On Jan. 17, snow was falling in Newfoundland. That, in itself, is not surprising. What is unusual is the snow didn’t stop. In St. John’s, the flakes blanketed streets and entombed cars, while strong winds piled it into drifts so high that some residents had to dig their way out. The city declared a state of emergency—within 24 hours, more than 76 centimetres of snow had fallen—businesses were closed, and people were advised not to leave their homes, even if they could.
Barry Perry was among the snowbound—like everyone, he spent time shovelling. But he had a particular reason to be concerned about the record-setting storm. As CEO of Fortis Inc., he oversees Newfoundland Power, a subsidiary that provides electricity to 270,000 customers in the province. The storm knocked out power to about 10% of its customers, mostly due to snapped electrical wires and salt spray from the Atlantic Ocean gunking up equipment. Crews toiled away to restore emergency power, even as the storm raged. Within 72 hours, electricity was flowing to all of Newfoundland Power’s customers once again.
Perry took it as a sign of the company’s strength. “We had about 15 hours of winds over 100 kilometres an hour and three feet of snow, and the power system held,” he says.
An accomplishment for Fortis, sure, but it’s not hard to find something a little unsettling about that storm. Extreme weather events are expected to become more common as the earth gets warmer, putting electrical infrastructure under increasing strain. That’s partly why climate change is top of mind these days for Fortis, which is a major power supplier in five Canadian provinces, nine U.S. states and three Caribbean countries. The St. John’s–based company, which has more than $50 billion in assets, is also positioning itself as a leader on environmental initiatives, striving to reduce its own greenhouse gas emissions.
Some analysts think Fortis could earn a premium in the stock market for the progress it has made on environmental, social and governance (ESG) fronts. ESG investing, as it’s known, is becoming increasingly popular as pension funds and other institutional investors reward firms that make a priority of, say, addressing gender diversity or climate change. Four of the company’s 11 board members are women, as are 60% of the employees at head office. On the environmental front, Fortis started from a strong position: About 93% of its assets are dedicated to electricity transmission and distribution, while only a small portion involves power generation. “We are fortunate that we’ve been buying assets that have a lighter environmental footprint than most utilities,” Perry says. “But that doesn’t get us off the hook.”
Indeed, Fortis still has two challenges to confront: coal and natural gas. The company is a producer of coal power in Arizona and a large supplier of natural gas in British Columbia. It also wants to become an even bigger player in the liquid natural gas industry by expanding an existing facility in that province and building a pipeline for a proposed processing and export terminal operated by another firm. The industry argues that because natural gas is cleaner than coal, it can help society transition to renewable energy. But that view is increasingly disputed by environmental groups and scientists who contend the climate crisis is so severe that we can’t afford to rely on natural gas.
The question facing Fortis: How can it truly be an environmental leader while expanding its reliance on a fossil fuel?
Perry, 55, talks with an almost boyish enthusiasm about the utilities industry, which he realizes might sound strange. “Maybe people look at the utilities business and go, ‘Oh my god, that’s a boring business,’” he says. “I can tell you it’s the most exciting damn business going right now.” The industry’s focus on cleaner energy, he says, is part of the reason.
Perry gave a speech at the Empire Club of Canada in Toronto last October about that topic and highlighted some of Fortis’s initiatives, which included reducing emissions intensity by 63% between 2015 and 2018. Annette Verschuren, the former president of Home Depot Canada and current head of energy storage firm NRStor Inc., stood up at the end to congratulate him. “What you’re doing,” she said, “is so bloody impressive. This is one of the best speeches I’ve heard since I’ve been involved in the electricity market.” Perry looked a little flushed.
He comes across as a humble guy, which could stem from his upbringing. Perry is one of nine kids and was raised in Pound Cove, a small town on the east coast of Newfoundland. At 16, Perry headed to St. John’s to study commerce at Memorial University, the only one of his siblings to complete university. Later, after earning his chartered accountant designation, he worked as a corporate controller at a financially troubled oil refinery in the province. Perry jumped ship to what would become Abitibi-Consolidated to serve as the chief financial officer of its international unit and later relocated to Montreal with his family. A few years later, he got a job offer to be chief financial officer at Newfoundland Power, and, at the urging of his wife, returned home in 2000.
Fortis, which had been set up as a holding company for Newfoundland Power more than a decade earlier, was undergoing a rapid expansion. Led by Stan Marshall, Fortis snapped up assets across Canada, Belize and the Cayman Islands. Perry eventually found himself working alongside Marshall as Fortis tried to break into the U.S. regulated utilities business. Eventually, in 2012, the firm got there with the US$1.5-million purchase of an electric utility in New York. More American purchases followed, including US$4.3 billion for UNS Energy Corp. in Arizona the following year. (The CEO of UNS at the time said he had to look at a map to find out where St. John’s was.)
After taking the helm in 2014 when Marshall retired, Perry didn’t waste time making his own landmark acquisition, executing the US$11.3-billion purchase of ITC Holdings Corp., an electricity transmission company with a presence in seven U.S. states.
Growth through acquisition can be a dangerous game. Sometimes a company buys a lemon, or corporate cultures refuse to mesh. But Fortis has been astute with its purchases. Moreover, the head office lets the subsidiaries run more or less autonomously. “I really have to trust the people who work for me,” Perry says. “Once I have that, I’m willing to let those people do their jobs.”
