Fortis Q3 2026 Earnings Call Transcript

Fortis (NYSE:FTS) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Fortis Inc. reported strong financial performance for Q3 2026 with earnings per share of $0.92 and year-to-date earnings of $1.4 billion.

The company announced a new five-year capital plan of $32.2 billion, the largest to date, focusing on transmission and LNG investments, with a five-year rate base CAGR of 7.5%.

A fourth-quarter dividend increase of 4% was declared, marking 53 years of consecutive increases, with dividend growth guidance extended to 2031.

Key projects include the Tilbury LNG expansion in British Columbia and the ITC Mars Project in Iowa, with significant investments planned in transmission and distribution infrastructure.

Management highlighted strong customer growth in Arizona and potential large-load opportunities, especially in data centers, which are not yet fully reflected in the capital plan.

The funding plan is designed to support strong credit ratings, primarily through cash from operations and debt issued at regulated utilities, with some use of ATM equity.

The regulatory environment remains constructive with updates on ongoing rate cases and regulatory mechanisms to address potential lags.

Management emphasized a focus on organic growth while keeping customer affordability in mind, and M&A is not a primary focus.

Full Transcript

Betsy (Conference Operator)

Thank you for standing by. This is Betsy, the conference operator. Welcome to the Fortis Inc. third quarter 2026 results and new five-year capital outlook conference call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. To join the question queue you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero.

I would now like to turn the conference over to Stephanie Amaimo, Vice President, Investor Relations. Please go ahead, Ms. Amaimo.

Stephanie Amaimo (Vice President, Investor Relations)

Thanks, Betsy, and good morning, everyone. Welcome to Fortis’ third quarter 2026 results and new five-year capital outlook conference call. I’m joined by David Hutchens, President and CEO, Jocelyn Perry, Executive VP and CFO, other members of the senior management team, as well as CEOs from certain subsidiaries. Before we begin today’s call, I want to remind everyone that the discussion will include forward-looking information which is subject to the cautionary statement contained in the supporting slide show. Actual results can differ materially from the forecast projections included in the forward-looking information presented today. Non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our third quarter 2026 MD&A. Also, unless otherwise specified, all financial information references are in Canadian dollars. With that, I will turn the call over to David.

David Hutchens (President and CEO)

Thank you, and good morning, everyone. This past quarter has been one of the busiest and most positive I can remember during my tenure as CEO, leading to meaningful progress and significant opportunities for our business going forward. We’re also happy to put another strong quarter behind us operationally. We continue to provide safe and reliable service to our customers and invested $4.2 billion in our systems year to date. For the full year we expect to invest approximately $6 billion, up $400 million from our plan, and we delivered earnings per share for the third quarter of $0.92.

And today we are unveiling our new five-year capital plan, our largest to date. Big news hit in the quarter with respect to our Tilbury site in British Columbia and ITC being awarded a competitive bid project in Iowa. And today we announced that our Board of Directors declared a fourth quarter dividend increase of 4%, marking 53 years of dividend increases. Before getting into the details of our new five-year outlook, I will turn the call over to Jocelyn to speak to our third quarter results.

Jocelyn Perry (Executive Vice President and CFO)

Thank you, David, and good morning, everyone. For the quarter, reported earnings were $474 million, or $0.92 per common share, and on a year-to-date basis reported earnings were $1.4 billion, or $2.69 per common share. As you can see on the slide, reported earnings in 2025 included income taxes and closing costs of $0.06 per share associated with the disposition of FortisTCI. Excluding this impact, adjusted EPS for the quarter was up $0.05 and year-to-date adjusted EPS was up $0.06.

On the next slide you will see the adjusted EPS drivers for the quarter by segment. At ITC, EPS increased by $0.03 driven by rate base growth and lower stock-based compensation expense, partially offset by higher finance costs. Our U.S. electric and gas segment contributed a $0.02 increase, mainly driven by UNS Energy. The growth in Arizona was due to higher electricity sales associated with residential and industrial usage and customer growth. The timing of operating costs and lower income taxes associated with the amortization of investment tax credits on the battery storage project also contributed to the increase, moderating this was the impact of milder weather quarter over quarter and regulatory lag associated with rate base growth not yet reflected in rates. At Central Hudson, earnings were largely consistent quarter over quarter as rate base growth, the timing of cost, and a contribution to a customer benefit fund in 2025 were offset by a favorable regulatory adjustment made in the third quarter of 2025 upon implementation of the most recent rate order.

Our Western Canadian utilities increased EPS by $0.02 in the quarter driven by rate base growth as well as lower income tax expense at FortisAlberta, and for our other electric segment, EPS decreased by $0.01 largely due to the disposition of FortisTCI. In the corporate and other segment, results reflect net unrealized losses on derivative contracts compared to unrealized gains in 2025, the timing of income tax recoveries, and the disposition of Fortis Belize in the fourth quarter of 2025.

