(Source: MARKETWIRE)
Fortis Inc. ("Fortis" or the "Corporation") (TSX: FTS) recorded
third quarter net earnings applicable to common shares of $36
million, or $0.21 per common share, compared to earnings of $49
million, or $0.31 per common share, for the third quarter of 2008.
Earnings were $1 million lower quarter over quarter, excluding
one-time tax reductions of $12 million at Terasen and FortisAlberta
in the third quarter last year. Year-to-date earnings applicable to
common shares were $181 million, or $1.06 per common share, compared
to earnings of $169 million, or $1.08 per common share, for the same
period last year.
The Terasen Gas companies incurred a loss of $3 million for the third
quarter of 2009 compared to earnings of $1 million for the same
period last year. Excluding a $5.5 million tax reduction in the
third quarter of 2008 associated with the settlement of historical
corporate tax matters, results were $1.5 million higher quarter over
quarter. The increase was mainly due to lower effective corporate
income taxes.
Canadian Regulated Electric Utilities contributed $36 million to
earnings for the third quarter compared to $38 million for the same
period last year. Excluding a $4.5 million recovery of future income
taxes at FortisAlberta during the third quarter of 2008, earnings
were $2.5 million higher quarter over quarter. Improved performance
at FortisAlberta, due to growth in electrical infrastructure
investment and higher net transmission revenue, was partially offset
by lower earnings at Newfoundland Power largely associated with
higher operating expenses and amortization costs.
During the second quarter of 2009, Terasen Gas, Terasen Gas
(Vancouver Island) and FortisAlberta filed applications with their
respective regulators to set 2010 and 2011 customer rates and
Newfoundland Power filed an application with its regulator to set
2010 customer rates. Each of these utilities has requested, or is
currently engaged in, a cost of capital review, the outcome of which
could result in a change in the allowed rate of return on common
shareholder's equity.
In October 2009, FortisOntario acquired Great Lakes Power
Distribution Inc., subsequently renamed Algoma Power Inc. ("Algoma
Power"), for an aggregate purchase price of $75 million, including
cash acquired, subject to adjustment. Algoma Power is a regulated
electric distribution utility serving approximately 12,000 customers
in the district of Algoma in northern Ontario.
Caribbean Regulated Electric Utilities contributed $7 million to
earnings, comparable to the third quarter of 2008. Results for the
quarter were impacted by slower electricity sales growth as a result
of the global economic downturn.
Non-Regulated Fortis Generation contributed $4 million to earnings
compared to $9 million for the third quarter of 2008. As expected,
results for the quarter were unfavourably impacted by the loss of
earnings subsequent to the expiration, on April 30, 2009, of the
power-for-water exchange agreement related to the Rankine
hydroelectric generating facility in Ontario. Lower average
wholesale market energy prices in Upper New York State and lower
production in Belize also contributed to the decrease in earnings.
Fortis Properties contributed $9 million to earnings, comparable to
the third quarter of 2008. Contributions from recently acquired
hotels and the Real Estate Division were offset by the impact of
generally lower occupancies at the remainder of the Company's hotels.
Corporate and other expenses were $17 million compared to $15 million
for the same quarter in 2008. Excluding a $1 million favourable tax
adjustment in the third quarter of 2009 and a $2 million tax
reduction associated with the settlement of historical corporate tax
matters at Terasen in the third quarter of 2008, corporate and other
expenses were $1 million higher quarter over quarter. The increase
was driven by higher finance charges associated with the $200 million
debentures issued in July 2009. In December 2008, Fortis completed a
$300 million common share issue, the net proceeds of which were
primarily used to repay short-term debt incurred to repay maturing
long-term debt.
Cash flow from operating activities was $567 million year to date
compared to $452 million for the same period last year. The increase
in cash from operating activities was largely attributable to
FortisAlberta and the Terasen Gas companies.
