Fortis Inc. (FTS): 5 FORCES Analysis [Nov-2025 Updated]

You're digging into Fortis Inc. (FTS) as of late 2025, and here's the truth: this utility is a classic defensive play where the regulatory structure, not market competition, sets the profit ceiling. While the massive $\text{28.8 billion}$ capital plan gives specialized suppliers real leverage, individual customers have virtually no power; instead, state commissions are the real buyers you watch. We see very low direct rivalry, but the moderate, rising threat from rooftop solar means the landscape isn't entirely static. Keep reading; I'll break down exactly how these five forces define Fortis Inc.'s moat and where we see the next few years of risk and stability.

Fortis Inc. (FTS) - Porter's Five Forces: Bargaining power of suppliers

When you look at Fortis Inc. (FTS), the power held by its suppliers is a key area to watch, especially given the massive investment pipeline they've laid out. For a utility focused on regulated growth, supplier leverage can directly impact project execution and cost recovery.

The bargaining power of suppliers for Fortis Inc. is generally considered moderate to high, driven by the specialized nature of the required inputs for its massive capital expenditure program and the regulatory environment that governs commodity pass-throughs.

High Reliance on Specialized Equipment for the Capital Plan

You're looking at a company committed to its largest-ever five-year plan. Fortis Inc.'s 2026-2030 capital plan totals an immense $28.8 billion. A significant portion of this spending, over 75 percent, is directed toward transmission and distribution upgrades. This scale means Fortis Inc. requires substantial volumes of highly specific, often custom-manufactured, equipment like high-voltage components, transformers, and specialized construction services. When demand is this high across the sector, the suppliers who can deliver on time and to specification gain considerable leverage over Fortis Inc.'s project timelines and budgets.

Fuel Costs as a Critical, Uncontrollable Input

For the gas utility segment, particularly FortisBC Energy Inc. (FEI), the cost of natural gas commodity is a direct input that management largely cannot control, as it is subject to volatile North American market conditions. For instance, the cost of conventional natural gas for FEI customers was maintained at $2.230 per gigajoule (GJ) as of October 2025. However, the push for decarbonization introduces a significant cost differential; Renewable Natural Gas (RNG) is substantially more expensive, with voluntary customers paying $13.216 per GJ, which is a 44 percent discount to the actual cost FortisBC pays to procure it. This reliance on external commodity markets, even with regulatory offsets, creates an inherent supplier power dynamic.

Leverage of Specialized Engineering and Construction Firms

The major transmission build-out, especially at ITC, involves projects under the Midcontinent Independent System Operator (MISO) Long-Range Transmission Plan (LRTP). The incremental investment opportunity for MISO LRTP Tranche 2.1 alone is estimated to be between US$3.7 billion to US$4.2 billion, with most of that spending expected post-2030. Securing specialized engineering, procurement, and construction (EPC) firms capable of executing these massive, complex, and often time-sensitive projects-like those at ITC Midwest-gives those firms high leverage in contract negotiations with Fortis Inc.

Here's a quick look at some key figures related to the capital plan and commodity exposure:

Regulatory Cost Pass-Through Mitigates Margin Risk

To be fair, the regulated structure of most of Fortis Inc.'s business acts as a significant counterweight to supplier power. For its gas utility operations, the British Columbia Utilities Commission (BCUC) allows for cost pass-through mechanisms. For example, FortisBC reviews its cost of gas rates with the BCUC quarterly or annually to ensure rates recover actual costs, meaning there is no markup on the cost of gas; customers pay what FortisBC pays. Furthermore, regulatory deferral mechanisms are approved to capture incremental costs incurred beyond the control of the Corporation. This structure reduces the direct margin risk to Fortis Inc.'s equity holders from volatile commodity prices, shifting the burden to the rate base, but it doesn't reduce the leverage suppliers have over the price itself.

Limited Pool of Global High-Voltage Component Vendors

The specialized nature of high-voltage transmission infrastructure means that the universe of qualified suppliers is small, concentrating power among a few global players. For large-scale, high-voltage direct current (HVDC) components and systems, the market is dominated by a limited set of established, technologically advanced manufacturers. This concentration means that if one of these key suppliers faces production delays or price increases, Fortis Inc. has few immediate alternatives for mission-critical equipment.