Foreign exchange had a $0.01 favorable impact for the quarter, and higher weighted average shares issued under the dividend reinvestment plan and ATM program impacted EPS by $0.01. And as noted on the slide, the 2025 disposition of our assets in Turks and Caicos and Belize lowered EPS by $0.02 in the quarter, net of finance cost savings. Year-to-date results were mainly driven by the same factors discussed for the quarter with a few additional items to note. For the nine-month period, Central Hudson was up $0.04 primarily due to rate base growth and the timing of costs, partially offset by the favorable regulatory adjustment in 2025, as discussed earlier. At UNS, EPS was down $0.01, which reflects lower margin on wholesale sales and higher operating costs, in addition to the other items noted for the quarter.

And lastly, the impact of foreign exchange was $0.03 and the impact of the 2025 dispositions, net of finance cost savings, was $0.05 year to date. Turning next to our regulatory update, in October the ACC Administrative Law Judge issued a recommended opinion and order in TEP’s general rate application recommending an allowed ROE of 9.65% and a 55% common equity component of capital structure. We currently have an allowed ROE of 9.55% and a 54% equity component of capital structure.

The order also recommended an annual formulaic rate adjustment mechanism with a range of plus or minus 50 basis points around the allowed ROE, the inclusion of post-test-year adjustments, the elimination of certain adjuster mechanisms, and the deferral of certain costs associated with Roadrunner Reserve 2 for future recovery. The ALJ’s recommendation proposes implementation of new rates by December 1st and is subject to ACC approval, which is anticipated later this month.

I’ll now turn the call back to David to cover key elements of our new five-year capital plan.

David Hutchens (President and CEO)

Thank you, Jocelyn. Our new 32.2 billion five-year capital plan is 3.4 billion higher than our previous plan. Our five-year rate base CAGR is 7.5%, up 50 basis points compared to the prior plan. We have also extended our annual dividend growth guidance of 4% to 6% through 2031. This new plan builds on the growth momentum across our high-quality footprint while keeping customer affordability top of mind. The growth in our five-year plan is largely driven by transmission and LNG investments.

At ITC, the $1.7 billion increase was primarily driven by projects associated with MISO’s Tranche 2.1 Long-Range Transmission Plan, along with higher baseline reliability projects and new interconnections. At Fortis, the $1 billion increase primarily reflects investments in LNG infrastructure, including the Tilbury Phase 1B liquefaction expansion and the new Tilbury LNG storage tank. The remaining increase is driven by customer growth and reliability investments across our footprint.

The new plan is highly executable, with approximately 75% directed toward transmission and distribution investments and critical infrastructure that supports stable and predictable returns. The capital program is low risk and comprised of 100% regulated projects and includes 11 major capital projects. Consolidated rate base is expected to increase from 45 billion in 2026 to approximately 56 billion in 2029 and 64 billion in 2031, yielding three- and five-year compound average growth rates of 7.7% and 7.5%, respectively.

Last month, we were pleased to see MISO award ITC the Tranche 2.1 competitive bid project in Iowa, known as the Mars Project. This allows ITC to design, build, own, and operate the project, which includes approximately 300 miles of new 345- and 765-kV transmission lines and is in ITC’s service territory. The project’s total investment is estimated at US$1 billion, with approximately US$500 million included in our new five-year capital plan, with the balance expected post-2031.

Now I will take a few minutes to speak in more detail on the capital plans at our three largest utilities. ITC’s capital plan of 11.6 billion is the largest in the company’s history and supports five-year rate base growth of 8.6%, up 50 basis points compared to the prior plan. ITC’s regulated assets currently represent about one third of our consolidated rate base, with that portion expected to trend upwards over the plan as ITC continues to deliver our strongest rate base growth.

Significant opportunities above and beyond the base plan exist at ITC, including approximately US$2.9 to US$3.4 billion post-2031 for Tranche 2.1 projects assigned through rights of first refusal, as well as approximately US$500 million for the Mars Project that I mentioned earlier. ITC may also realize future opportunities associated with projects as part of the ongoing MISO and SPP transmission planning processes. Other potential areas of growth include customer connections associated with over 10,000 megawatts of load growth for proposed data centers, industrial customers, and economic development projects in various stages of development across their footprint. This is up from 8,000 megawatts last quarter. With significant investments underway and a robust pipeline of future growth opportunities, ITC is well positioned to deliver sustained long-term growth through this transformative period of transmission expansion.

