Fortis (FTS) Q2 2025: $2.9B CapEx Fuels 6.5% Rate Base Growth Ambition
Fortis advanced its $2.9 billion capital program in the first half, targeting a $14 billion rate base expansion by 2029. Regulatory progress and Arizona data center load growth are reshaping the company’s long-term resource planning and capital allocation. Investors should watch for the next capital plan update, as incremental upside in the U.S. and Western Canada could shift the growth profile.
Summary
- Arizona Load Growth Reshapes Capital Path: Data center agreements and coal-to-gas conversions drive new investment opportunities.
- Regulatory Settlements Bolster Earnings Visibility: Multi-year rate deals and formula rate mechanisms reduce lag and stabilize returns.
- Capital Plan Update Will Signal Next Leg of Growth: Investors should prepare for potential upside as new projects and load materialize.
Performance Analysis
Fortis delivered strong Q2 results, with earnings per share up year-over-year driven by rate base investment and regulatory settlements. The company invested nearly $3 billion in capital expenditures in the first half, with spending concentrated on grid upgrades, renewables integration, and energy storage. Segment results were led by Central Hudson’s earnings rebound, reflecting both rate base growth and a higher allowed return on equity (ROE) following a new multi-year rate plan. FortisBC and Western Canadian utilities also contributed, supported by projects like the Eagle Mountain Pipeline and LNG infrastructure expansion.
Regulatory lag and operating cost timing tempered growth in certain areas, notably at UNS Energy and Fortis Alberta. ITC Holdings, the U.S. transmission business, was steady as rate base growth was offset by higher stock-based compensation and finance costs. Foreign exchange gains provided a modest EPS tailwind at the corporate level. The company’s funding strategy remains intact, with over $1 billion in debt raised year-to-date and no use of the $500 million at-the-market (ATM) program, maintaining balance sheet flexibility.
- Central Hudson Rate Plan Drives EPS Rebound: Allowed ROE reset and cost rebasing provided a four cent per share lift in the quarter.
- TEP Grid Investments Offset by Regulatory Lag: Higher transmission revenue was balanced by timing delays in cost recovery.
- Western Canada LNG and Pipeline Projects Add Growth: Rate base expansion and LNG infrastructure contributed to a three cent EPS gain.
Overall, Fortis’s diversified utility model delivered steady growth, with regulatory wins and capital execution underpinning the quarter’s results. Margins and returns remain anchored by multi-year settlements and a disciplined capital program.
Executive Commentary
"With capital expenditures of almost $3 billion during the first half of the year, we are executing on our core objective of delivering safe and reliable energy to our customers. Financially, we delivered second quarter earnings per share of 76 cents, a nine cent increase over the same period last year."
David Hutchins, President and Chief Executive Officer
"EPS growth was mainly driven by rate-based investments across our utilities and higher earnings at Central Hudson and FortisBC... Through June, we raised over $1 billion of debt to repay borrowings and to fund our capital program. As we discussed last quarter, our five-year capital funding plan remains intact."
Jocelyn Perry, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Arizona Load Growth and Resource Transition
The Arizona utility, TEP (Tucson Electric Power), is at the center of Fortis’s growth narrative, with data center load agreements totaling up to 1.3 gigawatts under negotiation. The first 300 megawatts will use existing and planned capacity, while subsequent phases will require new generation and transmission investment. The planned conversion of 800 megawatts of coal-fired generation to natural gas at Springerville by 2030 supports both emissions targets and customer affordability, leveraging existing infrastructure to avoid lengthy development timelines.
2. Regulatory Settlements Anchor Returns
Multi-year rate settlements and formula rate mechanisms are reducing regulatory lag and stabilizing earnings, particularly at Central Hudson and TEP. The Central Hudson settlement provides a three-year rate plan with a 9.5% ROE, retroactive to July 1, 2025. TEP’s new rate filing seeks to phase out adjuster mechanisms in favor of annual formula rate adjustments, aiming for timely cost recovery and rate stability. These frameworks improve visibility and reduce administrative burden across the portfolio.
3. Capital Plan and Portfolio Optionality
Fortis’s five-year, $14 billion rate base growth plan remains on track, but management signaled incremental upside in Arizona and ITC (the U.S. transmission business). Additional opportunities in Western Canada, particularly LNG and pipeline projects, are under review. The next capital plan update, due later this year, will clarify how new load and regulatory outcomes are reshaping the company’s investment runway.
