Fortis Inc. will take a break from a string of acquisitions that saw its spend more than C$20 billion to expand its utility portfolio over the past five years and instead focus on growth within those companies.
The Newfoundland and Labrador-based utility owner expects 5% to 6% annual growth by investing in companies it already owns, CEO Barry Perry said at a company investor day in Toronto. A key part of that growth will be investment in electricity transmission assets, particularly after its acquisition of ITC Holdings Corp. last year.
"We are focused on growing this business at a rate that is, at least, average for their sector in North America — not Canada, North America — and that's like 5% to 6% growth," Perry told the Oct. 16 gathering. "And with that, when you factor in the quality of our assets being wires and gas LDCs, we think that's a powerful valuation package for shareholders. And we're going to be talking about that constantly going forward, focusing on that growth in our existing businesses."
Fortis CEO Barry Perry
Separately on Oct. 16, Fortis announced it would boost its five-year capital investment plan by C$1.5 billion to approximately C$14.5 billion and hike its fourth-quarter dividend 6.25% to 42.5 Canadian cents per share. Perry said the company is confident the investments through 2022 will pay off for shareholders.
"We're focusing on our grid investment, really making sure that our networks are at the right place, given all the demands that have been placed on them right now," Perry said. "I still believe there's another further opportunity to go beyond where we are in our guidance at this point, but we are focused on that at this point."
Perry said the purchase of Michigan-headquartered ITC has already paid off as Fortis has been able to harness the company's expertise in other operations.
"With the regulatory construct that FERC provides, 60% equity thickness, about 12% ROEs — 11% to 12% ROEs — that's a pretty damn good regulatory construct," he said. "That lifts the overall Fortis organization up. And so that ITC franchise brings a lot to our company, and I believe, in the long term, will be seen as one of the best things that Fortis has ever done. They are already getting involved, helpings us out with some other transmission work we're doing in, for example, Ontario. So that expertise that we have there is amazing."
The company is reliant on executives at each of its operating companies for execution of its growth strategy, something Perry said is essential because the company has only a small corporate head office with 60 staff in St. John's, Newfoundland. He said the 10 utility companies Fortis owns operate on a "substantially autonomous" basis.
The company expects costs of between C$25 million and C$30 million for damage to assets at its utility in the Turks and Caicos Islands just east of the Bahamas, which were struck by Hurricane Irma in September. The company has sent crews from both its Canadian and U.S. operations to the country to help restore power and repair the grid. Perry said about 70% of the power has been restored and repairs should be complete in the next few weeks.
"We'll seek to recover those costs from our customers over the long term there and I'm optimistic that that'll be fine," he said. "But the first job when you run into these crises like this is to get the power back on, and that's been our focus in Turks and Caicos."