Fortis 2026 Q2 Earnings Call

Thanks, Chuck, and good morning, everyone. Welcome to Fortis' Second Quarter 2026 Results Conference Call. I am 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 slideshow. Actual results can differ materially from the forecast projections included in the forward-looking information presented today. Non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our second quarter 2026 MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to David.

Thank you and good morning, everyone. During the first half of the year, our utilities continued to provide safe and reliable service while advancing our regulated growth strategy. Through June, we invested CAD 2.7 billion in our systems and delivered earnings per share in the second quarter of CAD 0.78. More recently, we secured a milestone for a significant opportunity above and beyond our five-year capital plan with the receipt of an order-in-council that supports the expansion of our Tilbury LNG facility in British Columbia. Today, we also released our 2026 sustainability report, highlighting our progress to decarbonize our energy mix, including a 38% reduction in our Scope 1 greenhouse gas emissions through 2025 compared to 2019 levels. With nearly half of our annual capital plan invested through June and our major capital projects tracking well, we remain on pace to invest CAD 5.6 billion in 2026.

In June, the second Roadrunner Reserve battery storage project was placed in service at TEP. This 200-megawatt energy storage system facilitates the integration of renewables into the grid with the capability to store 800 megawatt hours of energy, enough to serve 42,000 homes for four hours when deployed at full capacity. With our capital plan on track, we continue to expect average annual rate base growth of 7% through 2030. Last week, FortisBC received an order-in-council from the province of British Columbia, approving a larger Phase 1B expansion of its Tilbury LNG facility, allowing total investment of approximately CAD 2 billion in regulated rate base. We currently have approximately CAD 350 million in our current five-year plan.

The OIC also provides the approvals required to implement an equity partnership with the Musqueam Indian Band and includes regulatory mechanisms to smooth the cost of recovery in the early years of the project. The Tilbury 1B expansion supports LNG marine fueling services and promotes jobs and economic growth in the province. The project positions the Port of Vancouver as a leading LNG marine fueling hub and supports the transition to lower-emission marine fuels. This is an exciting opportunity. FortisBC will now proceed to develop and refine project cost estimates, which will be reflected in our next five-year capital plan, expected to be released with our third-quarter results. While the project remains subject to certain regulatory approvals and permitting requirements, construction could start as early as mid-2027 and be in service as early as 2031.

As for other opportunities above and beyond the plan, our teams continue to make steady progress. At ITC, the MISO long-range transmission projects associated with Tranche 2.1 are advancing. As we have noted in the past, ITC expects $3.3 billion-$3.8 billion US dollars of investment beyond 2030 for projects that have been awarded and are not subject to competitive bidding. For the Iowa Tranche 2.1 project subject to a competitive process, ITC has submitted bids for two opportunities, with MISO expected to award the projects in the fourth quarter. At TEP, negotiations continue with the data center customer for an incremental 300 megawatts of capacity to support a potential build-out of 600 megawatts at the first site.

TEP is also in active negotiations for additional capacity at a second site in the range of 500 to 700 megawatts and is continuing to engage with other large customers for additional growth opportunities. If agreements are finalized for these subsequent phases, we estimate that new generation investment in the range of $1.5 billion-$2 billion US dollars would be required. In Arizona, TEP and UNS Electric expect to file new Integrated Resource Plans with the ACC in the fall. The IRPs will support increasing energy needs while taking into account clean, reliable, and affordable energy solutions. The IRP will include a high-growth scenario that evaluates the impacts of potential incremental data center load beyond the 300 megawatts currently approved, as well as a clean energy build-out scenario. Our utilities continue to prioritize capital investments focused on operational need and customer bill impacts.

