Welcome to the Fortis Q4 2016 Conference Call and Webcast. During the call, all participants will be in a listen-only mode. There will be a question-and-answer session following the presentation [Operator Instructions]. At this time, I would like to turn the conference over to Janet Craig, Vice President, Investor Relations, Fortis Inc. Please go ahead, Ms. Craig.

Thanks, Melisa, and good morning, everyone. And welcome to Fortis’ 2016 fourth quarter annual results conference call. I am joined by Barry Perry, President and CEO, Karl Smith, Executive VP and CFO, other members of the senior management team as well as our CEOs of our certain subsidiaries. Before we begin today's call, I want to remind you that the discussion will include forward-looking information, which is subject to the forward-looking statement contained in the supporting slide show. All non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our 2016 annual MD&A. Also, unless otherwise specified, all information referenced is in Canadian dollars. With that, I will turn the call over to Barry.

Thank you, Janet, and good morning, everyone. 2016 was a big year for Fortis. Just over a year ago, we announced the biggest transaction in our history, the $16 million acquisition of ITC. This transformational transaction closed on October 14 just about eight months after announcement. As part of the transaction, we issued 114 million shares, valued at $4.7 million into the market, which were readily adored by existing and new shareholders. We also listed on the New York Stock Exchange, facilitating trading of our stock in U.S. dollars, raising our profile in the United States and providing Fortis easier access to the largest pool of capital in the world. At the same time, we delivered strong earnings and cash flow, driven by our low risk and highly diversified portfolio of utilities. Excluding the earnings benefit from ITC in the fourth quarter, adjusted earnings per common share were up 18% for the quarter and 8% for the year. Including ITC, adjusted earnings per common share were up 25% for the quarter and 10% for the year. We continue to invest capital in our business to provide our customers with safe, reliable and affordable energy. In 2016, we invested $1.9 billion in capital, excluding ITC. Including ITC from the date of the acquisition, we invested an additional $200 million, which brought the total for the year to $2.1 billion. 2016 was also an important year progress on the regulatory front. We received constructive regulatory decisions in a number of jurisdictions, positioning us well for a period of regular stability in the near-term. Of special mention is the conclusion of TEP's rate case in Arizona last week with terms consistent with the settlement agreement announced in August. In the fourth quarter, we began to see the power of the earnings contribution of…

Thanks Barry. Good morning, everyone. Our 2016 fourth quarter and annual financial results were quite strong and exceeded our expectations. This puts us into a good position heading into 2017 a year that will benefit from the addition of ITC, the rate case outcome at Tucson Electric and for the most part, regulatory stability in the remainder of our business. Adjusted earnings for the quarter of $246 million were higher by $104 million compared to the same quarter in 2015. Adjusted earnings per share of $0.64 for the quarter was higher by $0.13 or 25%. Our fourth quarter results exceeded expectations and there were a number of factors that contributed to the result that are not expected to be repeated. These factors totals $0.06 per share and relate to lower tax expense for the early adoption of an accounting standard on stock-based compensation at ITC and timing differences at FortisBC Electric, Central Hudson and UNS. For the full year, adjusted earnings of $721 million were higher by $132 million compared to 2015 and adjusted earnings per share was higher by $0.22 reaching $2.33, an increase of 10%. Cash flow from operations was $1.9 billion in 2016, an increase of approximately 13% compared to 2015 and results from higher cash earnings had regulated utilities, particularly for ITC. As you can see from the waterfall chart, adjusted earnings per share increased $0.13 compared to the fourth quarter of 2015, $0.04 was due to accretion from ITC after considering finance charges and an increase in the weighted average number of common shares outstanding, associated with financing in the transaction. Strong performance in most of our regulated utilities also resulted in higher earnings per share for the quarter and highlights include Central Hudson, due to an increase in delivery revenue consistent with a three-year…

