雅虎香港財經 Fortis Inc. (NYSE:FTS) Q1 2024 Earnings Call Transcript
Fortis Inc. (NYSE:FTS) Q1 2024 Earnings Call Transcript May 1, 2024
Fortis Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning everyone. Thank you for standing by. My name is Ludi, and I will be your conference operator today. Welcome to the Fortis Q1 2024 Earnings Conference Call and Webcast. During the call all participants will be in a listen-only mode. There will be a question-and-answer session following the presentation. [Operator Instructions] At this time, I would like to turn the conference over to Stephanie Amaimo. Please go ahead, Ms. Amaimo.
Stephanie Amaimo: Thank you, Ludi and good morning everyone. Welcome to Fortis' first quarter 2024 results conference call. I'm joined by David Hutchens, President and CEO; Jocelyn Perry, Executive VP and CFO; other members of the senior management team as well as CEOs from certain subsidiaries. Before we begin today's call, I want to remind you that the discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slide show. Actual results can differ materially from the forecast projections included in the forward-looking information presented today. All non-GAAP financial measures referenced in our prepared remarks are reconciled to the related US GAAP financial measures in our annual 2024 MD&A. Also, unless otherwise specified, all financial information reference is in Canadian dollars. With that, I will turn the call over to David.
David Hutchens: Thank you and good morning, everyone. Before getting started, I'd like to introduce Stephanie Raymond to her first earnings call since being appointed President of Central Hudson in April. Stephanie will serve as president until Chris Capone's retirement in October, at which time she will assume full responsibilities as president and CEO. Welcome, Stephanie. We look forward to working with you on the Central Hudson team. For the first quarter, we delivered strong and consistent operational and financial results as our regulated utilities continue to effectively execute their business plans. And with $1.1 billion of capital investments made in the first quarter, our $4.8 billion capital plan for 2024 is on track.
Our low-risk growth outlook remains intact and opportunities to expand and extend our plan continue to progress. On the regulatory front, ITC has been focused on the right of first refusal statute in Iowa. While new ROFR legislation did not advance last month, we remain confident that ITC Midwest has the legal right and obligation to construct a Tranche 1 projects in Iowa, assigned through the MISO's long-range transmission plan and associated tariffs. MISO also released its draft Tranche 2 portfolio, including a preliminary project map, while we expect further refinements, we view this as a promising step forward. With climate risks at the forefront of the utility sector, the recent release of our 2024 climate report was timely, highlighting how Fortis is preparing for and mitigating climate-related impacts across the group of companies.
We continue our long track record of executing our capital plan. These investments in our energy systems support the delivery of cleaner energy and the reliability our customers expect. Our five-year capital plan of $25 billion remains on track, comprising of virtually all regulated investments and a diverse mix of highly executable low-risk projects. With $7 billion earmarked for cleaner energy investments, we expect to interconnect renewables to the grid, invest in renewable generation and energy storage in Arizona, and deliver cleaner fuel solutions in British Columbia. Rate base is expected to increase by $12 billion to over $49 billion in 2028, supporting average annual rate base growth of 6.3%. Beyond the plan, our utilities continue to advance additional growth opportunities with a couple of key developments during the quarter.
As mentioned, MISO released a preliminary map of its LRTP Tranche 2 projects with total transmission investments estimated in the range of USD17 to USD23 billion. While it is too early to estimate the investment opportunities within ITC's footprint, MISO Board approval is anticipated in the second half of 2024. The preliminary map of projects includes 765kV transmission lines. If approved, these investments would bolster MISO's ability to facilitate the ongoing generation fleet transition, accommodate load growth, and address increasingly frequent and severe weather events. We believe this is exactly the forward-looking, innovative planning required to deliver a reliable, resilient grid of the future. In Arizona, the team is working to advance the 2023 integrated resource plans, filed by Tucson Electric Power and UNS Electric, which requires incremental investments estimated at USD2.5 to USD5 billion, through 2038.
In late 2023, TEP and UNS Electric released a joint all-source RFP, calling for up to 1,500 megawatts of new resources aligned with their respective IRPs. Proposals were received in March, and projects are expected to be announced later this year. In March, the BCUC approved key elements of FortisBC's Renewable Natural Gas or RNG application, requiring that natural gas deliveries to all customers include a portion of RNG. In addition, the BCUC accepted FortisBC's Long-Term Gas Resource Plan, which outlines FortisBC's plan to serve customers' energy needs, transition to a low-carbon energy future, and support meeting provincial greenhouse gas targets. Overall, we are pleased with this decision as it recognizes the key role that the gas system will play in meeting British Columbia's energy future.
Also in March, the province of British Columbia issued an environmental assessment certificate for the Tilbury Marine Jetty Project. The construction of the jetty supports the expansion of the Tilbury LNG facility, which is uniquely positioned to meet customer demand for natural gas. The site is scalable and can accommodate additional storage and liquefaction equipment and is close to international shipping lanes. Once constructed, the jetty would make use of FortisBC's assets at the Tilbury site to service marine bunkering. In the US, we are seeing momentum build around load growth opportunities. In ITC Midwest footprint, Google recently announced plans for a data center to be built in Cedar Rapids, Iowa, with a goal of coming online in 2026.
The data center will support initial load growth of 300 megawatts and is expected to increase to 600 megawatts over time. In Michigan and Arizona, we are seeing increasing inquiries related to manufacturing facilities and data centers. Also in Arizona, South 32 continues construction of the zinc and manganese Hermosa mine, which is expected to become one of UNS's largest customers. These developments can provide strong economic growth for our communities and favorably impact customer rates. During the quarter, we released the 2024 climate report, which assesses the impact of climate on our priority assets over multiple scenarios. The report identifies key risks related to climate change, Fortis' mitigation activities to address those risks, and future opportunities to advance the resilience of our utilities.
