Fortis Earns $49 Million in the Third Quarter

Fortis Earns $49 Million in the Third Quarter

Fortis Inc. (“Fortis” or the “Corporation”) (TSX:FTS) recorded third quarter net earnings applicable to common shares of $49 million, or $0.31 per common share, compared to earnings of $31 million, or $0.20 per common share, for the third quarter of 2007.  Third quarter 2008 results included a tax reduction of approximately $7.5 million ($5.5 million at the Terasen Gas companies and $2 million at Terasen Inc.) associated with the settlement of historical corporate tax matters at Terasen.  Excluding the tax reduction at Terasen, earnings for the third quarter were $41.5 million, or $0.26 per common share.  Year‑to‑date earnings were $169 million, or $1.08 per common share, compared to earnings of $114 million, or $0.86 per common share, for the same period last year.  Year‑to‑date 2007 financial results only reflected 4½ months of earnings at Terasen, which was acquired on May 17, 2007.

Excluding the approximate $5.5 million tax reduction, the Terasen Gas companies incurred a loss of $4.5 million in the third quarter which was comparable to the same quarter last year.  Due to seasonality of the business, virtually all of the annual earnings of the Terasen Gas companies are generated in the first and fourth quarters.

Earnings at Canadian Regulated Electric Utilities were $38 million for the third quarter, $10 million higher than earnings for the same quarter last year.  The growth in earnings was driven primarily by the favourable impact of a shift in the quarterly distribution of annual purchased power expense at Newfoundland Power, which increased earnings during the third quarter of 2008 by approximately $5.5 million, lower energy supply costs at FortisBC and higher corporate tax recoveries at FortisAlberta. 

Newfoundland Power’s annual earnings are not expected to be impacted by the shift in the quarterly distribution of annual purchased power expense; however, earnings are expected to be lower in the first and fourth quarters and higher in the second and third quarters compared to the same periods last year. 

In September, FortisBC filed its 2009 rate application requesting a general rate increase, effective January 1, 2009, reflecting the impact of ongoing investment in infrastructure and increasing power purchases driven by customer growth and increased electricity demand.  In October, Maritime Electric filed for a basic rate increase, effective April 1, 2009, reflecting an increase in the amount of energy‑related costs to be collected from customers through the basic rate component of customer billings.

Earnings at Caribbean Regulated Electric Utilities were $7 million for the third quarter compared to $10 million for the same quarter last year.  The decrease related to the 3.25 per cent reduction in basic electricity rates at Caribbean Utilities, effective January 1, 2008; the lower allowed rate of return on rate base assets (“ROA”) at Belize Electricity; and a loss of revenue at Fortis Turks and Caicos due to the impact of Hurricane Ike, partially offset by overall growth in electricity sales. 

Belize Electricity’s targeted allowed ROA was reduced to 10 per cent from 12 per cent as a result of the regulator’s Final Decision on the utility’s 2008/2009 Rate Application. On July 25, 2008, Belize Electricity filed applications with the Supreme Court of Belize for leave to apply for judicial review of 2008 amended bylaws upon which the Final Decision was premised, and appeal of the Final Decision.  Leave was granted on October 3, 2008.  It is expected that the judicial review will be heard in late 2008. 

In September, Hurricane Ike struck the Turks and Caicos Islands causing damage to the distribution system of Fortis Turks and Caicos.  The Category 4 hurricane did not cause any significant damage to the utility’s generating facilities.  By late October, electricity service had been restored to all customers of Fortis Turks and Caicos that were ready to receive service.  Earnings for the third quarter at Fortis Turks and Caicos were reduced by approximately $1 million due to a loss of revenue as a result of damage caused by Hurricane Ike.  The utility has business interruption insurance with a 30-day deductible period and is in the preliminary stage of determining its business interruption insurance claim.  A large portion of the costs associated with re‑connecting customers and restoring electricity service were capital in nature and, therefore, did not impact earnings. 

Earnings at Non-Regulated Fortis Generation were $9 million for the third quarter, up $4 million from the same quarter last year, mainly due to increased hydroelectric production in Belize and upper New York State as a result of higher rainfall.  Hydroelectric production in Belize was 22 per cent higher year to date compared to the same period last year.  At the end of October, the Chalillo reservoir in Belize was at its full supply level.

Earnings at Fortis Properties were $9 million for the third quarter compared to $8 million for the same quarter last year.  The increase was due to improved performance at the Hospitality and Real Estate Divisions, including contributions from the Delta Regina which was acquired on August 1, 2007. 

Corporate and other expenses were $15 million for the third quarter compared to $16 million for the same quarter last year.  The decrease was primarily driven by the approximate $2 million favourable impact of the tax settlement at Terasen Inc.

Year to date, cash flow from operating activities was $449 million compared to $221 million for the same period last year, primarily due to the contributions from the Terasen Gas companies for nine months in 2008 compared to 4½ months in 2007. 

Consolidated capital expenditures, before customer contributions, were $623 million year to date and are expected to exceed $900 million in 2008.  The consolidated capital program is being driven by the utilities in western Canada and regulated and non‑regulated electric utility operations in the Caribbean. 

As at September 30, 2008, Fortis had consolidated credit facilities of $2.2 billion, of which $1.5 billion was unused.  Over the next five years, average annual long-term debt maturities are expected to be approximately $180 million.

To the end of October, Fortis and its utilities have raised almost $900 million in preferred equity and 30‑year debt in 2008, including $230 million 5.25% Five-Year Fixed Rate Reset First Preference Shares, Series G, 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 August, Caribbean Utilities completed a Rights Offering, raising gross proceeds of approximately US$28 million of which Fortis contributed US$24 million as a result of its participation in the Rights Offering.  The proceeds are being used to repay credit facility borrowings and to finance capital expenditures. 

In October, Standard & Poor’s removed Fortis from the S&P/TSX Completion and Equity Completion indices and placed Fortis in the S&P/TSX 60, 60 Capped and Equity 60 indices.

“Our utilities remain focused on executing their remaining capital projects for 2008.  Over the next five years, our consolidated capital program is expected to surpass $4.5 billion, substantially all of which will be funded at the subsidiary level.  This capital investment, which will mainly be in western Canada and the Caribbean, will add value for our customers and shareholders and fortify our position as a leading owner of energy infrastructure in Canada,” says Stan Marshall, President and Chief Executive Officer, Fortis Inc.