Saturday, February 11, 2012

Fortis Earns $318 Million in 2011, Delivers Record Earnings for 12th ...

ST. JOHN'S, NEWFOUNDLAND AND LABRADOR--(Marketwire - Feb. 9, 2012) - Fortis Inc. ("Fortis" or the "Corporation") (TSX:FTS) achieved net earnings attributable to common equity shareholders of $318?million, or $1.75?per common share, up $33 million, or $0.10?per?common share, compared to $285?million, or $1.65?per?common share, for 2010.?

Increased investment in energy infrastructure at the utilities in western Canada and the $11 million after-tax, or $0.06 per common share, fee paid to Fortis in July?2011, following the termination of the Merger?Agreement with Central Vermont Public Service Corporation, were the primary drivers of earnings growth.

Fortis increased its quarterly common share dividend to 30?cents from 29?cents, commencing with the first quarter dividend payable on March?1,?2012, which translates into an annualized dividend of?$1.20.?Fortis has raised its annualized dividend to common shareholders for 39 consecutive years, the record for a public corporation in Canada.?The dividend payout ratio was 66% in?2011.?

"Our annual capital expenditure program totalled a record $1.2?billion in 2011," says Stan Marshall, President and Chief Executive Officer, Fortis Inc.?"The significant investment in energy infrastructure being made by our utilities should help ensure we continue to meet our obligation to serve customers," he?adds.

The largest capital projects recently completed were the $212?million 1.5?billion-cubic foot liquefied natural gas storage facility on Vancouver Island and the $110 million Customer Care Enhancement Project, including two new call centres, at FortisBC's gas utility; the $105?million Okanagan Transmission Reinforcement Project at FortisBC Electric; and the $126?million Automated Metering Project at FortisAlberta. Construction of the $900 million 335-megawatt Waneta?Expansion hydroelectric generation facility in British Columbia, which is scheduled to be completed in spring 2015, is progressing on time and on budget, with approximately $244?million invested in the project since construction began in late 2010.?

Canadian Regulated Gas Utilities delivered earnings of $139 million, up $9 million from $130 million for 2010.?Excluding a favourable one-time $4 million item in 2010, earnings increased $13?million year over year.?Results for 2011 reflected the impact of growth in energy infrastructure investment, lower-than-expected corporate income taxes, finance charges and amortization costs, and increased gas transportation volumes to the forestry and mining sectors, partially offset by lower-than-expected customer additions.

"The majority of our gas customers have benefited from the downward trend in natural gas commodity prices," says Marshall.?"The improving supply and cost fundamentals of natural gas throughout North America, combined with its positive environmental attributes, make natural gas an attractive energy supply source for residential and industrial use and as a fuel for the transportation and power generation sectors," he explains.

Canadian Regulated Electric Utilities contributed earnings of $179 million, up $15 million from $164?million for 2010.?The increase was driven by improved results at FortisAlberta and FortisBC?Electric. The increase in earnings at FortisAlberta mainly resulted from growth in energy infrastructure investment, higher capitalized allowance for funds used during construction ("AFUDC"), customer growth and higher energy deliveries, and return earned on additional investment in automated meters, as approved by the regulator, partially offset by a lower allowed rate of return on common shareholders' equity ("ROE") for 2011.?The increase in earnings at FortisBC Electric resulted from growth in energy infrastructure investment, lower purchased power costs and higher electricity sales, partially offset by lower capitalized AFUDC.

"FortisAlberta continues to invest significant capital in its electricity network, which includes more than 100,000 kilometres of distribution lines, with over $400 million of capital expenditures in 2011 and a similar amount planned for 2012", says Marshall.?"A?significant portion of the utility's franchise territory overlaps with the tight oil and shale gas developments in Alberta, especially the Bakken, Cardium and Duvernay areas, and our business is benefiting from building the electricity infrastructure necessary to meet associated customer growth," he?explains.

