Fortis Inc. (FTS) Earnings Call Transcript & Summary

Will Jennifer Lawlor to second the motion.

I second the motion.

Thank you, Denise and Jennifer. I declare the 37th Annual and Special Meeting of Fortis Inc. closed. I will be back with a couple of wrap-up comments at the end.

Thank you, Jo Mark. [Operator Instructions]. Please note that David and Jocelyn's statement this morning may include forward-looking information. Details regarding forward-looking information are on screen and can also be found in our 2023 management discussion and analysis as updated in our first quarter report to shareholders. Actual results can materially -- can differ materially from our forecast projections included in the forward-looking information presented today. Unless otherwise indicated, all financial information references are in Canadian dollars. I will now pass things over to David and Jocelyn for management's presentation.

Thank you, and good morning, everyone. I'll begin by introducing members of the Fortis senior leadership team who are joining us in person today. Please stand as I call your name. Previously introduced by Jo Mark, we have Jocelyn Perry, Executive Vice President and Chief Financial Officer; and Jim Reid, Executive Vice President, Sustainability and Chief Legal Officer. I'd also like to introduce Gary Smith, Executive Vice President, Operations and Innovation; and Stuart Locke, Senior Vice President, Capital Markets and Business Development. . The CEOs from across our group of companies and representatives of their Boards are joining us virtually today. Our operating model is built on local leadership. Fortis utilities have their own executive teams and independent Board of Directors. They focus on their communities and customers and work closely with regulators. This approach has fueled Fortis' continued growth and success. Thank you all for your leadership, guidance and commitment to making Fortis a premium North American utility. Our companies operating in 18 jurisdictions across North America, remain united by a shared purpose to deliver a cleaner energy future while providing safe, reliable and affordable energy for our customers. Together, we delivered strong operational and financial results in 2023. As Jo Mark mentioned, Fortis celebrated a tremendous milestone just last fall. You're going to hear this more than once. 50 consecutive years of increases in dividends paid to our shareholders. We are very proud of this accomplishment, which is a testament to the resilience of our company and our people. We're focused on extending this track record as we execute our regulated growth strategy. Jocelyn will speak more about our financial performance during her remarks. Fortis' 9,600 employees played a pivotal role in delivering results for our customers in 2023. Despite new peaks and energy usage due to extreme cold and hot temperatures and more frequent weather events, we continue to deliver electricity and gas service safely and reliably to our 3.5 million customers. Last year, we concluded key regulatory applications in Arizona, British Columbia and Alberta. We invested $4.3 billion of capital in our regulated energy systems, mainly focused on system resiliency, grid modernization and clean energy. As we make the necessary investments in our utilities and transition to cleaner energy, we remain focused on customer bill impacts. Our teams embrace innovation and process improvements to help control operating costs. We also help our customers manage their bills through energy efficiency and demand-side management programs. FortisBC will invest $600 million over the next 4 years in energy conservation initiatives that will reduce greenhouse gas emissions and lower energy cost for customers. As energy demand and extreme weather events increase, strengthening the grid is more important than ever. Fortis is making responsible investments to get as clean as possible as fast as possible. In November, UNS Energy's utilities filed their integrated resource plans, outlining how they expect to more than double their energy resources over the next 15 years with new wind, solar, natural gas and storage systems. ITC is making significant investments in major transmission projects to help serve future energy demands with a 5-year capital plan of $7.2 billion. Our Scope 1 emissions are now 33% below 2019 levels. and our emissions reduction targets are on track and support our 2050 net zero goal. Fossil fuel generation constitutes only 5% of our assets, and we are targeting these emissions. Tucson Electric Power expects to retire its remaining coal generation by 2032 and plans to add over 2,200 megawatts of wind and solar generation and 1,300 megawatts of energy storage by 2038. They also plan to add 400 megawatts of natural gas to help offset the capacity loss from coal plant retirements and support higher use of wind and solar energy and growing customer demand. paths to reduce fossil fuel with renewables and storage are also being planned at our Caribbean utilities. Fortis is preparing for more frequent extreme weather events that have the potential to impact our customers, communities and infrastructure. To support our strong track record of managing climate events, we are investing in grid resiliency and analyzing future climate scenarios to understand how our operations might be affected. Our 2024 climate report includes a detailed climate analysis across Fortis utilities using different scenarios and time frames. We continue to support energy policy development and work with regulators, government and industry to advance the broader clean energy transition. We are partnering with Electric Power Research Institute, the Canadian Standards Association and others in our industry to address climate adaptation, improve design standards and deliver innovative solutions throughout the energy system. Fortis also continues to foster meaningful partnerships with First Nations who play a critical role in the energy transition. In 2023, FortisBC was awarded the Silver level designation and Progressive Aboriginal Relations by the Canadian Council of Aboriginal Business. Wataynikaneyap Power is a transmission company majority owned by 24 First Nations in partnership with Fortis. We are constructing an 1,800-kilometer transmission line to connect 17 remote First Nation communities to the Ontario power grid. This is Canada's largest First Nations grid connection project. It will improve the quality of life for people in these communities and is one of the most important projects that Fortis has ever been involved in. CEO, Margaret Canicunash; and Board Chair, Frank McKay, are here today, I'll ask you to please stand so we can recognize you. In 2023, our teams were thrilled to connect an additional 7 communities to the grid. Construction of this project is now 99% complete and scheduled to finish this year. Now I'll turn things over to Jocelyn for an update on our financial performance.

