Fortis Delivers earnings oF $198

Million For the First Quarter oF 2015

- $900 Million Waneta Hydroelectric Expansion Online and Generating PowerFortis Inc. (“Fortis” or the “Corporation”) (TSX:FTS) released its first quarter results today.“Fortis is positioned for a strong 2015 based on the performance of our major utilities in the first quarter,” says Barry Perry, President and Chief Executive Officer, Fortis. “Also, the $900 million, 335-megawatt Waneta Expansion hydroelectric generating facility in British Columbia came online early April, six weeks ahead of schedule and on budget, while maintaining an excellent safety and environmental protection record. The facility will contribute to earnings beginning in the second quarter,” he continues.Net earnings attributable to common equity shareholders for the first quarter were $198 million, or $0.72 per common share, compared to $143 million, or $0.67 per common share, for the first quarter of 2014. Excluding a number of one-time impacts, adjusted net earnings

attributable to common equity shareholders for the first quarter were $179 million, or $0.65 per common share, compared to $146 million, or $0.68 per common share, for the first quarter of 2014. While UNS Energy contributed $20 million to earnings in the first quarter, as expected the acquisition had a $0.13 dilutive impact on earnings per common

share, after considering the common share offering and finance charges associated with the acquisition. The earnings of UNS Energy are highly seasonal, with approximately 75% of earnings contributed in the second and third quarters.“Our enterprise-wide capital program is expected to surpass $2 billion this year and is well advanced, with more

than $550 million invested in the first quarter,” says Perry. FortisBC’s Tilbury liquefied natural gas (“LNG”) expansion (known as Tilbury 1A), at an estimated total cost of approximately $440 million, is the largest capital project ongoing. Tilbury 1A will add 950,000 mmBtus of storage and 34,000 mmBtus daily of liquefaction when the second LNG tank and new

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liquefier come in service, which is expected to occur by the end of 2016.In January 2015 UNS Energy closed the purchase of an additional ownership interest in the Springerville Unit 1 generating facility for US$46 million, as expected, following the expiry of the lease agreement. UNS Energy’s ownership interests in Springerville Unit 1 now total 49.5%.“A number of significant regulatory processes were concluded in the quarter, ensuring ongoing regulatory stability for our utilities,” says Perry. “In addition to the proceedings concluded in Alberta, our application for new rates in New York State was advanced as well,” he explains.At FortisAlberta, regulatory decisions were received in March 2015 on the utility’s Capital Tracker Applications and the Generic Cost of Capital

(“GCOC”) Proceeding. The Capital Tracker Decision approved revenue for substantially all of FortisAlberta’s capital programs as filed; previously, revenue was recognized on an interim basis at 60% of the applied for amounts. The GCOC Proceeding set the utility’s allowed rate of return on common shareholder’s equity (“ROE”) for 2013 through 2015 at 8.30%, down from the interim allowed ROE of 8.75%, and set the common equity component of capital structure at 40%, down from 41% approved on an interim basis. The impact of the decreases in the allowed ROE and common equity component of capital structure only applies to the portion of FortisAlberta’s revenue that is associated with capital tracker amounts throughout the term of the performance-based rate setting regulation. As a result of these regulatory decisions, in the

first quarter of 2015, FortisAlberta recognized a positive $10 million capital tracker revenue adjustment associated with 2013 and 2014.At Central Hudson, a Joint Settlement Proposal was filed in February 2015 that proposes new rates at the utility for a three-year period beginning July 1, 2015, reflecting an allowed ROE of 9.0% and a 48% common equity component of capital structure. A delivery rate freeze was implemented for electricity and natural gas delivery rates through to June 30, 2015 as part of the regulatory approval of the acquisition of Central Hudson by Fortis. Central Hudson committed to invest US$215 million in capital expenditures during the two-year delivery rate freeze period ending June 30, 2015. Public statement and evidentiary hearings were held

in March 2015 and a Final Joint Proposal was executed in April 2015. The Final Joint Settlement Proposal is targeted to go to the regulator in June for consideration and approval.“Fortis remains focused on our core regulated utility business and long-term contracted energy infrastructure”, explains Perry. “We expect to make an announcement regarding the outcome of the strategic review of Fortis Properties in the second quarter of 2015,” he says.In March 2015 the Corporation entered into an agreement to sell its non-regulated generation assets in Upstate New York and Ontario. The sale of the generation assets in Upstate New York and Ontario is expected to close in the second quarter of 2015 and the second half of 2015, respectively.