Turning to UNS Energy, their capital plan of $5.6 billion supports five-year rate base growth of 7.4%. Like the prior plan, investments are spread across the value chain. Notably, over two-thirds of the capital plan is concentrated in transmission and distribution infrastructure, with the balance consisting of generation and other investments. As for opportunities above and beyond the plan, we continue to see strong interest from both new and existing customers across our service territory.

At TEP, we have one approved energy supply agreement associated with approximately 300 megawatts of data center load that is expected to begin ramping in 2027 and will be supported by existing and planned resources, including renewable generation and energy storage already in service or under development. Beyond this initial agreement and the subsequent phases under negotiations with the customer, our Arizona service territories are experiencing strong demand associated with mining, industrial development, electrification, and broader commercial and residential growth.

These opportunities have the potential to drive additional investments in generation, transmission, and distribution infrastructure over time. Last week, both TEP and UNS Electric filed their 2026 Integrated Resource Plans with the Arizona Corporation Commission, outlining their plans to meet customers’ projected energy needs over the next 15 years. TEP’s base case scenario prioritizes affordability and assumes average annual sales growth of 5.7% through 2031. It also includes up to US$1.3 billion of opportunity above the capital plan through 2031, subject to RFP processes.

Additionally, to evaluate the significant growth potential I previously mentioned, TEP included a high-growth scenario in its Integrated Resource Plan that would require approximately 800 megawatts of new generation and require up to US$1.5 billion of incremental investments. These opportunities are not currently reflected in our base capital plan but represent meaningful long-term growth potential for the business. It is important to note that this high-growth scenario is very beneficial to TEP’s customers, with the lowest rates of all scenarios as seen on the graph to the right.

In terms of the next steps, the stakeholder process will begin next year, and we expect ACC acknowledgment in the third quarter of 2027. Turning now to British Columbia, where investments in natural gas and LNG infrastructure are driving strong growth at Fortis. Fortis’s $6 billion capital plan includes investments to maintain system reliability and integrity alongside major LNG and advanced metering infrastructure projects. The capital plan supports rate base growth of 7.9%, up from 6% in the prior plan. There are a number of projects underway at our Tilbury site with additional opportunities for growth.

Back in July, we received an order in council for a larger Phase 1B liquefaction project, as well as a marine jetty to support LNG marine fueling in the Port of Vancouver. Total investments for this project are expected to be approximately $1.7 billion. In September, Fortis received environmental approvals for its Phase Two expansion, including investing up to $1.1 billion in the Tilbury LNG storage tank expansion project. This 3 Bcf storage tank and associated regasification improves resilience and supports affordability for our customers.

Phase Two also provides an opportunity of up to 2.5 million tons per annum of additional liquefaction capacity to serve emerging domestic and export LNG markets. We have the flexibility to develop this project in stages, and we estimate an investment opportunity in the range of 2 to 4 billion dollars depending on market demand, and the majority of this expenditure is expected beyond 2031. We continue to work through permitting and our final investment decision.

Development at the Tilbury site has been many years in the making and represents the exceptional work by our team in British Columbia to expand the use of their gas network to produce regulated LNG that lowers carbon emissions and improves customer affordability. Bringing it all together, we are focused on executing our new five-year plan while working to advance our robust growth pipeline. I will now turn the call back to Jocelyn.

Jocelyn Perry (Executive Vice President and CFO)

As we prepared our new five-year outlook, customer affordability remained front and center. In addition to efficiently funding our capital plan, several of our key customer affordability initiatives include O&M savings targets, load growth projects, like in Iowa and Arizona, least-cost capital projects, like the Springerville Repowering Project, and the continued delivery of customer conservation programs. And with increased sales of LNG through the expansion of our Tilbury facility, we expect to continue to provide rate benefits for our customers.

We continue to take a disciplined approach to funding the $3.4 billion increase in the new five-year plan together with the $400 million increase in our 2026 capital plan. We advanced a portion of our funding requirements in 2026 through the issuance of US$1 billion of hybrids and approximately $260 million of ATM equity in the third quarter. Over the next five years, as you can see on the funding pie chart, our capital plan is expected to be funded primarily through cash from operations and debt issued at our regulated utilities.

Our dividend reinvestment plan remains the foundation of our equity needs over the five-year plan. We do expect to issue approximately $250 million of ATM equity over the next 12 months, subject to market conditions. Overall, our funding plan is designed to support our strong investment-grade credit ratings. Our credit profile is underpinned by a diverse, high-quality portfolio of regulated utilities, with 95% of our assets in transmission and distribution across constructive regulatory jurisdictions providing stable and predictable cash flows. The plan supports average S&P FFO-to-debt metrics above 12% over the five-year period, with improving financial flexibility in the latter years, as well as average Fitch FFO leverage of approximately 5.9 times.

