Fortis Inc. Annual Report - A Year in Review

Curious about Fortis Inc.'s performance? This summary breaks down their past year's results, ending December 31, 2025, based on their Annual Information Form. We'll cover their business, financial achievements, and the challenges they navigate, all in clear, accessible language. Let's explore Fortis's journey over the last year.

Business Overview: Powering Communities Across North America and the Caribbean

Fortis is a diverse group of utility companies that deliver essential services. They primarily operate in regulated markets, meaning government bodies oversee their prices and services. This structure provides a high degree of earnings stability, making them a reliable backbone for electricity and natural gas in many regions.

As of December 31, 2025, Fortis commanded $75 billion in total assets and generated $12 billion in revenue during 2025. A key characteristic of Fortis's business model is that approximately 95% of its assets relate to transmission and distribution, which are typically stable and predictable utility operations. These main operating companies, almost entirely regulated, account for about 92% of Fortis's total consolidated assets and contribute approximately 87% of its consolidated revenue.

Fortis operates across a wide geographical area:

• United States: Fortis maintains a significant presence through companies like ITC Holdings Corp. (electric transmission), UNS Energy Corporation (including Tucson Electric Power and UNS Electric), and Central Hudson Gas and Electric Corporation. These subsidiaries provide electric and gas services. 65% of Fortis's assets and 58% of its revenue originate from the U.S.
• Canada: Fortis is a major player with subsidiaries such as FortisBC Energy Inc., FortisAlberta Inc., FortisBC Electric Inc., Newfoundland Power Inc., Maritime Electric Company Limited, and FortisOntario Inc. In Canada, Fortis engages in activities ranging from hydroelectric power generation to electric and gas distribution. 33% of Fortis's assets and 38% of its revenue come from Canada.
• Caribbean: Fortis also serves communities through companies like Caribbean Utilities Company Ltd., often relying on diesel generation for power. 2% of Fortis's assets and 4% of its revenue are from the Caribbean. Note: Fortis sold FortisTCI and its equity investments in Belize Electricity and Fortis Belize (a non-regulated hydro generation business) in late 2025.

Fortis's core business activities include:

• Electric Distribution: Delivering electricity from the main grid to homes and businesses.
• Gas Distribution: Supplying natural gas to customers.
• Electric Transmission: Moving large volumes of electricity over long distances.
• Gas Transmission: Transporting natural gas through pipelines.
• Electricity Generation: Producing power from various sources, including solar, wind, hydroelectric, and gas-fired plants.

The Regulatory Landscape: A Defining Factor for Utilities

As a regulated utility, Fortis's business significantly depends on various government commissions. These commissions approve rates (how much Fortis can charge customers), investments, and overall operations. This regulatory oversight generally leads to stable and predictable earnings, as regulators allow Fortis to earn a fair return on its investments, known as its "rate base." However, this stability also means that regulatory decisions and approvals influence Fortis's growth and profitability.

Key regulators Fortis interacts with include:

• The U.S. Federal Energy Regulatory Commission (FERC)
• The Arizona Corporation Commission
• The New York Public Service Commission
• The British Columbia Utilities Commission
• The Alberta Utilities Commission
• The Ontario Energy Board
• Numerous other commissions across its service areas.

These regulatory bodies often oversee specific accounts, such as those for deferred project costs (investments recovered over time), storm restoration costs (expenses from repairing weather-related damage), and renewable energy programs. They also manage pension costs and environmental restoration costs through these regulatory mechanisms, ensuring Fortis can recover necessary expenses while providing reliable service.

Financial Performance: A Look at This Year's Results

Let's examine Fortis's financial performance for 2025 compared to 2024, with specific numbers.

Overall Financial Snapshot (2025 vs. 2024):

• Total Revenue: Fortis generated $12 billion in revenue in 2025, an increase from approximately $11.5 billion in 2024, reflecting growth across its operations.
• Profit (Common Equity Earnings): Profit attributable to shareholders increased by $108 million, reaching $1,714 million in 2025, up from $1,606 million in 2024.
• Profit Per Share (Basic EPS): This metric also rose by $0.16, reaching $3.40 per share in 2025, compared to $3.24 in 2024.

