Fortis Delivers Annual Earnings of $353 Million in 2013

Annual Dividend to Common Shareholders Raised for Record 41 Consecutive Years Capital Expenditure Program Approaches $1.2 Billion CH Energy Group Acquisition and Integration Completed UNS Energy Acquisition to Increase Regulated U.S. Utility Assets to One-Third of Total Assets

Marketwired

ST. JOHN'S, NEWFOUNDLAND AND LABRADOR--(Marketwired - Feb 6, 2014) - Fortis Inc. ("Fortis" or the "Corporation") ( FTS.TO ) achieved net earnings attributable to common equity shareholders of $353 million for 2013, $38 million higher than earnings of $315 million for 2012. Earnings per common share were $1.74 for 2013 compared to $1.66 per common share for 2012.

Fortis increased its quarterly common share dividend to 32 cents from 31 cents, commencing with the first quarter dividend payable on March 1, 2014, which translates into an annualized dividend of $1.28. Fortis has raised its annualized dividend to common shareholders for 41 consecutive years, the record for a public corporation in Canada.

"Our capital program approached $1.2 billion in 2013 and marks the fifth consecutive year that our capital investment has surpassed $1 billion," says Stan Marshall, President and Chief Executive Officer, Fortis. "The $900 million, 335-megawatt Waneta Expansion hydroelectric generating facility in British Columbia, our largest capital project currently underway, is progressing well and remains on time and on budget. A total of $579 million has been invested in the project since construction began in late 2010," he explains. Fortis owns 51% of the Waneta Expansion hydroelectric generating facility ("Waneta Expansion") and will operate and maintain the facility when it comes online, which is expected in spring 2015.

Results for 2013 reflect the Corporation's acquisition of CH Energy Group, Inc. ("CH Energy Group") on June 27, 2013 for US$1.5 billion, including the assumption of US$518 million of debt on closing. Central Hudson Gas & Electric Corporation ("Central Hudson"), the main business of CH Energy Group, is a regulated transmission and distribution utility serving 377,000 electricity and gas customers in New York State's Mid-Hudson River Valley. The acquisition was primarily financed using proceeds from a $601 million common equity offering and a US$325 million unsecured notes offering.

Fortis announced in December 2013 that it agreed to acquire UNS Energy Corporation ("UNS Energy") for US$60.25 per common share in cash, representing an aggregate purchase price of approximately US$4.3 billion, including the assumption of approximately US$1.8 billion of debt on closing (the "Acquisition"). UNS Energy is a vertically integrated utility services holding company, headquartered in Tucson, Arizona, engaged through three subsidiaries in the regulated electricity generation and energy delivery business, primarily in the State of Arizona, serving approximately 654,000 electricity and gas customers.

The closing of the Acquisition, which is expected to occur by the end of 2014, is subject to receipt of UNS Energy common shareholder approval and certain regulatory and government approvals, including approval by the Arizona Corporation Commission ("ACC") and Federal Energy Regulatory Commission, and compliance with other applicable U.S. legislative requirements and the satisfaction of customary closing conditions. In January 2014 Fortis and UNS Energy filed a joint application with the ACC seeking approval of the Acquisition.

To finance a portion of the Acquisition, in January 2014 Fortis completed the sale of $1.8 billion 4% convertible unsecured subordinated debentures, represented by Installment Receipts (the "Debentures"). The Debentures were sold on an installment basis at a price of $1,000 per Debenture, of which $333 was paid on closing of the offering and the remaining $667 is payable on a date to be fixed following satisfaction of all conditions precedent to the closing of the Acquisition. In addition, in December 2013 the Corporation obtained a commitment from The Bank of Nova Scotia to provide bridge financing of $2 billion through non-revolving term credit facilities.

"The acquisition of UNS Energy is consistent with our strategy of investing in high-quality regulated Canadian and U.S. utility assets and is expected to be accretive to earnings per common share in the first full year after closing, excluding one-time acquisition-related costs," says Marshall. "The acquisition lessens the business risk for Fortis by enhancing the geographic diversification of our businesses, resulting in no more than one-third of total assets being located in any one regulatory jurisdiction. When we close, our regulated utilities in the United States will represent approximately one-third of total assets, and regulated utilities and hydroelectric generation assets will comprise approximately 97% of our total assets," he explains.