Thank you, Karl. Taking a look at the bigger picture, economic growth in the U.S. as well as a focus on infrastructure spending by the new administration are positive for us and the industry. As Karl highlighted, tax reform in the U.S. is on the horizon and it has created some investor uncertainty. Fortis as well as other utilities and EEI are working with policymakers in Washington DC to drive constructive outcomes on tax reform. Changing times underlined the strength of the Fortis business model. Our business is highly diversified. We have a balance between Canadian and U.S. asset. We operate in constructive regulatory jurisdiction and we have a conservative base capital plan that delivers superior risk-adjusted returns. This differentiated model is one we strongly believe will deliver long-term value creation for our shareholders, while at the same time providing safe, reliable and cost effective energy for our customers. To wrap up, we are very pleased with our ability to deliver strong results in 2016, while successfully closing the ITC transaction. Some will say that excellent execution. In 2017, the outlook is strong with the constructive outcome of the TP rate case and the addition of ITC to our business, we are creating a new baseline upon which Fortis can grow. We remain confident in our future and the ability of our team to execute against our strategy. I'll now turn the call back over to Janet.

Thanks Barry. This concludes the presentation and at this time, we would like to open the call to address questions from the investment community. So, I'll hand the call back over to Melisa.

Thank you. Ladies and gentlemen, we'll now conduct a question-and-answer period [Operator instructions] Our first question comes from the line of Robert Kwan from RBC Capital Markets. Please proceed with your question.

Good morning. Just with the fourth quarter results, a pretty big number based on your adjusted EPS and you exceeded your expectations. I am just wondering with that roughly $0.06 of timing factors, if you took that out of Q4, did the quarter still exceed your expectations and then as you get more granular, can you talk a little bit more about some of the timing items with the utilities and whether you expect that to reverse in 2017 or just not recur?

Robert, thank you and thank you for being up so early. I will may be make a general comment and let Karl add some detail. We had a great finish to the year and especially given the fact that we're just closing the ITC transaction, the great performance out of our Arizona business, they overcome some difficult conditions last year and performed very well. ITC itself good contributions from them as well and yeah, we expect -- it was better than we were thinking and that should translate into some upside for 2017 as well.

Hi Robert. It's Karl. For the most part those that reference to the timing differences will not reverse in 2017. So for the most part one time and for instance the ITC was just an adoption of an accounting standard that's a onetime impact. At FortisBC, the reference is more with respect to the timing from the previous year and just the matching of the power cost with the revenue there. So, that expires at the end of 2016 as well and then at FortisBC Energy, little bit different. Many of you see the impact there until the Tilbury 18 project is complete that will carry through some period of 2017. As Barry mentioned we're hopeful of that. We'll put that in service by the middle part of the year and so that will have some impact in 2017 with respect to that. But for the most part, we assume that the extent that we refer to is one time and will not repeat itself or will not have impact on 2017.

Understood. If I can just take a step back at something higher level, you got a lot of small to medium-sized projects a high visibility driving your base growth, but as you noted earlier you got that push that you had in recent years trying to get your local utility businesses to focus on corporate development we've seen that with the Ontario transmission, couple of projects on my way in Lake Erie Connector. I guess Barry as you think about are there any things that are currently getting less fanfare whether that's the New York transmission or solar you see as being larger more meaningful investments that could come to the forefront in 2017? And are there any one or two trends in the sector that you really pushing all of your teams to proactively get in front of to try to create opportunities?

Robert, good question. We're excited about the ones that we mentioned obviously and I would add that the potential on LNG Infrastructure in BC remains [indiscernible] for us we are obviously billing that that Tilbury tank right now, but that site at Tilbury is highly expandable and we had an arrangement with the Hawaiian Electric that [indiscernible] but we have received other interest and expansion of that site and we continue to work on that opportunity that could be substantial in a couple of billion dollars range if we're successful there. One other area I think it's a great security, cyber physical security, you know the real -- a focus on these areas now in North America and we haven't really built in. I think significant capital expenditure is related to enhancing that going forward, and I think that's going to add to the capital budget itself of our utilities over the next number of years, and as we improve our facility frankly. So, those are probably couple of areas, we're clearly working on expanding renewable power in Arizona those kind of things, but I'll take the big one their LNG and cyber physical security areas especially at ITC as well.

Okay. That's great. Thank you very much.

Thanks, Robert.

Our next question comes from Linda Ezergailis from TD Securities. Please proceed with your question.