Significant regulatory processes recently decided or underway at the Corporation's largest utilities are as follows:

  • The Alberta Utilities Commission ("AUC") issued a decision in December 2011 setting the 2011 allowed ROE for utilities in Alberta at 8.75%, down from 9.00% for 2010.?The decision was recorded on a retroactive basis in the fourth quarter of 2011 and reduced FortisAlberta's earnings by approximately $2 million in 2011.
  • At FortisAlberta, a decision on customer rates for 2012 is expected during the first half of 2012.?Interim rates have been approved for the utility.
  • FortisAlberta filed its performance-based regulation ("PBR") proposal in July 2011, following the AUC's initiative to apply PBR to all distribution utilities in Alberta as early as 2013 for a five-year term.?The AUC's decision on PBR is expected in 2012.
  • Newfoundland Power received regulatory approval in December 2011 to suspend the use of the ROE automatic adjustment formula for 2012, pending an expected review of the utility's cost of capital in 2012.?Customer rates for 2012 have been set on an interim basis using the 2011 allowed ROE of?8.38%.
  • The allowed ROEs for the FortisBC gas and electric utilities are to be maintained, pending determinations made in the regulator-initiated Generic Cost of Capital Proceeding expected to occur in early 2012.
  • Decisions on customer gas and electricity rates for 2012 and 2013 at FortisBC are expected during 2012.?Interim?rates have been approved for the utilities.

Caribbean Regulated Electric Utilities contributed $20 million to earnings compared to $23 million for 2010.?There was no earnings contribution from Belize?Electricity in 2011 due to the expropriation of the Corporation's investment in the utility in June by the Government of Belize ("GOB").?Earnings contribution from Belize?Electricity during 2010 was approximately $1.5?million.?Fortis submitted its claim for compensation to the GOB in November. Earnings at Fortis Turks and Caicos decreased year over year, due to higher amortization costs and operating expenses, partially offset by reduced energy supply costs in 2011 reflecting the use of new, more fuel-efficient generating units.?There was no growth in electricity sales year over year at Caribbean Utilities and Fortis?Turks and Caicos, due?to?challenging economic conditions in the region and high fuel prices.

Non-Regulated Fortis Generation contributed $18?million to earnings compared to $20 million for 2010.?The decline in earnings resulted from decreased hydroelectric production in Belize, due to lower rainfall associated with a longer dry season in 2011, combined with overall lower interest income.

Fortis Properties delivered earnings of $23 million compared to $26?million for 2010. However, results for 2010 were favourably impacted by lower corporate income tax rates, which reduced future income taxes.?Results for 2011 reflected lower contribution from the Hospitality Division, driven by lower occupancy at the Company's hotels in western Canada.?Fortis?Properties acquired the 160-room, full-service Hilton Suites Winnipeg Airport hotel for $25?million in October 2011.

Corporate and other expenses were $61 million, $17 million lower than $78 million for 2010.?Excluding the $11 million after-tax termination fee, corporate and other expenses were $6?million lower year over year, as a result of both decreased business development costs and finance charges.

Earnings for the fourth quarter were $86 million, or $0.46 per common share, compared to $85?million, or $0.49 per common share, for the same quarter in 2010.?Increased earnings at the FortisBC gas utilities, largely due to the same reasons described above for the improvement in annual earnings, were partially offset by a decrease in earnings at Newfoundland?Power, Other Canadian Regulated Electric Utilities, Fortis Turks and Caicos and Fortis Properties.?The decrease in earnings at Newfoundland?Power reflected a lower allowed ROE and higher operating expenses, partially offset by reduced energy supply costs in the fourth quarter of 2011.?Lower earnings at Other Canadian Regulated Electric Utilities were due to decreased electricity sales and higher operating expenses.?Lower?earnings at Fortis?Turks and Caicos were due to the same reasons described above for the decrease in annual earnings.?Earnings at Fortis Properties during the fourth quarter of 2010 reflected lower corporate income tax rates, which reduced future income taxes in that period.?An?8% increase in the weighted average number of common shares outstanding quarter over quarter, largely associated with the public common equity offering in mid-2011, had the impact of decreasing earnings per common share.

Fortis and its regulated utilities raised $688 million of long-term capital in 2011.?Fortis issued approximately 10.3 million common shares for $341?million, the proceeds of which were used to repay borrowings under credit facilities and finance equity injections into the regulated utilities in western Canada and the non-regulated Waneta?Expansion Limited Partnership, in support of infrastructure investment, and for general corporate purposes.?Consolidated long-term debt totalling $347 million was issued in 2011 at terms ranging from 15 to 50 years and at rates ranging from 4.25% to 5.118%.?In?December FortisBC's largest gas utility issued 30-year $100 million 4.25% unsecured debentures, Maritime?Electric issued 50-year 4.915% $30 million first mortgage bonds and FortisOntario issued 30-year?$52?million 5.118% unsecured notes. Generally, proceeds of the debt offerings were used to repay borrowings under credit facilities incurred to finance capital expenditures, to finance future capital spending and for general corporate purposes.?In the case of FortisOntario, the debt proceeds were used to repay an inter-company loan with Fortis, originally incurred to support the acquisition of Algoma Power in 2009.