At the time of closing the Acquisition, the Corporation's consolidated rate base is expected to increase by approximately US$3 billion, and Fortis utilities will serve more than 3,000,000 electricity and gas customers.

The Corporation's earnings for 2013 were reduced by $34 million as a result of expenses related to the CH Energy Group and UNS Energy acquisitions, compared to $7.5 million of acquisition-related expenses for 2012. 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, compared to income tax expenses of $4 million associated with Part VI.1 tax for 2012. In addition, an extraordinary gain of approximately $20 million was recognized in 2013 related to the settlement of expropriation matters associated with the Exploits River Hydro Partnership ("Exploits Partnership").

Excluding the above-noted items, net earnings attributable to common equity shareholders were $344 million for 2013, up $17.5 million from earnings of $326.5 million for 2012, and earnings per common share were $1.70 for 2013 compared to $1.72 for 2012. Central Hudson contributed $23 million to earnings in 2013, while the non-regulated operations of CH Energy Group incurred a net loss of $5 million, largely associated with income tax expenses related to the pending sale of Griffith Energy Services, Inc. ("Griffith"). In January 2014 CH Energy Group entered into a definitive agreement to sell Griffith for approximately US$70 million plus working capital. After considering the common share offering and financing costs associated with the acquisition, earnings per common share for 2013 were not impacted by the acquisition of CH Energy Group.

Canadian Regulated Utilities contributed earnings of $346 million, $1 million higher than earnings of $345 million for 2012. Earnings at the FortisBC gas and electric utilities were reduced by approximately $15 million and $4 million, respectively, as a result of a regulatory decision related to the first stage of the Generic Cost of Capital Proceeding, which reduced the allowed rate of return on common shareholders' equity ("ROE") for each of the utilities and the equity component of capital structure for FortisBC Energy Inc. ("FEI"), effective January 1, 2013. The decreases were partially offset by lower-than-expected finance charges and rate base growth. Earnings at FortisAlberta were $2 million lower than 2012, as a result of lower net transmission revenue and costs related to flooding in southern Alberta in June 2013, partially offset by rate base growth and growth in the number of customers. Earnings at Newfoundland Power and Maritime Electric were favourably impacted by income tax recoveries associated with Part VI.1 tax. Newfoundland Power's earnings were also favourably impacted by rate base growth and a $1 million gain on the sale of land in 2013. Earnings at FortisOntario decreased due to the impact of the cumulative return adjustment on smart meter investments in 2012.

"The regulatory calendar at our largest utilities continues to be extensive," says Marshall. "Multi-year performance-based rate applications are progressing in British Columbia and cost of capital proceedings are continuing at FortisAlberta and FortisBC. Central Hudson will file a general rate application in mid-2014, its first such application as a Fortis utility, to establish rates effective mid-2015," he explains. Regulatory approval of the acquisition of Central Hudson included a two-year delivery rate freeze through June 30, 2015. Over the same two-year period, Central Hudson committed to invest US$215 million in capital expenditures.

Caribbean Regulated Electric Utilities contributed earnings of $23 million, up $4 million from 2012. The increase was primarily due to the regulator-approved capitalization of overhead costs of approximately $3 million at Fortis Turks and Caicos. Electricity sales growth and an increase in base customer electricity rates at Caribbean Utilities also contributed to the higher earnings.

Non-Regulated Fortis Generation contributed earnings of $39 million, up $22 million from 2012, driven by the extraordinary gain associated with the Exploits Partnership and increased hydroelectric production in Belize.

Non-Utility operations delivered earnings of $18 million compared to $22 million for 2012. The decrease was due to the loss of $5 million incurred at the non-regulated operations of CH Energy Group as noted above. Earnings at Fortis Properties were $1 million higher year over year, primarily due to improved performance at the Hospitality Division.

