Q1 2021 Emera Inc Earnings Call
Good day, and thank you for standing by.
Welcome to the Emera first quarter 2021 earnings call.
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I would now like to hand, the conference over to your Speaker today, Erin power director of Investor Relations. Thank you. Please go ahead.
Thank you Chris.
Thank you all for joining us this morning and.
<unk> first quarter earnings release was distributed this morning by newswire and the financial statements management's discussion and analysis and the presentation and being referenced on this call are available at our website at Emera dotcom.
Joining me this morning for the call are Scott Balfour, and Merritt, President and Chief Executive Officer, Greg Blunden, and mirrors, Chief Financial Officer, and other members and then there is management team.
Before we begin I will take a moment to advise you that this morning's discussion will include forward looking information, which is subject to the cautionary statement contained and the supporting slide.
Today's discussion and presentation will also include references to non-GAAP financial measures you should refer to the appendix for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure and now I will turn things over to Scott.
Thank you Mark and good morning, everyone.
This morning, we released our first quarter financial results and I.
I'm pleased to say we're off to a solid start this year.
Our business continued to perform well and delivered quarterly adjusted earnings per share of 96 cents, an increase of 17 cents.
We continue to execute on our capital program and we're on track to invest over $2 billion. This year.
And on the regulatory front following important rate case settlements for peoples gas and for New Mexico gas last year, We've now filed a base rate application for Tampa electric.
Our financial results and the underlying drivers of our growth this quarter.
The overall strength of our business.
We continue to see strong earnings growth from our U S based utilities.
And a reduced corporate interest costs reflect the steps we've taken to strengthen our balance sheet.
And our marketing and trading business continues to provide low risk opportunity for us to earn strong returns when market conditions present.
We did this quarter.
All of our major capital projects remain on time and on budget, while our teams continue to follow the enhanced health and safety protocols, we put in place last spring as part of our pandemic response plans.
We remain committed to investing between seven four and $8 $6 billion through the end of 2023, and renewable and cleaner generation system reliability and integrity infrastructure modernization and customer focused technologies, such as smart meters.
Our investments are expected to drive robust rate base growth of seven five to eight 5% on an average annualized basis over the period.
Carbon reduction has been core to <unk> strategy for more than 15 years.
And a key driver of our growth and it's what inspires our culture of innovation.
In February we announced our climate commitments.
Clear future focused de carbonization goals and we also shared our vision to achieve net zero emissions by 2050.
This commitment and builds on our successful track record of meaningfully.
Meaningful carbon reductions already achieved and highlight our dedication to eliminating coal and attention decarbonization.
We're encouraged by the alignment with customers and policymakers, who are also driving towards a lower current and future.
Our proven strategy and.
Successful track record positions and they're well to help lead the energy transition.
But critically and doing so in a way that never loses sight of affordability and reliability.
We fully expect that opportunities for continued and incremental investment will present themselves as a result of our dedication to reducing emissions and the global shift to a cleaner economy and.
And this interim we'll also continue to drive long term value creation for shareholders.
The Atlantic Group is an incremental opportunity we are pursuing and while this remains a complex idea with many partners and stakeholders. We continue to be encouraged by the momentum and the engagement from the federal government provincial governments and our utility partners.
We hope to have more to say about this project initiatives later this year.
Our ESG commitments are core to our strategy.
And well and our.
Environmental commitments are driving our capital investment program, our social and governance commitments and shape, our culture of doing the right thing.
And our customers communities and investors and each other.
Whether it's our commitment to inclusion and diversity across the business continuing to advance our best in class corporate governance or being an employer of choice everywhere. We work our ESG efforts speak to the core of who we are.
And a mirror ours.
Priority is always safety.
We're committed to and a mirror where no one gets hurt.
This means fostering a safety culture, where team members are personally responsible for their own safety and safety of others and they are empowered to speak up and act when they see potentially unsafe conditions and behaviors.
Over the last number of years, we've seen our safety record improve and in 2020, we achieved our best ever safety results with the fewest number of injuries ever recorded and her business.
This is a significant accomplishment and any here, but especially so given how we adapted and added new protocols and response to the global pandemic.
However.