Taken together, our high-quality regulated portfolio, disciplined funding approach, and improving credit metrics positions us to execute the capital plan while maintaining a strong credit profile. Today we announced the declaration by our Board of Directors of a fourth quarter dividend of 66.5 cents, representing a 4% increase. This brings us to 53 consecutive years of increases in dividends paid, a track record that we are very proud of. With our strong dividend history and regulated growth strategy, we are extending our 4% to 6% annual dividend growth guidance through 2031. I’ll now turn the call back to David to wrap up.

David Hutchens (President and CEO)

When we think about the Fortis investment proposition, it really comes down to sustainable growth. Supported by our high-quality portfolio of regulated utilities, we have strong rate base growth, a robust growth pipeline, and a transparent funding plan. We’re investing to strengthen the resiliency of our systems and ensure they can reliably and affordably meet customers’ evolving energy needs. We are doing that from a strong foundation: 100% regulated utilities, solid investment-grade credit ratings, regulatory and geographic diversity, and a proven track record.

All the right pieces to provide long-term value to our customers and shareholders. That concludes my remarks. I will now turn the call back over to Stephanie.

Stephanie Amaimo (Vice President, Investor Relations)

Thank you, David. This concludes the presentation. At this time we’d like to open the call to address questions from the investment community.

Betsy (Conference Operator)

We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. The first question today comes from Maurice Choi with RBC. Please go ahead.

Maurice Choi (Analyst)

Thank you and good morning, everyone. Recognizing that there’s a lot of good growth in ITC as well as FortisBC, I do want to touch on the large load opportunity at UNS Energy. In the past, you’ve highlighted a potential of incremental generation cost about $1.5 to $2 billion through 2030. And as I look at the presentation today on slide 14, I see that there is up to $1.5 billion of investment. So assuming these numbers are apples to apples, is it fair to suggest that your new plan includes some, but still not very much large-load related capex?

And maybe as a quick follow-up, if that’s true, in the spirit of today’s U.S. elections, how do you see your outlook for this remaining growth capex being shaped by the election if it does proceed as the poll suggests?

David Hutchens (President and CEO)

Yeah, thanks, Maurice, and thanks for the question. No, actually there is no additional capital in our plan related to any data center growth in Arizona. The difference is just the size that we were assuming. So when we talk about the estimated US$1.5 billion of additional investment opportunities, it was based on adding a certain amount of load to our integrated resource plan. We basically ran a model to try to get numbers based on probably something that was in the middle of that range that we were looking at before.

So when we talk about the projects in Arizona, we have the existing 300-megawatt ESA, we have additional opportunity for investment at that site, which we always put kind of around that 300 megawatts to build that total site out to, say, 500 or 600 megawatts. And then we were always talking about a second site as well that is still looking at building out there in the north part of the Tucson area. And that one we estimated at 500 to 700 megawatts.

So when we put in that one and a half to $2 billion, it was more like a whole bucket of projects. And here we are actually just taking a little bit smaller portion of it for that high-growth scenario. And then to opine on the election outcome and what that might mean for data center development, I think as we sit here today and as folks go to the polls in the U.S., obviously the data center topic has been very front of mind for a lot of voters and a lot of politicians. What I’m hoping is that we can hopefully find our way away from rhetoric and look at the real positive benefits that we see from data centers, as long as they’re done right, as long as there’s no cost shifting, as long as there’s net benefit to our customers, and all the environmental and water and the rest of those things are addressed by the communities that they’re going in.

But when you have these large loads come in, it makes your system more efficient and saves customers money. We’re seeing that in Iowa, as you saw on the slide, talking about that 20% reduction in those rates there. We see it in Arizona. Even though we’re not making any additional investments for the first 300 megawatts of data center that we have there, we’re seeing a $13 per month benefit. So all of those things hopefully will flow through and people will see the proof and the positive nature of what some of these large loads can do.

And it’s not just large data centers. It’s large load and high-capacity-factor customers like we’re seeing for LNG in British Columbia. So there are some positive benefits, but I think no one wants to talk about them until tomorrow.

Maurice Choi (Analyst)

Understood. That all makes sense. And maybe I could just finish it off with a question on funding, particularly given the greater growth that you have in front of you. I know that the DRIP program is still the main tool that you use for your common equity requirements. And in the past you said that all options are on the table if capex rises, including asset sales. And considering your options there, how should we think about your use of ATMs moving forward?

You’ve initiated that as part of your Q3 period, using that vehicle versus discrete issuances. And perhaps more broadly, I see the 12.3% FFO/debt average. But how do you philosophically size what is the right buffer versus your 12% threshold?