Thank you. Maybe I can just build on Robert Kwan's question about Q4. Can you give us a sense maybe either at some of your business units or even on a consolidated quarter's level? Kind of going forward in a normal year how we might think of seasonality, typical seasonality of your earnings. And then I guess as a subset of that Aitken Creek maybe some sort of run rate of range. It looks like you had a blockbuster quarter, so how might we think of your gas storage business going forward within that next question.

Linda, it's Karl. The seasonality of our earnings will be somewhat muted with the addition of ITC or you can anticipate that they'll be relatively consistent and growing consistently on a quarter-by-quarter basis as they continue invest in our system. As you know the gas business in British Columbia is highly seasonal first quarter, fourth quarter. So, that will continue obviously, but it will be muted somewhat compared to what it has been in the past. With respect to Aitken Creek, we have excellent performance in the fourth quarter. We really take advantage of some market dynamics I referred to in terms of the gas price. On a go forward basis -- and again there will be some seasonality in that business that will become apparent once we get through a full cycle. But for the most part the run rate that you saw in you saw in 2016 will be something that you should anticipate seeing on a go forward basis.

And Linda just to add a couple of things there, one of the things we are learning about ITC is sort of the lack of volatility in their earnings and cash flow that this marvelous formula rate structure provides a lot of stability for that company. And as Karl said, really each quarter's earnings should as they invest their capital should provide higher earnings of Corporation and just one added comment as well our Arizona business obviously does very well during the summer months and that goes a long way to offset the lower earnings from our BC gas business as well. So, we've actually reduce that seasonality very much overall in the business now.

Okay. Thank you. And just a follow-up to how you're looking at some of these potential tax reforms in the U.S. Is it reasonable to think that one of the takeaways in all your sensitivity analysis would be that from a cash flow from operations perspective that it would be slightly negative similar to earning assuming no mitigating factors as well?

That is absolutely correct, Linda.

Okay. Thanks. I'll jump back in the queue.

Our next question comes from Robert Catellier from CIBC World Markets. Please proceed with your question.

Hi, good morning. Congratulations on the results and thank you for your comments on the tax reform. But I'd like if you can put a little bit more detail around the slightly negative impact, but doesn't sound like it's a material but if you were to quantify would that be less than 5% plus 5% of earnings or funds from operations?

Yes, Robert, we won't be giving very specific guidance around that but I would say that I would agree mostly with your comment and the question and I think that's where we'll leave it for the time being.

I appreciate there is still considerable uncertainty there. But just moving on, has there been a change to capital spend outlook for the Tilbury project and if so is that risk for the CapEx increase?

The project as slipped in timeline, so we were originally looking at the project coming online around the end of 2016, it's now mid-2017. So, Robert there is normal obviously AFUDC carrying cost with that slippage. The underlying cost of the project we believe we still can bring in on budget at this point in time.

Okay. Maybe I'll follow that one up with you, the numbers I calculated show the CapEx going from 128 to 144, which seems to imply little bit more than the cost of carry?

The underlying value of the project before carrying cost $400 million we're still on that number.

Okay. And then just as look at your large inventory of major projects that are effectively in your capital plan, as you go forward and look at your dividend policy if were to be successful in securing these growth projects are you more likely or more inclined to increase the dividend growth rate or extend the dividend growth rate?

To be honest I think we're focused on a nice annual growth rate in our dividend. We look at the business very long term and there are obviously going to be pluses and minuses. I'm pretty comfortable with the 6% dividend growth rate and I would expect us to just continue to extend it rather than increasing it going forward. So, you know that -- we are right on top of our average payout ratio for our peer group. We use 25 companies in our peer group, 23 American utilities, two Canadians and that 65% to 70% payout ratio is where we think we should be around. So, we're going to get -- we're going to land some of these bigger projects, but I think for us we'll just make to be able to continue to make sure that we can grow that dividend nicely each year going forward rather than going upside in the dividend dramatically.

Okay. Great. Thank you.

Our next question comes from the line of Ben Pham from BMO. Please proceed with your question.

Okay. Thanks. Good morning. I wanted to go back some of the questions on the tax reform slide and your commentary there and the slight negative impact to earning, is that a combined impact from other three factors you looked at or is that -- they’re all separate?