A Closer Look at Adjusted Numbers (Excluding One-Time Events):

Large companies sometimes experience one-time events that can distort their regular business performance. Fortis provides "Adjusted" numbers to offer a clearer picture of its ongoing operations:

• Adjusted Profit: Excluding the impact of selling some Caribbean businesses in 2025 (which resulted in a $63 million loss) and a non-recurring regulatory adjustment from 2024, Fortis's adjusted profit grew by a stronger $151 million, reaching $1,777 million in 2025 (up from $1,626 million in 2024).
• Adjusted Profit Per Share: Similarly, adjusted profit per share increased by $0.25, reaching $3.53 per share in 2025 (up from $3.28 in 2024).

What Drove These Changes?

The increase in profit, particularly the adjusted figures, primarily stemmed from:

• Rate Base Growth: Fortis's "rate base" – the value of assets on which regulators allow them to earn a return – expanded. As Fortis invests more, this base grows, leading to higher earnings.
• Earnings from Major Projects (AFUDC): Fortis also recognized earnings from money invested in major construction projects before they began generating revenue (Allowance for Funds Used During Construction, or AFUDC).
• Central Hudson Improvements: The Central Hudson utility saw improved earnings due to new rates and cost adjustments.
• Favorable Exchange Rates: A stronger U.S. dollar against the Canadian dollar also boosted reported Canadian dollar earnings.

However, some factors tempered even stronger growth:

• UNS Energy Challenges: This utility faced higher costs not yet reflected in customer rates, lower electricity sales due to milder weather, and reduced profits from wholesale electricity sales.
• FortisAlberta Incentive Expiry: A regulatory incentive for FortisAlberta concluded, which reduced earnings.
• Higher Company-Wide Costs: Increased stock-based compensation and financing costs at the holding company level also had an impact.

Dividends for Shareholders:

• Fortis paid out $2.49 per common share in dividends in 2025, up from $2.39 in 2024.
• Fortis increased its quarterly dividend in the fourth quarter of 2025 by 4.1% to $0.64 per share. This marks their 52nd consecutive year of dividend increases – an impressive streak for income-focused investors.
• Their Adjusted Payout Ratio (the percentage of adjusted profit paid out as dividends) was 70.4% in 2025, indicating they retain a healthy portion of earnings for reinvestment.

Cash Flow and Investments:

• Operating Cash Flow: Cash generated from day-to-day operations increased by $180 million to $4,062 million in 2025, up from $3,882 million in 2024. This positive trend shows the business generates more cash to fund its operations and investments.
• Capital Expenditures: Fortis invested a significant $5.6 billion in upgrading and expanding its infrastructure in 2025, which was $0.4 billion more than in 2024. This demonstrates their commitment to growing their asset base. These investments included major projects like the MISO LRTP and Big Cedar Load Expansion at ITC, and projects at UNS Energy.
• Financing: As a capital-intensive utility, Fortis finances these operations through a mix of debt and equity. They maintain a strong balance sheet and credit ratings, crucial for accessing capital at favorable rates.

Total Shareholder Return (TSR):

Fortis has delivered strong returns for investors:

• 1-Year: 23.9%
• 5-Year: 10.7% (annualized)
• 10-Year: 10.8% (annualized)
• 20-Year: 9.5% (annualized)

Financial Health

Fortis maintains a robust financial position, which is critical for a capital-intensive utility. The company's financing strategy balances debt and equity to fund its extensive capital program while preserving strong credit ratings. As of December 31, 2025, Fortis's capital structure reflects a commitment to maintaining investment-grade credit ratings, essential for efficient access to capital markets at favorable rates.