Consolidated capital expenditures, before customer contributions,
were $763 million year to date. Some of the larger projects in
progress include construction of the liquefied natural gas storage
facility at Terasen Gas (Vancouver Island), the installation of
automated customer meters at FortisAlberta, the Okanagan Transmission
Reinforcement Project at FortisBC and BECOL's 19-megawatt Vaca
hydroelectric generating facility in Belize.
Year to date, Fortis and its utilities have raised more than $700
million of long-term debt, including 30-year $200 million 6.51%
unsecured debentures at Fortis, 30-year $105 million 6.10% unsecured
debentures at FortisBC, 15-year US$40 million 7.50% unsecured notes
at Caribbean Utilities, 30-year $65 million 6.606% first mortgage
bonds at Newfoundland Power, 30-year $100 million 6.55% unsecured
debentures at Terasen Gas, 30-year $100 million 7.06% unsecured
debentures at FortisAlberta and an additional 30-year $125 million
5.37% unsecured debentures at FortisAlberta issued subsequent to the
quarter end.
As at September 30, 2009, Fortis had consolidated credit facilities
of approximately $2.2 billion, $1.6 billion of which was unused.
Over the next five years, average consolidated annual long-term debt
maturities and repayments are expected to be approximately $157
million.
In September 2009, Standard & Poor's confirmed its credit rating for
Fortis at A- (stable outlook), reflecting the diversity of the
Corporation's regulated utility operations, stability and
predictability of the utilities' cash flows and the Corporation's
focused, well-executed growth strategy.
"Our equity issue last December strengthened the consolidated balance
sheet of Fortis and improved liquidity," explains Stan Marshall,
President and Chief Executive Officer, Fortis Inc. "Notwithstanding
ongoing global economic challenges, Fortis anticipates that its
capital program will surpass $1 billion this year. Our five-year $5
billion capital program, which is being driven by investment in
infrastructure at our Regulated Utilities in western Canada, should
allow rate base to grow, on average, approximately 6 to 7 per cent
annually. This capital investment should drive growth in earnings
and dividends," concludes Marshall.
Interim Management Discussion and Analysis
For the three and nine months ended September 30, 2009
Dated November 5, 2009
The following analysis should be read in conjunction with the Fortis
Inc. ("Fortis" or the "Corporation") interim unaudited consolidated
financial statements and notes thereto for the three and nine months
ended September 30, 2009 and the Management Discussion and Analysis
("MD&A") and audited consolidated financial statements for the year
ended December 31, 2008 included in the Corporation's 2008 Annual
Report. This material has been prepared in accordance with National
Instrument 51-102 - Continuous Disclosure Obligations relating to
MD&As. Financial information in this release has been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP") and is presented in Canadian dollars unless
otherwise specified.
Fortis includes forward-looking information in the MD&A within the
meaning of applicable securities laws in Canada ("forward-looking
information"). The purpose of the forward-looking information is to
provide management's expectations regarding the Corporation's future
growth, results of operations, performance, business prospects and
opportunities, and it may not be appropriate for other purposes. All
forward-looking information is given pursuant to the "safe harbour"
provisions of applicable Canadian securities legislation. The words
"anticipates", "believes", "budgets", "could", "estimates",
"expects", "forecasts", "intends", "may", "might", "plans",
"projects", "schedule", "should", "will", "would" and similar
expressions are often intended to identify forward-looking
information, although not all forward-looking information contains
these identifying words. The forward-looking information reflects
management's current beliefs and is based on information currently
available to management. The forward-looking information in the MD&A
includes, but is not limited to, statements regarding: the expected
timing of regulatory decisions; consolidated forecasted gross capital
expenditures for 2009 and in total over the five-year period from
2009 to 2013;
the nature, timing and amount of certain capital projects; the
expected impacts on Fortis of the downturn in the global economy; the
electricity sales growth rate expected at the Corporation's regulated
utilities in the Caribbean in 2009; the expectation of no significant
decrease in annual consolidated operating cash flows in 2009; the
expectation that the subsidiaries will be able to source the cash
required to fund their 2009 capital expenditure programs; the
expectation that the Corporation and its subsidiaries will continue
to have reasonable access to long-term capital in the near to medium
terms; expected long-term debt maturities and repayments on average
annually over the next five years; no material increase in interest
expense and/or fees associated with renewed and extended credit