Jocelyn Perry (Executive Vice President and CFO)

Thanks, Maurice. Yeah, so we do have the ATM program available and the DRIP, as you said, has been quite healthy and provided most of the equity needs that we have. We anchor everything back to, I think, the credit metrics that you referred to. And what is the right buffer. It takes a lot to move the metrics given the size of Fortis. But we’ve said that we’d like to have a 50 to 75 basis point buffer above those metric thresholds. And really, it’s not any one thing that I think would happen with Fortis that would, you know, kick us past those buffer limits.

It’s more about if things change in the world and the thresholds just change at the rating agency level and not anything to do with Fortis. But we do anchor sort of our funding plan around holding that kind of level of buffer. So when I think about the ATM going forward, as we listen to David talk about all those, I guess, above and beyond the plan opportunities in each of our regulated utilities, you know, back to what you said, Maurice, we will be looking at everything. ATM will be one piece of that to fund that. But again, anchor back to our credit profile and our credit metrics. We also have room for more hybrids in our cap structure. We only have about 6% in our cap structure today.

And as you know, I mean, there’s room to add more there. And so again, no real secret to how we think about funding. We try to maintain the buffer. But when we start to see and get visibility on the growth above and beyond the current plan that we’ll have, we’ll assess what options are in front of us and we’ll choose it once we can see the new growth profile for the new capital plan.

Maurice Choi (Analyst)

That’s great flexibility. Thank you very much for the comments and congrats.

Betsy (Conference Operator)

The next question comes from Rob Hope with Scotiabank. Please go ahead.

Rob Hope (Analyst)

Morning, everyone. Appreciate all the details on the updated capital plan. Maybe taking a look at slide 17 and Tilbury LNG and kind of the spending breakdown. There’s, you know, as the federal government and provincial government are much more amenable to, we’ll call it, conventional energy investment, and there is a concerted effort to accelerate projects. As you take a look at these projects, is there an opportunity to do more at that site or could we see some of the timelines being moved forward there?

David Hutchens (President and CEO)

Yeah, I’ll turn that over to Roger to talk about the timeline because I know he’s got, you know, they’re really hustling to get these projects done as quick as they can, which is what is shown in this table on page 17. But I also want to make sure that, you know, it’s really loud and clear that that second phase, the phase two expansion, that can add up to 2.5 MTPA of liquefaction there, that’s a huge project and has a ton of opportunity. We know we have to figure out the FID and a whole bunch of other stuff and permitting and all the things that we have to do on consultations, et cetera.

That one we’re hoping we could see squeeze in the beginning of the next five-year plan. But Roger, can you opine on some of those details?

Roger

Yeah, thanks, Dave. Morning, Rob. Thanks for the question. Yeah, as Dave noted, Tilbury has three distinct projects to it. Tilbury 1B, which is the Order in Council we received in the summer, which is really focused on the marine fueling market as that grows. The second point is the storage tank, 3 billion cubic foot storage tank that is really gas storage on site for system resiliency and reliability and managing gas supply costs. And then Tilbury 2 is liquefaction and that could serve one of two markets.

It could serve the expanded bunkering market for marine fueling or could be export of LNG. That is the full build-out. I think, Rob, you were asking whether we could do more on that site with this Environmental Assessment Certificate that we just received that covers the potential on that site. As far as timelines go, Tilbury 1B and TLSC are in this plan and we are into the design phase and contracting and we expect to commence construction some point 2027 and in service end of ’23 into 2032. But we’ll have more details on that as we get through the development and planning. Tilbury 2 is the bigger opportunity. It could be done in phases, as Dave said, or we could end up seeing a large offtake. But we also have to deal with upstream investments for gas supply.

So there’s a bit more work to realize that opportunity. But given the growth of the bunkering market, part of it could be done earlier, within the next number of years to serve that market while we look to broader opportunities beyond B.C. with export LNG.

Rob Hope (Analyst)

All right, that’s great. And then maybe moving over to a bit more of a broader question. There’s been some large and notable M&A transactions in the utility space. Dave, can you maybe update us on how you’re thinking about the potential for M&A in this environment or still the focus on organic growth?

David Hutchens (President and CEO)

Yeah, I would say still our primary focus is obviously on organic growth and, you know, we’re doing a lot of that. As you can see, our five-year capital plan has increased every year. I think we went from six to six and a half to seven to seven and a half. So we’re really seeing that additional organic growth come to fruition. I think we and our investors would agree if we have a dollar to spend, the best place to spend it is in additional organic growth because it’s a dollar invested in rate base and you get a dollar in rate base.

