2018 | ANNUAL REPORT Scott Parker Central Hudson WE’RE LOOKING AHEAD, AND LOOKING UP We’ve all heard the adage “the sky’s the limit”. That rings true for us at Fortis. We’ve been growing for more than 130 years – and we don’t just mean in size, but in strength. We’ve seized opportunities, learned from experience, and celebrated every win, together. But we’ve never lost sight of what matters most – our people, our customers, our shareholders, our environment. And that focus is what propels us to even greater heights today. For us, the sky is still the limit. 10 UTILITY 8,800 OPERATIONS EMPLOYEES STRONG in Canada, the U.S. and BILLION the Caribbean $53 in total assets MILLION MILLION 1gas.3 utility customers 2electric utility customers $ Based in BILLION market cap 45 19.5 CONSECUTIVE YEARS ST. JOHN’S (as of December 31, 2018) of dividend payment increases Newfoundland & Labrador TSX/NYSE:FTS Unless otherwise specified, all financial information referenced is in Canadian dollars. REPORT TO SHAREHOLDERS OUR GROWTH STRATEGY CREATES LONG-TERM SHAREHOLDER VALUE Your company has grown into one of the top 15 Our track record of delivering strong performance utilities in North America. During the past five years, continued in 2018 with net earnings attributable we have acquired and successfully integrated three to common equity shareholders of $1,100 million, strong U.S. based utility franchises – Central Hudson or $2.59 per common share, compared to Gas and Electric in New York State, UNS Energy in $963 million, or $2.32 per common share, for 2017. Arizona and ITC Holdings based in Michigan. During We achieved adjusted net earnings of $1,066 million, this period our utility rate base grew 156%, from or $2.51 per common share, in 2018 compared $10.2 billion to $26.1 billion. to $1,027 million, or $2.47 per common share, in 2017. Adjusted earnings per share growth in With our business now operating as one strong 2018 was tempered by approximately 2% associated North American company, in October 2018 we with U.S. tax reform, which came into effect at the launched our most ambitious capital investment end of 2017. Our 5.9% quarterly dividend increase plan ever. The $17.3 billion plan for the period 2019 on December 1, 2018 to $0.45 per share, from to 2023 represents an increase of $2.8 billion or 20% $0.425 per share, marked 45 consecutive years from the previous year’s plan. The investments will of annual common share dividend payment help modernize the electricity grid, strengthen natural increases – one of the longest records for a gas infrastructure and enable the delivery of cleaner Canadian public corporation. energy. Once completed, our utility rate base will have grown from $26.1 billion today to $35.5 billion Your company’s long history of superior shareholder by 2023. returns continued in 2018 with a one-year total shareholder return of 2.8%, far exceeding the negative Virtually all of our operating assets are regulated. returns generated by the S&P/TSX Composite Index Our focus on transmission and distribution assets, and the S&P/TSX Capped Utilities Index, respectively. with their lighter environmental footprint, coupled with the geographic and regulatory diversity of our This outperformance has also occurred over the business make Fortis one of the lowest-risk utility five, 10 and 20-year periods, where your company companies in North America. experienced average annualized returns in the 10% to 12% range. 2 FORTIS INC. 2018 ANNUAL REPORT Total Annualized Shareholder Return 1-YEAR 5-YEAR Fortis 2.8% Fortis 12.6% S&P/TSX S&P/TSX Composite Index -8.8% Composite Index 4.1% S&P/TSX Capped S&P/TSX Capped Utilities Index -7.7% Utilities Index 6.1% 10-YEAR 20-YEAR Fortis 10.5% Fortis 12.4% S&P/TSX S&P/TSX Composite Index 7.9% Composite Index 6.6% S&P/TSX Capped S&P/TSX Capped Utilities Index 7.2% Utilities Index 7.9% 3 REPORT TO SHAREHOLDERS FOCUSED ON GROWING YOUR DIVIDENDS In 2018, based on forecasted earnings growth at our utilities, we extended FORTIS HAS ONE OF THE LONGEST RECORDS annual dividend growth guidance of FOR ANNUAL COMMON SHARE DIVIDEND approximately 6% through 2023. This guidance is based on continued PAYMENT INCREASES FOR A CANADIAN PUBLIC good performance at our utilities, CORPORATION. reasonable regulatory outcomes, the successful execution of our five-year capital investment plan and growth in our franchise territories. 