Fortis Releases 2014 Annual Results
- Annual Dividend to Common Shareholders Raised for Record 42 Consecutive Years - UNS Energy Acquisition Completed - Capital Expenditure Program Reached Record $1.7 Billion
(firmenpresse) - ST. JOHN'S, NEWFOUNDLAND AND LABRADOR -- (Marketwired) -- 02/19/15 -- Fortis Inc. ("Fortis" or the "Corporation") (TSX: FTS) released its 2014 annual results today. Net earnings attributable to common equity shareholders for 2014 were $317 million, or $1.41 per common share, compared to $353 million, or $1.74 per common share, for 2013. Excluding the impact of non-recurring items in 2014 and 2013, described further below, net earnings attributable to common equity shareholders for 2014 were $407 million, or $1.81 per common share, an increase of $63 million, or $0.11 per common share, from $344 million, or $1.70 per common share, for 2013.
In December 2014 Fortis increased its quarterly common share dividend to 34 cents from 32 cents, commencing with the first quarter dividend payable on March 1, 2015, which translates into an annualized dividend of $1.36. Fortis has raised its annualized dividend to common shareholders for 42 consecutive years, the record for a public corporation in Canada.
In August 2014 Fortis acquired UNS Energy Corporation ("UNS Energy") for US$60.25 per common share in cash, for a purchase price of approximately US$4.5 billion, including the assumption of approximately US$2.0 billion of debt. UNS Energy, headquartered in Tucson, Arizona, is engaged through its primary subsidiaries in the regulated electric generation and energy delivery business, primarily in the State of Arizona, and serves approximately 658,000 electricity and gas customers.
"The acquisition of UNS Energy in Arizona has transformed Fortis from the largest investor-owned distribution utility in Canada to a leader in electric and gas utilities in North America," says Barry Perry, President and Chief Executive Officer, Fortis. Fortis now has more than $26 billion of assets, with the acquisition of UNS Energy bolstering assets by approximately one-third. Fortis now owns nine utilities - five in Canada, two in the United States and two in the Caribbean - and serves more than three million electricity and gas customers.
Financing of the net cash purchase price of approximately $2.7 billion (US$2.5 billion) is substantially complete. Fortis completed the sale of $1.8 billion 4% convertible unsecured subordinated debentures, represented by installment receipts ("Convertible Debentures"). Proceeds from the initial installment of approximately $599 million were received in January 2014. Proceeds from the final installment of approximately $1.2 billion were received on October 28, 2014. Following the receipt of the final installment, approximately 58.2 million common shares of Fortis were issued on conversion of the debentures. In September 2014 Fortis issued 24 million 4.1% Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series M for gross proceeds of $600 million. The remainder of the purchase price was financed through credit facility borrowings.
"Our annual consolidated capital program reached a record $1.7 billion in 2014, almost 50% higher than 2013," says Perry. "Our Waneta Expansion is progressing well and UNS Energy completed the purchase of the 550-megawatt Gila River plant in the fourth quarter, as expected."
Construction of the $900 million, 335-megawatt ("MW") Waneta Expansion hydroelectric generating facility ("Waneta Expansion") in British Columbia continues on time and on budget, with completion of the facility expected in spring 2015. Approximately $679 million has been invested in the Waneta Expansion since construction began in late 2010. In October 2014 FortisBC started construction of its $400 million Tilbury liquefied natural gas ("LNG") facility expansion in British Columbia, which will include a second LNG tank and a new liquefier, both to be in service by the end of 2016. The Tilbury expansion will be included in regulated rate base. In December 2014 UNS Energy purchased the 550-MW Unit 3 Gila River combined cycle gas-fired generating station for $252 million (US$219 million). Gila River strengthens the Company's generation portfolio and reduces its reliance on coal-based generation.
Results for both years were impacted by non-recurring items, largely associated with the acquisition of UNS Energy in 2014 and Central Hudson Gas & Electric Corporation ("Central Hudson") in 2013. Earnings for 2014 were reduced by $39 million, or $0.17 per common share, due to acquisition-related expenses and customer benefits offered to obtain regulatory approval of the acquisition of UNS Energy, compared to $34 million, or $0.17 per common share, associated with the acquisition of Central Hudson in 2013. Interest expense of $51 million after tax, including a make-whole payment, or $0.23 per common share, associated with the Convertible Debentures issued to finance a portion of the acquisition of UNS Energy was recognized in 2014. In addition, earnings for 2013 were favourably impacted by an income tax recovery of $23 million, or $0.11 per common share, due to the enactment of higher deductions associated with Part VI.1 tax on the Corporation's preference share dividends, and an extraordinary gain of $20 million, or $0.10 per common share, related to the settlement of expropriation matters associated with the Exploits River Hydro Partnership ("Exploits Partnership").
"Regulated Utilities performed well during the year," says Perry. "The UNS Energy acquisition closed in just eight months and contributed significantly during the year. Excluding one-time acquisition-related expenses, the acquisition of UNS Energy was immediately accretive to earnings per common share."
Regulated Utilities contributed earnings of $460 million compared to $392 million for 2013. The increase was driven by $60 million of earnings at UNS Energy from the date of acquisition and the first full year of earnings contribution from Central Hudson, which was acquired in June 2013. FortisAlberta's earnings were $9 million higher year over year, driven by rate base growth and an increase in the number of customers. Earnings at Caribbean Regulated Electric Utilities were $4 million higher than 2013, driven by electricity sales growth. The increases were partially offset by lower earnings at Eastern Canadian Electric Utilities, due to income tax recoveries of approximately $17 million in 2013 associated with Part VI.1 tax, and at FortisBC Electric, primarily due to the impact of lower-than-expected finance charges in 2013. Earnings at the FortisBC Energy companies were comparable with 2013.
"The regulatory calendar was extensive again in 2014 and significant regulatory processes are ongoing in Alberta and New York," says Perry. "A focus across the organization has been one of maintaining trust and credibility with our regulators by filing high-quality applications that are transparent and comprehensive," he adds.