That's on a consolidated basis Ben.

Okay. And the order that you laid out here is that from highest magnitude to the earnings impact or is there is an arbitrary order in quarter three?

The ordering is not meant -- is not particular in terms of impact. There is just a laundry list obviously.

Okay. And then my other question is on how do you guys think of your balance sheet today relative to where you want to be and what the high CapEx program leads to, how do you finance over time and you’ve mentioned no need for equity before on that, but you did noticed a bit of drop there is and the remaining balance on your equity bridge, if you can talk about your credit metrics and capacity on preps and debt at the moment?

So, Ben it’s Barry. So clearly know we’re focused on maintaining a good balance sheet and we do have this equity bridge that we will refinance with equity at some point during the course of this year pretty small amount relatively speaking 3% of our market cap, but the cap and that relates to the purchase of ITC. So, that shift the final piece we have to do there. The actual capital plan itself at this point at the $13 billion level over the next five years doesn't require any I would say market equity. We do get 30% to 40% of our dividends are reinvested in stock at an annual basis. So, that’s going to provide upward billion dollars over a five-year period, clearly with that we don't need to do incremental equity so that base capital plan. Now we are successful with Erie connector, with LNG expansion what they could be at, with these kinds of projects we are going to be going into the market and I'll be happy to do that. But the base plan is finance within the business.

And Ben our credit metrics -- primarily about debt other metric that’s important is what we call debt -- total debt they continue to improve throughout the forecast or the plan carrier. So, we see those improving over time. We were departing are buried in the past that we think our credit rating from Moody's has probably been a little bit harsher than it should be. So, we're hopeful that over the next three to five years we’ll see some improvement there as well. But we are not anticipating that right now, we are not calling on it. The balance sheet continues to improve during the course of the plan and we don't anticipate any issues in raising capital to fund the plan going forward.

And to clarify your definition equity includes preferred shares or is that -- do not include that?

We are not thinking about preferred shares. I mean, that market as you also know comes and goes – currently we don’t view it as track or source of capital. So, I mean, it’s possible that market changes going forward we would resort to that again as have in the past. But as we say here today we are anticipating preferred share issuance.

Okay. Great. Thanks, everybody.

Thank you, Ben.

Our next question comes from the line of Rob Hope from ScotiaBank. Please proceed with your question.

Good morning everyone and congratulations on a good quarter. Just wanted -- maybe take a look at ITC you have a full quarter under your belt and there's been some pushes and takes since the announcement was initially announced, just want to get a sense of whether or not this is tracking above or below the expectations that you laid out at the IPO are at the transaction announcement?

That’s a little tricky question Rob. You know what we said on announcement the 5% incretion and we've now gone to a term nicely accretive. So, I would tell you that I am very pleased with how the company has done, how the ITC team perform in this early days of our owning the company I couldn't ask for anything more. So, we are very pleased and we want to get through 2017 and I am always the sort of formulate rates sort of advantages of that it's hard for us to get our minds around that. The ITC team keeps telling me don't worry. It’s good and there's not a lot of volatility in their earnings. But obviously from an oversight perspective in the business, we want to post up good 2017 results and then we'll see where we go from there but we're in very good shape at this point in time.

That's good to hear and then just looking on the FERC front, I guess you're one of the few companies who is hoping for a longer protracted confirmation process there, do you have any expectation of when the second complaint will be ruled upon now?

No, we don’t. Clearly FERC has to get some new commissioners and there has to be confirmation process for those things and we can't really predict how quickly that would happen. We continue to earn the higher 11.35% while we await this decision obviously and the decision is not retroactive. So, there are benefits though it's a bit longer if you are expecting the return to go lower and that's not a foregone conclusion for sure this will be done.

All right. Great. Thank you. Those are my questions.

Thanks Rob.

Our next question comes from the line of David Quezada from Raymond James. Please proceed with your question.

Thank you. Good morning guys. My first question on the Erie Connector, I understand its part of the NEB's approved that were set of conditions they had to meet there. I am wondering if any of those were particularly material or significant?

