Fortis Earns Record $245 Million in 2008

02/05/2009 07:00 EST

Annual Capital Program Reaches $904 Million

Annual Cash Flow from Operations Climbs to $663 Million

Fortis Inc. (“Fortis” or the “Corporation”) (TSX:FTS) delivered net earnings applicable to common shares of $245 million in 2008, 27 per cent higher than earnings of $193 million in 2007. Earnings per common share were $1.56, 16 cents higher than earnings per common share of $1.40 in 2007. 

“Fortis delivered earnings of $245 million in 2008, which marks the ninth consecutive year the Corporation has delivered record earnings to our shareholders.  Results were driven by a full year of earnings from Terasen and increased contributions from hydroelectric generation,” says Stan Marshall, President and Chief Executive Officer, Fortis Inc.  “In 2008, Fortis completed its largest ever capital program, with approximately $900 million being invested in energy infrastructure to enhance reliability of service to our customers and to meet their growing energy requirements,” he explains.

Earnings for the fourth quarter were $76 million, or $0.48 per common share, compared to $79 million, or $0.51 per common share, for the same quarter in 2007.  Fourth quarter results for 2007 were favourably impacted by one-time items totalling approximately $13 million related to the sale of surplus land at Terasen Gas Inc., the reduction of future income tax liability balances at Fortis Properties related to lower enacted corporate income tax rates and an interconnection agreement-related refund at FortisOntario.  Excluding these one-time items, earnings were $10 million higher quarter over quarter.  The increase was driven by stronger performance and lower corporate taxes at FortisAlberta, lower corporate expenses, and $1 million of additional earnings from Caribbean Utilities related to a change in the utility’s fiscal year end.  The increase was partially offset by the impact of a lower allowed rate of return on rate base assets (“ROA”) at Belize Electricity, effective July 1, 2008; an approximate $1 million loss of revenue at Fortis Turks and Caicos related to Hurricane Ike; and an approximate $2 million reduction in fourth quarter earnings at Newfoundland Power associated with a shift in the quarterly distribution of the utility’s annual purchased power expense.  Newfoundland Power’s annual earnings were not impacted by the shift in the quarterly distribution of annual purchased power expense.

Dividends paid per common share grew to $1.00 in 2008, up 22 per cent from 82 cents paid per common share in the previous year.  Fortis increased its quarterly common share dividend 4 per cent to 26 cents from 25 cents, commencing with the first quarter dividend payable on March 1, 2009.  The increase extends the Corporation’s record of annual common share dividend increases to 36 consecutive years, the longest record of any public corporation in Canada. 

Fortis and its utilities raised almost $1.2 billion in equity and 30‑year debt in 2008, including $230 million in preference equity and $300 million in common equity at Fortis Inc.; $250 million 5.80% debentures at Terasen Gas Inc.; $250 million 6.05% debentures at Terasen Gas (Vancouver Island) Inc.; $100 million 5.85% debentures at FortisAlberta; and $60 million 6.05% bonds at Maritime Electric.

In December, Fortis issued 11.7 million common shares, under a bought deal agreement with underwriters, for gross proceeds of approximately $300 million. Net proceeds from the common equity offering were used to repay short‑term debt incurred to retire $200 million of debt at Terasen Inc. (“Terasen”) that matured on December 1, 2008 and for general corporate purposes. 

The Terasen Gas companies delivered earnings of $118 million for the full year in 2008 compared to $50 million for the 7½ months of ownership in 2007.  Results for 2007 reflected a $7 million after-tax gain on the sale of surplus land.  Results for 2008 were favourably impacted by an approximate $5.5 million tax reduction related to the settlement of historical corporate tax matters and a higher allowed rate of return on common shareholder’s equity (“ROE”) as compared to 2007.

Earnings at Canadian Regulated Electric Utilities were $126 million compared to $125 million for 2007.  Results for 2007 included a one-time after-tax gain of approximately $2 million related to the receipt of an interconnection agreement‑related refund at FortisOntario; however, results for 2008 were reduced by that amount to reflect the regulatory-required repayment of the refund.  Excluding these one‑time items, earnings’ growth of $5 million year over year was driven by rate base growth and higher allowed ROEs at FortisAlberta, FortisBC and Newfoundland Power, partially offset by lower corporate tax recoveries at FortisAlberta.   

