through 2029 supported by regulated growth strategy.
• Five-year capital plan of $26 billion remains on track, with rate base expected to increase to $53 billion by 2029.
• ITC's Tranche 2.1 investments are expected beyond 2029.
• TEP plans to file its next rate case in summer 2025, with consideration of formula rates to reduce lag and ensure timely return on new investments.

Risks Identified

• Foreign exchange rate fluctuations can impact the five-year capital plan and EPS, with a $0.05 change in exchange rate affecting annual EPS by ~$0.05.
• Regulatory uncertainties in rate case filings and permitting processes.
• Potential tariff impacts on the economy and customers, though no immediate material direct impacts are seen currently.

Q: On Arizona, new rates and investment return; A: David Hutchens discusses TEP's rate case filing in summer 2025 and consideration of formula rates to ensure timely recovery for new investments.

Q: BC permitting environment and project acceleration; A: Roger Dall’Antonia talks about potential permitting clarity in BC, which could expedite project timelines but doesn't create new projects.

Q: FERC new chair and priorities; A: David Hutchens discusses FERC's focus on colocation and ensuring proper grid impacts are considered for load and resource investments.

Q: Arizona nuclear proposal and risks; A: David Hutchens talks about early stages of nuclear proposal exploration, noting it's very early and derisking is needed.

Q: Arizona UNS Gas rate case and TEP's filing; A: David Hutchens discusses early stages of UNS Gas rate case and that learnings will inform TEP's rate case filing, with no expectation of longer timelines solely due to this.

Q: Arizona load growth capital needs and EPS; A: David Hutchens states early stages make it hard to determine exact capital needs, but directionally load growth will impact earnings.

Q: FX impact on funding plan; A: Jocelyn Perry discusses FX impact on cash flows but notes it doesn't materially change the five-year funding plan.

Q: Iowa ITC investments and financing; A: David Hutchens mentions uncertainty around Iowa investments due to competitive bid and ROFR variables.

Q: Arizona TEP formula rate lag improvement; A: Jocelyn Perry discusses early stages of developing formula rates for TEP to reduce lag and ensure consistent return.

Q: FERC co-located load discussion; A: Linda Apsey talks about FERC's agenda item on co-located load, seeing it as a priority for Chairman Christie to resolve grid cost issues.