Corporate and Other expenses were $96 million compared to $88 million for 2012. Expenses included acquisition-related expenses totalling $34 million for 2013 compared to $7.5 million for 2012. An approximate $6 million income tax recovery associated with Part VI.1 tax reduced Corporate and Other expenses in 2013, compared to income tax expense of $6 million associated with Part VI.1 tax for 2012. A foreign exchange gain of $6 million was recognized in 2013 compared to a foreign exchange loss of $2 million in 2012. Excluding the above-noted impacts, Corporate and Other expenses were $1.5 million higher year over year, mainly due to higher preference share dividends and finance charges associated with the acquisition of CH Energy Group, partially offset by higher income tax recoveries, higher capitalized interest associated with the Waneta Expansion and lower operating expenses.

Cash flow from operating activities was $899 million, down $93 million from 2012, mainly due to unfavourable changes in working capital.

Earnings for the fourth quarter were $100 million, or $0.47 per common share, up $13 million, or $0.01 per common share, from the same quarter in 2012. The increase in earnings for the quarter was primarily due to: (i) the acquisition of CH Energy Group, including contribution of $11 million from Central Hudson and a net loss of approximately $2 million at the non-regulated operations; (ii) increased non-regulated hydroelectric production in Belize, partially offset by income tax expenses associated with the Exploits Partnership; (iii) higher earnings at Caribbean Regulated Electric Utilities, driven by the capitalization of overhead costs at Fortis Turks and Caicos; (iv) higher earnings at the FortisBC Energy companies and FortisBC Electric, mainly due to lower-than-expected finance charges and rate base growth, partially offset by decreases in the allowed ROEs for each of the utilities and the equity component of capital structure at FEI; and (v) a gain on the sale of land at Newfoundland Power. The increase was partially offset by lower earnings at FortisAlberta and Other Canadian Electric Utilities. The timing of depreciation and certain operating expenses, and lower net transmission revenue at FortisAlberta were partially offset by rate base growth and growth in the number of customers. At Other Canadian Electric Utilities, the decrease was primarily due to the impact of the cumulative return adjustment on smart meter investments at FortisOntario in 2012. Corporate and Other expenses were comparable quarter over quarter.

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, unchanged from 2012. In December 2013, after the announcement by Fortis that it had entered into an agreement to acquire UNS Energy, DBRS placed the Corporation's credit rating under review with developing implications. Similarly, S&P revised its outlook on the Corporation to negative from stable. S&P indicated that an outlook revision to stable would likely occur when the Debentures are converted to equity.

"Since the beginning of 2013, Fortis has raised approximately $3.3 billion in the capital markets, which attests to investors' confidence in our business strategy," says Marshall. In addition to the $1.8 billion convertible debenture offering associated with the UNS Energy acquisition, major financing completed by Fortis included the $601 million in common equity associated with the CH Energy Group acquisition.

In July 2013 Fortis raised gross proceeds of $250 million from the issuance of 4% Fixed Rate Reset First Preference Shares, Series K, which were used to redeem all of the Corporation's 5.45% First Preference Shares, Series C for $125 million, to repay a portion of credit facility borrowings, and for other general corporate purposes. In October 2013 the Corporation closed a private placement of 10-year US$285 million unsecured notes at 3.84% and 30-year US$40 million unsecured notes at 5.08%. The proceeds were used to repay a portion of US dollar-denominated credit facility borrowings incurred to finance a portion of the CH Energy Group acquisition. In addition, the Corporation's regulated utilities issued over $300 million in long-term debt in 2013 to repay long-term debt and credit facility borrowings, to fund future capital expenditures, and for general corporate purposes.

"Fortis is focused on closing the UNS Energy acquisition by the end of 2014," says Marshall. "The commitment of UNS Energy employees to providing customers with quality energy service will further position Fortis as a leader in the North American utility industry."

"Execution of our $1.4 billion capital program for 2014, the majority of which is occurring in western Canada, is well underway and will ensure we continue to meet the growing energy needs of our customers," says Marshall. In 2014, FortisAlberta plans to invest $413 million in its electricity network and capital work associated with the Waneta Expansion in British Columbia is expected to total $126 million. FortisBC has begun expansion of its Tilbury liquefied natural gas ("LNG") facility. The expansion, subject to certain regulatory and environmental permits and approvals, at an estimated total cost of approximately $400 million, is expected to include a second LNG tank and a new liquefier, both to be in service in 2016.

Over the five-year period 2014 through 2018, the Corporation's capital program is expected to exceed $6.5 billion. Additionally, UNS Energy has forecast that its capital program for 2015 through 2018 will be approximately $1.5 billion (US$1.4 billion).