Thank you, David. I realize I don't get walk-on music. So good morning, everyone. Thank you for joining us. I'll begin my presentation today with a look at our 2023 results. As David mentioned, Fortis has delivered another year of strong financial results. We reported annual net earnings of $1.5 billion, invested $4.3 billion of capital to service our customers and completed the sale of Aitken Creek to further strengthen our balance sheet. Rate base growth in key regulatory decisions in British Columbia and Arizona supported year-over-year earnings growth. Reported earnings per share were $3.10, $0.32 higher than in 2022. And adjusted earnings per common were $3.09 reflecting 9% growth over 2022. On November 1, we completed the sale of the nonregulated Aitken Creek natural gas storage facility for approximately $470 million. Net proceeds from this transaction provided additional funding flexibility, which supports our regulated growth strategy. We released our first quarter results yesterday. Net earnings were $459 million or $0.93 per common share. During the quarter, we invested $1.1 billion of capital in our systems and our annual $4.8 billion capital plan remains on track. As we look forward, our $25 billion 5-year capital plan is the largest in our company's history. It's $2.7 billion higher than our previous plan and represents 6.3% average annual rate base growth through 2028. The increase largely reflects regional transmission projects at ITC and investments in Arizona to support Tucson Electric Power's exit from coal. Our capital plan focuses on customer affordability while ensuring reliable energy delivery as we transition to a cleaner energy future. In 2023, we issued approximately $3 billion of debt to refinance maturing debt and fund our capital program. With proceeds from our debt issuances, the sale of Aitken Creek and over $4 billion available on our credit facilities, we remain in a strong liquidity position to execute on our $25 billion capital plan. Equity funding for our capital plan is expected from our dividend reinvestment plan with a $500 million at-the-market equity program available for additional funding flexibility. As David noted, and I will note, we increased our fourth quarter dividend by 4.4%, marking 50 consecutive years of increases in annual dividends paid. We remain focused on extending this record as we execute our regulated growth strategy in support of our annual dividend growth guidance of 4% to 6% through 2028. And despite a challenging year for the utility sector, our annual total shareholder return in 2023 ranked in the top quartile of our utility peer group. And over a 20-year period, Fortis has yielded an average annual total shareholder return of 10.7%. We have a solid plan as we look forward, and we expect to continue to deliver stable and compelling returns over the long run. With that, I'll turn things back to David.

I have a hunch, we'll have a second walk on music come next year. Thank you, Jocelyn. As we focus on our purpose to deliver a cleaner energy future, our values will continue to guide our actions, values like taking care of our employees and our communities. In 2023, Fortis Companies contributed approximately $11 million and countless volunteer hours to the communities we proudly serve. This includes a $1 million sponsorship of the 2025 Canada Summer Games, which will take place right here in our home base St. John's, Newfoundland and Labrador. We appreciate the contributions of every employee who helped make last year a success. We are proud of your dedication and commitment to our customers and the communities that we serve. Thank you. For 2024 and beyond, we are focused on executing our regulated growth strategy and continuing our operational and financial success. Thank you to our shareholders for your continued support and investment in our company. I'll now turn things over to Stephanie to begin the Q&A session.

Thank you, David and Jocelyn. We will now move to the question-and-answer period. So to begin, we do have a couple of questions online, but I thought I'd open it up to the room to see if anyone has any questions here today.

[indiscernible] shareholder. First of all, I'd like for you, if you could elaborate more on the sale of with Aitken Creek. The second, what in the future do you hold for the wind energy which is now extensively in departments or Newfoundland and Labrador with many going up around the province. And what part, if any, will we be paying in that.