A decision on multi-year performance-based rate-setting applications in British Columbia was received in September 2014 and did not have a material impact on earnings for 2014. A generic cost of capital proceeding is continuing in Alberta and the outcome is expected in the first quarter of 2015. A hearing related to FortisAlberta's combined capital tracker application for 2013 through 2015, which is an application for revenue increases related to its capital expenditure program, was held in October 2014. In 2013 and 2014, FortisAlberta recognized capital tracker revenue based on the interim regulatory decision granting 60% of the applied for capital tracker amounts. In December 2014 an interim decision was received granting FortisAlberta 90% of the applied for capital tracker amounts for 2015. A final decision on the combined capital tracker application is expected in the first quarter of 2015. In July 2014 Central Hudson filed a general rate application to establish rates effective July 1, 2015. A Joint Settlement Proposal was filed in February 2015 that provides for new rates at Central Hudson for a three-year period beginning July 1, 2015, reflecting an allowed rate of return on common shareholders' equity of 9.0% and a 48% common equity component of capital structure. Public statement hearings are expected to be held in March or April with the Joint Settlement Proposal targeted to go to the regulator in June for consideration and approval.
Non-Regulated Fortis Generation contributed $20 million to earnings compared to $39 million for 2013. The decrease was primarily due to the recognition of an approximate $20 million after-tax extraordinary gain on the settlement of expropriation matters associated with the Exploits Partnership in 2013.
Non-Utility operations contributed earnings of $28 million, an increase of $10 million from 2013. Earnings for 2014 included $5 million associated with Griffith Energy Services, Inc. ("Griffith") compared to a loss of $5 million for 2013. Griffith was acquired as part of the acquisition of Central Hudson in June 2013 and was sold in March 2014 for proceeds of approximately $105 million (US$95 million). Earnings at Fortis Properties of $23 million were comparable with 2013. In September 2014 the Corporation announced that it would engage in a review of strategic options for its hotel and commercial real estate business, operating as Fortis Properties. Strategic options may include, but are not limited to, a sale of all or a portion of the assets, a sale of shares of Fortis Properties or an initial public offering.
"The strategic review of Fortis Properties continues and we expect to make a decision on the future of this business in the second quarter of 2015," says Perry.
Corporate and Other expenses were $33 million higher year over year, excluding the impacts of interest expense on the Convertible Debentures, acquisition-related expenses and income tax recoveries of approximately $6 million associated with Part VI.1 tax in 2013. The increase was primarily due to higher finance charges, largely due to the acquisitions of UNS Energy and Central Hudson, and higher operating expenses. The increase in operating expenses was mainly due to employee-related expenses, including approximately $11 million in one-time after-tax retirement expenses; share-based compensation expenses, as a result of share price appreciation; higher legal and consulting fees; and general inflationary increases. The increase in Corporate and Other expenses was partially offset by an $8 million foreign exchange gain compared to $6 million in 2013, a higher income tax recovery and interest income.
Cash flow from operating activities was $982 million for 2014, an increase of $83 million from 2013. The increase was driven by higher cash earnings, partially offset by unfavourable changes in working capital and long-term regulatory deferrals.
Earnings for the fourth quarter were $113 million, or $0.44 per common share, compared to $100 million, or $0.47 per common share, for the same quarter in 2013. The increase in earnings for the quarter was primarily due to: (i) earnings contribution of $23 million from UNS Energy; (ii) higher earnings at FortisAlberta, driven by customer growth and the timing of operating expenses; and (iii) higher earnings at the Non-Utility segment, due to higher contribution from Fortis Properties and the impact of a net loss of approximately $2.5 million at Griffith in the fourth quarter of 2013. The increase was partially offset by higher net Corporate and Other expenses and lower earnings at Central Hudson. The increase in net Corporate and Other expenses was primarily due to higher finance charges and preference share dividends associated with the financing of the acquisition of UNS Energy, and approximately $4 million in after-tax interest expense associated with the Convertible Debentures, partially offset by a higher income tax recovery. At Central Hudson, the continued impact of higher depreciation and operating expenses during the two-year rate freeze post acquisition had an unfavourable impact on earnings. Higher storm-restoration and other non-recurring expenses also reduced Central Hudson's earnings in the fourth quarter of 2014. The decrease in earnings per common share was due to the impact of an increase in the weighted average number of common shares outstanding due to the issuance of 58.2 million common shares in October 2014 upon conversion of the Convertible Debentures issued to finance a portion of the acquisition of UNS Energy.
Fortis is one of the highest-rated utility holding companies in North America, with its corporate debt rated A- by Standard & Poor's ("S&P") and A(low) by DBRS. In October 2014, following the completion of equity financing associated with the acquisition of UNS Energy, S&P confirmed the Corporation's credit rating and revised its outlook to Stable. Similarly, in December 2014 DBRS confirmed the Corporation's credit rating with a Stable outlook.
"The capital markets have shown confidence in Fortis, as evidenced by the successful large financings we completed during the year," says Perry. "In addition to the $1.8 billion common equity and $600 million preference share issues associated with the UNS Energy acquisition, Fortis and its utilities raised more than $1 billion in long-term debt in 2014 at attractive interest rates."
In June and September, Fortis issued a total of US$500 million in senior unsecured notes, with terms to maturity ranging from 5 to 30 years and coupon rates ranging from 2.92% to 5.03%. The net proceeds were used to repay US-dollar denominated borrowings on the Corporation's credit facility, to refinance existing indebtedness, including the US$150 million 5.74% senior unsecured notes of Fortis that matured in October and $125 million 5.56% unsecured debentures of a subsidiary that matured in September, and for general corporate purposes. In September FortisAlberta issued $275 million unsecured debentures in two tranches, comprised of 10-year $150 million unsecured debentures at 3.30% and 30-year $125 million unsecured debentures at 4.11%. Net proceeds were used to repay $200 million 5.33% unsecured debentures that matured in October, to finance capital expenditures and for general corporate purposes. In October FortisBC Electric issued 30-year $200 million unsecured debentures at 4.00%. Net proceeds were used to repay existing indebtedness, including $140 million 5.48% unsecured debentures that matured in November. Long-term debt offerings were also completed at Central Hudson and Caribbean Regulated Electric Utilities.
"This is a very exciting time for Fortis. Following a decade of significant growth, mainly resulting from acquisitions, Fortis is entering a period of significant growth from our existing operations. Our consolidated capital program, which is designed to ensure we continue to meet the energy needs of our customers, is expected to exceed $2.0 billion in 2015. Over the five-year period through 2019, it is expected to approach $9 billion," says Perry.
"Over the next five years, total investment in energy infrastructure is expected to increase midyear rate base by approximately 36% from $14 billion in 2014 to approximately $19 billion in 2019. This capital investment should allow rate base to increase at a five-year compound annual growth rate of approximately 6.5% through 2019," he explains.