The focus these days is less on hunting for acquisitions and more on investing in what the company already owns. Fortis plans to spend $18.8 billion in the next five years to upgrade its equipment and infrastructure. Investors have bought into the plan—the share price is up 40% since Perry became CEO—and analysts are generally positive about the company. Even Andrew Bischof, a senior equity analyst at Morningstar who has a sell rating on Fortis, says that’s only because the stocks in the sector as a whole are expensive. (Investors flock to utilities during times of uncertainty, due to its stable and predictable nature.) “The management team has done a really nice job there,” Bischof says.
The ESG investing trend could help the stock fare better, however. A recent note from RBC Capital Markets said Fortis is already benefiting, though Perry is a little more cautious. “I do believe it will happen, at some point,” he says, adding that the topic often comes up during his conversations with shareholders.
The company’s efforts toward gender parity are noteworthy. Not only do women compose about one-third of the executives throughout the Fortis group of companies, but women make up around 40% of its executive talent pipeline. “You can have many programs and many different initiatives, but unless you’re really committed to [gender parity] in the long term, I don’t think it really moves the needle,” says Nora Duke, the company’s executive vice-president of sustainability and chief human resource officer. Like many other companies, Fortis hosts professional development programs and events for women, but Duke is a little hard pressed to isolate any one factor to explain the company’s results, other than executives making it a priority. “When we, as leaders, commit to it, things start to happen,” she says.
Could Fortis use that same focus to get rid of coal?
Perry is the first to admit Fortis has more work to do. It is, after all, the operator of a coal-fired power plant in Arizona through a subsidiary called Tucson Electric Power. “That attracts a little bit of attention from shareholders,” he says. Those coal assets make up less than 5% of Fortis’s rate base, he points out, adding that the Arizona utility is nine years ahead of schedule in reaching its goal of having 30% of its retail sales consist of renewable energy. The utility will hit that target next year, owing to the construction of a 247-megawatt wind farm in New Mexico.
Coal may be a small part of the Fortis business, but emissions are a different story. In 2018, the company produced more than 11,000 kilotonnes of direct greenhouse gas emissions, according to its sustainability report. Coal power made up 67% of the total, owing to the Springerville Generating Station in Arizona. (The company’s overall emissions are up 3.4% between 2015 and 2018.) Fortis doesn’t have any plans to shut it down any time soon. “That plant will continue to operate for some time,” Perry says.
But if Fortis is committed to clean energy, why not phase the plant out? There are cost considerations and the question of what could replace it, Perry says. “The battery storage technology is nowhere near where it needs to be,” he says of renewable energy.
Natural gas presents another issue. Fortis is a large supplier of the fossil fuel in British Columbia and wants to play an even bigger role in the nascent liquid natural gas (LNG) market. The firm already produces about 53,000 tonnes of LNG for export to China at its facility on the Fraser River, the only Canadian company to do so today. It has plans to boost capacity at the facility, from 0.25 million tonnes of LNG to 4.5 million tonnes, if all phases of the expansion are completed.
The company is also slated to build a natural gas pipeline on the coast of British Columbia outside Squamish for a proposed facility operated by Woodfibre LNG Ltd., a subsidiary of Pacific Oil & Gas Ltd. in Singapore. Stretching 47 kilometres, the Fortis pipeline will be a fraction of the size of the Coastal GasLink pipeline, which will wind across 670 kilometres of land to the LNG Canada facility near Kitimat, B.C.
The industry contends that LNG can help wean developing countries such as China off dirty coal power while being an economic boon. The Conference Board of Canada estimated in 2016 that exporting 30 million tonnes of LNG a year could boost the country’s economy by $7.4 billion per year over the next three decades. “We do believe natural gas has an important place in that energy transition as we move from more significant fossil fuels,” Duke says. Despite the enthusiasm, only one project is currently under construction in B.C.
While the Fortis pipeline may not generate headlines like its much larger peer, it hasn’t escaped local controversy. Marine scientist Tracey Saxby co-founded the environmental group My Sea to Sky in 2014 in opposition to the Woodfibre proposal. The project has since received the necessary approvals, but Saxby remains a vocal critic. “LNG has been framed as clean energy, but it’s not,” she says.
The notion that LNG is a bridge to renewable energy is also questionable. Large-scale infrastructure like LNGThe project is not a done deal: Woodfibre LNG has yet to make a decision on whether to go ahead. terminals lock countries into that fuel source for years to come, rather than making them pushhard to develop renewable energy. “Ultimately substituting one fossil fuel, coal, for another, LNG, is not going to get us to a decarbonized global economy, and that’s what we need to be thinking about,” says Karen Tam Wu, regional director of B.C. at the Pembina Institute.
She does, however, give Fortis credit in other areas. “They are looking at how they can reduce emissions from the gas they’re producing and supplying their customers, and I think that is worthy of recognition,” she says.
The project is not a done deal: Woodfibre LNG has yet to make a decision on whether to go ahead. And even projects already under construction can get derailed. Protests have delayed the construction of the Coastal GasLink pipeline, and related demonstrations erupted across the country, paralyzing rail traffic in Eastern Canada for weeks. Perry, who might soon embark on pipeline construction himself, declines to say what exactly was running through his head as the outcry spread across the country. “As a Canadian, I believe our economy has been affected now by all of the uncertainty, and that is not a good thing,” he offers.
He’d much rather talk about the role Fortis can play in driving cleaner energy consumption—even if it’s not as clean as some argue it needs to be. “To be part of that massive transition away from carbon fuel?” He pauses. “Yeah. Wow.”