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Utility provider Fortis to diversify through acquisitions

Fortis Energy make plans to expand with a raft of purchases, as well as utilising further growth mechanisms within the sector

Fortis, Inc reported slightly higher revenues for the fourth quarter of 2011, as its investments in Western Canada utility plants began to pay off. Based in St. John’s, Newfoundland, the company has been around since 1987 and now owns a wide range of utilities, from electric and gas to hydroelectric power. It also now owns or operates property in the United States, Belize, the Cayman Islands and other parts of the world.

The company recently announced that it is raising its quarterly dividend by a penny to 30 cents per share. A planned purchase of Central Vermont Public Service Corporation was stopped when Quebec’s largest gas distributor, Gaz Metro Limited Partnership, out-bid Fortis for the company and their initial investment was returned.

According to Reuters, the company’s Fortis Alberta unit has been showing continued growth, which helped stabilise earnings and maintained the per-share growth. Net income for the fourth quarter, attributable to shareholders, rose to CAN$0.45 per share and the company showed a small rise in revenue of CAN$1.04bn.

Fortis has plans for both capital expenditure and systems development. Many of the transmission lines and supporting structures throughout the company’s service area are in need of upgrading and the company is evaluating each of them, before making recommendations for their replacement. Part of the company’s future planning is an electricity resource plan that outlines where upgrades are planned or expansion is in the pipeline.

On the West Coast, much of Fortis’ power is generated by four hydroelectric dams at Corra Linn, Lower Bonnington, Upper Bonnington and South Slocan. They all produce a steady stream of electricity, but require more and more maintenance. One of the ways Fortis is looking to the future is via its acquisition of CH Energy Group, the parent company of Central Hudson Gas & Electric. The recent agreement, which is valued at $1.5bn, is still awaiting regulatory approval. If that passes, as anticipated, the deal would be sealed in early 2013.

Fortis anticipates customer benefits such as “offsetting or deferring future rate increases, enhancing the quality of service to customers or making that service more affordable.” The acquisition of CH Energy will be Fortis’s first entry into the US regulated energy market since the demise of its agreement to purchase CVPSC. Shareholders of CH Energy will also need to give their approval to the union, along with both state and Federal regulatory agencies. A waiting period, which is written into the American anti-trust laws, will have to be served.

This acquisition is a good fit, due to the similarities in, not only the type of business, but also the regulatory framework. The assets acquired in the purchase of CH Energy should provide a good “fit” for the overall operations of Fortis and should result in shareholders seeing continued growth in both assets and dividends for the foreseeable future. Fortis has also agreed to continue CH Energy’s well-known philanthropic presence in the area, following completion of the purchase.