"Fortis is also pursuing significant natural gas investment opportunities, particularly in British Columbia. Two new regulated projects - a further expansion of the Tilbury LNG facility and the Woodfibre pipeline expansion, could increase the five-year compound annual growth rate through 2019 to 7.5%," concludes Perry.
Teleconference to Discuss 2014 Annual Results
A teleconference and webcast will be held on February 19 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 2014 annual 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 the call. No pass code is required.
A live and archived audio webcast of the teleconference will be available on the Corporation's website, .
A replay of the conference will be available two hours after the conclusion of the call until March 1, 2015. Please call 1.800.585.8367 or 416.621.4642 and enter pass code 44984280.
FORWARD-LOOKING INFORMATION
The following Fortis Inc. ("Fortis" or the "Corporation") Management Discussion and Analysis ("MD&A") has been prepared in accordance with National Instrument 51-102 - Continuous Disclosure Obligations. The MD&A should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2014. Financial information for 2014 and comparative periods contained in the MD&A has been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and is presented in Canadian dollars unless otherwise specified.
Fortis includes forward-looking information in the MD&A within the meaning of applicable securities laws in Canada ("forward-looking information"). The purpose of the forward-looking information is to provide management's expectations regarding the Corporation's future growth, results of operations, performance, business prospects and opportunities, and it may not be appropriate for other purposes. All forward-looking information is given pursuant to the safe harbour provisions of applicable Canadian securities legislation. The words "anticipates", "believes", "budgets", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "schedule", "should", "will", "would" and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. The forward-looking information reflects management's current beliefs based on information currently available.
The forward-looking information in the MD&A includes, but is not limited to, statements regarding: the Corporation's review of strategic options for its hotel and commercial real estate business; the expectation that UNS Energy Corporation ("UNS Energy") is able to satisfy the requirements of its customer base and meet future peak demand requirements; the expectation that there will be a significant reduction in the use of coal in certain of UNS Energy's generating facilities by 2020; the expected timing of filing of regulatory applications and receipt and outcome of regulatory decisions; the Corporation's forecast gross consolidated capital expenditures for 2015 and total capital spending over the five-year period from 2015 through 2019; the nature, timing and expected costs of certain capital projects including, without limitation, the Waneta Expansion hydroelectric generating facility, the Tilbury liquefied natural gas facility expansion, the Woodfibre pipeline expansion, the development of a diesel power plant in Grand Cayman, and the Pinal transmission project in Arizona; the expectation that the Corporation's significant capital expenditure program will support continuing growth in earnings and dividends; the expectation that cash required to complete subsidiary capital expenditure programs will be sourced from a combination of cash from operations, borrowings under credit facilities, equity injections from Fortis and long-term debt offerings; the expectation that the Corporation's subsidiaries will be able to source the cash required to fund their 2015 capital expenditure programs, operating and interest costs, and dividend payments; the expected consolidated long-term debt maturities and repayments in 2015 and on average annually over the next five years; the expectation that long-term debt will not be settled prior to maturity; the expectation that the Corporation and its subsidiaries will continue to have reasonable access to capital in the near to long terms;
the expectation that the combination of available credit facilities and relatively low annual debt maturities and repayments will provide the Corporation and its subsidiaries with flexibility in the timing of access to capital markets; the expectation that the Corporation and its subsidiaries will remain compliant with debt covenants during 2015; the intent of management to hedge future exchange rate fluctuations and monitor its foreign currency exposure; the expectation that economic conditions in Arizona will improve; projected electricity sales growth at the Caribbean Regulated Electric Utilities; the impact of advances in technology and new energy efficiency standards on the Corporation's results of operations; the impact of new or revised environmental laws and regulations on the Corporation's results of operations; the expectation that any liability from current legal proceedings will not have a material adverse effect on the Corporation's consolidated financial position and results of operations; the belief that the Corporation has a strong, well-positioned case supporting the unconstitutionality of the expropriation of the Corporation's investment in Belize; the expectation that ongoing labour negotiations will be settled in 2015; and the expectation that the adoption of future accounting pronouncements will not have a material impact on the Corporations consolidated financial statements.
The forecasts and projections that make up the forward-looking information are based on assumptions which include, but are not limited to: a favorable outlook for the potential sale of assets or shares in the hotel and commercial real estate markets; the receipt of applicable regulatory approvals and requested rate orders, no material adverse regulatory decisions being received, and the expectation of regulatory stability; FortisAlberta's continued recovery of its cost of service and ability to earn its allowed ROE under performance-based rate-setting ("PBR"), which commenced for a five-year term effective January 1, 2013; no significant variability in interest rates; no significant operational disruptions or environmental liability due to a catastrophic event or environmental upset caused by severe weather, other acts of nature or other major events; the continued ability to maintain the electricity and gas systems to ensure their continued performance; no severe and prolonged downturn in economic conditions; no significant decline in capital spending; no material capital project and financing cost overrun related to the construction of the non-regulated Waneta Expansion hydroelectric generating facility; sufficient liquidity and capital resources; the expectation that the Corporation will receive appropriate compensation from the Government of Belize ("GOB") for fair value of the Corporation's investment in Belize Electricity Limited ("Belize Electricity") that was expropriated by the GOB; the expectation that Belize Electric Company Limited will not be expropriated by the GOB; the continuation of local development projects in the Turks and Caicos Islands in 2015;
the continuation of regulator-approved mechanisms to flow through the cost of natural gas and energy supply costs in customer rates; the ability to hedge exposures to fluctuations in foreign exchange rates, natural gas prices and electricity prices; no significant counterparty defaults; the continued competitiveness of natural gas pricing when compared with electricity and other alternative sources of energy; the continued availability of natural gas, fuel, coal and electricity supply; continuation and regulatory approval of power supply and capacity purchase contracts; the ability to fund defined benefit pension plans, earn the assumed long-term rates of return on the related assets and recover net pension costs in customer rates; no significant changes in government energy plans and environmental laws that may materially negatively affect the operations and cash flows of the Corporation and its subsidiaries; no material change in public policies and directions by governments that could materially negatively affect the Corporation and its subsidiaries; new or revised environmental laws and regulations will not severely affect the results of operations; maintenance of adequate insurance coverage; the ability to obtain and maintain licences and permits; retention of existing service areas; the ability to report under US GAAP beyond 2018 or the adoption of International Financial Reporting Standards after 2018 that allows for the recognition of regulatory assets and liabilities; the continued tax-deferred treatment of earnings from the Corporation's Caribbean operations; continued maintenance of information technology infrastructure; continued favourable relations with First Nations; favourable labour relations; that the Corporation can reasonably assess the merit of and potential liability attributable to ongoing legal proceedings; and sufficient human resources to deliver service and execute the capital program.