• HVDC Cable Manufacturers include Prysmian S.p.A., NKT A/S, and Sumitomo Electric Industries, Ltd.
• Major HVDC Converter Station Providers include Hitachi Energy, Siemens Energy AG, and Mitsubishi Electric Corporation.
• Specialty Engineering and Construction firms like MasTec manage high-voltage system construction.

Finance: draft a sensitivity analysis on the cost impact of a 10% increase in specialized transmission component costs against the $28.8 billion plan by next Tuesday.

Fortis Inc. (FTS) - Porter's Five Forces: Bargaining power of customers

The bargaining power of customers for Fortis Inc. is structurally very low for the typical end-user because the company operates as a regulated monopoly across its service areas. Fortis Inc. serves approximately 3.5 million utility customers across its nine regulated electric and gas utilities in Canada, the U.S., and the Caribbean as of the first half of 2025. Since Fortis Inc. is 100% regulated, the primary check on customer power is not direct negotiation but regulatory oversight.

The real power rests with aggregated entities, specifically the regulatory bodies that set the terms of service and revenue recovery. These commissions directly constrain Fortis Inc.'s ability to price its services. For instance, the British Columbia Utilities Commission (BCUC) issued a decision in March 2025 on FortisBC's rate framework for 2025 through 2027, which includes prescribed approaches for expenses and earnings sharing mechanisms.

Regulatory rate case filings are the main mechanism through which customer interests are represented, directly constraining Fortis Inc.'s allowed return on equity (ROE). This is a critical financial lever. For example, the New York State Public Service Commission is considering a joint proposal for Central Hudson that includes the continuation of a 9.5% allowed ROE and a 48% common equity component of the capital structure. Conversely, FortisAlberta experienced a lower allowed ROE effective January 1, 2025, which partially offset its earnings in the first half of 2025. The Arizona Corporation Commission (ACC) approved a formula rate policy statement in late 2024, which Tucson Electric Power (TEP) is now using to request new rates, including an annual formulaic rate adjustment mechanism.

You can see the impact of these regulatory constraints on key utility subsidiaries below:

Industrial customers, particularly those requiring massive, dedicated power supply, possess a distinct, albeit narrow, form of leverage. These large-load negotiations allow them to bypass some of the standard rate structures. TEP, for instance, secured an agreement in the second quarter of 2025 with a data center customer for approximately 300 MW of power demand, ramping up in 2027. This is not a low-stakes negotiation; TEP is actively in discussions for subsequent phases, which could require an additional 600 MW at the initial site and another 500-700 MW at a separate site, potentially requiring an estimated USD 1.5 billion to USD 2 billion in new generation and transmission investments through 2030 if finalized. These large-load customers can effectively negotiate capacity and infrastructure build-out terms, which is a significant departure from the typical residential customer experience.

The leverage points for these major industrial users include:

• Negotiating dedicated capacity commitments, such as the ~300 MW agreement at TEP.
• Influencing future capital investment plans for generation and transmission.
• Securing favorable terms contingent on regulatory approval.
• Potentially requiring new generation resources beyond the base capital plan.

Fortis Inc. (FTS) - Porter's Five Forces: Competitive rivalry

You're analyzing Fortis Inc. (FTS) and need to understand how intensely competitors fight for market share. For a regulated utility like Fortis, the typical industry brawl over pricing is largely absent.

Very low direct price rivalry because Fortis operates as a regulated monopoly in most jurisdictions.

The core of Fortis Inc.'s competitive position is its foundation as a regulated utility. This structure inherently suppresses direct price competition because rates are set by regulatory bodies, not by market forces alone. You see this reflected in the business structure: Fortis operates nine regulated electric and gas utilities across Canada, the U.S., and the Caribbean. Furthermore, ninety-four per cent of its assets are dedicated to the transmission and distribution of safe and reliable electricity and natural gas. This regulatory moat means that for existing customer service areas, the rivalry is not about undercutting a competitor's price per kilowatt-hour.