So it’s the most efficient way for us to add value. It’s also a great way for us to add value to our customers, especially investing in the infrastructure that they need for energy, or in infrastructure that provides more efficient and lower and more affordable power for them. So that’s the main focus still. We do see a lot of the M&A activity that’s happening in the sector and, you know, there’s always, you know, the view that there may be some, you know, potential opportunities there. Whether it’s through a balance of, you know, synergies, bigger balance sheet, you know, better credit, all of those things. We continuously look at all that stuff, but it’s not a focus of ours because it’s not something we need to do. It’s something that we continuously evaluate though.

Rob Hope (Analyst)

Appreciate that. Thank you.

Betsy (Conference Operator)

The next question comes from John Mold with TD Securities. Please go ahead, John. Your line is open, you may ask your questions.

John Mold (Analyst)

Yep. Thank you very much. Sorry about that. Good morning, everybody. Maybe just starting with the Tucson Electric rate case. And I appreciate you don’t want to get ahead of the commission and its debates and a potential final order. Just wondering if you can talk about, from your perspective, the puts and takes in the ALJ recommendation and how you’re thinking about potential regulatory lag just in the context of the recommended post-test-year plan and first adjustment in April 2020—excuse me—as currently proposed.

Jocelyn Perry (Executive Vice President and CFO)

Yeah. So first off, yeah, we are still in the middle of the rate case process, and the recommended opinion order is just kind of one piece along the way. And, you know, we’re really anxious and excited to get to the open meeting and get the rate case behind us and hopefully get rates effective 1 December, which is the plan currently. So, yeah, it is going through the normal process. We filed exceptions last week on a couple issues that are still in debate, like ROE, et cetera.

So it’s just in that normal process; I wouldn’t opine any more than that. And then on the regulatory lag perspective, we did get the recommendation for an adjustment mechanism, and it basically looks a lot like UNS Gas’s and other ones that have been recommended in the state, and it will not go into effect. The first actual adjuster will be in April of 2028. So there will be a little bit of regulatory lag that we’ll see between the time period of these rates going into effect and that April timeframe, which will reflect the costs and investments made up till the end of 2027.

So still a little bit of regulatory lag there. But this is one of those things where it may not be absolutely perfect — it’s not a forward-looking test-year kind of mechanism — but it’s a really great result from the perspective of leveling out and smoothing out the earnings down in Arizona.

John Mold (Analyst)

Okay, thanks for that. And then just maybe going to ITC and the 10 gigawatts of potential load growth customer connections there, mainly data centers and economic development. You know, I appreciate this is out and beyond the plan as it stands, but I’m just wondering if you can give us a sense of how that potential load growth is paced, like what the timing might look like and how we should think about the potential investment on your end that could come from that bucket of projects.

Maybe it’s aspirational to say that if they all were to come to fruition, but just how are you thinking about the potential incremental investment opportunity that could come from that if you do see a high conversion rate?

David Hutchens (President and CEO)

Yeah, I’ll turn that over to Chris so she can kind of explain the different pieces we have there for interconnections and then additional transmission investments that might come through some of the other planning processes.

Chris

Yeah, thanks, Dave, and good morning, John. Thanks for the question. I think you should look at that as incremental. So we already have quite a bit in the plan. So we have 800 million in the plan for data centers, and that’s for data centers that have been publicly announced and have approvals. So everything in that 10 gigawatt bucket are things in our pipeline, and they’re anywhere from further down the pipeline and having negotiations on agreements to early stages of doing the planning work.

So I think you can expect that not all of that will come to fruition, but it’s real enough that we felt good about projecting that and, you know, as Dave always says, we never put anything in the plan until it’s real.

John Mold (Analyst)

Okay, I’ll get back in the queue. Thanks very much for taking my questions.

Betsy (Conference Operator)

The next question comes from Ben Pham with BMO. Please go ahead.

Ben Pham (Analyst)

Hi, thanks. Good morning. I wanted to start out with the higher CapEx plan. I know you’ve mentioned that it’s highly executable for a number of different reasons. Can you unpack that maybe a bit more for us and comment specifically on your thoughts on the labor availability, material availability, and maybe just more broadly, what do you think is the most difficult part of executing to your plan?

David Hutchens (President and CEO)

Yeah, thanks, Ben. I think, you know, this is kind of standard questions that we look at anytime we take on big projects — making sure that we have the resources, making sure that we can get in the queue for the supply chain, which will drive the timeline of the projects. You know, all of those things are part of how we’ve been doing projects forever. And it’s no different. It’s just that we have a lot more and a lot larger projects. So it obviously requires a little more attention and focus on those large projects.