"Our capital program, which will be mostly funded with cash from operations and long-term debt at the regulated utility level, will support continuing growth in earnings and dividends," says Marshall.

"We continue to grow our business profitably, while cognizant of our commitment to provide customers with safe, reliable and cost-effective energy service," concludes Marshall.

Financial Highlights
For the three and twelve months ended December 31, 2013
Dated February 6, 2014

FORWARD-LOOKING INFORMATION

The following Fortis Inc. ("Fortis" or the "Corporation") fourth quarter 2013 earnings release should be read in conjunction with: (i) the Management Discussion and Analysis ("MD&A") and unaudited consolidated financial statements and notes thereto for the three and nine months ended September 30, 2013; and (ii) the MD&A and audited consolidated financial statements and notes thereto for the year ended December 31, 2012 included in the Corporation's 2012 Annual Report. Financial information contained in this earnings release 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 this fourth quarter 2013 earnings release 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 and is based on information currently available to the Corporation's management. The forward-looking information in this fourth quarter 2013 earnings release includes, but is not limited to, statements regarding: the expected timing of the closing of the acquisition of UNS Energy Corporation ("UNS Energy") by Fortis and the expectation that the acquisition will be accretive to earnings per common share of Fortis in the first full year after closing, excluding one-time acquisition-related costs; the expected increase in the Corporation's regulated midyear rate base at the time of closing the UNS Energy acquisition; the financing costs the Corporation expects to incur in 2014 associated with the convertible debentures; the expected net proceeds from the final installment of the convertible debentures represented by installment receipts; the expectation that, based on current tax legislation, future earnings will not be materially impacted by Part VI.1 tax; the expected timing of filing regulatory applications and of receipt of regulatory decisions; the Corporation's consolidated forecast gross capital expenditures for 2014; total forecast gross capital expenditures over the five-year period 2014 through 2018 and forecast capital expenditures at UNS Energy over the period 2015 through 2018; the nature, timing and amount of certain capital projects and their expected costs and time to complete; the expectation that the Corporation's significant capital expenditure program will support continuing growth in earnings and dividends; the expectation that the acquisition of CH Energy Group, Inc. will be accretive to earnings per common share beginning in 2015; and the expectation that, following the closing of the UNS Energy acquisition, regulated utilities in the United States will represent approximately one-third of total assets, and regulated utilities and hydroelectric generation assets will comprise approximately 97% of the Corporation's total assets.

The forecasts and projections that make up the forward-looking information are based on assumptions which include, but are not limited to: the receipt of applicable regulatory approvals and requested rate orders and no material adverse regulatory decisions being received and the expectation of regulatory stability; FortisAlberta continues to recover its cost of service and earn its allowed rate of return on common shareholder's equity ("ROE") under performance-based rate-setting ("PBR"), which commenced for a five-year term effective January 1, 2013; the receipt of UNS Energy shareholder approval and certain regulatory and government approvals pertaining to the pending acquisition of UNS Energy; the receipt of the final installment of the convertible debentures represented by installment receipts; 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 gas and electricity 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 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 that was expropriated by the GOB;
the expectation that Belize Electric Company Limited will not be expropriated by the GOB; 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, electricity prices and fuel 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 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; 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 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; 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 the Corporation's MD&A for the three and nine months ended September 30, 2013, for the year ended December 31, 2012 and as otherwise disclosed in this fourth quarter 2013 earnings release. Key risk factors for 2014 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 certain of the Corporation's regulated utilities in western Canada; uncertainty regarding the treatment of certain capital expenditures at FortisAlberta under the newly implemented PBR mechanism; risks relating to the ability to close the acquisition of UNS Energy, the timing of such closing and the realization of the anticipated benefits of the acquisition; 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 this fourth quarter 2013 earnings release 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 the largest investor-owned gas and electric distribution utility in Canada. Its regulated utilities account for 90% of total assets and serve more than 2.4 million customers across Canada and in New York State and the Caribbean. Fortis owns non-regulated hydroelectric generation assets in Canada, Belize and Upstate New York. The Corporation's non-utility investments are comprised of hotels and commercial real estate in Canada and petroleum supply operations in the Mid-Atlantic Region of the United States.