Recent contract and fatalities and serious safety incidents across our business tragically highlight.
The work and this important area is never done.
But I'm encouraged by the team's commitment and I can tell you that we are more result than ever to achieve low to mirror, where no one gets hurt.
Before I pass the call over to Greg to take you through the financial results I want to briefly update you on the Tampa electric rate case.
And last month, we took the next step and the regulatory process and filed our petition with the Florida Public Service Commission.
Our request includes an increase in base rates of 295 U S million dollars, and 2022, and an incremental $130 million over 2020 three and 2024.
If approved these base rate increases support and enable the significant investments and cleaner greener and smarter energy solutions, all while keeping rates among the lowest and Florida and below the national average.
And as I've noted in the past our rate request is relatively straightforward.
About half the revenue ask is related to major capital items smart meters and modernization and solar investments.
And another 40% relates to depreciation expense to increase depreciation rates in line with depreciation study followed last December and to recover accelerated depreciation and dismantlement costs associated with the early retirement of coal units, one two and three.
The Big Bend station.
And with the remainder of the increase is for other smaller items.
We expect a decision from the public Service Commission later this year to allow for new base rates to be effective January one.
2022.
Finally, before I turn it over to Greg.
To take you through the financial results I'd like to take a moment to thank and congratulate Nancy tower, who officially retired as president and CEO.
And Tampa Electric last week.
As you know Nancy had an impressive career and a mirror.
She's been a key part and a growth story too.
Her accomplishments are many.
And we're very grateful to have benefited from her leadership over the years on behalf of the entire team. Thank you Kensey you will be net.
Matthews retirement.
T calls because with US on this call officially assumes the role of president and CEO and sample effort.
And also has a long history with the mirror and most recently has been part of the Tampa Electric leadership team.
He's a natural successor to continue the positive momentum of the Tampa electric team as they continue to deliver value for customers and cultivate a strong safety culture, reducing carbon emissions and driving growth at the utility.
Overall, I'm pleased with and a solid start to 2021.
And I am credit incredibly proud of the team and how they continue to respond to the challenges of the global COVID-19 pandemic.
Despite being asked to change the way they work to keep themselves and each other safe the team hasn't missed a beat.
Businesses continued to perform well and our teams continue to deliver the energy our customers need.
Looking forward to the rest of 2021 and beyond.
Main confident that emera is well positioned to continue to advance our strategy and deliver on our financial commitments and.
Now I'll turn it over to Greg to take you through the financial results Greg.
Thank you Scott and thank you all for joining us today.
We reported first quarter adjusted earnings of $243 million.
And adjusted earnings per share of 96.
Turning to $193 million and 79 pence and the same period last year and.
And we'll take you through and enrollment growth and adjusted earnings per share was primarily driven by our U S based utility lower corporate costs and improved earnings and our marketing and trading business, partially offset by a stronger Canadian dollar and a higher share count.
Our utility operations and the corporate services that support them are the driver of and mirrors growth since 2017, the first full year with FICO and our portfolio. These operations have been generating predictable and consider.
Instantly, increasing adjusted earnings per share driven by investments and rate base and disciplined O&M management, and working constructively with our regulators and customer groups.
Between 2017, and 2020 regulators and corporate and EPS grew by 5%.
Over the same period with our corporate interest price cost and trend lower largely due to a strengthened balance sheet and in 2020. We're seeing these trends continue.
With over 95% of our earnings coming from regulated operations on an annual basis, the overall quality and predictability of earnings and cash flow is high.
And the continued execution of our strategy.
And investments to safely provide cleaner and more reliable energy to our customers, while ensuring that energy remains affordable will continue to drive growth and earnings cash flow and dividends.
Most of our unregulated earnings are attributed to Emera energy Mirror Energy's earnings have historically been positive on an annual low annual basis, and they will vary quarter to quarter and year to year, depending on market conditions, causing volatility and our consolidated results.
While our financial results are not as predictable as those from our regulated business Emera Energy's low risk operations provide us with the opportunity to generate earnings and cash flow side and there is a market opportunity.
And in this quarter, our unregulated earnings per share grew by seven and <unk>.
Primarily due to improved earnings for our marketing and trading business.