With a strong crack record of increasing dividends for the past 50 consecutive years, coupled with our low-risk growth strategy, we remain confident in our 4%-6% annual dividend growth guidance through 2028. Now I will turn the call over to Jocelyn for an update on our first quarter financial results.
Jocelyn Perry: Thank you, David, and good morning, everyone. The first quarter of 2021 reported and adjusted earnings per common share for the first quarter of 2024 were $0.93. Adjusted EPS was $0.02 higher than the first quarter of 2023, and key drivers of EPS growth related to rate-based growth across our group of companies, and the timing of earnings associated with the new cost-to-capital parameters at Fortis BC. Regulated utility growth was tempered by higher corporate costs and weighted average shares outstanding. The disposition of Acron Creek, which occurred in November 2023, also impacted EPS in the quarter by $0.03. While negative for the quarter, on an annual basis, the disposition of Acron Creek will be neutral to EPS.
The chart on slide 10 highlights the EPS drivers for the quarter by segment. Our Western Canadian utilities contributed a $0.06 EPS increase, $0.04 related to the timing of the new cost-to-capital parameters at FortisBC, approved by the BCUC in September 2023, and retroactive to January 2023. Growth also reflected rate-based growth and a higher allowed ROE at Fortis Alberta effective January 1. At our largest utility, ITC, the $0.02 EPS increase was mainly driven by rate-based growth. Lower sought-based compensation for ITC was offset by higher holding company finance costs. EPS was $0.01 higher quarter-over-quarter for our US electric and gas utilities, largely driven by rate-based growth and the timing of operating costs at Central Hudson.
In Arizona, earnings were largely consistent with the first quarter of 2023. The favorable impacts of new customer rates and higher margins on wholesale sales were offset by higher depreciation and operating costs and lower retail revenue associated with milder weather. Due to the seasonality of sales, the favorable impact of new customer rates at TEP is expected to be higher in the second and third quarters. At our other electric segment, rate-based growth and higher sales contributed a $0.01 increase in EPS, and for our corporate and other segment, the decrease mainly reflects the disposition of a concrete, which I mentioned earlier. The remaining decrease reflects higher holding company finance costs and unrealized losses on derivative contracts.
And lastly, higher weighted average shares reflect shares issued under our dividend reinvestment plan. To date, we have not used the ATM program as participation under the drip remains strong. Through April, we have raised approximately $400 million of debt to repay short-term borrowings and fund our capital program. As shown on the slide, we have limited non-regulated debt maturing in 2024, and our $600 million series in preference shares are scheduled to reset at the end of this year. Overall, we remain in a strong liquidity position as we execute our five-year capital plan. Our investment grade credit ratings with Moody's, S&P and DBRS Morningstar remain unchanged. We are on track to achieve an average cash flow to debt metrics of 12% over the next five years, and we continue to engage with S&P on our physical risk around climate change.
In March, the Iowa District Court issued an order denying all motions for reconsideration of its decision in relation to the Iowa Rural Firm. This includes ITC's request for reconsideration with respect to the scope of the injunction for Tranche 1 projects in Iowa that were previously awarded to ITC Midwest by MISO. ITC has appealed the district court's decision to the Iowa Supreme Court. As discussed last quarter, under the MISO tariff, approximately 70% of the Iowa Tranche 1 projects are upgrades to ITC's facilities, allowing existing rights away, which under MISO's tariff grants ITC the option to construct the upgrades regardless of the outcome of the appeal. For any portion of the Tranche 1 projects in Iowa to be competitively bid, we believe a federal decision that significantly departs from existing rules under the MISO tariff is required.
Until there is more certainty around the resolution of this matter, we cannot predict the impact on the timing of the capital expenditures related to Tranche 1 projects located in Iowa. In New York, Central Hudson's one-year general rate application is progressing. Hearings concluded in the first quarter, and we anticipated decision from the New York Public Service Commission in July. Last month, FortisBC filed its 2025 through 2027 rate framework proposal with the BCUC. The rate framework builds upon the current multi-year rate plan and includes a prescribed approach for operating expenses and capital, an innovation fund for cleaner energy, and continued earnings sharing mechanisms. The regulatory process will continue throughout 2024. And with that, I'll now turn the call back to David.
David Hutchens: To conclude, Fortis is off to a solid start in 2024. We continue to advance our low-risk, sustainable growth strategy underpinned by our diverse, regulated energy delivery businesses across North America. Initiatives like our 2024 climate report, as well as our integrated resource plans in Arizona, show our proactive approach on behalf of our customers in identifying and mitigating climate risks and pursuing opportunities to ensure reliable and resilient service. With preliminary visibility on Tranche 2 of the MISO Long Range Transmission Plan, ITC is well positioned to advance investments in its footprint. And with low growth opportunities on the horizon, we are focused on investments that keep energy affordable for our customers.
We remain confident in our five-year capital plan, which supports average annual rate-based growth of approximately 6% and our 4%-6% annual dividend growth guidance through 2028. That concludes my remarks. I will now turn the call back over to Stephanie.
Stephanie Amaimo: Thank you, David. This concludes the presentation. At this time, we'd like to open the call to address questions from the investment community.
Operator: Thank you. We will now conduct the question-and-answer if you're here. [Operator instructions]. And your first question comes from the line up Maurice Choy from RBC Capital Market. Your line is open.
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