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Fortis continues to be one of the highest-rated utility holding companies in North America, with its corporate debt rated A- by Standard and Poor’s and A(low) by DBRS, which helps ensure efficient access to capital. In February 2015 Tucson Electric Power Company, UNS Energy’s largest utility, issued US$300 million 10-year senior unsecured notes at 3.05%. Net proceeds were primarily used to repay long-term debt and credit facility borrowings and to finance capital expenditures. UNS Energy and its regulated utilities received credit rating upgrades from Moody’s Investor Service in the first quarter of 2015.

“Fortis continues to build on its dividend record to shareholders,” says Perry. The Corporation paid a quarterly dividend of $0.34 per common share on March 1, 2015 compared to $0.32 paid on December 1, 2014. The 6.25% increase extends the Corporation’s record of annualized common share dividend increases to 42 consecutive years, the longest record of any public corporation in Canada.“Following a decade of growth driven mainly by acquisitions, Fortis has entered a period of significant organic growth,” says Perry.Over the five-year period through 2019, the Corporation’s capital

program is expected to be approximately $9 billion. This investment in energy infrastructure is expected to increase midyear rate base by approximately 38% from $14 billion in 2014 to more than $19 billion in 2019 and produce a five-year compound annual growth rate (“CAGR”) of approximately 6.5%. Two new natural gas infrastructure investments in British Columbia that Fortis is pursuing - Tilbury 1B and the pipeline expansion to Woodfibre LNG - could increase the five-year CAGR in rate base to 7.5%.“Looking out over the five-year horizon, we expect our capital investment to support continuing growth in earnings

and dividends,” concludes Perry.Teleconference to Discuss First Quarter 2015 ResultsA teleconference and webcast will be held on May 5 at 10:00 a.m. (Eastern). Barry Perry, President and Chief Executive Officer, Fortis, and Karl Smith, Executive Vice President, Chief Financial Officer, Fortis, will discuss the Corporation’s first quarter 2015 results.Analysts, members of the media and other interested parties in North America are invited to participate by calling 1.877.223.4471. International participants may participate by calling 647.788.4922. Please dial in 10 minutes prior to the start of

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the call. No pass code is required.A live and archived audio webcast of the teleconference will be available on the Corporation’s website, www.fortisinc.com.A replay of the conference will be available two hours after the conclusion of the call until May 15, 2015. Please call 1.800.585.8367 or 416.621.4642 and enter pass code 13991420.Interim Management Discussion and AnalysisFor the three months ended March 31, 2015

obaMa’s Keystone Xl ClaiM about CanaDian oil is

False, FarMer says

U.S. President Barack Obama’s claims about the long-delayed Keystone XL pipeline have been raising eyebrows lately in this tiny oil-industry town in eastern Montana.The locals smell falsehood — evidence of it lies in a cow pasture just outside their town.The scent of untruth emanates from Obama’s oft-repeated claim that the pipeline would simply ship Canadian

oil, a statement he’s made several times while talking down the project’s economic benefit for Americans.“This is Canadian oil — this isn’t U.S. oil,” Obama said last November.That came as news to Jerrid Geving.Geving owns the land where Keystone XL would take in oil that, according to the president, doesn’t exist — up to 100,000 barrels a day of American crude, from North Dakota and Montana.Geving’s family has agreed to sell seven per cent of its land to TransCanada Corp. for an on-ramp to the pipeline — where storage tanks and a pump station would send U.S. crude into Keystone. It’s on a multi-generational family property, off a dirt road up a hill from the town of 1,800.If Obama ever approves the pipeline, the cows grazing there would be pushed to the 93 per cent of the property that would remain pasture.Since he’s already got a deal to be paid up to $1,800 an acre by TransCanada Corp., plus bonuses, he’s a little perplexed to hear the president say there’d be no U.S. oil involved.“I don’t believe that’s true,”

Geving said. “He needs to look into knowing everything.”Obama’s every statement on the pipeline is being carefully scrutinized in anticipation of a final decision on whether to grant a border permit for the project.Pending that decision, hundreds of kilometres of pipe are currently piled up in a yard about an hour east of Baker, in Gascoyne, N.D. Local politicians say they’d rather see that pipe in the ground.The annual property taxes from the pipeline would boost Fallon County’s revenues by 64 per cent and increase those in some neighbouring counties by as much as 117 per cent, according to a U.S. State Department study.That would help with roads, sewage, and airport maintenance in the county of 2,800, said county commissioner Bill Randash. The infrastructure needs are there, he added — in one part of Baker, there are septic tanks so old that wastewater occasionally floats to the surface of people’s lawns.As for the president’s claims about the pipeline, he said: “That’s not really true.... It’s not only Canadian oil.”