Great. Thanks. So the first question is related to our Aitken Creek sale. And that was one of our very few unregulated assets, and we found a buyer that was Enbridge that we thought could get and they thought as well that they could create more value with that asset than we could. It was a great opportunity for us to sell that asset to them, take that money from an unregulated asset and use that money to invest in our regulated utility infrastructure. So it was a very good trade for us and a great opportunity for us to realize value for our shareholders. The question on wind here in Newfoundland and Labrador, there's been a lot of conversations around wind and hydrogen, et cetera. here in this province. We are not involved in that type of development for a couple of reasons. One, it's probably not the right risk and return profile that our customers are looking for. That would be what we just sold in Aitken Creek, which is an unregulated asset. There is -- there could be possibility, but that would take a lot of change here in Newfoundland and Labrador for us to be able to invest in that in rate base. That's where we like to invest in those renewable energy projects. And that's where we think that our investors like us to invest. So we are paying attention to looking for opportunities around the fringes for things that we can do within our regulated infrastructure, transmission lines, distribution and things that can support that but we have not been actively involved in that.

Great. Maybe I will open it up to one question online, and I will read these questions that were submitted online. But -- so the first one comes from Mr. Derrick Hutchens. Ever since this company was incorporated, has always been about growth. In recent years, organic growth has been the buzzword. How much more and for how long can shareholders expect this type of growth to support your dividend policy before you need to seek acquisitions?

Yes, that's a great question. So this is where I talk to Mr. Hutchens from Mr. Hutchens, so it gets a little bit confusing. But thank you very much for that question, Mr. Hutchens. I appreciate that you're looking at that growth the same way that we're looking at it. The opportunity that we see from a regulated growth opportunity. That has been our focus, organic growth within our regulated utilities. We think that, that is the best way, the best value, the best risk/return wave that we can invest our shareholders' money. That's why we're focused on the regulated utilities. So growing through those regulated utilities is the way to go. So the question is, well, how long can that go? And how much more is there? Well, this is an extremely long runway for investments in energy infrastructure as we sit here today and look out 5, 10, 15, even 20 years, and look into that future and see how much clean energy -- how much growth the clean energy transition is going to provide for our utilities. We have a lot of growth. It includes every single utility because it's electrification. We're a 93% transmission and distribution company. So as you look at electrification, whether it's homes, whether it's electric vehicles, whether it's industry. We provide the infrastructure that will grow to meet those demands. When you think of the clean energy transition from shutting down coal and some natural gas and shifting to electricity and renewables and storage and other generation sources. That was the story I just mentioned at UNS Electric and what Tucson Electric Power is doing. So those are a very long and robust runway for us to invest on a going-forward basis. So we do not see the necessity for M&A to meet those dividend growth targets that we have. Now all of that being said, we always pay attention to the markets and look for value for our shareholders. But right now, that focus is on that $25 billion capital plan and continuing to execute that like we've been executing the capital plan for decades.

Thank you. Any further questions here in the room?

Good day. I'm Pat Hannaford. I'm retiree of Fortis and Newfoundland Power. I guess -- but my -- I don't know if I have a question per se, but an observation, yes, on the consecutive or executive pay. And just to put it in context, I think it might be time to broaden the metrics about how you do the job, for example, I'm retired now 25 years. And I make -- my pension is not indexed for one thing. So it's -- as time goes by, it's increasingly not having much of effect on my budget, for example. But -- and when I -- when we -- when I reach the age of 65, of course, that pension got clawing back. And now to sum to speak for a bunch of people like myself that are out there, right? And last our dental plan. But the bottom line is like I make -- right now, my kind of pension and my old age security is just about equal with my company pension. And it's getting worse as time goes on, as I indicated. Now we've tried to push this thing a little before Newfoundland Power. And I realized what the protocols are with you, they are own entity independent, some independents. But it's time, I think that -- and to give credit where credit is due. Over the last few years, I just don't remember how many. But I remember since I've been retired, I have a couple of -- maybe 3, 4 at the most, $300. last couple were $500. But I think it's time to -- maybe if you guys could get the message to latent power that guys, there's a lot of people out there. They're not a lot because we're winding I'm one of a few left about. There are other people out there, quite old. And directionally, with the pensions they have, they're actually pretty close, I would say, work at the [indiscernible] -- and with Newfoundland Power is the mother I say it for -- this is where it all started. And when I think of some of the contributions people made to this company, like Lyme and who were back in the day when I first started, every huge project you had, if it came to be a few million dollars or $50 million. There was obviously a good chance that somebody would be killed, electrocuted or killed on the job, that came with the territory, thank God, that kind of stuff with safety now has been ameliorated. But still just saying that these guys contributed ample. Some of them are still alive, actually, but that contributed all this hard work and stuff. But that's near to here [indiscernible]. I guess all I'm saying is that when I look at executive pay. And I realize I want to congratulate you on a good year again. And Fortis is a really good company. And I have a few shares not enough to warrant going out and buying my yacht yet. But -- just let me see here. micro pension is $18,900. So that comes up to be above right now about $688 every 2 weeks. But anyway, and when I look at the executive pay. It's a big, big, big, big stretch. And it could be a little bit closer, I think, that's all what I'm asking is with Fortis just have a discussion and say, "Guys, look, there's need to look at this." And maybe with your own situation, when you're devising the metrics or whatever for executive pay, maybe with that, I know you have a lot of metrics in there in different ways, and you look at different things. But we're here and we're part of the company or the company that was then I think it's time maybe [ 2/1 ] up the amount of the pension that we have and then index it because that was a I'm not doing well at all. And we come from a good company and Fortis is very -- doing very well. I think it's about time we had a look anyway.