Hasn't been and easy times and this business over the past few years. So the February winter storm events in the Midwest drove pricing volatility across the U S.
And our energy with well positioned to benefit from this volatility while maintaining supply to their customers.
And now I'd like to turn our attention to the details of the regulators and corporate earnings.
Gross and the first quarter is largely driven by lower corporate and interest and long term compensation costs.
Base rates and customer growth at peoples gas and hiring and BBC earnings and customer growth and Tampa electric and partially offset by a stronger Canadian dollar and a higher share count.
Pretax corporate interest costs were lower in the quarter by $13 million, primarily due to the retirement of debt from the proceeds of the sale of and their main last year.
Lower short term interest rates and a stronger Canadian dollar and also contributed to the decrease.
This is a continuation of a trend that we've seen since the second quarter of 2020 and reflects the steps we've taken to strengthen our balance sheet.
Pretax corporate LNG was $16 million lower and the quarter.
And $12 million rigs and lower long term compensation costs.
This decrease was driven by differences between <unk> 50 day average share price, leading into the quarter and and our share price at quarter end.
And these gains are driven by the timing and trying to share price movements are likely to reverse zone over the balance of the year.
Excluding the impact of a stronger Canadian dollar earnings from our gas and infrastructure segment increased by $14 million and the first quarter of 2020.
Over the first quarter 2020 growth was primarily driven by new higher base rates at peoples gas and new Mexico gas and strong customer growth of 5% and peoples gas.
First quarter earnings and Tampa Electric were also solid.
Moving the impact of a stronger Canadian dollar and their quarterly earnings contribution increased by $9 million driven by continued investment and the big Bend modernization and non phone for solar projects, partially offset by less favorable weather.
Compared to the first quarter of 2020 milder weather reduced earnings by $8 million.
Earnings per our remaining utilities and relatively consistent quarter over quarter. However, I will pause I mentioned, the results and Nova Scotia power.
Eric Nova Scotia, we experienced and incredibly mild winter between November and March weather conditions for some of the miles as we've seen in the past 50 years, Unfortunately and power and this created an earnings headwind you guys, Nova Scotia, Power's, a winter, peaking utility and will be very challenging for them to make up the earnings loss and this quarter over the balance of the year.
As a result, we have updated earnings guidance to reflect the expectation that they will earn and the low end of the ROE band This year.
And finally, both foreign exchange and a higher share count provided headwinds.
Fortunately, we are partially hedged against FX movements this year and at the end of the first quarter, we have $75 million of use hedges remaining at a rate of $1 42.
As these hedges roll off and realized gains or losses will mute the impact of FX movement.
And the Penny change and the FX rates moving annual adjusted EPS by about a penny through 2021.
On a non hedged basis that same penny change in FX rates will move EPS by approximately <unk> <unk>.
Before we open the line for questions I would like to take the opportunity to highlight the expected upcoming step changes and our operating cash flow.
As you know over the balance over the past couple of years, we've focused on strengthening our balance sheet.
Since 2018, we have retired over $1 billion and holding company debt reduced our holdco debt to total debt ratio to below 40% and returned to our capital.
Targeted capital structure, all while maintaining sufficient liquidity.
We've also become more regulated which has improved the quality of our cash flows.
And while the select asset sales, we have factored some early positive cash flow growth. We always knew there were significant cash flow events on the horizon.
Over the past 12 months, our business has generated $1 4 billion of normalized operating cash flow.
And while our results. This quarter include the cash flow impact of the $110 million of incremental gas costs incurred at and Mexico cash. These prudently incurred costs will be recovered from customers over time by time frame to be finalized with the new Mexico public regulation and commission.
By the end of 2022, we will see our operating cash flow increased significantly to over $2 billion driven by a few events.
It is approved the Tampa electric rate case, we will generate an incremental $295 million and base revenues and expect an incremental $280 million of operating cash flow.
And the second half of this year, we expect the Labrador Island link will be commissioned once commissioned our current non cash earnings will convert to cash increasing our operating cash flow by approximately $75 million.
And new base rates at peoples gas and new Mexico gas came into effect at the beginning of the year, we see an incremental benefit of these rates and the first quarter of this year and we will see further upside over the balance of the year.