The Corporation's US$40 million convertible debentures were converted into 1.4?million common shares at US$29.11 per share in November 2011.?

Newfoundland Power received $46 million of proceeds in October 2011 upon the sale to Bell Aliant Inc. of 40% of all joint-use poles owned by Newfoundland Power.

DBRS confirmed the Corporation's debt credit rating at A(low) in September 2011.?Standard and Poor's ("S&P") is expected to complete its annual review of the Corporation's debt credit rating in the first quarter of 2012.?S&P currently rates the Corporation's debt at A-.

Cash flow from operating activities was $904?million for 2011, up $172 million from $732?million for 2010, driven by favourable working capital changes and higher?earnings.

"We are focused on completing our $1.3 billion capital expenditure program for 2012," says Marshall.?"Over the next five years through 2016, our capital expenditure program is projected to total $5.5?billion, which should support continuing growth in earnings and dividends," he adds.

"We remain disciplined and patient in our pursuit of electric and gas utility acquisitions in the United?States and Canada that will add value for Fortis shareholders," concludes Marshall.

?
Financial Highlights
For the three and twelve months ended December 31, 2011
Dated February 9, 2012
?

FORWARD-LOOKING STATEMENT

The following fourth quarter 2011 media release should be read in conjunction with the Fortis Inc. ("Fortis" or the "Corporation") Management Discussion and Analysis ("MD&A") and audited consolidated financial statements for the year ended December?31, 2010 included in the Corporation's 2010 Annual Report. Financial information in this material has been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") and is presented in Canadian dollars unless otherwise specified.

Fortis includes forward-looking information in this fourth quarter 2011 media release within the meaning of applicable securities laws in Canada ("forward-looking information").?The purpose of the forward-looking information is to provide management's expectations regarding the Corporation's future growth, results of operations, performance, business prospects and opportunities, and it may not be appropriate for other purposes.?All forward-looking information is given pursuant to the safe harbour provisions of applicable Canadian securities legislation.?The words "anticipates", "believes", "budgets", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "schedule", "should", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words.?The forward-looking information reflects management's current beliefs and is based on information currently available to the Corporation's management.?The forward-looking information in this fourth quarter 2011 media release includes, but is not limited to, statements regarding: the expected timing of filing of regulatory applications and of receipt of regulatory decisions; consolidated forecast gross capital expenditures for 2012 and in total over the five-year period 2012 through 2016; the expectation that the Corporation's significant capital expenditure program should drive growth in earnings and dividends; and the expected impact of the transition to US generally accepted accounting principles.

The forecasts and projections that make up the forward-looking information are based on assumptions which include, but are not limited to: the receipt of applicable regulatory approvals and requested rate orders; no significant operational disruptions or environmental liability due to a catastrophic event or environmental upset caused by severe weather, other acts of nature or other major events; the expectation that the Corporation will receive compensation from the Government of Belize ("GOB") for the fair value of the Corporation's investment in Belize?Electricity that was expropriated by the GOB; the expectation that Belize Electric Company Limited ("BECOL") will not be expropriated by the GOB; the continued ability to maintain the gas and electricity systems to ensure their continued performance; no material capital project and financing cost overrun related to the construction of the Waneta hydroelectric generation expansion project; no significant decline in capital spending; no severe and prolonged downturn in economic conditions; sufficient liquidity and capital resources; the continuation of regulator-approved mechanisms to flow through the commodity cost of natural gas and energy supply costs in customer rates; the ability to hedge exposures to fluctuations in interest rates, foreign exchange rates and fuel and natural gas commodity prices; no significant variability in interest rates; no significant counterparty defaults; the continued competitiveness of natural gas pricing when compared with electricity and other alternative sources of energy; the continued availability of natural gas and fuel supply; the continuation of and/or regulatory approval of power supply and capacity purchase contracts; the continued ability to fund defined benefit pension plans; the absence of significant changes in government energy plans and environmental laws that may materially affect the operations and cash flows of the Corporation and its subsidiaries; maintenance of adequate insurance coverage; the ability to obtain and maintain licences and permits; retention of existing service areas; maintenance of information technology infrastructure; favourable relations with First?Nations; favourable labour relations; and sufficient human resources to deliver service and execute the consolidated capital?program.?The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information.?

