Fortis CEO: Capital expenditures for 2017 through 2021 remain at about $13bn

Fortis (NYSE:FTS) President and CEO Barry Perry on May 2 said that planned capital expenditures for 2017 through 2021 remain at about $13bn, consisting of a diverse mix of highly executable and low-risk projects.

As a result, he added during the company’s 1Q17 earnings call, consolidated mid-year rate-base is projected to approach $26bn this year, and $30bn by 2021, assuming constant currency of a U.S. dollar to Canadian dollar exchange rate of $1.30 through 2021.

It was stated during the call that unless otherwise specified, all financial information referenced is in Canadian dollars.

The “$13bn base capital plan does not include development projects that are currently being pursued – only base capex that is derived from our regular utility planning process is included,” Perry said. “Our capital plan is mainly made up of hundreds of small capital projects, with only a handful of projects being larger than $100m individually.”

This year’s capital plan includes ITC Holdings’ Multi-Value Projects (MVPs), which consist of four regional electric transmission projects that have been identified by the Midcontinent ISO (MISO) to address system capacity needs and reliability in various states, he said.

“Currently, we expect to invest over $300m on these projects in 2017, which represents approximately 10% of the 2017 consolidated capital forecast,” Perry said. “Three of the MVPs are scheduled to be completed by the end of 2018, with the fourth slated for completion by 2023.”

As TransmissionHub reported in February, those MVPs are:

  • MVP 3, which is located in southwest Minnesota/northwest Iowa, and has a target in-service date of 2018. The project consists of three segments: Lakefield to Huntley, which is a 55-mile, 345/161-kV double circuit line in southern Minnesota; Huntley to Ledyard, which is a 24-mile, 345/161-kV double circuit line in southern Minnesota (17 miles) and northern Iowa (seven miles); and Ledyard to Kossuth, which involves 20 miles of 345-kV line (MidAmerican Energy has an additional segment of line from the Kossuth substation to the west). The project also includes the new Huntley substation and upgrades to the Lakefield substation
  • ITC’s portion of MVP 4, which is located in northwest/north central Iowa, and has a target in-service date of 2018. The project consists of four line segments: Ledyard to Colby, which is a 61-mile, 345/161-kV double circuit or 345/69-kV double circuit line in northern Iowa; Colby to Killdeer, which is a 12-mile, 345/161-kV double circuit line in northern Iowa; Killdeer to Hampton Tap, which is a 29-mile 345/161-kV double circuit line in northern Iowa (this line connects to the MidAmerican Energy line near Hampton, Iowa; and ITC’s portion of Blackhawk to Hazleton, which is a 12-mile, 345/161-kV double circuit line in eastern Iowa. The project includes three new ITC substations – Ledyard, Colby and Killdeer
  • MVP 7, which is located in south central Iowa (Ottumwa to Iowa/Missouri border), and has a target in-service date of 2018. The project will be a new 40-mile, 345-kV line with segments double circuited with 69-kV line. ITC will own about 13 miles of line, with MidAmerican Energy owning the remaining segment
  • MVP 5 (Cardinal to Hickory Creek), which is located in northeast Iowa across the Mississippi River into southwest Wisconsin into south central Wisconsin, and has a target in-service date of 2023. The project consists of a new, approximately 125-mile, 345-kV line; ITC will own 45.5% of the line; American Transmission Company will own 45.5%; and Dairyland Power Cooperative will own 9%. The line’s western terminal is the existing 345/161-kV Hickory Creek substation in eastern Iowa that will be expanded to accommodate the new Hickory Creek to Cardinal transmission line

Perry said during the May 2 call that Fortis remains focused on identifying additional investment opportunities at its various franchise regions.

He noted that ITC in January was granted a presidential permit from the U.S. Department of Energy for the Lake Erie Connector transmission line, which, according to ITC, is a proposed 1,000-MW, bi-directional, high-voltage direct current (HVDC) underwater transmission line that would provide the first direct link between the markets of the Ontario Independent Electricity System Operator and PJM Interconnection.

Also in January, ITC received a report from Canada’s National Energy Board, recommending the issuance of a certificate of public convenience and necessity, Perry said, adding that the project continues to advance through regulatory, operational, and economic milestones.

“Key milestones remaining for 2017 include receiving approval from the U.S. Army Corps of Engineers and the Pennsylvania Department of Environmental Protection in a joint application; completing project cost refinements; and securing favorable transmission service agreements with prospective counterparties,” he said. “Pending achievement of key milestones, the expected in-service date for the project is late 2020.”

Of the Wataynikaneyap transmission line project, Perry said that Fortis Ontario in March received approval from the Ontario Energy Board (OEB) to acquire the ownership interest held by Renewable Energy Systems Canada in the partnership, as well as close this transaction.

