Canadian energy executive expects little short-term tariff impact on US utility projects

Executives at Canadian utility holding company Fortis foresee little short-term impact from US tariffs on expansion plans at its US utilities and expressed confidence on May 7 that the Inflation Reduction Act's impact on GOP-led states would result in "scalpel-type cuts" that leave Fortis "in a pretty good spot."

In a first-quarter earnings conference call, Fortis President and CEO David Hutchens said the company had invested C$1.4 billion, US$1 billion, 27% of its C$5.2 billion, US$3.8 billion, 2025 capital plan in the quarter.

Fortis' C$26 billion, US$18.8 billion, five-year plan focuses on transmission in its ITC utility in the Midcontinent Independent System Operator, resource changes for its Arizona utilities and "infrastructure and support" for customer growth "across all our utilities."

"We are closely monitoring changes in government policies, including tariffs, and their potential impacts on inflation, supply chain availability and general economic condition," Hutchens said. "Based on our initial assessment, we don't expect significant near-term impacts to our 2025 capital plan. In the event tariffs result in higher costs, we would expect to recover the impacts through normal regulatory mechanisms. We will be mindful of the impacts on customer affordability, should tariffs result in higher costs that persist over the long term."

IRA's future in question

The US Congress' upcoming budget reconciliation may contain language affecting the Inflation Reduction Act, and many in the Republican Party oppose the IRA's renewable energy production and investment tax credits, but letters from 18 GOP representatives and four GOP senators call for protecting clean energy incentives.

"I think that we're still seeing very strong bipartisan support as recognized by many letters that have been sent to the administration from a broad array of Republicans and Democrats supporting the Inflation Reduction Act for all the right reasons," Hutchens said. "I mean these are investments that we're making in the US, specifically in a lot of the red states."

The decision to be made, Hutchens said, "Is the IRA going to get completely repealed versus will it have maybe some more scalpel-type cuts on different parts?"

"In the end, I think the spot that we're at, when you look across our portfolio and the investment tax credits and/or production tax credits that we have or expect to get are mostly in the safe harbor zone are already being received," Hutchens said. "So, I don't see any of that getting pulled back, and we happen to be in a pretty good spot across our company."

Asked how Canada's April 28 election returning the Liberal Party for a fourth consecutive term, might affect Fortis' assets north of the border, Hutchens confessed that he has not "really thought through that much from a Canadian policy," regarding potential cross-border transmission, for example.

"I think that there's an opportunity and an argument for a little bit more of that, but haven't really seen or been in any of those conversations as of yet," Hutchens said. "I think, overall, the new administration of Prime Minister Carney is really coming out with a great positive message about growing the Canadian economy, developing natural resources and energy infrastructure -- I mean, all the stuff that we like to hear from a new administration being in the energy industry and looking to build that infrastructure. So, I think that will have some definite positive trickle-down impacts across Canada -- and maybe, hopefully, specifically in British Columbia as well. We've got a lot of natural resources in BC, and we're trying to help develop them over there."

Earnings up on year

In the first quarter, FortisBC Electric power sales rose 40 GWh, or 4.1%, to more than 1 TWh, compared with Q1 2024's 976 GWh. The increase reflected colder weather, Fortis said in its news release.

In contrast, Fortis' UNS retail and wholesale units, which primarily serve customers in Arizona, had a collective 694-GWh, or 38% decrease in power sales to less than 3.3 TWh in the first quarter, compared with Q1 2024's nearly 4 TWh. "Lower heating load associated with milder temperatures" caused much of the decrease, Fortis said.

"The increase was driven by rate base growth across our utilities, and the conclusion of Central Hudson's 2024 general rate application, including a shift in quarterly revenue effective July 1, 2024," Fortis said. "The higher US dollar-to-Canadian dollar exchange rate also favorably impacted earnings. The increase was partially offset by higher holding company finance costs, a lower margin on wholesale sales in Arizona, as well as the timing of operating costs and the expiration of a regulatory incentive at FortisAlberta."