4. Sustainability and Grid Resilience
Fortis reported a 34% reduction in Scope 1 greenhouse gas emissions since 2019, driven by coal-to-gas conversions, renewables integration, and battery storage deployments like the 200-megawatt Roadrunner Reserve project. Public safety power shut-off (PSPS, wildfire risk mitigation) protocols have been expanded across Canadian and U.S. operations, reflecting a proactive approach to climate and physical risk.
Key Considerations
Fortis’s quarter was defined by execution on capital deployment, regulatory progress, and evolving growth opportunities in load and infrastructure. The company’s ability to secure new data center agreements, advance resource transitions, and maintain regulatory momentum will determine the next phase of growth.
Key Considerations:
- Arizona Data Center Demand Accelerates Investment Needs: Large-scale load agreements are driving new generation and transmission requirements, with immediate capacity met by planned assets and future phases requiring incremental capital.
- Coal-to-Gas Conversion Enhances Affordability and Reliability: Springerville’s transition to natural gas leverages existing infrastructure and transmission, mitigating supply chain and interconnection risk.
- Regulatory Wins Improve Earnings Stability: Multi-year settlements and formula rates reduce lag and enhance capital recovery, particularly at Central Hudson and TEP.
- Western Canada LNG and Pipeline Projects Offer Optionality: FortisBC’s pursuit of LNG bunkering and storage expansion could unlock new growth, depending on evolving provincial and federal policy alignment.
- Balance Sheet Flexibility Maintained: Over $1 billion in debt raised, with the ATM equity program untapped, preserves funding options for emerging opportunities.
Risks
Key risks include regulatory uncertainty in pending rate cases, execution risk on large capital projects, and evolving policy on renewables and gas infrastructure in both Canada and the U.S. Data center load growth may outpace current capacity, requiring timely development of new assets and pipeline infrastructure, while changes in tax credits and emissions policy could alter the economics of future investments.
Forward Outlook
For Q3 2025, Fortis guided to:
- Continued execution on the $7.8 billion annual capital program
- Progress on regulatory approvals for rate filings in Arizona (TEP) and New York (Central Hudson)
For full-year 2025, management maintained guidance:
- Rate base growth target of 6.5% CAGR through 2029
- Annual dividend growth of 4% to 6% through 2029
Management highlighted several factors that will shape the outlook:
- Arizona data center negotiations and timing of new generation development
- Regulatory decisions on multi-year rate plans and formula rate mechanisms
- Potential upside from ITC transmission awards and Western Canada LNG projects
Takeaways
Fortis’s Q2 results confirm the company’s ability to execute on its capital plan, while regulatory settlements and new load opportunities expand its growth runway. The next capital plan update will be a critical catalyst for investors, as incremental projects in Arizona, ITC, and Western Canada could shift the rate base trajectory and earnings power.
- Data Center Load is a Structural Tailwind: Arizona’s surge in power demand from data centers is accelerating investment needs and reshaping resource planning, with Fortis positioned to benefit from both immediate and long-term projects.
- Regulatory Progress Reduces Earnings Volatility: Multi-year deals and formula rates anchor returns and allow for timely recovery of capital, improving financial predictability.
- Capital Plan Update is the Next Watchpoint: Investors should focus on the upcoming five-year capital plan, as new projects and regulatory clarity could drive guidance revisions and valuation upside.
Conclusion
Fortis delivered a strong quarter, underpinned by disciplined capital deployment, regulatory progress, and emerging upside in load-driven investment. The company’s next capital plan update will be pivotal as new demand and infrastructure opportunities come into focus.
Industry Read-Through
Fortis’s experience underscores a broader North American utility trend: Data center and electrification demand are driving accelerated grid investment, while coal-to-gas conversions and renewables integration remain central to resource planning. Multi-year regulatory settlements and formula rate mechanisms are becoming the norm, as utilities seek to reduce lag and stabilize returns in a capital-intensive environment. Investors in regulated utilities should monitor how incremental load growth, policy shifts, and funding flexibility are reshaping the sector’s growth profile and risk-reward balance.