As we highlighted last quarter, both ITC and UNS are great examples of how load growth and cost-effective capital projects can benefit customers. Adding to the discussion, continued growth of the LNG markets is also expected to provide rate benefits for customers in British Columbia. First, sales of LNG into the growing marine fueling market associated with our current Tilbury 1A facility have provided a rate benefit for customers of approximately 1.5% since 2024. The further expansion of FortisBC's Tilbury 1B facility is expected to build on this rate benefit. Additionally, increased demand served through the Eagle Mountain Pipeline Project will increase the utilization of FortisBC's gas system. Once complete and in service, it is expected to provide a rate benefit of approximately 1.5%. Overall, through operational efficiency, disciplined capital planning, and innovation, Fortis utilities continue to be laser-focused on finding better ways to reduce costs and support customer affordability.

Our dividend remains a core component of our investment thesis. We have demonstrated that we can grow our dividend responsibly, having increased it for the past 52 consecutive years, while maintaining a disciplined approach to balance sheet strength. Looking ahead, we remain confident in our 4%-6% annual dividend growth guidance through 2030, supported by our regulated growth strategy. Now I will turn the call over to Jocelyn for an update on our second quarter financial results.

Thank you, David, good morning, everyone. For the quarter, we reported net earnings of CAD 396 million, or CAD 0.78 per common share, an increase of CAD 0.02 compared to the second quarter of last year. At ITC, EPS increased by CAD 0.02, largely due to continued capital investment and related rate-based growth, partially offset by higher finance costs and stock-based compensation expense. UNS contributed a CAD 0.02 increase, driven by higher retail electricity sales, including the impact of warmer weather. This increase was moderated by the timing of operating costs as well as regulatory lag associated with rate-based growth not yet reflected in customer rates. Our Western Canadian utilities increased EPS by CAD 0.01, largely driven by capital investment.

The corporate and other segment reflects unrealized losses on foreign exchange contracts, higher finance costs, and lower earnings due to the disposition of Fortis Belize in the fourth quarter of 2025, partially offset by the timing of income tax recoveries. While not shown on the slide, results at Central Hudson were consistent with the second quarter of 2025, as rate-based growth was offset by the timing of quarterly revenue. Earnings for our other electric segment were also comparable quarter-over-quarter, as earnings growth in the segment was offset by the impact of the FortisTCI disposition completed in the third quarter of last year. Foreign exchange had a CAD 0.01 unfavorable impact for the quarter, and higher weighted average shares issued under our dividend reinvestment plan impacted EPS by CAD 0.01. On a year-to-date basis, earnings were CAD 897 million, or CAD 1.76 per common share.

Results year-to-date were mainly driven by the same factors discussed for the quarter, with a few additional items to note for Central Hudson and UNS Energy. For the six-month period, Central Hudson was up CAD 0.03, primarily due to rate-based growth and the timing of operating costs. At UNS, EPS was down CAD 0.03, as higher retail sales were tempered by lower margin on wholesale sales, the timing of operating costs, and the regulatory lag for rate-based growth not yet in rates. For the first half of 2026, our utilities issued CAD 2.1 billion of long-term debt, our funding plan remains on track. As we have noted in the past, our capital plan is expected to be funded largely from cash from operations, utility debt, and our dividend reinvestment plan.

In May, S&P confirmed our A- issuer and BBB+ unsecured debt credit ratings and stable outlook. Fitch also confirmed the corporation's BBB+ issuer and unsecured debt credit ratings and stable outlook. Overall, our liquidity position and our funding plans support our investment-grade credit ratings. As Dave mentioned, we expect to release our new five-year capital plan on our third quarter earnings call. We will address our new funding plan at that time. On the regulatory front, the TEP general rate application continues to progress. During the quarter, hearings concluded. The administrative law judge issued an extension of the procedural schedule such that a final decision on the rate case be issued by November 17th. That concludes my remarks. I will now turn the call back to David.

Thank you, Jocelyn. In closing, we have delivered a strong first half while maintaining our focus on what matters most: operating our utilities safely, reliably, and affordably. Our two-pronged focus on execution is clear, with our annual capital plan on track and our advancement of opportunities above and beyond the plan. Backed by a disciplined strategy and a diversified regulated portfolio, we remain confident in our ability to deliver on our rate base and dividend growth outlook through 2030. That concludes my remarks. I will now turn the call back over to Stephanie.