The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Risk factors which could cause results or events to differ from current expectations are detailed under the heading "Business Risk Management" in this MD&A and in continuous disclosure materials filed from time to time with Canadian securities regulatory authorities. Key risk factors for 2015 include, but are not limited to: uncertainty of the impact a continuation of a low interest rate environment may have on the allowed ROE at the Corporation's regulated utilities; uncertainty regarding the treatment of certain capital expenditures at FortisAlberta under the newly implemented PBR mechanism; risk associated with the amount of compensation to be paid to Fortis for its investment in Belize Electricity that was expropriated by the GOB; and the timeliness of the receipt of the compensation and the ability of the GOB to pay the compensation owing to Fortis.
All forward-looking information in the MD&A is qualified in its entirety by the above cautionary statements and, except as required by law, the Corporation undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after the date hereof.
CORPORATE OVERVIEW
Fortis is a leader in the North American electric and gas utility business, with total assets of more than $26 billion and fiscal 2014 revenue of $5.4 billion. Its regulated utilities account for approximately 93% of total assets and serve more than 3 million customers across Canada and in the United States and the Caribbean. Fortis owns non-regulated hydroelectric generation assets in Canada, Belize and Upstate New York. The Corporation's non-utility investment is comprised of hotels and commercial real estate in Canada. In 2014 the Corporation's electricity distribution systems met a combined peak demand of 9,740 megawatts ("MW") and its gas distribution systems met a peak day demand of 1,557 terajoules.
The Corporation's main business, utility operations, is highly regulated and the earnings of the Corporation's regulated utilities are determined under cost of service ("COS") regulation and, in certain circumstances, performance-based rate-setting ("PBR") mechanisms. Generally, under COS regulation the respective regulatory authority sets customer electricity and/or gas rates to permit a reasonable opportunity for the utility to recover, on a timely basis, estimated costs of providing service to customers, including a fair rate of return on a regulatory deemed or targeted capital structure applied to an approved regulatory asset value ("rate base"). The ability of a regulated utility to recover prudently incurred costs of providing service and earn the regulator-approved rate of return on common shareholders' equity ("ROE") and/or rate of return on rate base assets ("ROA") depends on the utility achieving the forecasts established in the rate-setting processes. When PBR mechanisms are utilized in determining annual revenue requirements and resulting customer rates, a formula is generally applied that incorporates inflation and assumed productivity improvements. The use of PBR mechanisms should allow a utility a reasonable opportunity to recover prudently incurred costs and earn its allowed ROE or ROA.
Earnings of regulated utilities are generally impacted by: (i) changes in the regulator-approved allowed ROE and/or ROA and common equity component of capital structure; (ii) changes in rate base; (iii) changes in energy sales or gas delivery volumes; (iv) changes in the number and composition of customers; (v) variances between actual expenses incurred and forecast expenses used to determine revenue requirements and set customer rates; and (vi) timing differences within an annual financial reporting period between when actual expenses are incurred and when they are recovered from customers in rates. When future test years are used to establish revenue requirements and set base customer rates, these rates are not adjusted as a result of the actual COS being different from that which is estimated, other than for certain prescribed costs that are eligible to be deferred on the balance sheet. In addition, the Corporation's regulated utilities, where applicable, are permitted by their respective regulatory authority to flow through to customers, without markup, the cost of natural gas, fuel and/or purchased power through base customer rates and/or the use of rate stabilization and other mechanisms.
Fortis segments its utility operations by franchise area and, depending on regulatory requirements, by the nature of the assets. Fortis also holds investments in non-regulated generation and non-utility assets, which are treated as two separate segments. The Corporation's investments in non-regulated assets provide financial, tax and regulatory flexibility and enhance shareholder return.
The Corporation's reporting segments allow senior management to evaluate the operational performance and assess the overall contribution of each segment to the long-term objectives of Fortis. Each entity within the reporting segments operates with substantial autonomy, assumes profit and loss responsibility and is accountable for its own resource allocation.
The following summary describes the operations included in each of the Corporation's reportable segments.
REGULATED UTILITIES
The Corporation's interests in regulated electric and gas utilities are as follows.
Regulated Electric & Gas Utilities - United States
Regulated Gas Utilities - Canadian
FortisBC Energy Companies: Primarily includes FortisBC Energy Inc. ("FEI"), FortisBC Energy (Vancouver Island) Inc. ("FEVI") and FortisBC Energy (Whistler) Inc. ("FEWI"), (collectively, the "FortisBC Energy companies"). On December 31, 2014, FEI, FEVI and FEWI were amalgamated and FEI is the resulting Company.
FEI is the largest distributor of natural gas in British Columbia, serving approximately 967,000 customers in more than 125 communities. Major areas served by the Company are the Lower Mainland, Vancouver Island, Sunshine Coast, Whistler and Interior of British Columbia.
FEI provides T&D services to customers, and obtains natural gas supplies on behalf of most residential, commercial and industrial customers. Gas supplies are sourced primarily from northeastern British Columbia and, through FEI's Southern Crossing pipeline, from Alberta.
Regulated Electric Utilities - Canadian
Regulated Electric Utilities - Caribbean
The Regulated Electric Utilities - Caribbean segment includes Caribbean Utilities Company, Ltd. ("Caribbean Utilities") and Fortis Turks and Caicos. Caribbean Utilities is an integrated electric utility and the sole provider of electricity on Grand Cayman, Cayman Islands, serving approximately 28,000 customers. The Company has an installed diesel-powered generating capacity of 132 MW. Fortis holds an approximate 60% controlling ownership interest in Caribbean Utilities (December 31, 2013 - 60%). Caribbean Utilities is a public company traded on the Toronto Stock Exchange ("TSX") (TSX: CUP.U). Fortis Turks and Caicos is comprised of two integrated electric utilities serving approximately 13,000 customers on certain islands in Turks and Caicos. The utilities have a combined diesel-powered generating capacity of 76 MW.
NON-REGULATED - FORTIS GENERATION
Fortis Generation includes the financial results of non-regulated generation assets in Belize, British Columbia, Upstate New York and Ontario.
