Fortis (FTS) Q2 2026 earnings review
Steady Regulated Growth Masked by Dispositions and Holding Costs
Fortis delivered a predictable, stable quarter with Net Earnings up 3% to $396 million and EPS rising to $0.78. The underlying utility business is performing exactly as designed, driven by robust rate base growth and new rate implementations at UNS Energy. However, headline growth was held back by the dilutive effect of the 2025 Caribbean asset dispositions and widening corporate-level finance and operating costs. The most significant development is the British Columbia government's approval of a $2.2 billion cost allowance for the Tilbury 1B LNG expansion, creating a massive upside catalyst to the company's existing $28.8 billion five-year capital plan.
🐂 Bull Case
The approved $2.2 billion cost allowance for the Tilbury Phase 1B expansion dwarfs the $350 million currently embedded in Fortis's 5-year capital plan, representing a major unpriced growth driver.
With $2.7 billion deployed in H1 2026, the company is perfectly on track to hit its $5.6 billion annual target, locking in the projected 7% rate base CAGR.
🐻 Bear Case
Despite strong segment-level performance, Corporate and Other net losses widened by 35% YoY to $57 million, acting as a drag on overall bottom-line growth.
The challenge by the Residential Utility Consumer Office regarding the Arizona Corporation Commission's authority to implement formula rates introduces uncertainty to TEP's earnings predictability.
⚖️ Verdict: ⚪
Neutral to Bullish. The core regulated rate base machine is functioning smoothly. While corporate cost drags and minor regulatory friction points exist, the massive, de-risked capital upside from the Tilbury LNG approval tilts the risk/reward favorably for income investors.
Key Themes
Tilbury LNG Phase 1B Approval Unlocks Massive Upside
The Province of British Columbia issued an Order In Council (OIC) approving the Phase 1B expansion of FortisBC Energy's Tilbury LNG Facility. Crucially, the OIC includes a cost allowance of up to $2.2 billion and approves the inclusion of the Tilbury Marine Jetty in the regulated utility. Because Fortis only has $350 million currently baked into its 5-year capital plan for this project, this represents a highly visible, accelerating tailwind for future rate base growth once construction begins (estimated mid-2027).
UNS Energy Benefiting from Rate Relief and Retail Demand
UNS Energy was the standout segment in Q2, with Net Earnings growing 9.6% YoY to $114 million. This stable growth is a direct result of the Arizona Corporation Commission's February 2026 approval of a 9.61% ROE and new formulaic rates for UNS Gas (effective March 1), compounded by higher retail electricity sales at TEP.
Technology & Storage: Roadrunner Reserve II Completes
Executing on its grid modernization and technology integration goals, Fortis placed the 200 MW Roadrunner Reserve II battery storage project in service at TEP in June. With the capacity to store 800 MWh of energy, it directly supports the integration of renewables and enhances grid stability, seamlessly entering the rate base.
Earnings Drag from Previous Dispositions
The successful strategic transformation into a 100% regulated utility via the 2025 sales of FortisTCI and Belize assets comes with a near-term comparative penalty. These dispositions diluted Q2 2026 earnings by $0.01 per share and are expected to be a $0.05 headwind for the full year, artificially depressing headline YoY growth rates.
Corporate & Other Losses Widening
While management highlights strong utility performance, the 'Corporate and Other' segment's net loss widened significantly from $42 million in 25Q2 to $57 million in 26Q2. This 35% deterioration was driven by higher holding company finance costs, effectively capturing a portion of the returns generated by the operating subsidiaries.
Regulatory and Legal Friction in Arizona
A notable headwind is brewing regarding regulatory mechanisms. The Residential Utility Consumer Office is actively challenging the Arizona Corporation Commission's authority to implement a formula rate framework via a policy statement, and the Arizona Court of Appeals is allowing the challenge to proceed. If overturned, this could jeopardize TEP's ability to minimize regulatory lag, a core component of management's predictability narrative.
Macro Pressures: Foreign Exchange
Management explicitly cited the impact of foreign exchange as a moderating factor on earnings growth this quarter. With over 60% of Fortis's assets in the U.S., a strengthening Canadian dollar relative to the U.S. dollar temporarily compresses reported CAD earnings, despite constant-currency rate base expansion.
Other KPIs
Stable. The company is executing flawlessly against its $5.6 billion annual target, representing nearly half of the projected spend in the first six months. This disciplined deployment is the primary engine for the company's 7% rate base CAGR.
Accelerating. Up 6.3% YoY from $143 million in 25Q2, underscoring the reliability of FERC-regulated transmission investments in driving consistent bottom-line expansion.
Guidance
Stable. Reaffirmed guidance for the current fiscal year, supporting the heavily weighted transmission and distribution investments across the portfolio.
Stable. The five-year plan remains intact, though it is highly likely to be revised upward in future iterations as the $2.2 billion Tilbury LNG allowance and unpriced U.S. data center loads are officially folded into the budget.
Stable. Implies a 7% compound annual growth rate from the 2025 base of $42.4 billion, providing extreme visibility into future regulated earnings power.
Stable. Reaffirmed target, completely underpinned by the regulated rate base expansion and self-funding capital plan.
Key Questions
Pacing of Tilbury 1B Capital
With the Province of BC approving a $2.2 billion cost allowance for Tilbury 1B, how quickly will we see this delta (above the $350 million currently in the plan) flow into the official 5-year rate base projections?
Arizona Formula Rate Legal Challenge
What is the contingency plan for TEP's General Rate Application if the Arizona Court of Appeals rules against the ACC's authority to use a policy statement for formulaic rate adjustments?
Holding Company Cost Inflation
Corporate and Other segment losses expanded by $15 million YoY this quarter. Is this entirely a function of higher floating-rate holding company debt, and at what point do we see these finance charges level off?
Data Center Load Monetization
Following the approval of the first 300 MW data center load in Arizona, what are the gating items required to finalize the next 300 MW to 700 MW phases, and when might they hit the CapEx backlog?