They are all difficult, but we feel they are manageable and for everyone on this call, I would encourage you to read that NEB decision because it does give a good analysis of the benefits of the project its right on the NEB website I think we might have provided in some of the – some of the analyst but no -- you know I think we can work away through those. We are waiting for a couple of other premise on the U.S. side that we hope that we can get in the next couple months here. So, the key sort of work stream now that we are focusing on is securing a long-term offtake or for the line and we are making progress there and we hopefully have more to say about that in the second half this year.

Okay, great. Thank you. That’s helpful. And then just my other question more of a bigger picture I think U.S. infrastructures span are you guys seeing – those ideas positive for transmission investment. I think some of the initial priorities they've mentioned include smart grade investment in energy storage did either of those elements factoring your plan longer term?

Yeah. I think those could play in some of our capital over the longer term. There were a number of large-scale transmission projects in the top 50 infrastructure lift as well. So, I really see the overall focus on infrastructure as positive for our business especially ITC. Even in Arizona we finally have seen growing sales at this point. First time I think in a decade and we've had positive sales growth in our TEP business. So, we are really starting to see a pickup there and the policies of the new President seem to be encouraging economic growth in the U.S. and our business is going to benefit from that, if that actually occur. So yeah, we are looking pretty positive on the next few years from possibly we have been able to add to our capital program.

Okay. Great. Thank you. That’s all I had.

Thank you.

Our next question comes from the line of Jeremy Rosenfield from Industrial Alliance. Please proceed with your question.

Yeah, thanks. I just wanted to follow-on the Lake Erie Connector project, I am wondering if you can just comment in terms of where you are with the level of commercial support at this time and do you need to have contract essentially to cover the full capacity of the project or can you move forward sort of with a base level let say you have a percentage there or something like that?

Jeremy, we are obviously not going to comment on where exactly we are other than we are making very good progress with very strong counterparties. Probably not necessary for us to have a 100% of the line contracted although that would be what I would prefer. But we have to be realistic if we can get you know a substantial amount virtually all substantially all contracted and then the project could proceed on that basis. But our goal is to try to get it all done.

Okay. And then if I could just turn attention to the BC LNG and outlook for Woodfibre LNG project there, do you really -- what is the key milestone that you need to see to add that to the capital budget at this point?

Well, I think we need truly to lock down the final capital cost for the line to the site and the final transmission rate that the proponent will pay for the use of that line and we need the proponent to finish their feed study really. I know they've announced that the project is -- they've released the funds to proceed but there's still a process that they're going through to locking down the overall cost for the project. And so, I think there is a few more months here before we were able to really include that in our forecast assuming that we can get to a reasonable conclusions of those matters.

And can you comment just in terms of have you spent any substantial amount of money related to upfront development of that project or is it still relatively materials at this point?

No. We've been working with the proponent and they've been funding the work that we're doing, so we probably spent about $60 million in total and that's been funded by the proponent.

Okay, perfect. All right. Those are my questions. Thanks.

Our next question comes from the line of Mark Jarvey [ph] from Desjardins Capital Markets. Please proceed with your question.

Good morning, everyone. I wanted to circle back on Watay transition project comments about you guys buying out your partner RES, you can just comment on what was impetus to do that, whether or not that was driven by you guys or them maybe just wanting to set back from that project? And given some of the comments from the government ministries for supporting transition in Northwest Ontario, how sort of probability that something get cemented in 2017 on the project?

Well, I think RES's decision really maybe you should ask them, but my sense is they are removing themselves from this part of the business in North America. So obviously change of strategy for them and we obviously are very much focused on growing our wires transmission business in North America, so we are more than willing to look at acquiring their interest. That is still subject to the OEB approving that purchase at this point in time. The big decision a next big decision for that project is the approval of deferral account which is in front of the OEB at this point in time that will essentially provide the funds, the sort of confidence for us to go and do much more of the development planning and engineering work for the project and we're expecting that we'll get that in the next two, three months here and that sort of next big hurdle for the project. Clearly this is a project that we're working with the first nation, the provincial government, the federal government and the regulator on to move forward. But there's a lot of support right now to get the thing done and we remain very optimistic that, that this is a viable project.