In 2013 the Corporation's electricity distribution systems met a combined peak demand of 6,451 megawatts ("MW") and its gas distribution systems met a peak day demand of 1,466 terajoules. For additional information on the Corporation's business segments, refer to Note 1 to the Corporation's interim unaudited consolidated financial statements for the three and nine months ended September 30, 2013 and to the "Corporate Overview" section of the 2012 Annual MD&A.

The Corporation's main business, utility operations, is highly regulated and the earnings of the Corporation's regulated utilities are primarily determined under cost of service ("COS") regulation. Generally, under COS regulation the respective regulatory authority sets customer gas and/or electricity 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. As such, earnings of regulated utilities are generally impacted by: (i) changes in the regulator-approved allowed ROE and/or ROA and 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 forward test years are used to establish revenue requirements and set base customer rates, these rates are not adjusted as a result of 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.

When performance-based rate-setting ("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 prudent COS and earn its allowed ROE.

SIGNIFICANT ITEMS

Pending Acquisition of UNS Energy Corporation: In December 2013 Fortis announced that it has entered into an agreement and plan of merger to acquire UNS Energy Corporation ("UNS Energy") ( UNS ) for US$60.25 per common share in cash, representing an aggregate purchase price of approximately US$4.3 billion, including the assumption of approximately US$1.8 billion of debt on closing (the "Acquisition"). UNS Energy is a vertically integrated utility services holding company, headquartered in Tucson, Arizona, engaged through three subsidiaries in the regulated electric generation and energy delivery business, primarily in the State of Arizona, serving approximately 654,000 electricity and gas customers.

The closing of the Acquisition, which is expected to occur by the end of 2014, is subject to receipt of UNS Energy common shareholder approval and certain regulatory and government approvals, including approval by the Arizona Corporation Commission ("ACC") and Federal Energy Regulatory Commission, and compliance with other applicable U.S. legislative requirements and the satisfaction of customary closing conditions. In January 2014 Fortis and UNS Energy filed a joint application with the ACC seeking approval of the Acquisition.

The Acquisition is consistent with the Corporation's strategy of investing in high-quality regulated utility assets in Canada and the United States and is expected to be accretive to earnings per common share of Fortis in the first full year after closing, excluding one-time acquisition-related costs. At the time of closing of the Acquisition, the Corporation's consolidated rate base is expected to increase by approximately US$3 billion. The Acquisition will 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 the purpose of financing the Acquisition, in December 2013 the Corporation obtained a commitment from The Bank of Nova Scotia to provide an aggregate of $2 billion non-revolving term credit facilities, consisting of a $1.7 billion short-term bridge facility, repayable in full nine months following its advance, and a $300 million medium-term bridge facility, repayable in full on the second anniversary of its advance.

Convertible Debentures Represented by Installment Receipts: To finance a portion of the Acquisition, in January 2014 Fortis, through a direct wholly owned subsidiary, completed the sale of $1.8 billion aggregate principal amount of 4% convertible unsecured subordinated debentures, represented by Installment Receipts (the "Debentures").

The offering of the Debentures consisted of a bought deal placement of $1.594 billion aggregate principal amount of Debentures underwritten by a syndicate of underwriters (the "Public Offering") and the sale of $206 million aggregate principal amount of Debentures to certain institutional investors on a private placement basis (together with the Public Offering, the "Offerings"). In connection with the Public Offering, the underwriters have been granted an overallotment option to purchase up to an additional $239.1 million aggregate principal amount of Debentures, at the offering price, within 30 days from the closing date of the Public Offering on January 9, 2014.

The Debentures were sold on an installment basis at a price of $1,000 per Debenture, of which $333 was paid on closing of the Offerings and the remaining $667 is payable on a date ("Final Installment Date") to be fixed following satisfaction of all conditions precedent to the closing of the Acquisition. Prior to the Final Installment Date, the Debentures will be represented by Installment Receipts. The Installment Receipts began trading on the Toronto Stock Exchange ("TSX") on January 9, 2014 under the symbol "FTS.IR". The Debentures will not be listed. The Debentures will mature on January 9, 2024 and will bear interest at an annual rate of 4% per $1,000 principal amount of Debentures until and including the Final Installment Date, after which the interest rate will be 0%.

