2010 ANNUAL REPORT Operations Manitoba Alberta Saskatchewan Newfoundland British Columbia Prince Edward Island Ontario New Brunswick Nova Scotia New York State Turks and Caicos Islands Grand Cayman Belize Regulated Utility Operations Non-Regulated Operations Total Assets Approach $13 Billion (as at December 31, 2010) Gas Operations Fortis Generation Terasen British Columbia Production Areas Belize, Ontario, Central Newfoundland, Electric Operations British Columbia, New York State FortisAlberta Alberta Fortis Properties FortisBC British Columbia Real Estate and Hotels Across Canada Newfoundland Power Newfoundland Maritime Electric Prince Edward Island Regulated Regulated FortisOntario Ontario Electric Gas 52% 40% Belize Electricity Belize Fortis Fortis Caribbean Utilities Grand Cayman Generation Properties 3% 5% Fortis Turks and Caicos Turks and Caicos Islands FORTIS INC. 2010 ANNUAL REPORT Contents % 10-Year Cumulative Total Return 450 Investor Highlights .................................... 2 400 Fortis S&P/TSX Capped Utilities Index 350 Report to Shareholders ............................. 4 S&P/TSX Composite Index 300 Management Discussion and Analysis .... 8 250 Financials ...................................................70 200 Historical Financial Summary .................122 150 100 Investor Information ..............................124 50 0 -50 00 01 02 03 04 05 06 07 08 09 10 Year Dividends paid per common share Fortis has increased its annual dividend to common shareholders for 38 consecutive years, the longest record of any public corporation in Canada. $ 1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 72 75 78 81 84 87 90 93 96 99 02 05 08 11F Year The vision of Fortis is to be the world leader in those segments of the regulated utility industry in which it operates and the leading service provider within its service areas. In all its operations, Fortis will manage resources prudently and deliver quality service to maximize value to customers and shareholders. The Corporation will continue to focus on three primary objectives: i) The growth in assets and market capitalization should be greater than the average of other North American public gas and electric utilities of similar size. ii) Earnings should continue at a rate commensurate with that of a well-run North American utility. iii) The financial and business risks of Fortis should not be substantially greater than those associated with the operation of a North American utility of similar size. FORTIS INC. 2010 ANNUAL REPORT 1 Investor Highlights Five-Year Performance Earnings Applicable to Common Basic Earnings per Diluted Earnings per Equity Shareholders ($M) Common Share ($) Common Share ($) 1.65 262 285 1.56 1.54 1.52 1.51 1.62 245 1.42 1.40 1.37 1.32 193 147 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Dividends Paid per DividendCash flow Payout from Ratio (%) Market Capitalization ($B) Common Share ($) operations $(M) 67.5 67.9 5.9 1.04 1.12 64.1 1.00 58.6 161 164 4.9 0.82 47.2 4.5 4.2 0.67 3.1 98 115 2006 2007 2008 2009 2010 19992006 20002007 20082001 20022009 20102003 2006 2007 2008 2009 2010 CashReturn flowon Average from Book Common Assets ($B) Capital Expenditures ($B) operationsShareholders’ Equity $(M) (%) 12.9 1.1 12.1 1.0 11.9 10.3 11.2 0.9 10.0 0.8 8.7 8.4 8.8 5.4 0.5 19992006 20002007 20082001 20092002 2010 2003 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Revenue ($B) Cash Flow flow from from Debt to Total operationsOperating Activities $(M) ($M) Capitalization (%) 3.9 3.6 3.7 732 61.1 64.3 60.2 661 161681 164 59.5 58.4 2.7 37398 1.5 263 2006 2007 2008 2009 2010 19992006 20002007 20082001 20022009 20102003 2006 2007 2008 2009 2010 All financial information is presented in Canadian dollars. Information is for the fiscal year ended December 31, 2010 unless otherwise indicated. 2 FORTIS INC. 2010 ANNUAL REPORT Investor Highlights Business Segments Regulated Gas Peak Day Gas Capital Total Rate Allowed Terasen (1) Customers Employees Demand Volumes Program Assets Base Earnings ROE (%) (3) (#) (#) (TJ) (PJ) ($M) ($B) ($B) (2) ($M) 2010 2011 Total 949,000 1,480 1,421 193 253 5.2 3.4 130 9.50 9.50 Electric Peak Energy Capital Total Rate Allowed Customers Employees Demand Sales Program Assets Base Earnings ROE (%) (3) (#) (#) (MW) (GWh) ($M) ($B) ($B) (2) ($M) 2010 2011 FortisAlberta 491,000 980 2,555 15,866 379 2.4 1.7 68 9.00 9.00 (4) FortisBC 161,000 534 707 3,046 139 1.5 1.1 42 9.90 9.90 Newfoundland Power 243,000 572 1,206 5,419 78 1.2 0.9 35 9.00 8.38 Maritime Electric 74,000 182 207 1,033 26 0.4 0.3 12 9.75 9.75 FortisOntario 64,000 199 273 1,295 22 0.3 0.2 7 8.01/8.57 (5) 8.01/9.85 (5) Belize Electricity (6) 77,000 296 81 426 23 0.2 0.2 2 – (7) (8) – (7) (8) Caribbean Utilities (9) 26,000 191 102 554 20 0.5 0.4 11 7.75–9.75 (7) 7.75–9.75 (7) Fortis Turks and Caicos 9,000 106 31 170 29 0.2 0.2 10 17.50 (7) (10) 17.50 (7) (10) Total 1,145,000 3,060 5,162 27,809 716 6.7 5.0 187 (1) Includes the operations of Terasen Gas Inc., Terasen Gas (Vancouver Island) Inc. and Terasen Gas (Whistler) Inc., collectively known as the “Terasen Gas companies” (2) Forecast mid-year 2011 (3) Rate of return on common shareholders’ equity (“ROE”). For Terasen, ROE is for Terasen Gas Inc. ROE for Terasen Gas (Vancouver Island) Inc. and Terasen Gas (Whistler) Inc. is 50 basis points higher. (4) Interim pending finalization by the regulator (5) Canadian Niagara Power 8.01%; Algoma Power 8.57% prior to December 1, 2010, 9.85% effective December 1, 2010 (6) Information in table represents 100% of Belize Electricity’s operations except for earnings data. Earnings represent Belize Electricity’s contribution to consolidated earnings of Fortis based on the Corporation’s 70% ownership interest. (7) Regulated rate of return on rate base assets (“ROA”) (8) Allowed ROA to be settled once regulatory matters are resolved. (9) Information in table represents 100% of Caribbean Utilities’ operations except for earnings data. Earnings represent Caribbean Utilities’ contribution to consolidated earnings of Fortis based on the Corporation’s 59% ownership interest. (10) Amount provided under licence. ROA achieved in 2010 was materially lower than the ROA allowed under the licence due to significant investment occurring at the utility. Non-Regulated (1) (2) Fortis Generation Fortis Properties Generating Energy Sales Assets (3) Earnings (4) Capital Employees Assets Earnings (4) Capital Capacity (MW) (GWh) ($B) ($M) Program ($M) (#) ($B) ($M) Program ($M) Total 139 427 0.4 20 84 Total 2,300 0.6 26 19 (1) Includes investments in Belize, Ontario, central Newfoundland, British Columbia and Upper New York State (2) Includes approximately 2.7 million square feet of commercial office and retail space primarily in Atlantic Canada and 21 hotels across Canada (3) Includes $108 million in “Other” non-regulated assets (4) Contribution to consolidated earnings of Fortis for the fiscal year ended December 31, 2010 Information is for the fiscal year ended December 31, 2010 unless otherwise indicated. FORTIS INC. 2010 ANNUAL REPORT 3 Report to Shareholders For the 11th consecutive year, Fortis has delivered record earnings to our shareholders. Net earnings attributable to common equity shareholders were $285 million, $23 million higher than earnings of $262 million in 2009. Earnings per common share were $1.65 in 2010 compared to $1.54 in 2009. Performance was driven by our Canadian Regulated Utilities and non-regulated hydroelectric generation operations. Tempering results year over year were lower earnings from Caribbean Regulated Electric Utilities and higher corporate expenses. Fortis has raised its annualized dividend to common shareholders for 38 consecutive years, the record for a public corporation in Canada. Dividends paid per common share were $1.12 in 2010, up 7.7% from Stan Marshall, President and CEO, Fortis Inc. David Norris, Chair of the Board, Fortis Inc. $1.04 paid per common share in the previous year. The dividend payout ratio was approximately 68% in 2010. Fortis increased its quarterly common share dividend to 29 cents, or $1.16 on an annualized basis, commencing with the first quarter dividend paid in 2011. Over the past 10 years, Fortis delivered an average annualized total return to shareholders of 18%, the highest in our sector. The Corporation’s average annualized total return also exceeded the S&P/TSX Capped Utilities Index and S&P/TSX Composite Index, which delivered average annualized performance of 11% and 7%, respectively, over the same period. Platts, a leading global provider of energy information, named Fortis a Platts Top 250 Global Energy Company for 2010. Fortis earned a ranking of 11 as one of the Top 50 Fastest-Growing Global Companies in the Platts Top 250 Global Energy Company rankings, and a ranking of 3 overall in the Fastest-Growing Americas Companies. Fortis is growing its non-regulated generation business in British Columbia with the construction of the $900 million 335-megawatt (“MW”) Waneta Expansion hydroelectric generating facility on the Pend d’Oreille River. Last October Fortis entered into a partnership with Columbia Power Corporation and Columbia Basin Trust, two wholly owned entities of the Government of British Columbia, to construct the facility. Fortis owns a 51% controlling interest in the partnership, which has negotiated 40-year power sales agreements with BC Hydro and FortisBC for the energy and capacity, respectively, to be generated by the Waneta Expansion.