Fortis Inc. (FTS) Operational Quality Rating (BBB) | 2025 Old York RegistryUtilities | Regulated Electric & Gas
(BBB) | Utilities | Multi-Utilities
By: Old York Financial
A Private Principal Report
the verdict
Old York Financial has assigned Fortis Inc. (FTS) an Operational Quality (BBB) Rating. Fortis is the "Grandfather of Yield," boasting 52 consecutive years of dividend increases. It earns a (BBB) because it operates as a low-risk, rate-regulated machine with a massive $42B rate base.
While it is the ultimate "Defensive Sovereign" for a retiree, it sits below the (A) rated Energy giants because its Capital Velocity is structurally suppressed by government regulators. It is a "Spread Business", it borrows money to build pipes and wires, and the government allows it to earn a fixed 9-10% return on equity. It is a bond-proxy, not a high-performance engine.
the old york analysis
owner earnings: the regulated spread
Utility accounting is tricky because "Net Income" is often disconnected from the cash required to keep the lights on.
2025 Adjusted Net Earnings: $1.78 Billion
(-) Maintenance CapEx (Estimated): ($1.15 Billion)
(+) Depreciation & Amortization: $1.61 Billion
OLD YORK OWNER EARNINGS: $2.24 Billion
Analyst Note: Fortis has a massive $5.6B total CapEx plan, but only about 20% of that is "Maintenance." The rest is "Growth CapEx" designed to expand the rate base. For a principal, the cash flow is "guaranteed" by the regulators, making this $2.2B one of the safest numbers in the Registry.
growth & market dominance
The Rate Base Moat: You cannot build a competing power line next to Fortis. Their moat is written into law across 10 U.S. states and 5 Canadian provinces.
Data Center Tailwinds: In late 2025, Fortis secured a 300MW deal for a data center in Arizona (TEP). This "AI-Power" demand is the first real organic growth lever they've had in a decade.
Scale: With $75 Billion in assets, they have the balance sheet to swallow smaller municipal utilities, but the "subsidiary ceiling" limits how fast they can move.
operational efficiency
ROIC: ~5.1% (Does NOT clear the 15% yardstick floor).
ROE (Allowed): 9.5% (Fixed by regulators).
Efficiency Note: Fortis is a Capital Intensive business. They must spend $1.00 to earn $0.05 in incremental profit. This is the definition of a low-velocity business.
Analyst Note: You do not buy Fortis for ROIC. You buy it for the 52-year streak. But on the Old York Yardstick, 5% ROIC is a structural anchor that prevents an (A) rating.
the fortress check
Net Debt: $34.1 Billion (A staggering amount of leverage).
Net Debt to EBITDA: 6.0x (This would be a "C" rating for any other industry).
Capital Allocation: The 52-Year Payout. They pay out ~70% of their earnings as dividends. They are "Locked In" to a 4-6% dividend growth path through 2030. They cannot pivot; they are a passenger on the interest rate train.
why it is NOT rated (A)
The 15% ROIC Barrier: Fortis will never hit 15% ROIC. Regulators would view that as "price gouging" and force them to lower rates for consumers. Their quality is capped by law.
Interest Rate Sensitivity: Because they carry $34B in debt, their "Owner Earnings" are highly sensitive to the bond market. They are a "Price Taker" for capital.
Negative Free Cash Flow: Because they are spending $5.6B/year to grow the rate base, they actually produce negative FCF after dividends. They have to constantly issue new debt or shares to fund their growth.
final determination
Rating: Old York Quality (BBB)
Classification: The Defensive Sovereign.
Fortis is the "Gold Standard" of utility management. It receives a (BBB) because it is a low-risk, high-certainty asset. It is "Better" than the average company, but its business model prevents it from ever achieving the elite capital efficiency of a FICO or a Microsoft.
Disclaimer: Old York Financial operates privately as a principal and sells corporate advisory. Old York Financial is not an accountant, a financial advisor, a broker, an agent, a lawyer, or a portfolio manager.