45 YEARS OF DIVIDEND G ROWTH $ 2.5 Actual Dividend Paid 2.0 Forecasted Dividend Payments 1.5 1.0 0.5 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19F 21F 23F YEAR 4 FORTIS INC. 2018 ANNUAL REPORT OUR STRONG GEOGRAPHIC DIVERSITY Newfoundland & Labrador British Columbia Prince Edward Alberta Island Ontario Minnesota New York Michigan Iowa Illinois Kansas Missouri Oklahoma Arizona Turks and Caicos Islands Cayman Islands Regulated Electric Regulated Gas FERC-Regulated Belize Electric Transmission Long-Term Contracted Hydro Generation Natural Gas Storage Facility 5 REPORT TO SHAREHOLDERS FOCUSED ON EXECUTING THE $17.3 BILLION FIVE-YEAR CAPITAL INVESTMENT PLAN One of our notable accomplishments in 2018 of 7.1% for the next three years and 6.3% over the was the completion of our $3.2 billion capital five-year planning period. The capital investment investment plan at our utilities and the delivery plan is virtually 100% comprised of projects at our of a new five-year capital investment plan. regulated utilities and consists of a diverse mix of The new plan includes capital investment of highly executable low-risk projects. Capital projects $17.3 billion for the period 2019 to 2023. It marks that individually total more than $150 million account an increase of $2.8 billion – 20% more than the for 23% of the total plan, with the remainder, or previous year’s plan. 77%, comprised of smaller projects. Execution of the five-year plan is expected to translate into average annual rate base growth Ensuring a Strong, Reliable Electricity Grid at ITC As the importance of a strong and resilient grid continues to increase, we expect more investment in the wires side of our business in the future. ITC, our largest utility, has more than 25,000 circuit kilometres of high voltage electric transmission. The utility has a singular focus on transmission, and its vast network of infrastructure across seven states in the U.S. Midwest requires ongoing infrastructure investments to meet the growing needs of customers and ensure preventative maintenance of the grid. ITC’s rate base is expected to grow at an average annual growth rate of 7% over the next five years, and the utility’s continued investment in infrastructure is a key component of our capital investment plan. 6 FORTIS INC. 2018 ANNUAL REPORT Upgrades on Schedule for Natural Gas Infrastructure at FortisBC FortisBC is the largest distributor of natural gas in British Columbia with more than one million customers. In 2018 the utility began the construction of 20 kilometres of new gas lines to ensure the reliable delivery of natural gas to more than 210,000 homes and businesses in the Metro Vancouver area. The project costs are approximately $500 million and construction is on time and scheduled for completion in 2020. Tucson Electric Power Poised to Exceed Ambitious Renewable Energy Targets Tucson Electric Power (“TEP”) has a target to serve 30% of retail load from renewable generation by 2030, doubling the State of Arizona’s goal. By 2030, TEP plans to have three times as much wind and solar energy as they have today, enough to power almost every home in the Tucson area. The utility made strong progress in 2018 to achieve this target. The installation of fuel-efficient natural also received approval to construct new transmission gas generators has begun and once complete will lines and install equipment to support what will compensate for energy fluctuations associated with become TEP’s largest local solar power and energy the expanded use of renewable energy. The utility storage project. Delivering Reliable, Cleaner Energy to Remote First Nations Communities The Wataynikaneyap Power Project, our partnership with First Nations communities in northwestern Ontario, made great progress in 2018. This regulated electric transmission project will connect 17 communities to the Ontario power grid for the first time. The project will see the construction of 1,800 kilometres of transmission lines that will enable communities to move away from an unreliable diesel plant system to a safer, cleaner, reliable electricity system that will support the growth of communities. framework with the Governments of Canada and Ontario. The second was the connection of the first We achieved two major milestones in 2018. The first community, Pikangikum, to the Ontario power grid via was the announcement of a $1.6 billion funding the Wataynikaneyap Power transmission line. 7 REPORT TO SHAREHOLDERS FOCUSED ON BEST PRACTICES IN SAFETY, RELIABILITY AND CYBERSECURITY Strong safety and reliability performance are the your best, working hard and working safely. Sadly, hallmarks of long-term success for a utility business. we experienced tragedy in 2018 when an employee Both are priorities at Fortis. died in an accident while working at a Fortis utility. Our unrelenting commitment to safety is stronger With respect to your company’s safety and reliability now, more than ever. We are constantly sharing the performance metrics, we are outperforming in best health and safety practices from each of our comparison to industry averages. The all-injury utilities to make our company safer and better for frequency rate is an indicator of safety performance our employees and customers.