And finally, we expect to continue to see natural growth and our operating cash flow.
With this stronger operating cash flow profile, we have a clear path to achieve the targeted credit metrics set by the rating agencies.
Our continued execution of our funding plan will support achieved and our credit objectives.
Last quarter, we issued $110 million of equity through our dividend reinvestment and at the market equity program and raised $200 million per preferred share financing.
And our base shelf has and the digital $300 million of capacity remaining and as I have noted in the past we have the balance sheet capacity to issue approximately $500 million and hybrid capital over the forecast period.
Our solid start to 2021 sets us up well for the balance of the year and while a quarter does not make a year I believe we are well positioned to deliver earnings growth and drive and investing for our investors, while delivering cleaner reliable affordable energy for our customers.
And before I turn the presentation back over to Aaron and I would like to welcome vs was asked and back to our finance team.
Effective may one day has assumed the role of vice President of Investor Relations and patches and I and all you will all enjoy the opportunity to get to know day.
Eric.
Thank you Greg. This concludes the presentation, we would now like to open up the call to take questions from analysts.
At this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad.
Your first question comes from Linda as regardless of TV Securities. Your line is open.
Thank you congratulations to a strong start to the year.
I'm wondering if you can give us.
And then some more context around your Tampa electric rate filing.
And specifically.
As it relates to inflationary pressures what are your and buts embedded assumptions around there and if inflationary pressures.
<unk> more than expected might there be any sort of relief or how are you thinking about that.
And it's.
Scott So thank you for the question and let me, let me start and then.
Greg maybe you can.
You can you can help and into <unk>.
Collins is on the line to certainly Linda as it relates to.
And the rate filing a lot of that capital.
And if it is a big driver of the.
Rate requirement the revenue requirement that's part of that.
Rate case is already well and motion and a lot of cases actually.
And either the work is already are and complete a well advanced and certainly.
Much of it has been cost control and not all of it.
And as some of the solar program continues to advance, but but of course.
Smart meters and.
And Big Bend modernization.
Work is well advanced with all major equipment.
And and.
Labor costs already committed.
And contracted or procured or in some cases, even even in place.
And of course, as you mentioned and the rest of the revenue and it's really relates to depreciation which doesn't impact things as much.
A broader sort of over override lens on.
On inflation, Greg and anything that you can add to linda's question.
Yeah.
And then maybe just a couple of things.
And we kind of think of our inflation I guess exposure, if you will and that particular business through a few different lenses, obviously to the extent that <unk>.
And higher commodity prices and our fuel prices and in particular that would flow through the fuel adjustment mechanism that we have.
Done a pretty good job of terming out our debt. So we don't have a lot of risk from an interest rate perspective.
Obviously, we may see some on the capital side and if Thats the case and obviously the capital that we're investing and we could be slightly higher but then really the area that might be more on a shorter term basis impact. This would be just on our day to day operating costs.
But with the.
We can control the labor through our existing labor agreements and those types of things. So it's probably a relatively minor piece that we would have a little bit of exposure, we did build and inflation assumption.
And that we think is sufficient and the rate case filing. So at this point and time I don't think it's anything that should be overly concerned about.
Thank you.
And as a follow up I just wanted to.
Also get some more of your thoughts on your financing plan.
Recognizing that you still have some room on your aftermarket program.
Is it you know.
Reasonable to assume that that still is a lever.
And that could be likely.
And just maybe some more thoughts on how you might.
Turn your potentially your credit facilities.
And how and sort of thoughts on dividend policy past.
Past 2022 might inform how you approach.
Permanent financing plan.
So let me describe let me let me start.
And so.
And really characterize and we're happy with.
And with our ATM program as well as or if we're going to continue with those two.
With those two mechanisms to raise common equity we find it very cost effective and allows us to raise it and we needed.
Earlier or later.
We've been kind of historically over the last let's say couple of years range and about $50 million per quarter on our asset market equity program and I think thats kind of a run rate that you should probably assume and and something relatively consistent.
With that on our and our drip as well.
We're always looking at.
Facilities and is there an opportunity to term some of that out.
And may have noticed in the quarter, we did exactly that and Tampa electric and $800 million.