Obama’s own State Department has extensively documented the proposed on-ramp with U.S. oil. Its study says up to 100,000 barrels a day would be American oil, in a pipeline designed to carry 830,000 barrels.That means up to 12 per cent of the pipeline’s contents would be American, and that the pipeline would transport nearly 10 per cent of the 1.2 million barrels per day currently produced in the U.S. Bakken formation.Those may be small percentages. The pipeline would only take one or two oil trains a day off the clogged mid-western rail lines. But they could make a difference to local businesses.It’s been a quiet few months with the collapse of oil prices, several said. Out-of-town workers have stopped flooding into the community, with new infrastructure projects on hold.The near-empty restaurants and bars last week underscored that point. In a clothing store, owner Merri Beck said she’s had to put off planned renovations.She said sales are down more than one-fifth this year — which an influx of pipeline-workers would help correct.“There would be more people

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in our town — not only in my store but also other businesses, such as the grocery store, the drug store, restaurants, laundry services, gas stations,” Beck said.“I hope it goes through.”Up the road, an excavating company has reduced its 20-member staff by five, and fears more layoffs are afoot. Keystone XL would prevent that.“It might mean not having to let people go,” said Mike Griffith, who expects that his family’s Griffith Excavating Inc. would be one of a dozen local companies working on the project.“You hear our president say this isn’t good enough — the number of jobs it’s going to create,” Griffith said.“I think (politicians) need to come to our town.”

Fair share oil anD gas re-negotiation

plunging b.C.’s northeast ‘into

Despair’, say Mayors

B.C.’s northeastern communities square off against province over oil and gas money fundingThe leaders of two communities in northeastern B.C. are warning they will be “plunged into despair” if the province gets its way on how money from the oil and gas industry is divided up.Fort St. John Mayor Lori Ackerman and Taylor Mayor Rob Fraser are vocally opposing the province’s push to re-negotiate the Fair Share Agreement by the end of Thursday.The agreement was set up in the 1990s as a way to more equally

distribute the money made by the oil and gas industry in the Peace region. By re-opening the deal, Ackerman and Fraser say the province is breaking its commitment to the region.Most cities in British Columbia rely on property taxes to operate, injecting the money into roads, parks, police, and other services.A significant portion of that property tax comes from the industrial sector, including mills, mines and oil and gas.However, oil and gas operations in B.C.’s northeast tend to be located outside of city boundaries,

even as the people employed by them use city services.Fair Share addresses that by allowing communities to receive money from the industry.Under the deal, the communities of Fort St. John, Dawson Creek, Chetwynd, Tumbler Ridge, Taylor, Hudson’s Hope, Pouce Coupe and the Peace River Regional District give up their ability to tax the oil and gas industry.In exchange, the province gives them a cut of the money they collect from the industry in the region, even

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when it’s outside of city boundaries.Dawson Creek Mayor Dale Bumstead says his city counts on the millions of dollars it receives from Fair Share every year.“It’s a significant issue for us in terms of moving forward in the long-term planning of infrastructure and the needs of our community,” he says. At times, up to a third of the city’s budget has come from Fair Share.The deal has been so successful that other regions have attempted to reach a similar agreement.In the northwest, leaders are trying to reach a revenue sharing deal for the burgeoning LNG industry, and in Prince George, city council has discussed the possibility of a similar agreement for forestry and mines in the central Interior.The current Fair Share agreement was negotiated in 2005, and was supposed to last until 2020.But in February, the Minister of Community, Sport and Cultural Development Coralee Oakes said the province wanted to negotiate a new deal, imposing a deadline of April 30.“The current Fair Share agreement is simply unsustainable and not reflective of the amount of money government is actually receiving from the rural property tax,” said Oakes in a release.“Since the Fair Share MOU extension was signed in 2005, oil and gas revenues collected in the Northeast have fallen by over 80 percent.”Ackerman disputes the province’s claim.