Okay. That's helpful. And then looking at ITC and some of the trends in renewable in U.S. just recent deal that came out showing big building and utility scale solar eclipsing the growth of wind right now at least, so that trend continue, would that may be temporary optimism for some the positive tail end renewable and transmission build out or is there aspects of the ITC business would do very well with continued for the growth in utility scale solar?

I don't think there is much again tamper my optimism about ITC right now. This is a great business. It's a core of the grid in many of these states that it operates in. They’ve been running it really well and it's going to be continued need for investment in that 25,000 kilometers of line that they have. This company is hooked up over 5000 megawatts of wind to its system. I think there is a couple thousand megawatt still in the queue at this point in time. Wind is very economic in the Midwest and I think that the states will continue to allow wind generation to be part of the portfolio that utilities have. This may slow down a little bit, but the way we look at the business in 5, in 10, in 15 year outlook, we're very optimistic that ITC will continue to experience positive growth related to hooking up wind energy to the Group.

Okay. Thanks for the color.

Our next question comes from the line of Andrew Kuske from Credit Suisse. Please proceed with your question.

Thank you. Good morning. Perhaps just a bigger broader question, and do you foresee just the U.S. utilities industry going into a little bit of a holding pattern in the near-term and the state just in light of just some of the uncertainty on tax reform and in particular not so much corporate tax rates, but just the deductibility of interest expenses and perspective where that may go and how is that balanced just on a policy basis versus apparently the new administration that really wants to drive infrastructure investments and just a lot of the broader initiatives that would really benefit the industry. So how do you think about that at this point in time and the tension on those two things?

Yes, Andrew I would probably even not focus on tax reform. Where I am and I may be wrong on this, obviously, I think M&A is going to slow down in our sector. A lot of companies have done transactions, the big firms that bought utilities recently, the Canadian firms like ourselves and Amira and now AltaGas, [Gongguan] have just recently bought utility. So, for me, the next couple of years, I think things do slow down, that's my opinion. I know we're not focused on M&A right now. We're really focused on executing well with ITC and our growth capital and really creating that new level of earnings that will flow from the ITC transaction and really making sure, we lock down these organic growth projects that support our dividend guidance out to 2021. So, that's where my team is focused. I can't speak for the other people, but my sense is we're probably going into a period of pause I guess, but again I've been wrong in that before. So…

Okay. I appreciate the color. And then just maybe a slightly different question as it relates to capital allocation, from a Fortis Inc. standpoint and obviously still early days with ITC, but you've had a number of acquisitions under your belt for a period of time and you have a diversity of regulators that you deal with at the stage. So how do you think the regulators think about just the Fortis ability at the hold co level to think about capital allocation and really directing your cash, your excess cash to the higher returning areas? Does that have any influence on a local regulator really thinking in one jurisdiction that maybe rates are too low and they should buy us upwards or conversely that they're too high and they should buy us downwards. Has that had any influence to date or do you prospectively see that having any influence?

Nothing to date Andrew and we're very clear when we're meeting our regulator that we don't operate the business that way. We expect to be treated fairly within a jurisdiction and we're going to provide the capital necessary to operate a utility well in that jurisdiction and we have as you know now a very wide range of our call on regulatory compact between equity thickness and ROEs, Canadian businesses versus our U.S. businesses. There is also differences on future test years, historical test years. So, the real mix of things out there and we just focus on making sure within each jurisdiction that we run a good operation, serve our customers well and positive regulatory relationships that Fortis is going to provide the capital to these utility that they need and we're not going to be deciding between each one of them who gets the money. That's not how we run the business.

Well I think your quarter validated those statements and that operating philosophy.

Thank you for the headlines.

Thank you.

[Operator instructions] Thank you. As there are no further questions, I would like to turn the call back to Mr. Perry for any closing remarks.

Thank you, very much operator. Just want to conclude by saying, we had a very strong 2016. I am very proud of my team in terms of how we executed and got the ITC deal done well while we delivered strong results in the rest of the business. We're positioned very well over the next number of years to continue to grow the business and supporting our dividend guidance through 2021 of a CAGR of 6% a year over that period of time. So, thanks everyone and I look forward to talking to you next quarter.

Thank you for participating ladies and gentlemen. This concludes today's conference. You may disconnect.