Fortis Inc. Delivers Strong Q1 Earnings, Driven by Rate Growth and Strategic Investments

Fortis Inc. (FTS.TO), Canada’s largest electric and gas utility by market capitalization, reported robust first-quarter 2025 results, outperforming estimates with revenue of CA$3.34 billion, a 7% increase from CA$3.12 billion in Q1 2024. The Toronto-based company’s net earnings rose to CA$499 million (EPS: CA$1.00), up from CA$459 million (EPS: CA$0.93) a year earlier, fueled by rate base expansion, regulatory wins, and a favorable currency tailwind.

Key Drivers of Growth

Fortis’ outperformance was anchored by three critical factors:
1. Rate Base Growth: The company’s utilities across North America, including its U.S. subsidiaries Central Hudson and UNS Energy, benefited from regulatory approvals that increased authorized rate bases. Central Hudson’s resolution of its 2024 general rate application added CA$0.05 to EPS, while transmission investments at ITC (e.g., MISO Tranche 2.1) and renewable projects in British Columbia contributed to long-term value creation.
2. Currency Effects: A stronger U.S. dollar against the Canadian dollar added CA$0.03 to EPS, reflecting Fortis’ U.S.-dollar-denominated revenue streams.
3. Capital Discipline: Fortis invested CA$1.4 billion in Q1 2025, advancing its CA$5.2 billion annual capital plan. The company’s five-year CA$26 billion capex program aims to grow its rate base from CA$39 billion in 2024 to CA$53 billion by 2029, supporting a 6.5% compound annual growth rate (CAGR).

Capital Projects and Regulatory Momentum

Fortis’ growth strategy hinges on regulated utility assets, which provide stable cash flows and predictable returns. Key projects include:
- ITC Transmission: Investments in the MISO Long-Range Transmission Plan Tranche 2.1, enhancing grid reliability and capacity.
- UNS Energy: Despite lower wholesale margins in Q1, the subsidiary’s long-term prospects remain strong, with ongoing renewable generation projects.
- Eagle Mountain Pipeline: A CA$4 billion gas infrastructure project in Alberta, supporting clean energy transition efforts.

Regulatory tailwinds also played a role. FortisBC secured a 2025–2027 rate framework with depreciation adjustments and an innovation fund for cleaner energy, while Tucson Electric Power (TEP) plans a rate application in 2025 with formulaic mechanisms to stabilize returns.

Dividend Strength and Financial Health

Fortis has increased dividends for 51 consecutive years, a testament to its financial resilience. The company reaffirmed its 4–6% annual dividend growth target through 2029, backed by regulated earnings and rate base expansion.

Balance sheet metrics remain solid:
- Debt Issuance: CA$1 billion raised in Q1, including 7-year notes at 4.09% and 30-year U.S. notes at 5.90%, funding capex and refinancing.
- Credit Ratings: Maintained by Moody’s (Baa3/Stable), DBRS (A low/Stable), and S&P (A-/Stable).

Risks and Challenges

Not all segments performed equally. UNS Energy’s EPS declined by CA$0.03 due to higher costs and lower wholesale margins, while Iowa’s Right of First Refusal (ROFR) legislation poses regulatory uncertainty. Fortis also faces cost pressures, including rising stock-based compensation and interest expenses, which could compress margins without rate adjustments.

Conclusion: A Steady Hand in a Volatile Market

Fortis’ Q1 results underscore its position as a defensive utility play with growth embedded in regulated assets and disciplined capital allocation. The CA$3.34 billion revenue beat and 7% EPS growth reflect execution against its five-year plan, which prioritizes grid resilience, clean energy, and rate base expansion.

With a dividend yield of 4.7% (based on its May 6 closing price of CA$49.04) and a track record of 51 years of dividend growth, Fortis offers income investors stability. Meanwhile, its CA$26 billion capex program positions it to capitalize on secular trends in energy transition and grid modernization.

The stock’s proximity to its 52-week high (CA$49.65) suggests markets are pricing in this upside, but risks like regulatory delays or cost overruns remain. For long-term investors seeking a blend of income and growth, Fortis’ fundamentals—backed by 75% of earnings from rate-regulated assets—make it a compelling choice.

In a sector where reliability matters, Fortis continues to deliver.