“As a result, our ownership interest in the partnership has increased to 49%, with the remaining 51% held by 22 First Nation communities,” he said. “Further, the project also reached a significant milestone with the approval by the OEB of a deferral account to recognize development costs incurred between November 2010 and the commencement of construction. Construction will begin following the receipt of permitting approvals and cost-sharing agreement between the federal and provincial agreement.”

According to the website of Wataynikaneyap Power, which is a licensed transmission company owned by 22 First Nation communities, the Wataynikaneyap Transmission Project’s first phase – a new 300-km transmission line – would reinforce electricity supply into Pickle Lake. The second phase will connect 17 First Nation communities north of Pickle Lake and Red Lake with an estimated 1,500 kilometers of new transmission line, according to the site.

ROE matters

Also speaking on the call was Karl Smith, Fortis executive vice president and CFO, who noted that during the quarter, the Arizona Corporation Commission issued a rate order in connection with Tucson Electric’s general rate application, approving rates, which took effect in late February. The rate order included an increase in non-fuel base revenue of US$81.5m, and allowed return on equity of 9.75%, as well as a common equity component of the capital structure of about 50%.

Smith also said that under a “September 2016 order from FERC regarding the first return on equity [(ROE)] complaint, ITC paid refunds during the first quarter totaling $121m U.S., including interest, for the initial refund period. As you may recall, the base ROE was set at 10.32% for the initial refund period, with a maximum ROE of 11.35%.”

He continued: “These rates are to be used prospectively until a new approved rate is established for the second complaint. A decision from FERC on the second complaint is expected later this year or early next year. As of March 31, 2017, the estimated range of refunds for the second refund period was between $103m U.S., and $140m U.S. ITC has recognized a regulatory liability of $140m U.S., for this complaint.”

A Sept. 28, 2016, FERC order addressed briefs on, and opposing exceptions to, an initial decision issued in December 2015, by the presiding administrative law judge. The initial decision set forth the presiding judge’s findings concerning a complaint filed under section 206 of the Federal Power Act challenging the MISO Transmission Owners’ base ROE reflected in MISO’s Open Access Transmission, Energy and Operating Reserve Markets Tariff, FERC said.

The presiding judge issued the initial decision finding, inter alia, that MISO TOs’ existing 12.38% base ROE is unjust and unreasonable and should be reduced to 10.32%, FERC said. The presiding judge also prescribed refunds, with interest, for the period from Nov. 12, 2013, through Feb. 11, 2015, FERC said. In the initial decision, the presiding judge explained that the 10.32% base ROE represents the midpoint of the upper half of the zone of reasonableness (upper midpoint) of 7.23% to 11.35%, FERC said.

FERC affirmed the initial decision in its September 2016 order.

During the question and answer portion of the call, ITC President and CEO Linda Blair addressed the vacancies at FERC in relation the second ROE complaint.

As TransmissionHub reported, FERC Commissioner Colette Honorable on April 28 said that she has decided not to pursue another term at FERC. Former FERC Chairman Norman Bay resigned, effective as of Feb. 3, and prior to his resignation, there were already two vacancies at FERC, following the departures of former Commissioners Philip Moeller and Tony Clark. According to the Code of Federal Regulations, a quorum for the transaction of business consists of at least three members present. FERC in February issued an order delegating additional authority to agency staff to continue certain agency operations in the absence of a quorum of commissioners.

A FERC spokesperson on May 1 confirmed to TransmissionHub that if someone is not appointed to serve on the commission before Honorable leaves, it will be the first time in FERC’s history that the commission has only one commissioner – in this case, Acting Chairman Cheryl LaFleur.

FERC “lacks a quorum so it currently cannot act on matters that require a vote of the commissioners,” the spokesperson said.

During Fortis’ call, Blair said, “[G]iven the fact that we don’t have the other remaining commissioners formally nominated, or the confirmation process has not begun, we are looking that that process would take probably the better part of at least three to four months, even if the process had formally started.”

She added, “I think just given the fact that you’re going to have three, if not four, new commissioners at some point, hopefully this year, it certainly suggests that a decision on the MISO complaint, far less any other matters, will be pushed off to at least later this year.”

Earnings report

Fortis on May 2 said that its net earnings attributable to common equity shareholders for 1Q17 were $294m, or 72 cents per common share, compared to $162m, or 57 cents per common share, for 1Q16. On an adjusted basis, net earnings attributable to common equity shareholders for 1Q17 were $281m, or 69 cents per common share, an increase of two cents per common share over 1Q16, the company said.

About Corina Rivera-Linares 3063 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.