Bond issuance that effectively.
And with their revolver down to zero balance. So we'll continue to look at that no immediate plans to do anything different over the near term and then as far as dividend policy.
That's ultimately a board decision and.
We would expect that occurred and guidance there'll be some updating of that and the fourth quarter and this year as we traditionally have done and invest.
Thank you I'll jump back and thank you.
Your next question comes from Rob Hope of Scotiabank.
Your line is open.
Yes, good morning, everyone.
First question is just on the opportunities under development.
Continue to.
Ed will call of $170 million per.
<unk> opportunities and 2021.
How are you seeing some of those shorter term opportunities progressing and then it looks like Atlantic loop is more of a back half kind of a next step for information there.
Hi, Robert.
Yes, Rob it's Greg I think.
And.
And the projects that we have under development really hasn't changed.
And as you highlighted about half of it is Atlantic loop or something like that and all the Atlantic loop.
Collection of projects some of which.
And I'll go for Irrespectively Atlantic move for example, and the stronger interconnection between us and New Brunswick. So those projects are progressing reasonably well.
We have some modest projects I would say, it's still under development for 2021 and.
Why do they land and this year the early part of next year.
And I still think it's a little premature and and all of that for sure.
And maybe if I just sort of speak to the.
And the reference to Atlantic loop is what catches some.
Attention with with media and the like but.
But the path to to continue to Decarbonize, Nova Scotia, and the path to retire the coal plants and.
And Nova Scotia and.
And both much more and then the Atlanta the idea of the transmission interconnect that's certainly.
And important backbone, enabling components of that journey to continue to decarbonize inclusive coal plants, but theres a lot of infrastructure that needs to be built and enhanced and Nova Scotia, and as well and so we will see some of those things happen probably irrespective of.
Technically defined Atlantic loop transmission project.
Nova Scotia power continues its journey to Decarbonize and and progressively retired coal plants.
Excellent Alright second question.
And just taking a look at the teco rate case once again, it's been out there for a little over a month now.
The feedback from stakeholders and.
And any opportunity for a settlement here.
Archie.
I want to take that one.
Sure Good morning, Rob.
I would say to this point feedback from from stakeholders has been balanced it's been fair I think there's a recognition that.
The investments that we've made or that we are making.
<unk>.
Are things that customers are interested in and that's what society is interested in where we're decarbonising, we're driving down the use of coal.
Stabilizing our fuel cost overtime, and so modernizing our grid improves and improving resiliency reliability. So I think that there's an acknowledgment that.
And that that these are these are investments that are in the social interest and that over the long term. There are good for the customer for our customers and so we've been pleased that.
For the most part that's the feedback has been has been fair and balanced from the perspective of a settlement of settlement is.
He is always a possibility but at this point we.
We are preparing ourselves for a fully litigated rate case, we have every expectation that.
That we have.
And the pairing ourselves for that eventuality, if if a settlement.
Presents itself, we will be we will be willing to engage but we we wouldn't think that that would present itself until much later in the process.
Probably after we've completed discovery. So we're open to it but preparing to go right to the end of a fully litigated rate case.
Thank you.
Your next question comes from Maurice Choy of RBC capital markets. Your line is open.
Thank you and my first question speaks about slide 12, which is a great disclosure from our operating cash flow perspective.
Any color on possible puts and takes.
It's the various components there.
<unk>, particularly.
Look at the Tampa electric rate case pretty standard five.
Canadian dollars, that's $280 million U S and you mentioned that Thats in line with what you've asked.
And the potential event that we don't get everything that we ask where would you see the potential tailwind to be to make up for your targeted operating cash flow.
Hi, Jorge.
Greg.
Good question I mean, if it was if you look at this.
Slide 12, and the buildup of the various items I mean, a couple of them.
And have either already been executed or its a question of timing and particular P&L and our gas ldcs.
And our rate cases, which we've had settlements late last year.
And obviously the biggest piece.
And the Tampa electric rate case, I will say that the combination of those four items identified on that page.
Probably increase our credit metrics, our CFO to debt or if that vote and that by summer.
And so I'm, just around 3% to 400 basis points and so to the extent that one or two of these numbers and turns out to be less.
