Fortis, Inc. Q3 FY2026 earnings call

• Capital Plan Update: Unveiled a new $32.2 billion five-year capital plan, an increase of $3.4 billion from the previous outlook. This supports a 7.5% rate-based CAGR.
• Dividend Growth: Extended annual dividend growth guidance to 4-6% through 2031, with a recent 4% Q4 dividend increase marking 53 consecutive years of increases.
• ITC Growth: ITC’s capital plan is $11.6 billion, supporting 8.6% rate-based growth. Key wins include the Mars Project in Iowa ($1B total, $500M in plan) and a pipeline of 10 GW of potential load growth from data centers and industrial customers.
• FortisBC LNG Focus: FortisBC’s $6 billion plan highlights major LNG investments at Tilbury, including Phase 1b liquefaction expansion and storage tank projects. Potential future investment of $2-4 billion exists beyond 2031 depending on market demand.
• UNS Energy Opportunities: UNS Energy’s $5.6 billion plan supports 7.4% rate-based growth. TEP filed an Integrated Resource Plan with a high-growth scenario requiring up to $1.5 billion in incremental investments for data centers and industrial loads.
• Funding Strategy: Funding primarily through operations and debt, with DRIP as the equity foundation. Approximately $250 million ATM equity issuance expected over the next 12 months for above-plan opportunities.

Reported earnings were $474 million ($0.92 EPS) for Q3 2026. Adjusted EPS drivers by segment: ITC contributed +3 cents (rate-based growth, lower stock comp); U.S. Electric/Gas (+UNS Energy) contributed +2 cents (higher sales in Arizona, tax credit amortization, offset by mild weather/regulatory lag); Central Hudson was flat; Western Canadian Utilities contributed +2 cents (rate-based growth, lower taxes at Fortis Alberta); Other Electric decreased -1 cent (disposition of Fortis TCI); Corporate/Other decreased due to derivative losses. Year-to-date adjusted EPS increased by $0.06.

• Dividend Growth: Maintained and extended guidance for 4-6% annual dividend growth through 2031.
• Rate-Based Growth: Consolidated rate base expected to grow at a 7.5% five-year CAGR (up 50 bps from prior plan).
• Credit Metrics: Targeting average S&P FFO to debt metrics above 12% and average Fitch FFO leverage of approximately 5.9 times over the five-year period.
• Capital Expenditure: Full-year 2026 investment expected at approximately $6 billion, up $400 million from the previous plan.

• Regulatory Lag: Potential delay in reflecting rate-based growth in actual rates, particularly noted at UNS Energy and TEP until adjuster mechanisms are implemented.
• Execution Risks: Challenges related to labor availability, supply chain constraints, and project timelines for large-scale infrastructure projects.
• Market Demand Uncertainty: Future LNG investments at FortisBC and data center capacity additions at UNS depend on market demand, permitting outcomes, and final investment decisions.
• Policy Changes: Impact of federal mega deduction (PMD) in Canada remains uncertain pending final legislation, though no material impact on credit metrics is currently expected.

Q: Analyst asked if the new plan includes significant capex for Arizona data center growth given past estimates of $1.5-2B, and how US election outcomes might affect this.

A: CEO confirmed no additional capex for data centers is included in the current plan; the $1.5B figure represents a modeled range for various projects, not committed spend. He emphasized that large loads generally benefit customers by improving efficiency and lowering rates if managed correctly without cost-shifting, regardless of political rhetoric.

Q: Analyst inquired about the use of ATM equity versus other funding tools like hybrids as CapEx rises, and how the company sizes its buffer against credit thresholds.

A: CFO stated the DRIP remains the primary equity source, but ATM will be used for above-plan growth. The company maintains a 50-75 bps buffer above credit metrics. With only 6% hybrid capital currently, there is room to issue up to $2.5B more in hybrids if needed, prioritizing credit profile maintenance.

Q: Analyst asked about the timeline and potential acceleration of Tilbury LNG projects given favorable government sentiment.

A: CEO and FortisBC CEO clarified that Tilbury has three distinct projects. Phase 1b and storage tank construction starts in 2027, in-service late 2031/early 2032. Phase 2 liquefaction is a larger opportunity ($2-4B potential) that could begin early in the next five-year plan, pending final investment decision and permitting.

Q: Analyst questioned the execution risk of the large capital plan regarding labor and supply chains.

A: CEO described the plan as 'highly executable' because it builds on decades of experience and gradual growth in rate-base size. While acknowledging sector-wide supply chain and labor challenges, he expressed confidence in managing these risks as they are standard operational hurdles for large utilities.

Q: Analyst asked about the regulatory environment in Alberta following a dismissed PBR appeal and prospects for future rate-making.

A: FortisAlberta CEO stated the court outcome was unsurprising but affirmed a constructive relationship with the regulator. They are actively discussing future rebasing options (PBR continuation vs. cost-of-service). Strong economic growth in Alberta's fastest-growing communities presents significant opportunities for load interconnections and grid investment.