Fortis: Investor Day Highlights Significant Transmission Growth Opportunities
We are maintaining our CAD 58 fair value estimate for Fortis FTS after updating our forecasts to incorporate several items announced at the company’s investor day.
The main announcement was a new CAD 25 billion capital investment plan for 2024-28; this is a CAD 2.7 billion increase from the previous five-year plan. The announcement led us to increase our capital investment projections by CAD 2 billion through 2027.
The largest increase in the plan is at Fortis’ transmission subsidiary, ITC. The subsidiary’s new plan supports 7% rate base growth, a 100-basis-point increase from the previous plan. There continues to be significant transmission need across ITC’s Midwest and Great Plains service territory.
We continue to see additional growth opportunities beyond management’s plan, focused particularly in MISO, the Midwest transmission operator. We expect Tranche 2 of the region’s Long-Range Transmission Planning initiative to be 2-3 times larger than Tranche 1. Reliability, renewable energy interconnections, and economic development also support transmission development.
Fortis increased its capital investment plan for FortisBC and UNS Energy as well. FortisBC recently received a constructive outcome in its generic cost of capital proceeding. The utility’s allowed return on equity is now 9.65%, up from 8.75%. Its new allowed capital structure includes 45% equity, up from 38.5%. The return on equity is a sizable increase, bringing the subsidiary more in line with its Canadian and U.S. peers.
The capital investment plan supports more than 6% annual consolidated rate base growth and the company’s 4%-6% annual dividend growth target. Fortis does not provide earnings guidance.
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