Generating assets in Belize are comprised of three hydroelectric generating facilities with a combined capacity of 51 MW. All of the output of these facilities is sold to Belize Electricity Limited ("Belize Electricity") under 50-year power purchase agreements ("PPAs") expiring in 2055 and 2060. The hydroelectric generation operations in Belize are conducted through the Corporation's indirectly wholly owned subsidiary Belize Electric Company Limited ("BECOL") under a franchise agreement with the Government of Belize ("GOB").
In British Columbia, generating assets include the 16-MW run-of-river Walden hydroelectric generating facility ("Walden") and the Corporation's 51% controlling ownership interest in the 335-MW Waneta Expansion hydroelectric generating facility ("Waneta Expansion"). All of the output of Walden is sold to BC Hydro under a long-term contract that cannot be terminated prior to 2024. Construction of the Waneta Expansion, which is adjacent to the Waneta Dam and powerhouse facilities on the Pend d'Oreille River, south of Trail, British Columbia, commenced late in 2010 and the facility is expected to come into service in spring 2015. The output of the Waneta Expansion will be sold to BC Hydro and FortisBC Electric under 40-year contracts. The Corporation's 51% controlling ownership interest in the Waneta Expansion is conducted through the Waneta Expansion Limited Partnership ("Waneta Partnership"), with CPC/CBT holding the remaining 49% interest.
Generating assets in Upstate New York are comprised of four hydroelectric generating facilities with a combined capacity of approximately 23 MW, operating under licences from the U.S. Federal Energy Regulatory Commission ("FERC"). Hydroelectric generation operations in Upstate New York are conducted through the Corporation's indirectly wholly owned subsidiary FortisUS Energy Corporation ("FortisUS Energy").
In Ontario, generating assets include six small hydroelectric generating facilities with a combined capacity of 8 MW and a 5-MW gas-powered cogeneration plant in Cornwall.
NON-REGULATED - NON-UTILITY
The Non-Utility segment includes Fortis Properties Corporation ("Fortis Properties") and, from June 2013 through March 2014, Griffith Energy Services, Inc. ("Griffith"). Fortis Properties owns and operates 23 hotels, comprised of more than 4,400 rooms, in eight Canadian provinces, and owns and operates approximately 2.8 million square feet of commercial office and retail space, primarily in Atlantic Canada. In September 2014 the Corporation announced that it would engage in a review of strategic options for its hotel and commercial real estate business. For further information on the strategic review, refer to the "Significant Items - Review of Strategic Options for Fortis Properties" section of this MD&A.
Griffith was acquired by Fortis as part of the acquisition of Central Hudson in June 2013 and was sold in March 2014. For further information on the sale of Griffith, refer to the "Significant Items - Sale of Griffith" section of this MD&A.
CORPORATE AND OTHER
The Corporate and Other segment captures expense and revenue items not specifically related to any reportable segment and those business operations that are below the required threshold for reporting as separate segments.
The Corporate and Other segment includes net corporate expenses of Fortis and non-regulated holding company expenses of FortisBC Holdings Inc. ("FHI"), CH Energy Group, Inc. and UNS Energy Corporation. Net Corporate expenses include finance charges; dividends on preference shares; other corporate expenses, including corporate operating costs, net of recoveries from subsidiaries; acquisition-related expenses; interest and miscellaneous revenue; and related income taxes.
Also included in the Corporate and Other segment are the financial results of FortisBC Alternative Energy Services Inc. ("FAES"). FAES is a wholly owned subsidiary of FHI that provides alternative energy solutions, including thermal-energy and geo-exchange systems.
CORPORATE STRATEGY
Fortis is a leader in the North American utility industry. In all its operations, Fortis will manage resources prudently and deliver quality service to maximize value to customers and shareholders. The Fortis strategy is directed at long-term profitable growth. Earnings per common share and total shareholder return are the primary measures of performance.
Over the 10-year period ended December 31, 2014, earnings per common share of Fortis grew at a compound annual growth rate of 2.8%. Over the same period, Fortis delivered an average annualized total return to shareholders of approximately 12%, exceeding the S&P/TSX Capped Utilities and S&P/TSX Composite Indices, which delivered average annualized performance of approximately 8% over the same period.
The Corporation's first priority remains the continued profitable expansion of existing operations. Fortis has also demonstrated its ability to acquire additional regulated utilities in Canada and the United States. Management is focused on the full integration of UNS Energy within Fortis and executing the Corporation's substantial capital program.
The acquisitions of Central Hudson in June 2013 and UNS Energy in August 2014 represent the Corporation's initial investments into the regulated U.S. utility market. These U.S. regulated utility assets further mitigate business risk for Fortis by enhancing the geographic diversification of the Corporation's regulated assets, resulting in no more than one-third of total assets being located in any one regulatory jurisdiction. For further information on the acquisition of UNS Energy, refer to the "Significant Items - Acquisition of UNS Energy" section of this MD&A.
The principal business of Fortis is, and will remain, the ownership and operation of regulated electric and gas utilities. The key goals of the Corporation's regulated utilities are to operate sound electricity and gas distribution systems; deliver safe, reliable, cost-efficient energy to customers; and conduct business in an environmentally responsible manner.
KEY TRENDS, RISKS AND OPPORTUNITIES
General Trends for the Energy Sector: The North American energy market has changed rapidly over the past several years. The most notable change has been technological advances in drilling and well completion techniques that have rapidly transformed the outlook for North American natural gas and oil production. Notwithstanding the changes occurring in the energy industry, safety, reliability and serving customers at the lowest reasonable cost remain at the forefront of the utility industry's key issues.
According to ExxonMobil's 2015 Outlook for Energy: A View to 2040, global energy demand is expected to increase by approximately 35% from 2010 to 2040. The world will likely continue to become more energy efficient as demand increases. However, without the efficiency gains, the global energy demand could grow by as much as 140% over the same period. The world's energy future will see a shift to lower-carbon fuels, stable greenhouse gas ("GHG") emissions, and technologies with new energy options, such as unconventional oil and natural gas in North America. North America is likely to transition into a net exporter of liquid petroleum products by 2020 due to increased supplies of tight oil, natural gas liquids and bitumen from oil sands. The increased demand for natural gas is expected to be met by 2040 as the liquefied natural gas trade is expected to triple and unconventional gas production nearly quadruple, due to new supplies and significant trade expansion.