“This is our industrial tax base. Show me a community in any province in this nation that would give up their access to their industrial tax base.”She estimates Fort St. John stands to lose over $32 million over the next five years under the province’s proposal.“It would be putting us into a community of despair yet again.”

royalty bungle Cost alberta

billions, eXpert says

The Alberta government has failed to collect nearly $2.5 billion per year in resource royalties since 2009 due to a major calculation blunder, according to Jim Roy, a private royalty expert who advises governments around the world.As a consequence, the province has failed to collect $13 billion in the last five years, charges Roy, a former senior advisor on royalty policy for Alberta Energy.That’s not what Alberta’s long-reigning government promised to voters in 2007.After a controversial royalty review, the first one in a decade, Premier Ed Stelmach told Albertans that the new formulas for calculating royalties would increase Alberta’s “fair share” of hydrocarbon profits by $2 billion a year, beginning in 2009.At the time, Jim Prentice — then federal industry minister, now premier of Alberta — supported the changes proposed by Stelmach.But instead of increasing royalties

by $2 billion a year, Alberta’s “fair share” plummeted due to bad forecasting and major flaws in how the province collects natural gas and bitumen royalties, Roy said.“Announcing a royalty increase and delivering a royalty decrease is difficult to explain to voters,” Roy said. ‘”The Tories chose to pretend the big blunder did not happen. Nobody talks much about the government gifting the petroleum industry $13 billion.”The management of Alberta’s hydrocarbon income has become a significant election issue as the Tory government has posted a $5-billion deficit and raised taxes and cut services for ordinary Albertans.Since 2009, natural gas revenue for the government has experienced the greatest losses. The new formula implemented in 2009 made the royalty rate much more sensitive to price, and the new formula substantially dropped royalties for unconventional resources such as shale gas.“The government expected natural gas prices to rise, but instead they collapsed,’” Roy said. “As a result; government earnings from natural gas dropped by $5 billion after 2009.”Despite a substantial increase in world oil prices between 2009 and 2014, bitumen earnings did not increase significantly. Any upward shift in earnings was largely due to added production in volume or project pay-outs. Bitumen developers don’t pay royalties until they have written off their capital costs.But therein lies another problem, Roy said. Alberta has a low royalty

rate for bitumen compared to rates in countries that have similar heavy oil resources. Alberta, for example, takes from 25 to 40 per cent of profit, equivalent to 10 per cent of gross revenue. In contrast, Venezuela, which also extracts heavy oil, takes 40 per cent of gross revenue — four times as much as Alberta.Saudi Arabia captures 85 per cent of profits from its oil fields, while Norway takes 80 per cent of profit — both three times as much as Alberta, Roy said. “Newfoundland/Hibernia takes 30 to 50 per cent of profit, plus 7.5 per cent of gross revenue or twice as much as Alberta.”The royalty expert also argues that the province has failed to control the pace of bitumen development. As a result, industry has put too much bitumen on the market and that glut, in turn, has played a role in driving down global prices.“The oil sold at low price is gone. The money is lost. The world has given Alberta a clear price signal. Alberta would be foolish to continue increasing bitumen production for sale at low price,”‘Roy said.According to Roy’s calculations, approximately 40 per cent of Alberta’s projected deficit for fiscal year 2015/16 could be eliminated by returning to the royalty formulas in place prior to 2009.Rachel Notley, the leader of Alberta’s New Democrats, has already promised to hold a review of the province’s royalty structure if her party wins next Tuesday’s election.Premier Prentice contends

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that a major review of Alberta’s royalty formula would have negative consequences.”I don’t think you ever say categorically in the history of the province we should never review where we stand on royalties,” the former corporate banker said on April 29.But given low oil prices, “it is the worst thing we could do right now where we are fighting to hang on to every job we can,” he said.The province’s oil industry has already come out against adjusting Alberta’s royalties, among the lowest in North America.”I don’t think there’s any room for any increase in royalties,” Cenovus president and CEO Brian Ferguson told Bloomberg News this week.”If there are changes that make the structure uncompetitive, that will be negative for investment in Alberta.”In 2006, Alberta’s auditor general reported that the government planned to collect 66 per cent of the economic rent or profits available from petroleum extraction, but the government was not meeting its objective and was not clear about how it even measured economic rent.The Tory government reached that target only once in 1998. Alberta’s share dropped to 31 per cent in the years 2000-2008. Although the new royalty formulas were intended to increase the rent collected, the share collected by the owners of the resource dropped to 13 per cent.