Factors which could cause results or events to differ from current expectations include, but are not limited to: regulatory risk; operating and maintenance risks; risk associated with the amount of compensation to be paid to Fortis for its investment in Belize Electricity that was expropriated by the GOB; the timeliness of the receipt of the compensation and the ability of the GOB to pay the compensation owing to Fortis; risk that the GOB may expropriate BECOL; capital project budget overrun, completion and financing risk in the Corporation's non-regulated business; economic conditions; capital resources and liquidity risk; weather and seasonality; commodity price risk; derivative financial instruments and hedging; interest rate risk; counterparty risk; competitiveness of natural gas; natural gas and fuel supply; regulatory approval of power supply and capacity purchase contracts; defined benefit pension plan performance and funding requirements; risks related to FortisBC Energy (Vancouver Island) Inc.; environmental risks; insurance coverage risk; loss of licences and permits; loss of service area; changes in tax legislation; information technology infrastructure; an ultimate resolution of the expropriation of the assets of the Exploits?Partnership that differs from what is currently expected by management; an unexpected outcome of legal proceedings currently against the Corporation; relations with First?Nations; labour relations; and human resources. For additional information with respect to the Corporation's risk factors, reference should be made to the Corporation's continuous disclosure materials filed from time to time with Canadian securities regulatory authorities and to the heading "Business Risk Management" in the MD&A for the year ended December 31, 2010 and for the three and nine months ended September?30,?2011, and as otherwise disclosed in this fourth quarter 2011 media release.

All forward-looking information in this fourth quarter 2011 media release is qualified in its entirety by the above cautionary statements and, except as required by law, the Corporation undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after the date hereof.

CORPORATE OVERVIEW

Fortis is the largest investor-owned distribution utility in Canada, serving more than 2,000,000 gas and electricity customers.?Its regulated holdings include electric utilities in five Canadian provinces and two?Caribbean countries and a natural gas utility in British?Columbia, Canada.?Fortis owns non-regulated generation assets, primarily hydroelectric, across Canada and in Belize and Upper?New?York State, and hotels and commercial office and retail space in Canada.?In 2011 the Corporation's electricity distribution systems met a combined peak demand of 5,045?megawatts ("MW") and its gas distribution system met a peak day demand of 1,210?terajoules ("TJ").?For additional information on the Corporation's business segments, refer to Note 1 to the Corporation's 2010 annual audited consolidated financial statements.

The key goals of the Corporation's regulated utilities are to operate sound gas and electricity distribution systems, deliver gas and electricity safely and reliably at the lowest reasonable cost and conduct business in an environmentally responsible manner.?The Corporation's main business, utility operations, is highly regulated and the earnings of the Corporation's regulated utilities are primarily determined under cost of service ("COS") regulation.?

Under COS regulation, the respective regulatory authority sets customer gas and/or electricity rates to permit a reasonable opportunity for the utility to recover, on a timely basis, estimated costs of providing service to customers, including a fair rate of return on a regulatory deemed or targeted capital structure applied to an approved regulatory asset value ("rate base").?Generally, the ability of a regulated utility to recover prudently incurred costs of providing service and to earn the regulator-approved rate of return on common shareholders' equity ("ROE") and/or rate of return on rate base assets ("ROA") depends on the utility achieving the forecasts established in the rate-setting processes.?As such, earnings of regulated utilities are generally impacted by: (i) changes in the regulator-approved allowed ROE and/or ROA; (ii) changes in rate base; (iii) changes in energy sales or gas delivery volumes; (iv) changes in the number and composition of customers; (v)?variances between actual expenses incurred and forecast expenses used to determine revenue requirements and set customer rates; and (vi) timing differences within an annual financial reporting period, between when actual expenses are incurred and when they are recovered from customers in rates.?When forward test years are used to establish revenue requirements and set base customer rates, these rates are not adjusted as a result of actual COS being different from that which is estimated, other than for certain prescribed costs that are eligible to be deferred on the balance sheet.?In?addition, the Corporation's regulated utilities, where applicable, are permitted by their respective regulatory authority to flow through to customers, without markup, the cost of natural gas, fuel and/or purchased power through base customer rates and/or the use of rate stabilization and other?mechanisms.?

Effective March 1, 2011, the Terasen Gas companies were renamed to operate under a common brand identity with FortisBC in British Columbia, Canada.?As a result, Terasen Gas Inc. is now FortisBC?Energy Inc. ("FEI"), Terasen Gas (Vancouver Island) Inc. is now FortisBC?Energy (Vancouver?Island) Inc. ("FEVI") and Terasen Gas (Whistler) Inc. is now FortisBC?Energy (Whistler) Inc. ("FEWI"), and collectively are referred to as the FortisBC?Energy companies.