But this isn’t something that we’re changing overnight drastically. I mentioned before that we have been slowly increasing our rate base growth. So this isn’t us going from 3% to 7.5% and wondering how we’re going to get all that executed. This is all well within the capabilities of our companies and things that we’ve been planning for a long time, and we’ll focus on that. So that’s why we think that they’re highly executable — because it’s stuff that we do and have been doing for decades and decades.

So other than supply chain, labor, and those same concerns that you’ll see across any sector really these days, we think that we will be able to sort that out.

Ben Pham (Analyst)

Okay, got it. My second question: my second question is on the federal MEGA deduction. Is that reflected in your plan at all, and if any, is there implications on credit metrics or rate base implications for the Canadian utilities?

Jocelyn Perry (Executive Vice President and CFO)

Yes. So we have not reflected — as you know, that’s not into legislation just yet, and so the final details of that are to be determined. Based on what we see thus far, we don’t expect it to have a material impact on our credit metrics. And if you think about it, what this deduction does, it allows you to write off things a little faster for tax purposes. So it reduces your taxable income and the amount of taxes you have to pay. But that would also reduce, particularly in our western utilities, the amount that we’re collecting from customers.

So net-net, we’re not expecting it to have a material impact on credit. But we’ll stay tuned for the final rules around the PMD, and once we have it in hand, we’ll come back with more certainty around the impact.

Betsy (Conference Operator)

Okay, that’s really helpful, thank you. The next question comes from Mark Jarvi with CIBC Capital Markets. Please go ahead.

Mark Jarvi (Analyst)

Yeah, good morning everyone. Charles, I’m just going back to your comments on funding. Just curious in terms of where you could push the hybrid issuances and then just what would be a reasonable assumption in terms of ATM usage over the next few years to execute on the plan ahead of you?

Charles

Mark, with respect to where we could push the hybrid capital, like I said, we have about 6% in our cap structure today. I mean, the DBRS limit I think is 10% and S&P is 15%. If we were to push it to 10%, we definitely have over two and a half billion that we could do in hybrid capital for any growth above and beyond the plan. With respect to usage of the ATM, we’ve laid out what we need for the current plan that we have. We have no plans of using the ATM program, all but for additional capital being added to the plan that you’re looking at. ATM will be one thing that we will look at in addition to hybrids and everything else in our toolkit. So no plans to use the ATM above what we’ve stated here today. But as we firm up above and beyond the capital plan investments, if some of those were to come to fruition, then ATM would be one consideration that we would use.

Mark Jarvi (Analyst)

Would you see anything kind of potentially coming into the plan in the next couple years that would require the ATM, or does it feel like it’s more later in the five-year plan that things could change?

Charles

So, I mean, we can’t build these things overnight. And these are large projects. And David just basically said that these things are evolutionary over time, and we’ve been slowly increasing our rate base growth. I would tend to think that we would see more in the latter years of the plan as opposed to the front end of the plan.

Mark Jarvi (Analyst)

Yeah, that makes sense. And then just coming back to your commentary on planning and ramping into the growth, how do we think about the IRP base case in Arizona, potentially the large load? Do you just go larger on existing sites where you plan to add combined cycle units in 2031? Do you have additional sites? You’re there. How far in advance are you in terms of an accelerated IRP planning process right now?

David Hutchens (President and CEO)

Yeah, we have many sites and options that we’ve been looking at and evaluating for that. So it’s quite a number of them. And there’s, you know, there’s sites for generation development, there’s transmission needs. There’s a lot of different things that fall out of the integrated resource plan if we see especially that high-growth scenario. So we do have some options laid out and are evaluating those.

Mark Jarvi (Analyst)

I’m just curious in terms of the conversation about the expanded — the 300 megawatts, going to another 300 megawatts, the second site — how are the customers thinking about timelines? We’re seeing some questions about slippage on timelines. Are your customers feel like there’s an opportunity to go faster if you have an accommodating utility setup here and communities to support this project?

David Hutchens (President and CEO)

Yeah, that’s a great question. I think, Susan, if you can opine on that.

Susan

Sure. Good morning. Thanks for the question, Mark. Yeah, so, you know, we’re working really closely with our customers to understand their needs and to go as fast as they need us to go. That’s why, as Dave mentioned, we’ve got a lot of options that we’re evaluating to make sure that we can meet the timelines that come up. We haven’t had anything put in front of us yet that we can’t meet. Of course, with Project Blue, this first phase, we already have the generation available.

And so as we plan out the next sites, we would work really closely with the customer to make sure that we’re bringing the new capability online to meet their needs.

Mark Jarvi (Analyst)

Is there any indication, Susan, that their timelines have changed, either accelerated or delayed?