Well, first of all, let me thank you for your service to our company at Newfoundland Power. As I am -- reminded every talk to someone from Newfoundland Power, there's a few in this room, they remind me that's where it all started. And so that is the slogan of Newfoundland Power. It's where it all started. And I do understand the issue. It's not new to me to hear this. It's not new across our subsidiaries. Pension plans have been different across all of -- I mean, we've got 10 different utilities and pension plans that have changed. And each one of those utilities has different pension plans because they change over time. We do leave that up to the local management teams and those boards of those local companies to make sure that they're managing those situations just because you can't create like a one pension plan across our entire footprint. So it is. And then it's definitely different by our utilities as well. some of the jobs, some of the businesses are different. But -- so we do leave those decisions up to the local management, and I can tell because I see them sitting here that they heard you and we'll, I'm sure, take that back. So thank you very much for the commentary. And again, appreciate you being part of the Fortis family even if it was before I joined.

I hope the representatives of the light power are listening.

Yes, I'm sure they were.

Well, thank you. We have 2 more questions here online. So maybe I'll take the next one. We have another one from Mr. Derrick Hutchens. With the major oil field off the coast of Newfoundland, is there any opportunity for LNG development in Newfoundland and Labrador?

So my answer would be, yes, I guess, probably the real underlying question is, are we going to be involved or interested in it, which would kind of go akin to the conversation around wind power development. LNG, obviously, is something that comes from the North Sea and the oil development process there. And I've actually not had any conversations really with anybody other than theoretical use of LNG and capturing that and using it for to ship somewhere, either east or west, east of Europe or west of Europe. But we have not been involved in any of those conversations nor would it fit necessarily or the structure of investment that we're looking for. But it is a possibility if that's the question. just not for us, to be clear.

So here's another online question we received from a shareholder, Keith Varman. The City of Vancouver has announced a decarbonizing program, starting with large commercial buildings, which includes a $350 ton penalty for CO2 emissions, literally double the ultimate Canadian GHG carbon tax of $170 per ton. How will FortisBC address this increased pressure to decarbonize our economy?

Yes. So in British Columbia, we -- that's where we have our largest gas company, serves over 1.1 million customers. And we are extremely focused on following along with the CleanBC plan and decarbonizing our natural gas in the same pace and with the affordability reliability requirements that we talk about on the electric side. So there is a lot of activity going on in British Columbia related to a couple of things that people, I think, sometimes forget that just like clean electrons, renewables instead of, say, coal plant producing the power. The same can be said for clean molecules instead of natural gas, natural CH4, you can have renewable natural gas, which is carbon neutral or even carbon negative. So those are the things in the programs that we are focused on. So the $600 million 4-year budget that FortisBC has is really around energy efficiency and demand side management. So that's the first thing you got to do is you got to reduce the amount of energy you use and then figure out how we can use the gas system more efficiently and how we can get as many of those green molecules, whether it's RNG, hydrogen maybe in some cases as well to be able to offset those greenhouse gas emissions.

Great. Any further questions here in the room? Having received no further questions, this concludes our Q&A session. I would like to turn it over to Jo Mark for final comments.

Thank you, Stephanie. First, thank you very much for the questions today. They are an important part of this annual and special meeting. As well, thank you to everyone who helped organize this hybrid meeting, including Fortis employees and the audiovisual teams. On behalf of the Board of Directors, we would like to thank the entire Fortis team, including the folks in our operating companies for our continued strong performance in 2023. Finally, I would like to thank our shareholders and other stakeholders who participated both in person and online today. With that, I will declare the meeting adjourned. Thank you.