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Fortis CEO says taxes, regulation taking toll on Canadian utilities

Higher taxes and less-competitive regulation have hampered the growth of Canadian utilities when compared with their U.S. counterparts, Fortis Inc. President and CEO Barry Perry said.

The company, which has natural gas and power distributors in Canada, the United States and the Caribbean, would earn about C$150 million more annually if its Canadian utilities were situated in the U.S., Perry said on a conference call that was part of the company's investor day. Despite headwinds in Canada, the Newfoundland and Labrador-based company plans to grow its overall rate base by 7% annually for the next five years and expects continued growth in earnings and dividends, Perry said.

The "U.S. regulatory compact has improved dramatically over the last decade or so, whereas Canada at best has held its own over that period," Perry said at the Oct. 15 gathering. "So we have to take this challenge on. You see the numbers for us."

Fortis is working on increasing its footprint in regulated utilities in the U.S. and has upped its five-year capital plan C$2.8 billion to C$17.3 billion. Industry trends that include grid modernization, the delivery of cleaner energy and electrification will drive incremental investment of as much as C$1.5 billion in the U.S. and Arizona, while projects in Ontario and its British Columbia natural gas distribution system will add C$1.2 billion in incremental investment. Perry was pessimistic about a quick turnaround for Canadian regulated utilities.

"I don't think we're gaining any momentum, I hope we're maintaining status quo right now because we can't go lower than where we are," Perry said. "This is not a good situation. From a Canadian competitor's perspective, if you look at the amount of Canadian utilities that have invested in the U.S. over the last decade or so, we've almost got investments in every state in the U.S. at this point in time. If you look at U.S. utilities coming up in Canada, it's nonexistent. So that alone, that capital flow alone, should tell you something about where capital is going in North America."

Still, Perry said his company remains committed to Canada. "I'm not interested in reducing my Canadian exposure," he said. "What I'm interested in doing is working with the regulators to try to explain why there cannot exist such a big gap between U.S. regulation and Canadian regulation. The law in this area is the same in both countries. So this gap that's been created, we have to start closing it."

Perry praised FortisBC Inc. CEO Roger Dall'Antonia for the subsidiary's quick response to an explosion on an Enbridge Inc.-owned pipeline Oct. 10 that cut deliveries to much of the utility's service area. "He did an excellent job as a new CEO of that business, bringing his team together to respond to that crisis and informing the government and customers and doing everything we needed to do in that circumstance, and continues to obviously manage through that at this point in time," Perry said. FortisBC coordinated with utilities in the U.S. Pacific Northwest and drew on its LNG supplies in the populous Lower Mainland region of British Columbia to minimize the disruption in gas deliveries.