On June 20, 2011, the Government of Belize ("GOB") enacted legislation leading to the expropriation of the Corporation's investment in Belize?Electricity.?As a result of no longer controlling the operations of the utility, the Corporation has discontinued the consolidation method of accounting for Belize?Electricity, effective June?20,?2011, and has classified the book value of the previous investment in the utility as a long-term other asset on the consolidated balance sheet.?As at December?31,?2011, the long-term other asset, including foreign exchange?impacts, totalled $106?million.?

In October 2011 Fortis commenced an action in the Belize Supreme Court to challenge the legality of the expropriation of its investment in Belize Electricity.?Fortis commissioned an independent valuation of its expropriated investment in Belize Electricity and submitted its claim for compensation to the GOB in November 2011.

The GOB also commissioned an independent valuation of Belize Electricity and communicated the results of such valuation in its response to the Corporation's claim for compensation.?The fair value of Belize Electricity determined under the GOB's valuation is significantly lower than the fair value determined under the Corporation's valuation.?The Corporation is pursuing alternative options for obtaining fair compensation from the GOB.

Fortis continues to control and consolidate the financial statements of Belize Electric Company Limited ("BECOL"), the Corporation's indirect wholly owned non-regulated hydroelectric generation subsidiary in Belize.?BECOL generates hydroelectricity from three plants located on the Macal River with a combined generating capacity of 51?MW. The entire output of the plants is sold to Belize?Electricity under 50-year contracts expiring in 2055 and 2060.?Assuming normal hydrological conditions, Belize?Electricity purchases BECOL's normalized annual energy production of 240 gigawatt hours ("GWh") at approximately US$0.10?per?kilowatt hour, which generally is the lowest-cost energy supply source in the country of Belize.?As at December?31,?2011, the book value of the Corporation's investment in BECOL was $154?million.?In October 2011 the GOB purportedly amended the Constitution of Belize to require majority government ownership of three public utility providers, including Belize Electricity, but excluding BECOL.

As at January 31, 2012, Belize Electricity owed BECOL US$7.4 million for overdue energy purchases, representing almost one-third of BECOL's annual sales to Belize Electricity. In?accordance with long-standing agreements, the GOB guarantees the payment of Belize?Electricity's obligations to?BECOL.

SUMMARY FINANCIAL HIGHLIGHTS

Fortis has adopted a strategy of profitable growth with earnings per common share as the primary measure of performance.?The Corporation's business is segmented by franchise area and, depending on regulatory requirements, by the nature of the assets.?Key financial highlights for the fourth quarters and years ended December 31, 2011 and December 31, 2010 are provided in the following table.?

Consolidated Financial Highlights (Unaudited) ?
Periods Ended December 31 Quarter ? Annual ?
($ millions, except for common share data) 2011 2010 Variance ? 2011 2010 Variance ?
Revenue 1,037 1,034 3 ? 3,747 3,657 90 ?
Energy Supply Costs 490 507 (17 ) 1,697 1,686 11 ?
Operating Expenses 237 228 9 ? 865 822 43 ?
Amortization 108 103 5 ? 419 410 9 ?
Other Income (Expenses), Net 6 6 - ? 40 13 27 ?
Finance Charges 90 89 1 ? 370 362 8 ?
Corporate Taxes 23 19 4 ? 80 67 13 ?
Net Earnings 95 94 1 ? 356 323 33 ?
Net Earnings Attributable to: ? ? ? ? ? ? ? ?
? Non-Controlling Interests 2 2 - ? 9 10 (1 )
? Preference Equity Shareholders 7 7 - ? 29 28 1 ?
? Common Equity Shareholders 86 85 1 ? 318 285 33 ?
? Net Earnings 95 94 1 ? 356 323 33 ?
Basic Earnings per Common Share ($) 0.46 0.49 (0.03 ) 1.75 1.65 0.10 ?
Diluted Earnings per Common Share ($) 0.45 0.47 (0.02 ) 1.74 1.62 0.12 ?
Weighted Average Number of Common ? ? ? ? ? ? ? ?
Shares Outstanding (# millions) 188.1 173.9 14.2 ? 181.6 172.9 8.7 ?
Cash Flow from Operating Activities 227 198 29 ? 904 732 172 ?
?
?Factors Contributing to Quarterly Revenue Variance

Favourable

  • An increase in gas delivery rates and the base component of electricity rates at most of the Corporation's Canadian regulated utilities, consistent with rate decisions, reflecting ongoing investment in energy infrastructure, forecasted higher regulator-approved expenses recoverable from customers, and a higher allowed ROE at Algoma Power
  • The flow through in customer electricity rates of higher energy supply costs at Caribbean?Utilities
  • Growth in the number of customers, mainly at FortisAlberta
  • Higher gas sales