However, regulatory stability itself is a competitive outcome. Fortis's ability to secure favorable terms is key. For instance, in Q2 2025, Tucson Electric Power (TEP) filed a general rate application seeking a $172 million retail revenue increase and a shift to a formulaic rate adjustment mechanism. Such mechanisms reduce the frequency of rate hearings, offering more predictable cash flows, which is a competitive advantage in earnings stability.

Competition is primarily for new infrastructure projects, such as the ITC transmission investments.

Where the fight happens is in securing the next regulated asset or large-scale project. This is where you see true competitive tension, often through formal bidding processes. Fortis's subsidiary, ITC, is a major player in this space, particularly with the Midcontinent Independent System Operator (MISO) Long Range Transmission Plan (LRTP). The new 2026-2030 capital plan totals $28.8 billion, with growth driven in part by these transmission investments.

Competition for these large capital deployments can be fierce. For example, ITC is preparing to bid on tranche 2.1 projects as part of a competitive bidding process. The prior five-year plan already included at least US$3 billion in investments for MISO's LRTP Tranche 2.1, with the majority expected post-2029. Success in these bids directly translates to future rate base growth, which is the primary driver of utility earnings.

Rivalry exists in capital allocation efficiency against peers like Hydro One and Emera.

Even without direct price wars, capital allocation efficiency creates a rivalry among peers. You must compare how effectively Fortis deploys its capital versus other major regulated players. Analyst commentary from early 2025 suggested that Hydro One had outperformed Fortis over the preceding five years.

Here's a quick look at the valuation difference as of early 2025, which reflects market perception of capital allocation and growth:

Fortis's current strategy aims to grow its rate base at an annual rate of 7.0% through 2030, supported by its $28.8 billion capital plan. This focus on a higher growth rate signals an effort to close any perceived efficiency gap with peers.

Fortis's diversified footprint across 15 jurisdictions helps stabilize earnings against local regulatory volatility.

The geographic spread acts as a buffer against single-jurisdiction regulatory setbacks. Fortis operates in 16 jurisdictions as of September 30, 2025. This diversity means that if one jurisdiction experiences a drawn-out rate case or unexpected cost recovery issue, the overall financial performance remains supported by the other operations.

The scale of the enterprise is substantial, with 2024 revenue of $12 billion and total assets of $75 billion as at September 30, 2025. This diversification supports a long-term commitment to shareholders, evidenced by increasing common share dividends for 52 consecutive years, with current guidance targeting annual dividend growth of 4-6% through 2030.

Key elements of this stabilizing diversification include:

• Operating in five Canadian provinces and ten U.S. states.
• Maintaining a local business model with subsidiary boards for oversight.
• Securing multi-year rate settlements, like the one in New York locking in a 9.5% allowed return on equity.
• Selling non-core assets, such as the utility in Turks and Caicos in September 2025, to strengthen the balance sheet.

The low-risk nature of the business, with 100% of operations being regulated, is a direct result of this geographic and operational mix.

Finance: draft 13-week cash view by Friday.

Fortis Inc. (FTS) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Fortis Inc. is best characterized as moderate but actively increasing, driven by customer-side technologies and evolving energy consumption patterns. Still, Fortis Inc. is directly addressing this by integrating these technologies into its regulated asset base.

Distributed generation, particularly rooftop solar paired with battery storage, presents a rising substitution threat by allowing customers to generate and store their own power, thereby reducing reliance on the centralized grid. To counter this, Fortis Inc. is making significant capital investments in utility-scale storage. For example, Tucson Electric Power (TEP), a Fortis utility, placed the 200 MW Roadrunner Reserve 1 battery energy storage system into service in July 2025.

This investment is part of a broader strategy. TEP's 2020 Integrated Resource Plan targeted adding up to 1,400 MW of energy storage by 2035. Roadrunner Reserve 1 has a storage capacity of 800 MWh, enough to serve approximately 42,000 homes for four hours at full deployment. Furthermore, TEP is building a second, similarly sized 200 MW system, Roadrunner Reserve II, scheduled for 2026 operation. TEP already possessed about 50 MW of energy storage capacity prior to Roadrunner Reserve I.