facilities is expected in 2009; no material adverse credit rating
actions are expected in the near term; the expectation that
counterparties to the Terasen Gas companies' gas derivative contracts
will continue to meet their obligations; and the expectation of no
material increase in defined benefit pension expense in 2009. The
forecasts and projections that make up the forward-looking
information are based on assumptions which include, but are not
limited to: the receipt of applicable regulatory approvals and
requested rate orders; no significant operational disruptions or
environmental liability due to a catastrophic event or environmental
upset caused by severe weather, other acts of nature or other major
event; the continued ability to maintain the gas and electricity
systems to ensure their continued performance; no significant decline
in capital spending in 2009; no severe and prolonged downturn in
economic conditions; sufficient liquidity and capital resources; the
continuation of regulator-approved mechanisms to flow through the
commodity cost of natural gas and energy supply costs in customer
rates; the continued ability to hedge exposures to fluctuations in
interest rates, foreign exchange rates and natural gas commodity
prices; no significant variability in interest rates; no significant
counterparty defaults; the continued competitiveness of natural gas
pricing when compared with electricity and other alternative sources
of energy; the continued availability of natural gas supply; the
continued ability to fund defined benefit pension plans; the absence
of significant changes in government energy plans and environmental
laws that may materially affect the operations and cash flows of the
Corporation and its subsidiaries; maintenance of adequate insurance
coverage; the ability to obtain and maintain licences and permits;
retention of existing service areas; no material decrease in market
energy sales prices; favourable relations with First Nations;
favourable labour relations; and sufficient human resources to
deliver service and execute the capital program. The forward-looking
information is subject to risks, uncertainties and other factors that
could cause actual results to differ materially from historical
results or results anticipated by the forward-looking information.
Factors which could cause results or events to differ from current
expectations include, but are not limited to: regulatory risk;
operating and maintenance risks; economic conditions; capital
resources and liquidity risk; weather and seasonality; an ultimate
resolution of the expropriation of the assets of the Exploits River
Hydro Partnership that differs from what is currently expected by
management; commodity price risk; derivative financial instruments
and hedging; interest rate risk; counterparty risk;
competitiveness of natural gas; natural gas supply; defined benefit
pension plan performance and funding requirements; risks related to
the development of the Terasen Gas (Vancouver Island) Inc. franchise;
the Government of British Columbia's Energy Plan; environmental
risks; insurance coverage risk; an unexpected outcome of any legal
proceedings currently against the Corporation; loss of licences and
permits; loss of service area; market energy sales prices; changes in
current assumptions and expectations associated with the transition
to International Financial Reporting Standards; changes in tax
legislation; relations with First Nations; labour relations; and
human resources. For additional information with respect to the
Corporation's risk factors, reference should be made to the
Corporation's continuous disclosure materials filed from time to time
with Canadian securities regulatory authorities and to the heading
"Business Risk Management" in the MD&A for the three and nine months
ended September 30, 2009 and for the year ended December 31, 2008.
All forward-looking information in the MD&A is qualified in its
entirety by the above cautionary statements and, except as required
by law, the Corporation undertakes no obligation to revise or update
any forward-looking information as a result of new information,
future events or otherwise after the date hereof.
COMPANY OVERVIEW AND FINANCIAL HIGHLIGHTS
Fortis is the largest investor-owned distribution utility in Canada,
serving more than 2,000,000 gas and electricity customers. Its
regulated holdings include electric utilities in five Canadian
provinces and three Caribbean countries and a natural gas utility in
British Columbia. Fortis owns and operates non-regulated generation
assets across Canada and in Belize and Upper New York State and
hotels and commercial real estate in Canada. Year-to-date September
30, 2009, the Corporation's electric utilities met a combined peak
electricity demand of 5,684 megawatts ("MW") and its gas utility met
a peak day demand of 1,234 terajoules ("TJ"). For additional
information on the Corporation's business segments, refer to Note 1
to the Corporation's interim unaudited consolidated financial
statements for the three and nine months ended September 30, 2009.