First nations group laX Kw’alaaMs set to vote on

$1.1-billion Question

The Lax Kw’alaams Band in Prince Rupert is making headlines after presenting its 3,600 members last week with an offer worth more than $1.1-billion, in exchange for their consent to the construction of a liquefied natural gas terminal within their traditional territories.It’s likely not the last proposed deal on that scale: The Haisla First Nation in Kitimat, for example, expects no less should the LNG Canada facility go ahead in its backyard.The package on offer to the Lax Kw’alaams and the other Tsimshian nations in the region where the Pacific Northwest LNG facility is proposed establishes the new benchmark for sharing the wealth of resource development with First Nations. It also presents a challenge to those members who will be making these decisions.“It bothers me that so much money is being flashed around to bring First Nations on board for developments that are risky,” says Judith Sayers, a former chief of the Hupacasath First Nation in Port Alberni. She’s not anti-development – she’s in the Canadian Aboriginal Business Hall of Fame – but she is skeptical about the environmental trade-offs involved.The LNG offers are big – possibly unprecedented – because the potential scale of development is huge.Only a handful of Coastal First

Nations would likely stand to benefit in such a significant way – and only if those developments end up in commercial production. There are still regulatory hurdles ahead and no final investment decisions have been reached.The Lax Kw’alaams deal is being heralded as a game changer, however, because it represents a large and multigenerational stake in the resource development sector being offered to a First Nations community where no treaty exists.The province, desperately keen to

secure an LNG industry to meet its 2013 election campaign promises, has agreed to contribute as well, in the form of a transfer of Crown land worth more than $100-million.The value of this one-off deal, if the project is ever built, is more than the band would likely stand to benefit from achieving a treaty, and doesn’t preclude further economic development deals.The Lax Kw’alaams will get to vote in a series of meetings held in three communities between May 4 and 12, by a show of hands.

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Rejection would be a setback for both the company and the province, and it would also be a strong message to the investment community: If $1.1-billion and the promise of jobs to a community of 3,600 isn’t enough, what is the price of consent in B.C.?Details, however, will count. There is no explanation of how the benefits would be distributed in the two-page proposal shared with band members. Although the value of the package works out to roughly $320,000 a person over the life of the 40-year deal, the band council has not yet explained how those dollars will flow.Dr. Sayers, an adjunct professor of business at the University of Victoria, hopes band members will be take a careful look at the fine print.“For most First Nations communities, a billion dollars is huge,” she said. That’s money that can transform a community: She noted the youth suicide rate in the Lax Kw’alaams community dropped appreciably after the installation of a new recreation centre and swimming pool.

“Those are some of the things that money can bring. But you have to ask, can you keep your traditions, your culture against what development brings? What it would look like post development – is that the world you want your great-grandchildren to live in?”With so little progress at the treaty table, these kinds of economic deals are increasingly the default path toward reconciliation with First Nations in B.C. It is an imperfect solution to solving the land question in a province where unsettled aboriginal title claims dominate. But it is progress, at least, that the Lax Kw’alaams have a choice.

oil patCh sluMp proMpts Massive heavy eQuipMent

sell-oFF

Ritchie Bros. holds Canada’s largest-ever heavy equipment auction.About 8,000 pieces of heavy equipment are being sold off at Ritchie Bros. in Nisku, Alta., in the

largest-ever auction of its kind in Canada. More than 800 sellers have brought equipment from across the prairies and Ontario. Two-thirds of the equipment sold is expected to leave Alberta.The president of Ritchie Bros. says three auction rings will be operating simultaneously - with bidding on each item lasting only a minute or two.Bidders, big and small, walk among rows of tractor trailer trucks up for sale at Ritchie Bros. auction in Nisku, Alta.Rows of forklifts and bulldozers as far as the eye can see at the Ritchie Bros. auction site in Nisku, Alta.Randy Wall, president of Ritchie Bros. Canada, describes the auction as the ‘New York Stock Exchange of the equipment world,’ adding the sale serves as ‘a barometer and a reflection of what is happening in the broader marketplace.’Ron Sanders travelled to the auction from Merritt, B.C., and hopes to pick up some good deals on equipment for his contracting firm. He brought along a mechanic

to check out any equipment he may consider bidding on. Frank Richardson is at the auction to sell off used Caterpillar bulldozers, Mack trucks and other surplus equipment from his Olds, Alta., and contracting firm. He says some contractors are selling off equipment because of the economic downturn in Alberta, which has reduced work by up to 75 per cent for some companies.Potential bidders check out a Caterpillar D11T transported to auction from Fort McMurray. It is so large that whoever buys it will have to take it apart to move it to the next job site.A crowd fills one of the three auction rings operating during Canada’s largest ever heavy equipment auction. More than 11,000 bidders from every Canadian province, 48 states and 50 countries are registered for the auction. There were as many as 5,000 people estimated to have attended in person, with the rest watching online.

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