As noted in the National Energy Board's energy market assessment report, Canada's Energy Future 2013: Energy Supply and Demand Projections to 2035, the country has considerable energy resources and its total energy production is expected to grow substantially by 2035, with oil production expected to lead the growth at 75%, and natural gas production at 25%, led by higher levels of tight oil and shale gas development. Total energy consumed by Canadians is expected to continue to grow, but at a slower rate than in the past. By 2035, the country's demand for oil and natural gas is expected to increase by 28%. Canada's total electricity generation, which is more than 80% from non-emitting sources, is expected to increase 27% by 2035. Natural gas-powered generation capacity is expected to increase considerably, but at the expense of coal-powered capacity as a result of federal and provincial regulations.
The Conference Board of Canada estimates that $350 billion over the 20-year period through 2030, must be invested in Canada's electricity infrastructure in order to meet the demands of a growing population and new technologies. Over the past four decades, investments have averaged between $9 billion and $11 billion, annually.
The U.S. Energy Information Administration's Annual Energy Outlook 2014 with Projections to 2040 reports that electricity demand growth in the United States remains relatively low, as rising demand for electric services is offset by energy efficiencies gained from new appliance standards and investments in energy-efficient equipment. Total electricity demand is expected to grow by 29% through to 2040. Growing domestic production of natural gas and oil is expected to continue to reshape the U.S. energy economy, largely the result of rising production from tight geological formations. Industrial production is expected to expand over the next 10 to 15 years as the competitive advantage of low natural gas prices provides a boost to the industrial sector. The higher level of industrial production is expected to lead to a 22% increase in natural gas consumption in the U.S. industrial sector through 2025. The ever-evolving natural gas markets have created a demand for natural gas for electricity generation and transportation and have increased export opportunities. As natural gas prices rise and the capital costs of renewable technologies (wind and solar) decrease over time, renewable generation becomes more competitive, and is expected to account for 16% of total electricity generation by 2040. Natural gas-fired generation is expected to overtake coal-fired generation in 2019, and by 2040 the natural gas share of total generation is expected to reach 43%. Improved efficiency of energy use in the residential and transportation sectors and a move from more carbon-intensive fuels, such as coal, for electricity generation will help stabilize the country's GHG emissions.
The Edison Electric Institute reported US$90 billion in annual capital expenditures for the U.S. electric power industry for 2012 and 2013. Electric utilities in the United States anticipate investing, on average, close to US$100 billion annually for 2014 through 2016.
Regulation: The Corporation's key business risk is regulation. Each of the Corporation's nine utilities is subject to regulation by the regulatory body in its respective operating jurisdiction. Relationships with the regulatory authorities are managed at the local utility level.
Commitment by the Corporation's utilities to provide safe and reliable service, operational excellence and to promote positive customer and regulatory relations is important for supportive regulatory relationships and obtaining full cost recovery and competitive returns for the Corporation's shareholders.
Significant regulatory uncertainty remains at FortisAlberta associated with the capital tracker mechanism under the PBR formula, which became effective January 1, 2013. In May 2014 FortisAlberta filed a combined 2013, 2014 and 2015 Capital Tracker Application, which requested capital tracker revenue of approximately $23 million for 2013, $48 million for 2014 and $69 million for 2015. For 2013 and 2014, FortisAlberta recognized capital tracker revenue of approximately $15 million and $30 million, respectively, based on the interim regulatory decision granting 60% of the applied for capital tracker amounts. In December 2014 the regulator approved, on an interim basis, customer distribution rates for 2015 based on 90% of the applied for capital tracker amounts. The final decision on FortisAlberta's combined 2013, 2014 and 2015 Capital Tracker Application is expected in the first quarter of 2015.
For a further discussion of regulatory risk and the nature of regulation and material regulatory decisions and applications pertaining to the Corporation's regulated utilities, refer to the "Business Risk Management - Regulatory Risk" and "Regulatory Highlights" sections of this MD&A.
Capital Expenditure Program and Rate Base Growth: The Corporation's regulated midyear rate base for 2014 was approximately $14 billion. Over the five years 2015 through 2019, the Corporation's consolidated capital expenditure program is expected to approach $9 billion. Over the same period, this level of capital investment is expected to result in an estimated five-year compound annual growth rate in midyear rate base of approximately 6.5%. Fortis expects that investment in its utilities associated with their capital expenditure programs will support continuing growth in earnings and dividends.
For further information on the Corporation's consolidated capital expenditure program and rate base of its regulated utilities, refer to the "Liquidity and Capital Resources - Capital Expenditure Program" section of this MD&A.
Natural Gas Opportunities: The FortisBC Energy companies are pursuing opportunities in British Columbia for gas infrastructure. The combination of an abundant supply of natural gas, low costs for natural gas and supportive government policy are generating new interest for large industrial customers and niche liquefied natural gas ("LNG") producers to utilize the FortisBC Energy companies' gas system.
In November 2013 the Government of British Columbia issued an Order in Council announcing the exemption of FEI's Tilbury LNG facility expansion ("Tilbury Expansion") from normal course regulatory review and imposing an upper limit of $400 million of capital costs associated with the expansion. FEI has begun the expansion, which will increase LNG production and storage capabilities, and it is expected to be in service by the end of 2016. Since this announcement, there has been considerable interest for LNG supply from the Pacific Northwest, Hawaii, Alaska and international markets. In December 2014 the Government of British Columbia issued a second Order in Council amending directions to the regulator regarding the Tilbury Expansion. The revisions set out a number of requirements for the regulator, including the consideration of a second phase of the Tilbury Expansion that would include additional liquefaction and could increase the overall project cost for both phases of the Tilbury Expansion to $850 million. For further information, refer to the "Material Regulatory Decisions and Applications" section of this MD&A.
Traditionally, the majority of natural gas production in northern British Columbia has served the provincial and Pacific Northwest markets via the Westcoast (Spectra) system. However, to realize the full potential of British Columbia shale gas plays, additional capacity to connect to markets will have to be developed. The FortisBC Energy companies are exploring pipeline investment opportunities that include expansion of their existing distribution system to supply natural gas to a prospective LNG export facility, as well as to expand capacity on their Southern Crossing transmission pipeline. The FortisBC Energy companies are pursuing a potential $600 million pipeline expansion for the proposed Woodfibre LNG site in British Columbia. The Woodfibre site is a former paper mill site located near Squamish, British Columbia. The Companies have an opportunity to expand their gas pipeline and increase compression to deliver natural gas to this site.