The key goals of the Corporation's regulated utilities are to operate
sound gas and electricity distribution systems, deliver gas and
electricity safely and reliably to customers at reasonable rates, and
conduct business in an environmentally responsible manner. The
Corporation's core utility business is highly regulated. It is
segmented by franchise area and, depending on regulatory
requirements, by the nature of the assets.
Fortis has adopted a strategy of profitable growth with earnings per
common share as the primary measure of performance. Key financial
highlights, including earnings by reportable segment for the third
quarter and year-to-date periods ended September 30, 2009 and
September 30, 2008, are provided in the following table.
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Financial Highlights (Unaudited)
Periods Ended September 30
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Quarter Year-to-date
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($ millions, except
earnings per
common share and
common shares
outstanding) 2009 2008 Variance 2009 2008 Variance
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Revenue 664 727 (63) 2,619 2,721 (102)
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Cash flow from
operating
activities 63 27 36 567 452 115
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Net earnings
applicable to
common shares 36 49 (13) 181 169 12
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Basic earnings per
common share ($) 0.21 0.31 (0.10) 1.06 1.08 (0.02)
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Diluted earnings
per common
share ($) 0.21 0.31 (0.10) 1.05 1.06 (0.01)
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Weighted average
number of common
shares outstanding
(millions) 170.4 157.2 13.2 170.0 156.9 13.1
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Segmented Net Earnings
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Quarter Year-to-date
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2009 2008 Variance 2009 2008 Variance
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Regulated Gas
Utilities -
Canadian
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Terasen Gas
Companies (1) (3) 1 (4) 69 71 (2)
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Regulated Electric
Utilities -
Canadian
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FortisAlberta 16 17 (1) 45 35 10
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FortisBC (2) 8 8 - 29 27 2
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Newfoundland
Power 7 8 (1) 24 24 -
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Other Canadian (3) 5 5 - 14 11 3
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36 38 (2) 112 97 15
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Regulated Electric
Utilities -
Caribbean (4) 7 7 - 20 9 11
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Non-Regulated -
Fortis
Generation (5) 4 9 (5) 13 22 (9)
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Non-Regulated -
Fortis
Properties (6) 9 9 - 19 19 -
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Corporate and
Other (7) (17) (15) (2) (52) (49) (3)
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Net Earnings
Applicable to
Common Shares 36 49 (13) 181 169 12
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(1) Comprised of Terasen Gas Inc. ("TGI"), Terasen Gas (Vancouver Island)
Inc. ("TGVI") and Terasen Gas (Whistler) Inc. ("TGWI")
(2) Includes the regulated operations of FortisBC Inc. and operating,
maintenance and management services related to the Waneta, Brilliant
and Arrow Lakes hydroelectric generating plants and the distribution
system owned by the City of Kelowna. Excludes the non-regulated
generation operations of FortisBC Inc.'s wholly owned partnership,
Walden Power Partnership.
(3) Includes Maritime Electric and FortisOntario. FortisOntario includes
Canadian Niagara Power and Cornwall Electric.
(4) Includes Belize Electricity, in which Fortis holds an approximate 70
per cent controlling interest; Caribbean Utilities on Grand Cayman,
Cayman Islands, in which Fortis holds an approximate 59 per cent
controlling interest, including an additional 2.7 per cent interest
acquired in July 2009; and wholly owned Fortis Turks and Caicos.
Previously, Caribbean Utilities had an April 30th fiscal year end
whereby, up to and including the third quarter of 2008, its financial
statements were consolidated in the financial statements of Fortis on a two-month lag basis. In 2008, Caribbean Utilities changed its fiscal
year end to December 31st. The change in Caribbean Utilities' fiscal
year end eliminates the previous two-month lag in consolidating its
financial results.
(5) Includes the operations of non-regulated generating assets in Belize,
Ontario, central Newfoundland, British Columbia and Upper New York
State, with a combined generating capacity of 120 MW, mainly
hydroelectric.