Fortis Earns $48 Million in Third Quarter

St. John’s, NL (November 1, 2013):

Fortis Earns $48 Million in Third Quarter

Fortis Inc. (“Fortis” or the “Corporation”) (TSX:FTS) achieved third quarter net earnings attributable to common equity shareholders of $48 million, or $0.23 per common share, compared to $45 million, or $0.24 per common share, for the third quarter of 2012. Year-to-date net earnings attributable to common equity shareholders were $253 million, or $1.27 per common share, compared to $228 million, or $1.20 per common share, for the same period last year.

Results for the third quarter of 2013 were impacted by the Corporation’s acquisition of CH Energy Group, Inc. (“CH Energy Group”) on June 27, 2013 for US$1.5 billion, including the assumption of US$518 million of debt on closing. The net purchase price of the acquisition was initially financed using proceeds from a $601 million common equity offering and drawings under the Corporation’s committed credit facility. Central Hudson Gas & Electric Corporation (“Central Hudson”), the main business of CH Energy Group, is a regulated transmission and distribution utility that serves 376,000 electricity and gas customers in New York State’s Mid-Hudson River Valley. Central Hudson contributed $12 million to earnings for the third quarter of 2013, comparable with performance in the third quarter of 2012. Due to the common share offering and financing costs associated with the acquisition, earnings per common share for the third quarter of 2013 were not materially impacted by the acquisition of CH Energy Group.

“Central Hudson has successfully integrated into the Fortis family,” says Stan Marshall, President and Chief Executive Officer, Fortis Inc. “The acquisition is expected to be accretive to earnings per common share of Fortis beginning in 2015.”

Regulated utilities comprise approximately 90% of total assets and serve more than 2.4 million customers across Canada and in New York State and the Caribbean. As at September 30, 2013, regulated rate base assets of Fortis exceed $10 billion.

Canadian Regulated Gas Utilities incurred a loss of $14 million compared to a loss of $6 million for the third quarter of 2012. The third quarter is normally a period of lower customer demand due to warmer temperatures. The higher loss largely related to higher operating and maintenance expenses, decreases in the allowed rate of return on common shareholders’ equity (“ROE”) and the equity component of capital structure as a result of the regulatory decision related to the first phase of the Generic Cost of Capital (“GCOC”) Proceeding in British Columbia, and lower-than-expected customer additions. The above items were partially offset by earnings contribution from growth in energy infrastructure investment.

Canadian Regulated Electric Utilities contributed earnings of $51 million compared to $55 million for the third quarter of 2012. FortisAlberta’s earnings were approximately $1 million lower quarter over quarter, due to lower net transmission revenue and $1 million of costs related to flooding in southern Alberta in June 2013, largely offset by growth in energy infrastructure investment, customer growth and timing of operating expenses. FortisBC Electric’s earnings decreased $2 million due to a decrease in the interim allowed ROE as a result of the regulatory decision related to the first phase of the GCOC Proceeding in British Columbia, lower pole-attachment revenue and higher effective income taxes. The decreases were partially offset by earnings contribution from growth in energy infrastructure investment and lower-than-expected finance charges. At Newfoundland Power, earnings were $1 million lower quarter over quarter, due to the impact of the reversal of statute-barred Part VI.1 tax in the third quarter of 2012, partially offset by growth in energy infrastructure investment and lower storm-related costs.

In April 2013 Newfoundland Power received a cost of capital decision maintaining the utility’s allowed ROE at 8.8% and its common equity component of capital structure at 45% for 2013 through 2015. In May 2013 the British Columbia Utilities Commission issued its decision, effective January 1, 2013, on the first phase of its GCOC Proceeding. As a result, the allowed ROE for FortisBC Energy Inc. has been set at 8.75%, as compared to 9.50% for 2012, and the common equity component of capital structure has been reduced from 40.0% to 38.5%. The interim allowed ROEs for FortisBC Energy (Vancouver Island) Inc. (“FEVI”), FortisBC Energy (Whistler) Inc. (“FEWI”) and FortisBC Electric were also reduced by 75 basis points for 2013 as a result of the first phase of the GCOC Proceeding, while the common equity components of their capital structures remain unchanged. Final allowed ROEs and capital structures for FEVI, FEWI and FortisBC Electric will be determined in the second phase of the GCOC Proceeding, which is currently underway. A decision on the proceeding is expected in the first half of 2014. FortisAlberta’s final allowed ROE and capital structure for 2013 remain to be determined.

Caribbean Regulated Electric Utilities contributed $6 million to earnings, comparable with the third quarter of 2012.

Non-Regulated Fortis Generation contributed $8 million to earnings, up $3 million quarter over quarter. Improved performance mainly related to increased production in Belize due to higher rainfall.

Non-Utility operations contributed earnings of $6 million compared to $8 million for the third quarter of 2012. The decrease reflected a loss of approximately $2.5 million at Griffith Energy Services, Inc., the non-regulated petroleum supply operations of CH Energy Group, which is comparable with performance in the third quarter of 2012 and reflects the impact of seasonality. Improved performance at Fortis Properties’ Hospitality Division partially offset the decrease in earnings.

Corporate and other expenses for the third quarter include $2 million of costs associated with the redemption of preference shares and a $2 million foreign exchange loss, compared to a $3 million foreign exchange loss in the third quarter of 2012. Excluding these impacts, Corporate and other expenses were $17 million for the third quarter, $3 million lower than the third quarter of 2012. The decrease was primarily due to a higher income tax recovery, resulting from the release of income tax provisions in the third quarter of 2013 and the recognition of income tax expense associated with Part VI.1 tax in the third quarter of 2012. Higher capitalized interest associated with the financing of construction of the Corporation’s 51% controlling ownership interest in the Waneta Expansion hydroelectric generating facility (“Waneta Expansion”) was offset by higher interest on credit facility borrowings associated with financing the acquisition of CH Energy Group. The decrease in Corporate and other expenses was partially offset by higher preference share dividends.

Consolidated capital expenditures were approximately $809 million year-to-date 2013. Construction of the $900 million, 335-megawatt Waneta Expansion in British Columbia continues on time and on budget, with completion of the facility expected in spring 2015. Approximately $534 million has been invested in the Waneta Expansion since construction began in late 2010.

Cash flow from operating activities was $680 million year-to-date 2013 compared to $804 million for the same period last year, primarily due to unfavourable changes in working capital.

In July 2013 Fortis issued 10 million 4% Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series K for gross proceeds of $250 million. The proceeds were used to redeem all of the Corporation’s 5.45% First Preference Shares, Series C in July 2013 for $125 million, to repay a portion of credit facility borrowings, and for other general corporate purposes. In October 2013 the Corporation closed a private placement of 10-year US$285 million unsecured notes at 3.84% and 30-year US$40 million unsecured notes at 5.08%. The proceeds were used to repay a portion of US dollar-denominated credit facility borrowings incurred to finance a portion of the CH Energy Group acquisition. In September 2013 FortisAlberta issued 30-year $150 million unsecured debentures at 4.85%, the proceeds of which are being used to repay credit facility borrowings, to fund future capital expenditures and for general corporate purposes.

Fortis has consolidated credit facilities of $2.7 billion, of which $1.9 billion was unused as at September 30, 2013. In August 2013 the Corporation extended the maturity of its $1 billion committed revolving credit facility to July 2018.

“We remain focused on completing our capital projects for 2013, which are expected to total approximately $1.2 billion,” explains Marshall. “Our five-year capital program to the end of 2017 is projected to total $6 billion and will continue to drive growth in earnings and dividends.”

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