Access to Capital and Liquidity: The Corporation's regulated utilities require ongoing access to long-term capital to fund investments in infrastructure necessary to provide service to customers. Long-term capital required to carry out the utility capital expenditure programs is mostly obtained at the regulated utility level. The regulated utilities usually issue debt at terms ranging between 10 and 50 years. As at December 31, 2014, almost 90% of the Corporation's consolidated long-term debt, excluding borrowings under long-term committed credit facilities, had maturities beyond five years. Management expects consolidated long-term debt maturities and repayments to average approximately $240 million annually over the next five years, excluding long-term credit facility borrowings.
To help ensure uninterrupted access to capital and sufficient liquidity to fund capital programs and working capital requirements, the Corporation and its subsidiaries have approximately $3.9 billion in credit facilities, of which approximately $2.2 billion was unused as at December 31, 2014. Based on current credit ratings and conservative capital structures, the Corporation and its regulated utilities expect to continue to have reasonable access to long-term capital in 2015.
Dividend Increases: Dividends paid per common share increased to $1.28 in 2014. Fortis increased its quarterly common share dividend to 34 cents, commencing with the first quarter dividend to be paid in 2015. The 6.25% increase in the quarterly common share dividend translates into an annualized dividend of $1.36 for 2015 and extends the Corporation's record of annual common share dividend increases to 42 consecutive years, the record for a public corporation in Canada.
Expropriated Assets: The GOB expropriated the Corporation's common share ownership in Belize Electricity in June 2011. The Corporation is challenging the constitutionality of the expropriation in the Belize Courts. There has been no settlement on the fair value compensation owing to Fortis as a result of the expropriation. As at December 31, 2014, the book value of the Corporation's expropriated investment in Belize Electricity is $116 million, including foreign exchange impacts. The Corporation is awaiting a decision on its appeal to the Caribbean Court of Justice ("CCJ"). For further information, refer to the "Business Risk Management - Expropriation of Shares in Belize Electricity" section of this MD&A.
SIGNIFICANT ITEMS
Acquisition of UNS Energy: On August 15, 2014, Fortis acquired all of the outstanding common shares of UNS Energy for US$60.25 per common share in cash, for an aggregate purchase price of approximately US$4.5 billion, including the assumption of US$2.0 billion of debt on closing. UNS Energy is a vertically integrated utility services holding company, headquartered in Tucson, Arizona, engaged through its primary subsidiaries in the regulated electric generation and energy delivery business, primarily in the State of Arizona, serving approximately 658,000 electricity and gas customers. UNS Energy has three regulated utility subsidiaries: TEP, UNS Electric and UNS Gas. UNS Energy's utility operations are vertically integrated with generation, transmission and distribution being regulated by the Arizona Corporation Commission ("ACC") and FERC. For further information on UNS Energy, refer to the "Segmented Results of Operations - Regulated Electric & Gas Utilities - United States" section of this MD&A.
Financing of the net cash purchase price of approximately $2.7 billion (US$2.5 billion) is substantially complete. Fortis completed the sale of $1.8 billion 4% convertible unsecured subordinated debentures represented by installment receipts ("Convertible Debentures"), as further discussed below. Proceeds from the first installment of approximately $599 million were received in January 2014. A significant portion of these cash proceeds were used to finance a portion of the UNS Energy acquisition. Proceeds from the final installment of approximately $1.2 billion were received on October 28, 2014 and were used to repay borrowings under acquisition credit facilities initially used to finance a portion of the UNS Energy acquisition. Following the receipt of the final installment, on October 28, 2014, approximately 58.2 million common shares of Fortis were issued on conversion of the Convertible Debentures. In September 2014 Fortis issued 24 million 4.1% Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series M for gross proceeds of $600 million. The net proceeds were also used to repay a portion of borrowings under the acquisition credit facilities. The remainder of the purchase price was financed through credit facility borrowings under a medium-term bridge facility and the Corporation's revolving credit facility.
Convertible Debentures: To finance a portion of the acquisition of UNS Energy, in January 2014, Fortis completed the sale of $1.8 billion aggregate principal amount of 4% Convertible Debentures. The Convertible Debentures were sold on an installment basis at a price of $1,000 per Convertible Debenture, of which $333 was paid on closing in January 2014 and the remaining $667 was paid on October 27, 2014 (the "Final Installment Date"). Prior to the Final Installment Date, the Convertible Debentures were represented by Installment Receipts, which were traded on the TSX under the symbol "FTS.IR". Since the Final Installment Date occurred prior to the first anniversary of the closing of the offering, holders of Convertible Debentures received, in addition to the payment of accrued and unpaid interest, a make-whole payment, representing interest that would have accrued from the day following the Final Installment Date to and including January 9, 2015. Approximately $72 million ($51 million after tax) in interest expense associated with the Convertible Debentures, including the make-whole payment, was recognized in 2014.
At the option of the holders, each Convertible Debenture was convertible into common shares of Fortis at any time after the Final Installment Date but prior to maturity or redemption by the Corporation at a conversion price of $30.72 per common share, being a conversion rate of 32.5521 common shares per $1,000 principal amount of Convertible Debentures. On October 28, 2014, approximately 58.2 million common shares of Fortis were issued, representing conversion into common shares of more than 99% of the Convertible Debentures. As at December 31, 2014, a total of approximately 58.5 million common shares of Fortis were issued on the conversion of Convertible Debentures for proceeds of $1.747 billion, net of after-tax expenses. The net proceeds were used to finance a portion of the acquisition of UNS Energy.
Review of Strategic Options for Fortis Properties: In September 2014 the Corporation announced that it would engage in a review of strategic options for its hotel and commercial real estate business, operating as Fortis Properties. Strategic options may include, but are not limited to, a sale of all or a portion of the assets, a sale of shares of Fortis Properties or an initial public offering. A decision on this review is expected to be made in the second quarter of 2015.
Sale of Griffith: In March 2014 Griffith was sold for proceeds of approximately $105 million (US$95 million). The results of operations have been presented as discontinued operations on the consolidated statements of earnings for the years ended December 31, 2014 and 2013. Earnings for 2014 included $5 million associated with Griffith from normal operations to the date of sale.