Susan

We haven’t seen necessarily a shift one way or the other. We are still negotiating further expansion of Project Blue. We’ve got Copper World just announced that they’re planning to be online later in our five-year plan, and we’ve got 1232 still moving forward on their original timeline, so haven’t seen anything shift one way or the other.

Mark Jarvi (Analyst)

Sounds great. Thanks for the time today, everyone.

Betsy (Conference Operator)

The next question comes from Michael Loengain with Barclays. Please go ahead.

Michael Loengain (Analyst)

Hi. Thanks for taking my questions. So you raised your dividend 4% after also raising it 4% last year. You know, you continue to guide a 4 to 6 growth now extended through 2031. You know, obviously subject to board approval. But just, you know, what is your thinking? You know, could you expect the low end — this 4% — to continue over the plan, or do you expect an increase in the rate of dividend growth? You know, anything you could say there, like you have a targeted payout ratio over time, anything you say there would be helpful.

David Hutchens (President and CEO)

Yeah, we haven’t got to the point where we’re putting out a targeted payout ratio. And what we’ve always said for the last several years is, you know, yeah, we’re targeting that 4 to 6%. We also want to make sure that we’re pulling our payout ratio down, which we have pretty well over the last three or four years. So we’d like to keep nudging that a bit lower, but we don’t really have anything other than the 4 to 6% guidance on the dividend going forward.

Michael Loengain (Analyst)

Thank you. And then in Alberta, obviously, the third PBR term appeal was dismissed. I know the argument there was that the commission improperly based the capital funding. Just wondering, how are you feeling about the prospects in Alberta going further in terms of going forward, in terms of the regulatory environment? And do you have concerns over, you know, about less than favorable outcomes in the future?

David Hutchens (President and CEO)

Yeah. This is the beauty of our business model, is we have people in each of our jurisdiction to opine on exactly what’s going on in their neck of the woods. So I’m going to turn that to Jeanine. Good morning and thank you for the question. Yeah. The outcome on the PBR appeal decision wasn’t entirely surprising. We felt it necessary to bring it forward to the court to have the discussion about how the plan was designed. But, you know, we had been prepared that this may be the way the court may align with the outcome of the previous decision of the AUC.

With respect to our relationship with the AUC, we have a very, very constructive relationship with the regulator. We’re operating very effectively under the current PBR plan, and we’ve been in contact with them about how a rebasing opportunity might look and what the prospects for future rate-making might look like—whether that’s a continuation of PBR or a return to cost of service or what other regulatory approaches might be undertaken. So we’re constructively and proactively having those conversations with them and our relationship allows us to do that.

There’s a lot happening in Alberta, certainly a lot of opportunities for economic growth. Fortis Alberta operates in eight of Alberta’s 10 fastest growing communities. So we’re seeing a lot in terms of new load interconnections—large loads, commercial, industrial, and some data center. So, you know, on all fronts, I would say feeling very, very positive about the opportunities to continue to invest in a fairly large system that we have here. I mean even to continue to invest in reliability and wildfire, new technologies to make sure that we’re leveraging the grid for affordability.

Lots of prospects, lots of appetite to see us continue to do those things. The positive relationship with the regulator positions us well to do that, and we are more and more seen as a trusted advisor with the government of Alberta as they want to see these things happen in the province as well. So certainly partnering with them and the ISO to make sure that all of these things can occur.

Betsy (Conference Operator)

Once again, if you have a question, please press star then one. The next question comes from Hannah Velasquez with JP Morgan. Please go ahead.

Hannah Velasquez (Analyst)

Hey, good morning. Thanks for the update. Just wanted to circle back on the TEP rate case. So to the extent that the ALJ’s recommendation is tracking pretty closely to your original request, I know you discussed in the past about potentially revisiting issuing EPS guidance. Is that still something that you would take a look at or how are you thinking about that in relation to this rate case outcome?

Jocelyn Perry (Executive Vice President and CFO)

Yeah, we still are considering that. One of the things that—well, one of the prior questions was around regulatory lag associated with the next year and a half until the first adjuster goes into place at TEP. So we’ll have to manage, you know, basically that timing. But it is something that we definitely consider.

Hannah Velasquez (Analyst)

Okay, got it. Thank you. And I’ll keep my questions there. Thank you.

Jocelyn Perry (Executive Vice President and CFO)

Okay, thanks.

Betsy (Conference Operator)

This concludes the question and answer session. I would like to turn the call back over to Ms. Amaimo for any closing remarks.

Stephanie Amaimo (Vice President, Investor Relations)

Thank you, Betsy. We have nothing further at this time. Thank you everyone for participating in our third quarter 2026 results and new five year capital outlook conference call. Please contact Investor Relations should you need anything further. Thank you and have a great day.

Betsy (Conference Operator)

This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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