Unfavourable

  • The expropriation of Belize Electricity and the resulting discontinuance of the consolidation method of accounting for the utility, effective June?20, 2011
  • Lower commodity cost of natural gas charged to customers
  • A rate revenue reduction accrued at FortisAlberta during the fourth quarter of 2011, reflecting the cumulative impact, from January 1, 2011, of the decrease in the allowed ROE for 2011
  • Lower base component of customer rates at Maritime Electric associated with the recovery of energy supply costs
  • Lower joint-use pole-related revenue at Newfoundland Power, due to new support structure arrangements with Bell Aliant Inc. ("Bell Aliant") in 2011
?
Factors Contributing to Annual Revenue Variance

Favourable

  • Same factors as discussed above for the quarter
  • Higher electricity sales at the Canadian Regulated Electric Utilities
  • The recognition of $3.5 million of accrued revenue at FortisAlberta in 2011, related primarily to the cumulative 2010 and 2011 allowed return and recovery of amortization on the additional $22?million in capital expenditures associated with the Automated Metering Project, as approved by the regulator to be included in rate base

Unfavourable

  • Same factors as discussed above for the quarter
  • Approximately $15 million unfavourable foreign exchange associated with the translation of foreign currency denominated revenue, due to the weakening of the US dollar relative to the Canadian dollar year over year
  • Increased performance-based regulation ("PBR")-incentive adjustments to be refunded to customers by FortisBC Electric
?
Factors Contributing to Quarterly Energy Supply Costs Variance

Favourable

  • Lower commodity cost of natural gas
  • The expropriation of Belize Electricity and the resulting discontinuance of the consolidation method of accounting for the utility, effective June?20, 2011
  • Lower purchased power costs at Maritime Electric and FortisBC Electric

Unfavourable

  • Increased fuel prices at Caribbean?Utilities
  • Higher gas sales
?
Factors Contributing to Annual Energy Supply Costs Variance

Unfavourable

  • Same factors as discussed above for the quarter
  • Higher electricity sales at the Canadian Regulated Electric Utilities

Favourable

  • Same factors as discussed above for the quarter
  • Approximately $8 million associated with favourable foreign currency translation
?
Factors Contributing to Quarterly and Annual
Operating Expenses Variances

Unfavourable

  • Higher operating expenses at the FortisBC Energy companies, mainly due to increased wages and benefit costs, and higher asset removal costs, partially offset by lower contractor and consulting expenses and labour savings associated with changes in staffing levels
  • The regulator-approved reversal in the third quarter of 2010 at the FortisBC Energy companies of $5 million ($4?million after tax) of project overrun costs previously expensed in 2009 related to the conversion of Whistler customer appliances from propane to natural gas
  • Higher operating expenses at Newfoundland Power, mainly due to the regulator-approved change in the accounting treatment for other post-employment benefit ("OPEB") costs, wage and general inflationary cost increases, higher conservation costs related to customer rebate programs and, in addition, increased employee-related expenses for the year.
  • Higher operating expenses at FortisBC Electric, largely due to increased vegetation management costs, wage and general inflationary cost increases and higher property taxes

Favourable

  • The expropriation of Belize Electricity and the resulting discontinuance of the consolidation method of accounting for the utility, effective June?20, 2011
  • Operating costs of approximately $2 million incurred during the third quarter of 2010 at Newfoundland Power as a result of Hurricane Igor
  • Higher capitalized general overhead expenses, mainly at the FortisBC Energy companies, FortisBC?Electric and Newfoundland Power
  • Approximately $2 million for the year associated with favourable foreign currency translation
?
Factors Contributing to Quarterly and Annual
Amortization Costs Variances

Unfavourable

  • Continued investment in energy infrastructure and income producing properties

Favourable

  • Reduced amortization costs in 2011 at the FortisBC Energy companies, mainly due to the retirement late in 2010 of certain general plant assets and the amortization in 2011 of a regulatory deferral account
  • Regulator-approved increased amortization costs at Newfoundland Power in 2010, due to approximately $4 million of adjustments related to an amortization study
  • The expropriation of Belize Electricity and the resulting discontinuance of the consolidation method of accounting for the utility, effective June?20, 2011
  • Approximately $1.5 million for the year associated with favourable foreign currency translation
?
Factors Contributing to Annual
Other Income (Expenses) Variance