SUMMARY FINANCIAL HIGHLIGHTS
Net Earnings Attributable to Common Equity Shareholders: Fortis achieved net earnings attributable to common equity shareholders of $317 million in 2014 compared to $353 million in 2013. Results for both years were impacted by non-recurring items, largely associated with the acquisition of UNS Energy in 2014 and Central Hudson in 2013. Earnings for 2014 were reduced by $39 million due to acquisition-related expenses and customer benefits offered to obtain regulatory approval of the acquisition of UNS Energy, compared to $34 million associated with the acquisition of Central Hudson in 2013. Interest expense of $51 million after tax, including the make-whole payment, associated with Convertible Debentures issued to finance a portion of the acquisition of UNS Energy was recognized in 2014. In addition, earnings for 2013 were favourably impacted by an income tax recovery of $23 million due to the enactment of higher deductions associated with Part VI.1 tax on the Corporation's preference share dividends, and an extraordinary gain of $20 million related to the settlement of expropriation matters associated with the Exploits Partnership. Excluding the above-noted impacts, net earnings attributable to common equity shareholders for 2014 were $407 million, an increase of $63 million from $344 million for 2013.
The Corporation's regulated utilities contributed earnings of $460 million compared to $392 million for 2013. The increase was driven by $60 million of earnings contribution at UNS Energy from the date of acquisition and the first full year of earnings contribution from Central Hudson, which was acquired in June 2013. FortisAlberta's earnings were $9 million higher year over year, driven by rate base growth and an increase in the number of customers. Earnings at Caribbean Regulated Electric Utilities were $4 million higher than 2013, driven by electricity sales growth. The increases were partially offset by lower earnings at Eastern Canadian Electric Utilities, due to income tax recoveries of approximately $17 million in 2013 associated with Part VI.1 tax, and at FortisBC Electric, primarily due to the impact of lower-than-expected finance charges in 2013. Earnings at the FortisBC Energy companies were comparable with 2013.
Non-Regulated Fortis Generation contributed $20 million to earnings compared to $39 million for 2013. The decrease was primarily due to the recognition of an approximate $20 million after-tax extraordinary gain on the settlement of expropriation matters associated with the Exploits Partnership in 2013.
Non-Utility operations contributed earnings of $28 million, an increase of $10 million from 2013. Earnings for 2014 included $5 million associated with Griffith compared to a loss of $5 million for 2013. Earnings at Fortis Properties of $23 million were comparable with 2013.
Corporate and Other expenses were $33 million higher year over year, excluding the impacts of interest expense on the Convertible Debentures, acquisition-related expenses and income tax recoveries of approximately $6 million associated with Part VI.1 tax in 2013. The increase was primarily due to higher finance charges, largely due to the acquisitions of UNS Energy and Central Hudson, and higher operating expenses. The increase in operating expenses was mainly due to employee-related expenses, including approximately $11 million in one-time after-tax retirement expenses; share-based compensation expenses, as a result of share price appreciation; higher legal and consulting fees; and general inflationary increases. The increase in Corporate and Other expenses was partially offset by an $8 million foreign exchange gain compared to $6 million in 2013, a higher income tax recovery and interest income.
Basic Earnings per Common Share: Basic earnings per common share were $1.41 in 2014 compared to $1.74 in 2013. Excluding the above-noted non-recurring items in 2014 and 2013, basic earnings per common share were $1.81 for 2014, an increase of $0.11 from $1.70 for 2013. The increase was driven by accretion associated with the acquisition of UNS Energy.
A graph is available at the following address:
Cash Flow from Operating Activities: Cash flow from operating activities was $982 million for 2014, an increase of $83 million from 2013. The increase was driven by higher cash earnings, partially offset by unfavourable changes in working capital and long-term regulatory deferrals.
A graph is available at the following address:
Dividends: Dividends paid per common share increased to $1.28 in 2014, 3.2% higher than $1.24 in 2013. Fortis increased its quarterly common share dividend to 34 cents from 32 cents, commencing with the first quarter dividend payable on March 1, 2015. The Corporation's dividend payout ratio was 90.8% in 2014 compared to 71.3% in 2013. Excluding the above-noted non-recurring items in 2014 and 2013, the dividend payout ratio was 70.7% in 2014, comparable with 72.9% in 2013.
A graph is available at the following address:
Return on Average Book Common Shareholders Equity: The return on average book common shareholders' equity for 2014 was 5.4% compared to 8.1% for 2013. Excluding the above-noted non-recurring items in 2014 and 2013, the return on average book common shareholders' equity for 2014 was 7.0%, comparable with 7.9% for 2013.
Total Assets: Total assets increased 48.6% to approximately $26.6 billion at the end of 2014 compared to approximately $17.9 billion at the end of 2013. The increase reflects the Corporation's acquisition of UNS Energy in August 2014 and continued investment in energy infrastructure, driven by capital spending at the regulated utilities in western Canada and the Waneta Expansion.
A graph is available at the following address:
Gross Capital Expenditures: Consolidated capital expenditures, before customer contributions, were $1,725 million in 2014 compared to $1,175 million in 2013. The increase was driven by capital investment of $444 million (US$388 million) at UNS Energy from the date of acquisition, including the purchase of Unit 3 of the Gila River generating station, which is a gas-fired combined-cycle unit with a capacity of 550 MW, in December 2014 for $252 million (US$219 million). The regulated utilities in western Canada invested $772 million in 2014, or approximately 45% of consolidated capital expenditures. Capital investment was driven by the construction of the FortisBC Energy companies' Tilbury Expansion in British Columbia, which commenced in October 2014, customer growth and the ongoing need to enhance the reliability and efficiency of energy systems. Construction of the $900 million, 335-MW Waneta Expansion continues on time and on budget, with completion of the facility expected in spring 2015. Approximately $100 million was spent on the Waneta Expansion in 2014, for a total of approximately $679 million since construction began in late 2010. For a further discussion of the Corporation's consolidated capital expenditure program, refer to the "Liquidity and Capital Resources - Capital Expenditure Program" section of this MD&A.
Long-Term Capital: Fortis completed the sale of $1.8 billion Convertible Debentures in 2014 to finance a portion of the acquisition of UNS Energy. In October 2014 approximately 58.2 million common shares of Fortis were issued on conversion of the debentures. In September 2014 Fortis issued 24 million 4.1% Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series M for gross proceeds of $600 million. The net proceeds were also used to finance a portion of the acquisition of UNS Energy. The Corporation and its regulated utilities raised approximately $1.2 billion in long-term debt in 2014. For further information, refer to the "Liquidity and Capital Resources - Summary of Consolidated Cash Flows" section of
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