• Debt Profile: Fortis uses various forms of long-term debt, including bonds and debentures, issued by both the parent company and its subsidiaries. The company actively manages its debt maturity profile to mitigate refinancing risks.
• Liquidity: Fortis ensures adequate liquidity through a combination of cash on hand, operating cash flows, and access to committed credit facilities. These facilities provide financial flexibility to meet short-term obligations, fund capital expenditures, and manage working capital needs.
• Capital Resources: The company's ability to generate strong operating cash flows, coupled with its access to both debt and equity markets, provides the necessary capital resources to execute its multi-year capital investment plan and support its growth objectives. Management continuously monitors key financial metrics, including leverage ratios and interest coverage, to ensure financial stability and compliance with covenants.

Competitive Position

As a predominantly regulated utility, Fortis largely operates within defined service territories where it typically holds exclusive franchises for electricity and natural gas transmission and distribution. This regulated monopoly structure significantly limits direct competition for existing infrastructure within its service areas, providing a stable and predictable revenue base.

However, competition exists in other forms:

• New Transmission Projects: For certain large-scale transmission projects, particularly in the U.S. under FERC jurisdiction, Fortis's subsidiaries (like ITC Holdings) may compete with other transmission developers.
• Alternative Energy Sources: While Fortis primarily distributes traditional energy, the broader energy market sees competition from distributed generation (e.g., rooftop solar), energy efficiency programs, and evolving energy storage technologies, which can impact demand for grid-supplied electricity.
• Regulatory Environment: The regulatory frameworks in each jurisdiction, which determine allowed rates of return and cost recovery mechanisms, also influence Fortis's ability to compete for capital and attract investment.
• Scale and Diversification: Fortis's large scale, geographic diversification across North America and the Caribbean, and its focus on stable transmission and distribution assets provide a competitive advantage in operational efficiency, risk management, and access to capital.

Risk Factors

Investing in Fortis Inc. involves certain risks inherent to the utility industry and the company's specific operations. Key risks include:

• Regulatory Risk: Fortis's earnings and growth highly depend on regulatory decisions regarding rates, allowed returns on equity, and capital expenditure approvals. Adverse regulatory outcomes, such as delays in rate case approvals or disallowances of costs, could negatively impact financial performance. Changes in energy policy or regulatory frameworks could also affect the company's business model, particularly concerning natural gas assets.
• Operational Risks: These include risks associated with operating complex infrastructure, such as equipment failures, natural disasters (e.g., severe weather events, earthquakes), and accidents. Such events can lead to service interruptions, increased operating costs, and significant capital expenditures for repairs and restoration.
• Cybersecurity Threats: As an operator of critical infrastructure, Fortis faces ongoing risks from cyberattacks, data breaches, and other security incidents. A successful attack could disrupt operations, compromise sensitive data, and result in significant financial losses, reputational damage, and regulatory penalties.
• Environmental and Climate Change Risks: The company is exposed to risks related to climate change, including increased frequency and intensity of extreme weather events, which can damage infrastructure. Evolving environmental regulations and the transition to a lower-carbon economy could also impose significant costs for compliance, asset retirement, or require substantial investments in new technologies.
• Interest Rate Risk: Fortis relies on debt financing for a significant portion of its capital expenditures. Increases in interest rates could raise borrowing costs, impacting profitability and cash flow.
• Capital Markets and Financing Risk: The company's ability to execute its substantial capital plan depends on its access to capital markets. Adverse market conditions, a downgrade in credit ratings, or an inability to raise sufficient debt or equity financing on favorable terms could hinder growth and increase financing costs. The planned issuance of new common equity, while necessary for growth, could also result in dilution for existing shareholders.
• Economic Conditions: General economic downturns in its service territories could lead to reduced energy demand, increased customer delinquencies, and pressure on regulatory bodies to limit rate increases.
• Foreign Exchange Risk: Given its operations in the U.S. and Caribbean, Fortis is exposed to fluctuations in foreign exchange rates, particularly between the Canadian and U.S. dollars, which can impact reported earnings when translated into Canadian dollars.
• Competition and Policy Changes: While regulated, the utility sector can face competition for new projects or from policy shifts that favor non-utility providers or alternative energy solutions. Challenges to existing rules that favor regulated utilities could impact future growth opportunities.
• Asset Dispositions: The company's strategy may include divesting non-core assets, as seen with the Caribbean businesses. While these can be strategic, they may result in one-time losses or gains and impact the overall earnings profile.