If the Final Installment Date occurs prior to the first anniversary of the closing of the Offerings, holders of Debentures who have paid the final installment will be entitled to receive, in addition to the payment of accrued and unpaid interest, an amount equal to the interest that would have accrued from the day following the Final Installment Date to, but excluding, the first anniversary of the closing of the Offerings had the Debentures remained outstanding until such date. As a result, in 2014 the Corporation expects to incur approximately $72 million ($51 million after tax) in financing costs associated with the Debentures.

At the option of the investors and provided that payment of the final installment has been made, each Debenture will be 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 Debentures.

The Debentures will not be redeemable except that Fortis will redeem the Debentures at a price equal to their principal amount plus accrued and unpaid interest following the earlier of: (i) notification to holders that the conditions necessary to approve the Acquisition will not be satisfied; (ii) termination of the acquisition agreement; and (iii) July 2, 2015, if notice of the Final Installment Date has not been given to investors on or before June 30, 2015. In addition, after the Final Installment Date, any Debentures not converted may be redeemed by Fortis at a price equal to their principal amount plus unpaid interest, accrued prior to the Final Installment Date. Under the terms of the Installment Receipt Agreement, Fortis has agreed that until such time as the Debentures have been redeemed in accordance with the foregoing or the Final Installment Date has occurred, the Corporation will at all times maintain availability under its committed revolving corporate credit facility of not less than $600 million to cover the principal amount of the first installment of the Debentures in the event of a mandatory redemption.

At maturity, Fortis will have the right to pay the principal amount due in common shares, which will be valued at 95% of the weighted average trading price on the TSX for the 20 consecutive trading days ending five trading days preceding the maturity date.

The net proceeds of the first installment payment of the Offerings was approximately $563 million and was used to repay borrowings under the Corporation's existing revolving credit facility and for other general corporate purposes. The net proceeds of the final installment payment of the Offerings are expected to be, in aggregate, approximately $1.165 billion, assuming no exercise of the Public Offering's overallotment option.

Acquisition of CH Energy Group, Inc.: On June 27, 2013, Fortis acquired all of the outstanding common shares of CH Energy Group, Inc. ("CH Energy Group") for US$65.00 per common share in cash, for an aggregate purchase price of approximately US$1.5 billion, including the assumption of US$518 million of debt on closing. The net purchase price of approximately $1,019 million (US$972 million) was financed through proceeds from the issuance of 18.5 million common shares of Fortis pursuant to the conversion of Subscription Receipts on closing of the acquisition for proceeds of approximately $567 million, net of after-tax expenses, and a US$325 million unsecured notes offering, with the balance funded through drawings under the Corporation's $1 billion committed credit facility.

CH Energy Group is an energy delivery company headquartered in Poughkeepsie, New York. Its main business, Central Hudson Gas & Electric Corporation ("Central Hudson"), is a regulated transmission and distribution ("T&D") utility serving approximately 300,000 electricity customers and 77,000 natural gas customers in eight counties of New York State's Mid-Hudson River Valley. Central Hudson accounts for approximately 93% of the total assets of CH Energy Group and is subject to regulation by the New York State Public Service Commission under a traditional COS model. CH Energy Group's non-regulated operations primarily consist of Griffith Energy Services, Inc. ("Griffith"), which mainly supplies petroleum products and related services to approximately 60,000 customers in the Mid-Atlantic Region of the United States.

Pending Sale of Griffith: In January 2014 CH Energy Group entered into a definitive agreement to sell its non-regulated subsidiary, Griffith, for approximately US$70 million plus working capital, which will be determined at closing. The sale is expected to close in the first quarter of 2014, subject to customary closing conditions and regulatory approval. As a result, the assets and liabilities of Griffith have been classified as held for sale on the consolidated balance sheet as at December 31, 2013 and the results of operations have been presented as discontinued operations on the consolidated statement of earnings.

First Preference Shares: In July 2013 Fortis issued 10 million 4% Cumulative Redeemable Fixed Rate Reset First Preference Shares, Series K for gross proceeds of $250 million. The proceeds were used to redeem all of the Corporation's 5.45% First Preference Shares, Series C in July 2013 for $125 million, to repay a port...

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