Fortis Inc. Q2 FY2025 earnings call

David Hutchens noted that Fortis had nearly $3 billion in capital expenditures in the first half of the year, executing on the goal of delivering safe and reliable energy. Financially, second quarter earnings per share were $0.76, a $0.09 increase from the prior year. On the regulatory front, Tucson Electric Power filed its general rate application and Central Hudson reached a multiyear rate settlement agreement. In Arizona, TEP's retail load growth opportunity advanced with a data center development milestone, and TEP plans to convert approximately 800 MW of coal-fired generation at Springerville to natural gas by 2030. Fortis released its 2025 sustainability update report, having achieved a 34% reduction in Scope 1 greenhouse gas emissions compared to 2019 levels. The Roadrunner Reserve Battery Storage Project's first phase was placed in service. Annual and 5-year capital plans are on track, with rate base expected to increase to $53 billion in 2029. New retail load growth opportunities in Arizona continue to advance, with TEP reaching an agreement for a 300 MW data center demand starting in 2027. ITC is preparing to bid on projects within the MISO LRTP tranche 2.1 portfolio. Jocelyn Perry discussed second quarter financial results, highlighting EPS drivers by segment, and provided updates on regulatory activity including TEP's general rate application, UNS Gas rate case progress, and Central Hudson's joint proposal with the New York Public Service Commission.

For the second quarter, net earnings were $384 million or $0.76 per common share, which was a $0.09 increase from the same period last year. Year-to-date through June, EPS was $1.76, a $0.16 increase from the prior year. Within the U.S. electric and gas utilities, Central Hudson contributed a $0.04 increase in EPS, largely due to rate base growth, rebasing of costs, and a higher allowed ROE effective July 1, 2024. UNS Energy's EPS contribution was unchanged from the second quarter of the previous year, with an increase in transmission revenue offset by regulatory lag. For Western Canadian utilities, EPS increased $0.03 mainly driven by rate base growth, including earnings associated with the Eagle Mountain Pipeline project. At FortisAlberta, the growth was tempered by the timing of operating costs, the expiration of a PBR efficiency mechanism, and a lower allowed ROE. The Other Electric segment saw a $0.02 increase in EPS due to rate base growth, higher electricity sales, and timing of earnings at Newfoundland Power related to regulatory approvals. ITC's financial results were largely consistent with the second quarter of 2024, with rate base growth offset by higher stock-based compensation and holding company finance costs. Foreign exchange gains contributed a $0.02 EPS increase for the quarter. The Corporate and Other segment's decrease was due to the timing of income tax recoveries and higher finance costs, partially offset by mark-to-market gains on foreign exchange contracts. Higher weighted average shares lowered EPS by $0.01.

Fortis remains committed to its annual dividend growth guidance of 4% to 6% through 2029. Both annual and 5-year capital plans are on track. Rate base is expected to increase by approximately $14 billion to $53 billion in 2029, supporting an average annual rate base growth of 6.5%.

Actual results may differ materially from forward-looking information. Regulatory changes could impact financial performance. The reduction of renewable energy credits and phase out in legislation may have longer-term implications for the mix of generation and project economics.

Q: Regarding the Arizona data center opportunity. When we look at the incremental 300 megawatts at the first site and the 500 to 700 megawatts at the other site, how quickly could you develop generation to support these assets? And is this a key gating factor at this point?

A: David Gerard Hutchens said the first 300 MW is using existing and planned capacity, aiming for the 2027 timeline. Susan M. Gray added that the second 300 MW at the initial site would go through an all-source RFP process, with the goal to be in service in the 2030-2031 timeframe.

Q: Maybe going back to the Springerville position. In your slides, you mentioned that it may take Fortis a longer time to achieve its GHG targets. Alongside the conversion of Springerville, you're not expecting a material impact to your 5-year plan. From these statements, is it fair to assume that the cost of conversion, which I assume has elevated over the past few months, roughly matches some form of renewables for storage in your current IRP?

A: David Gerard Hutchens said there are various factors to consider in the integrated resource plan, and the conversion at Springerville is beneficial for customer affordability and the community, using existing steel in the ground and transmission assets.

Q: Understood. And if I could just finish off with a quick question on my favorite province in Canada, which is BC. I wonder if I could have your latest thoughts on the landscape and outlook for gas infrastructure in the province, particularly given the push for energy infrastructure in the country and seemingly an alignment on gas amongst federal, provincial and indigenous theaters? And what this all means for FortisBC?

A: Roger A. Dall’Antonia said B.C. is embracing the LNG opportunity, FortisBC is pursuing expansion of its LNG bunkering opportunity and has ongoing LNG storage tank regulatory processes, with CleanBC review ongoing which will impact the domestic gas agenda.

Q: On the OBBBA legislation, how that you had a bit more visibility on how things are shaking out. Can you comment impact on Fortis? I'm thinking more renewables and in rate base, ITC that impact? And then anything else that you may have done in the legislation?

A: David Gerard Hutchens said the legislation has limited near-term impact, longer-term may change the calculus of renewable energy and storage projects, ITC is not impacted in the short term, but longer-term reduced renewable energy and storage development may change the generation mix.