Customer rates for 2009 have been approved for the Terasen Gas companies, FortisAlberta, FortisBC and Newfoundland Power.  The allowed ROEs for 2009 have been set for Terasen Gas Inc., Terasen Gas (Vancouver Island) Inc. and FortisBC, decreasing slightly to 8.47 per cent, 9.17 per cent and 8.87 per cent, respectively.  Newfoundland Power’s allowed ROE for 2009 remains unchanged at 8.95 per cent.  FortisAlberta is currently engaged in a Generic Cost of Capital Proceeding with its regulator to review, among other things, 2009 ROE calculations and capital structures for regulated gas, electric and pipeline utilities in Alberta.  In the interim, as directed by its regulator, customer rates for 2009 at FortisAlberta have been set using the utility’s 2007 allowed ROE of 8.51 per cent.

Earnings at Caribbean Regulated Electric Utilities were $17 million compared to $31 million in 2007.  Earnings in 2008 were negatively impacted by a one-time $13 million loss related to a June 2008 regulatory decision at Belize Electricity.  The decision disallowed previously incurred energy supply costs and is being legally contested.  Excluding the above one‑time $13 million loss in 2008 and a one-time $2 million loss in 2007 associated with the disposal of steam‑turbine assets at Caribbean Utilities, earnings were $3 million lower year over year.  Overall electricity sales growth and two additional months of earnings from Caribbean Utilities, related to a change in the utility’s fiscal year end, were more than offset by the impact of a 3.25 per cent reduction in basic electricity rates at Caribbean Utilities, effective January 1, 2008; a lower allowed ROA at Belize Electricity, associated with the June 2008 regulatory decision; and an approximate $2 million loss of revenue at Fortis Turks and Caicos associated with Hurricane Ike.

Earnings at Non-Regulated Fortis Generation were $30 million, $6 million higher than in 2007, driven by increased hydroelectric production at central Newfoundland, Belize and upper New York State as a result of higher rainfall, and higher average wholesale energy prices in upper New York State and Ontario.  Total energy sales were up 8.5 per cent from 2007. 

Earnings at Fortis Properties were $23 million compared to $24 million in 2007.  Excluding a $2 million favourable tax adjustment in 2007, earnings were $1 million higher year over year, mainly due to a full year of earnings from the Delta Regina hotel which was acquired in August 2007.

Corporate and other expenses were $69 million compared to $61 million in 2007.  The increase was primarily driven by a full year of Terasen acquisition-related finance charges and other Terasen corporate‑related expenses, higher preference share dividends associated with the $230 million preference share issue in the second quarter of 2008 and higher business development costs.  The increase was partially offset by a higher corporate tax recovery, which reflected the impact of a $2 million tax reduction in 2008 associated with the settlement of historical corporate tax matters at Terasen.

Cash flow from operating activities was $663 million in 2008, up $290 million from 2007.  The increase primarily reflected a full year of contributions from the Terasen Gas companies in 2008. 

Consolidated capital expenditures, before customer contributions, were $904 million in 2008, including capital expenditures of approximately $220 million at the Terasen Gas companies.  Major capital projects in progress include the $200 million liquefied natural gas storage facility on Vancouver Island, the US$53 million Vaca hydroelectric generating facility in Belize and the $124 million installation of automated meters at FortisAlberta.

During the fourth quarter, Standard & Poor’s and DBRS confirmed the Corporation’s unsecured debt credit ratings which remain unchanged at A- and BBB(high), respectively. 

At December 31, 2008, Fortis had consolidated credit facilities of $2.2 billion, of which approximately $1.5 billion was unused, including $568 million unused under the Corporation’s $600 million committed revolving credit facility.  Approximately $2 billion of the total credit facilities are committed multi-year facilities, the majority of which having maturities between 2011 and 2013. 

Debt as a percentage of the total consolidated capital structure of Fortis improved to 59.5 per cent as at December 31, 2008, in line with the Corporation’s long-term target of 60 per cent, and compares to 64.3 per cent as at December 31, 2007.  Management expects consolidated long-term debt maturities and repayments to be approximately $240 million in 2009 and to average approximately $180 million annually over the next five years.

“With its substantial credit facilities and conservative capital structure, we believe Fortis has the financial flexibility to respond to the global economic downturn and volatility in the capital markets anticipated to continue in 2009,” says Marshall.  “Fortis is focused on executing its 2009 consolidated capital expenditure program, estimated at approximately $1 billion, to ensure we continue to meet increased energy demand and enhance reliability of service to customers,” concludes Marshall.

Fortis Inc. Barry V. Perry Vice President Finance and Chief Financial Officer 709-737-2822

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