Favourable

  • The $17 million (US$17.5 million) fee paid to Fortis in July 2011, following the termination of the Merger Agreement with Central Vermont Public Service Corporation ("CVPS")
  • Lower corporate business development costs, due to $6 million incurred in the first half of 2010
  • A net foreign exchange gain of $1 million associated with the previously hedged investment in Belize Electricity
?
Factors Contributing to Quarterly and Annual
Finance Charges Variances

Unfavourable

  • Higher long-term debt levels in support of the utilities' capital expenditure programs

Favourable

  • The refinancing of maturing corporate debt at lower rates
  • Higher capitalized allowance for funds used during construction ("AFUDC") for the year, mainly at FortisAlberta, partially offset by lower capitalized AFUDC at FortisBC Electric
  • The expropriation of Belize Electricity and the resulting discontinuance of the consolidation method of accounting for the utility, effective June?20, 2011
?
Factors Contributing to Quarterly and Annual
Corporate Taxes Variances

Unfavourable

  • Higher earnings before tax in taxable jurisdictions
  • Lower deductions for corporate income tax purposes compared to accounting purposes

Favourable

  • Lower statutory income tax rates
?
Factors Contributing to Quarterly Earnings Variance

Favourable

  • Higher earnings at the FortisBC Energy companies, driven by rate base growth, lower-than-expected corporate income taxes and finance charges in 2011, and higher gas transportation volumes to the forestry and mining sectors, partially offset by both lower customer additions and capitalized?AFUDC

Unfavourable

  • Lower earnings at Newfoundland Power, mainly due to a lower allowed ROE for 2011, lower earnings contribution associated with the new joint-use pole support structure arrangements with Bell Aliant in 2011 and higher operating expenses, partially offset by reduced energy supply costs in the fourth quarter of 2011 and higher electricity?sales
  • Lower earnings at the Other Canadian Regulated Electric Utilities, mainly associated with decreased electricity sales and higher operating expenses
  • Lower earnings at the Caribbean Regulated Electric Utilities, reflecting lower earnings at Fortis?Turks and Caicos associated with higher amortization costs and operating expenses, partially offset by reduced energy supply costs in 2011
  • Lower earnings at Fortis Properties, mostly due to higher corporate income taxes
?
Factors Contributing to Annual Earnings Variance

Favourable

  • Higher earnings at the FortisBC Energy companies largely for the same reasons as discussed above for the quarter, combined with lower-than-expected amortization costs.?Excluding the reversal in 2010 of certain costs previously expensed in 2009, as discussed above in the operating expenses variance, earnings at the FortisBC Energy companies were an additional $4?million higher year over year.
  • Higher earnings at FortisAlberta, mainly due to rate base growth, higher capitalized AFUDC, growth in the number of customers and higher energy deliveries, return earned on additional investment in automated meters, as approved by the regulator, and an approximate $1 million gain on the sale of property, partially offset by the impact of a lower allowed ROE for 2011
  • Higher earnings at FortisBC Electric, due to rate base growth and lower-than-expected purchased power costs combined with higher electricity sales, partially offset by lower capitalized AFUDC
  • Higher earnings at the Other Canadian Regulated Electric Utilities, driven by a higher allowed ROE at Algoma Power
  • Lower net corporate expenses due to the $11 million after-tax termination fee paid to Fortis in July?2011, combined with both lower business development costs and finance charges

Unfavourable

  • Lower earnings at the Caribbean Regulated Electric Utilities for the same reasons as discussed above for the quarter, combined with the expropriation of Belize Electricity and the resulting discontinuance of the consolidation method of accounting for the utility, effective June 20, 2011
  • Lower earnings at Fortis Properties for the same reason as discussed above for the quarter, combined with lower contribution from the Hospitality Division, partially offset by slightly increased contribution from the Real Estate Division
  • Lower earnings at Non-Regulated Generation operations reflecting decreased hydroelectric production in Belize, due to lower rainfall, and overall lower interest income
  • Lower earnings at Newfoundland Power for the same reasons as discussed above for the quarter
  • Approximately $1 million associated with unfavourable foreign currency translation

