Fortis Inc. (FTS) Q4 2025 earnings review
Boring is Beautiful: 100% Regulated and Growing Faster
Fortis completed its transformation into a pure-play regulated utility by closing the sales of its Caribbean assets (FortisTCI, Belize). The company delivered solid FY25 Adjusted EPS of $3.53 (+7.6% YoY) and unveiled a new $28.8B five-year capital plan—$2.8B larger than the previous iteration. This drives an accelerated rate base CAGR of 7% (up from 6.5%). While Q4 net earnings were noisy due to disposition losses, the core regulated growth thesis is intact and accelerating, driven by U.S. transmission and Arizona load growth.
🐂 Bull Case
The new 5-year capital plan expanded to $28.8B (+$2.8B vs prior), raising the rate base CAGR to 7%. This is highly executable (99% regulated) and supports the extended 4-6% dividend growth guidance through 2030.
Tucson Electric Power (TEP) approved a 300 MW data center deal with no discounts and 75% minimum billing. Negotiations are active for another 800-1,000 MW, creating a massive regulated investment runway beyond the current plan.
🐻 Bear Case
UNS Energy (Arizona) is suffering from regulatory lag, with over $700M of rate base not yet in rates. Q4 UNS earnings fell as cost pressures outweighed transmission revenue gains. The fix (formula rates) is proposed but not yet approved.
While Moody's and S&P ratings are stable, credit metrics are tight. The company is funding the massive $28.8B plan via debt, cash flow, and DRIP. Any execution slip or interest rate spike could pressure the 'over 12%' FFO/Debt target.
⚖️ Verdict: 🟢🟢
Strong Buy. Fortis is doing exactly what defensive investors want: de-risking the portfolio (exiting Caribbean) while accelerating regulated growth (7% CAGR). The Arizona data center optionality provides a 'growth kicker' rarely seen in low-beta utilities.
Key Themes
Capital Plan Expansion
Accelerating. Fortis increased its 5-year capital plan to $28.8B, up $2.8B from the previous plan. The increase is driven by transmission investments at ITC (MISO LRTP) and load growth infrastructure at UNS Energy. This drives rate base growth from 6.5% to 7.0%, securing the dividend growth thesis.
Arizona Data Center Demand
Accelerating. TEP secured an Energy Supply Agreement for 300 MW for a data center (ramping 2027). Importantly, the customer pays full tariff rates with no discounts. Management is negotiating an additional 300 MW at that site and 500-700 MW at a second site, potentially requiring $1.5-$2.0B USD in new generation investment through 2030.
UNS Energy Regulatory Lag
Stable/Negative. While TEP and UNS Gas are growing, earnings are being suppressed by regulatory lag. $700M+ of rate base is currently earning zero return until new rates are effective (expected late 2026 for TEP). The company is pushing for 'formula rates' to fix this structurally, but approval is not guaranteed.
Portfolio Simplification
Completed. With the sale of FortisTCI and Belize assets in Q4/Q3 2025, Fortis is now a 100% regulated utility focused on North America. This removes geopolitical and hurricane risk from the Caribbean, likely commanding a higher valuation multiple over time.
Pragmatic Decarbonization
Reversing. Fortis is shifting strategy at TEP from 'renewables only' to 'reliability first.' The plan now includes converting the Springerville coal plant to natural gas rather than shutting it down entirely. This secures affordable reliability for data centers but required the company to scrap its interim 2030/2035 GHG reduction targets.
Other KPIs
Accelerating. Up 7.6% YoY from $3.28 in 2024. Growth was driven by rate base additions across utilities and the rebasing of rates at Central Hudson.
Decelerating. UNS earnings were lower in Q4 due to milder weather and regulatory lag, despite higher transmission revenues. This segment is the primary drag on short-term performance.
Stable. Currently below the long-term target of >12%, largely due to the heavy capex cycle. Management claims the new funding plan provides a cushion to return to >12% during the 5-year period.
Guidance
Stable. Guidance extended through 2030 (previously 2029). Supported by the upgraded 7% rate base growth. 2025 marked the 52nd consecutive year of increases.
Accelerating. Up from the previous guidance of 6.5%. Driven by the $2.8B increase in the capital plan, specifically transmission at ITC and clean energy infrastructure in Arizona.
Accelerating. An increase from the prior $26.0B plan. Capital mix is 21% major projects / 79% small projects, retaining a low-risk profile.
Key Questions
Data Center Generation Timing
With data center customers wanting power 'tomorrow' but new generation taking years to permit and build, is there a risk that TEP loses the 500-700MW expansion opportunities to faster jurisdictions?
Formula Rate Approval Risk
The bull case for UNS Energy relies heavily on the Arizona Corporation Commission approving formula rates to cure regulatory lag. If the ACC rejects the formula mechanism in the upcoming rate case decision (expected Q1 2026), how much does that drag on the 7% rate base growth assumptions?
ITC Competitive Bidding
ITC has a massive $3.7B-$4.2B opportunity in MISO Tranche 2.1, but much of it may be subject to competitive bidding. How much of the $28.8B plan assumes winning these competitive bids versus ROFR (Right of First Refusal) projects?