Energy efficiency and demand-side management (DSM) programs directly reduce the overall volume of electricity and gas sales, acting as a form of substitution for future energy needs. FortisBC's 2024 conservation efforts are concrete examples of this impact:

Between 2020 and 2024, FortisBC invested over $630 million in its suite of conservation and energy-efficiency programs. This directly impacts sales volume, though Fortis electric utilities have still seen a 9% increase in electricity delivered to customers over the last five years, and natural gas deliveries have increased 6% over the same period.

Fortis Inc. mitigates the long-term threat from carbon-intensive generation through its own necessary substitution strategy, which involves significant capital deployment. The company is firmly committed to achieving a coal-free generation mix by 2032. This transition is visible in their emissions performance:

• Scope 1 GHG emissions reduced by 34% through 2024 from a 2019 base year.
• TEP is converting 793 MW of coal-fired generation at Springerville to natural gas by 2030.
• Natural gas generation has increased 11% since 2019.

The company's overall financial scale supports these long-term investments; Fortis Inc. reported 2024 revenue of $12 billion and total assets of $73 billion as of June 30, 2025. The announced 2026-2030 capital plan totals $28.8 billion, emphasizing grid modernization and cleaner energy infrastructure.

Fortis Inc. (FTS) - Porter's Five Forces: Threat of new entrants

You're looking at the barriers to entry in the regulated utility space, and honestly, it's like trying to build a new interstate highway system from scratch-the sheer scale of upfront commitment is staggering. For Fortis Inc., the threat of new entrants is fundamentally suppressed by capital needs.

The latest financial disclosures confirm this massive hurdle. Fortis Inc. unveiled its record-setting five-year capital plan, spanning 2026-2030, totaling $28.8 billion. This commitment alone dwarfs the resources available to almost any potential competitor not already operating at a massive scale. This investment is projected to increase Fortis Inc.'s midyear rate base from $41.9 billion in 2025 to $57.9 billion by 2030, representing a 7.0% compound annual growth rate. To put the scale in perspective, the prior 2025-2029 plan was $26.0 billion CAD (approximately $19.28 billion USD).

The regulatory environment acts as a second, equally formidable wall. New entrants must secure approval from a complex web of bodies, including the Federal Energy Regulatory Commission (FERC) for wholesale markets and interstate transmission, the North American Electric Reliability Corporation (NERC) for reliability standards, the Environmental Protection Agency (EPA), and numerous State Public Utility Commissions (PUCs) for local rates and service. This fragmented oversight means a new player must satisfy multiple, sometimes conflicting, mandates.

Beyond the paperwork, the physical reality of building transmission infrastructure demands years of lead time. For large-scale projects, this timeline is a killer for any new entrant trying to compete on speed or immediate service delivery. The average total lead time in the United States for an electricity overhead transmission line, covering planning, permitting, and construction, historically exceeded 10 years. Even with recent federal efforts like the Coordinated Interagency Transmission Authorizations and Permits (CITAP) Program aiming for a two-year schedule for Federal authorizations, this only addresses part of the process. In contrast, permitting times in some European jurisdictions have ranged from three to nine years.

Finally, the established network and rights-of-way make replication economically illogical. Fortis Inc. already possesses a vast, integrated system that has been built and maintained over decades. A new entrant would not only need to raise billions but would also have to acquire or duplicate rights-of-way across the same territories, which are already secured by the incumbent.

Consider the existing scale that a new entrant would need to match:

• Total Assets (as of December 31, 2024): $73.5 billion.
• Midyear Rate Base (2024): $38.8 billion.
• Total Transmission Line Length (2023): 7,300 kilometers.
• Utility Customers Served (as of December 31, 2024): 3.5 million.
• Regulated Utility Asset Percentage (2024): Virtually all of total assets.

The sunk costs and established footprint of Fortis Inc. create an almost insurmountable economic moat against new competition in its core regulated markets.