Future Outlook: What's on the Horizon?

Fortis has a clear vision for the future, backed by significant investment plans:

• Massive Investment Plan: Fortis forecasts a substantial Capital Plan of $28.8 billion for 2026 through 2030. This represents their largest capital plan ever, and it is $2.8 billion higher than their previous five-year plan. This significant investment will upgrade and expand their infrastructure, especially in FERC-regulated transmission projects in the U.S. (like new interconnections and the MISO LRTP). Fortis expects to fund this through various sources, including issuing new common equity to maintain a strong balance sheet and support growth.
• Growing Their "Rate Base": This investment is projected to grow their "rate base" (the value of assets on which they can earn a regulated return) by a compound annual growth rate (CAGR) of 6-8% through 2030. This steady growth in their asset base is a key driver for future earnings.
• Dividend Growth: This planned rate base growth is expected to drive earnings that support their guidance for dividend growth of 4-6% annually through 2030. For investors seeking steady income, this is a significant positive signal.
• New Growth Opportunities: Beyond their main capital plan, Fortis is exploring additional opportunities, such as:
  • Expanding the electric transmission grid in the U.S. to support growing demand and connect new energy sources.
  • Investing in major regional transmission projects in the Midwest (MISO LRTP) and New York.
  • Making investments in grid resiliency and climate adaptation to enhance system robustness.
  • Developing renewable gas and Liquefied Natural Gas (LNG) infrastructure in British Columbia.
  • Investing in energy infrastructure to support accelerating load growth (increased electricity demand).
• Environmental Goals: Fortis is committed to a greener future:
  • They plan to convert two coal-fired generation units at TEP (Springerville Units 1 and 2) to natural gas by 2030.
  • They expect to achieve a coal-free generation mix by 2032.
  • Their long-term goal is to achieve net-zero greenhouse gas (GHG) emissions by 2050. They will also review their decarbonization strategy in 2026 and potentially set new interim emissions targets.
• Ongoing Regulatory Activity: The company actively engages in the regulatory process. For example, a general rate application is planned for UNS Gas Inc. in early 2026, and a capital expenditure forecast for FortisAlberta Inc. for 2026. These rate cases are crucial as they determine future revenues and allow the company to recover costs and earn a fair return on their investments. They also expect to extend municipal franchise agreements for FortisAlberta.

Is Fortis a Good Investment?

So, could Fortis be a good fit for your portfolio? This information suggests Fortis is a very large, diversified, and heavily regulated utility company. Its regulated nature generally means its business is quite stable, providing predictable cash flows, which can appeal to investors seeking steady income rather than rapid growth.

Here's why Fortis might be appealing:

• Predictable Income & Growth: The company boasts an impressive 52-year streak of dividend increases and has guided for 4-6% annual dividend growth through 2030, driven by significant planned capital expenditures and rate base growth. Its actual profit and profit per share also grew nicely in 2025.
• Substantial Infrastructure & Growth: Fortis possesses a massive existing network and plans its largest-ever capital investment ($28.8 billion for 2026-2030) to expand and modernize it. This should drive future earnings and rate base growth of 6-8% annually.
• Strong Returns: Fortis's historical Total Shareholder Returns (TSRs) have been solid, particularly the 23.9% over the last year.
• Commitment to Sustainability: Its clear goals for becoming coal-free by 2032 and net-zero by 2050 align with growing environmental concerns and could position the company well for the future.

Overall, Fortis appears to be a stable, income-generating company with a clear growth strategy and a strong track record of dividend increases. For investors looking for a reliable utility stock with predictable returns, these factors could make it an attractive option.