SEGMENTED RESULTS OF OPERATIONS

Segmented Net Earnings Attributable to Common Equity Shareholders (Unaudited) ?
Periods Ended December 31 Quarter ? Annual ?
($ millions) 2011 ? 2010 ? Variance ? 2011 ? 2010 ? Variance ?
Regulated Gas Utilities - Canadian ? ? ? ? ? ? ? ? ? ? ? ?
? FortisBC Energy Companies 51 ? 45 ? 6 ? 139 ? 130 ? 9 ?
Regulated Electric Utilities - ? ? ? ? ? ? ? ? ? ? ? ?
Canadian ? ? ? ? ? ? ? ? ? ? ? ?
? FortisAlberta 17 ? 17 ? - ? 75 ? 68 ? 7 ?
? FortisBC Electric 11 ? 10 ? 1 ? 48 ? 42 ? 6 ?
? Newfoundland Power 8 ? 9 ? (1 ) 34 ? 35 ? (1 )
? Other Canadian Electric Utilities 4 ? 5 ? (1 ) 22 ? 19 ? 3 ?
? 40 ? 41 ? (1 ) 179 ? 164 ? 15 ?
Regulated Electric Utilities - Caribbean 3 ? 4 ? (1 ) 20 ? 23 ? (3 )
Non-Regulated - Fortis Generation 5 ? 6 ? (1 ) 18 ? 20 ? (2 )
Non-Regulated - Fortis Properties 5 ? 7 ? (2 ) 23 ? 26 ? (3 )
Corporate and Other (18 ) (18 ) - ? (61 ) (78 ) 17 ?
Net Earnings Attributable to ? ? ? ? ? ? ? ? ? ? ? ?
Common Equity Shareholders 86 ? 85 ? 1 ? 318 ? 285 ? 33 ?

For a discussion of the material regulatory decisions and applications pertaining to the Corporation's regulated utilities, refer to the "Regulatory Highlights" section of this media release.?A discussion of the financial results of the Corporation's reporting segments is as follows.

REGULATED GAS UTILITIES - CANADIAN

FORTISBC ENERGY COMPANIES (1)

Gas Volumes by Major Customer Category (Unaudited)?????
Periods Ended December 31 Quarter ? Annual ?
(TJ) 2011 2010 Variance ? 2011 2010 Variance ?
Core - Residential and Commercial 42,202 37,035 5,167 ? 128,161 113,635 14,526 ?
Industrial 1,607 1,551 56 ? 5,544 5,259 285 ?
? Total Sales Volumes 43,809 38,586 5,223 ? 133,705 118,894 14,811 ?
Transportation Volumes 18,741 18,405 336 ? 67,813 60,363 7,450 ?
Throughput under Fixed Revenue ? ? ? ? ? ? ? ?
Contracts 203 3,407 (3,204 ) 1,237 13,765 (12,528 )
Total Gas Volumes 62,753 60,398 2,355 ? 202,755 193,022 9,733 ?
(1) The FortisBC Energy companies are comprised of FEI, FEVI and FEWI.
?
Factors Contributing to Quarterly and Annual
Gas Volumes Variances

Favourable

  • Higher average consumption by residential and commercial customers as a result of cooler?weather
  • Higher transportation volumes reflecting improving economic conditions favourably affecting the forestry and mining sectors

Unfavourable

  • Lower volumes under fixed revenue contracts, mainly due to higher precipitation, which made it more cost efficient for a large customer to not utilize its natural gas-powered generating facility for significant periods during 2011

Net customer additions were 7,450 for 2011 compared to 9,393 for 2010.?Net customer additions decreased year over year due to lower building activity.

The FortisBC Energy companies earn approximately the same margin regardless of whether a customer contracts for the purchase and delivery of natural gas or only for the delivery of natural gas.?As a result of the operation of regulator-approved deferral mechanisms, changes in consumption levels and the commodity cost of natural gas from those forecast to set residential and commercial customer gas rates do not materially affect earnings.

Seasonality has a material impact on the earnings of the FortisBC Energy companies as a major portion of the gas distributed is used for space heating.?Most of the annual earnings of the FortisBC?Energy companies are realized in the first and fourth quarters.?

Financial Highlights (Unaudited)???????
Periods Ended December 31 Quarter ? Annual
($ millions) 2011 2010 Variance ? 2011 2010 Variance
Revenue 477 479 (2 ) 1,568 1,546 22
Earnings 51 45 6 ? 139 130 9
?
?
Factors Contributing to Quarterly Revenue Variance

Unfavourable

  • Lower commodity cost of natural gas charged to customers
  • Lower-than-expected customer additions

Favourable

  • An increase in the delivery component of customer rates, mainly due to ongoing investment in energy infrastructure and forecasted higher regulator-approved operating expenses recoverable from?customers
  • Higher average gas consumption by residential and commercial customers
  • Higher gas transportation volumes to the forestry and mining sectors
?
Factors Contributing to Annual Revenue Variance

Favourable/Unfavourable

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