And what we have illustrated here will still be comfortably, where we need to be from a credit rating agency perspective, So that's kind of the way to think about it.
I think if you think of.
Our rate case of Tampa Electric I think the average and the U S and generally around a $60 to 70%.
Success rate and terms of getting what you asked for and Florida.
Florida, probably traditionally has been as to either the higher end of that or slightly above that so I think it's fair that you could probably handicap that.
That number by some amount.
And so choose but even so we will still be comfortably where we need to be from a credit metric perspective.
Great and just a follow up to that obviously.
First component and when it comes in and 2018, two whereas the rest of it fits and bumps are that.
And then this year.
Any update on and good discussion for this year's review 2000.
'twenty, one rather than 2022.
The rating agencies.
That is correct.
Yes.
And so as always we have ongoing conversations.
Regular basis with all three of the revenue.
Great and agencies, S&P, Moody's and Fitch.
I don't know what the timing is of Moody's or Fitch to issue a report this year, but S&P just issued their annual report a few weeks ago and reconfirmed our rating and outlook. So there was no change and either.
And we're just waiting to hear from the other two as to what their schedule is for the balance of the year.
Great and if I could just fill and finish up on the opportunity set beyond your base plan.
You mentioned earlier that $1 2 billion.
Haven't changed much this quarter, but I wonder if you could just elaborate a little bit more about recent developments spokesman and U S and in Canada, and forgot to climate commitments and.
And you see an opportunity to increase.
At $1 $2 billion, what kind of timing, we should be looking at in terms of spend.
And with that any intent to take action sooner sooner right and related to funding this potential increase.
Yeah.
Well I think.
Murray.
And I think Directionally and of course.
Which happening.
The focus the intense focus that zone.
Many stakeholders, pushing decarbonization and and whether that's fair.
Federally driven climate and energy policy.
And in Canada, or the U S.
This is of course directionally positive for free.
For a company like Amira and obviously we.
And our whole strategy is anchored centered on.
And then delivering on and on Decarbonization efforts and related investments for many years its almost two almost two decades. So so in that sense for sure its directionally positive and.
I think as we look for opportunities to accelerate de carbonization and to respond to the requirement to two day.
Urbanize faster.
And it's legislative.
And participants gets put into place then obviously, we are really well positioned to do that and and yes, I think that bodes well for what our capex profile and growth can continue to be.
Maybe within the forecast period, but certainly certainly beyond it and and.
And so I think thats why we are.
And we're feeling confident about the positioning of the business and the.
The strength and the.
And the appropriateness and the <unk>.
The ability of our strategy.
Right now and because it provides that opportunity as we continue to execute for customers to also be in line with the accelerated pace that's being driven.
By many policymakers of course, one of the really important things and this of course is that as acceleration quickens.
And that does that does drive cost and we're going to continue to work to ensure we're representing customers interest as well as we can to ensure that it is.
And so affordable and finding ways in order to accelerate the de carbonization, but still keep it affordable and obviously hopefully Atlantic.
Project or more broadly.
As we describe it.
Eastern clean energy initiatives.
For for Us and.
Atlantic, Canada is really borne out of that idea and how do we how do we do this faster, but still keep our eyes on and manage the implication and cost for free.
And for customers. So it keeps us encouraged about what the future holds.
And nothing that will likely add much and waved capex growth and in 2021, but certainly as we get.
Into the later part of the forecast period and beyond.
I think.
And these will be driving forces and that should continue to drive and mirrors growth for years to come.
And just to follow up and that you mentioned that legislation needs to be put in place.
Do you view the ball to be on the government side of the court and Tim says putting.
Next up sell or is it one Florida industries, such as participants like yourself.
Sure.
Well I mean for sure for sure. We we have to we have to drive the solutions, but we also have to work within the parameters that get established for us within the range of legislation and regulation and of.
Of course.
Most regulatory construct require us to produce.
Lowest cost, but compliance electron we can.
And <unk>, but the lowest cost and compliance electron and so to the extent that we can as we are the big day modernization project in.
And in Florida, we are undertaking that because that cleaner energy.
And the transition from coal to.
<unk> two gas I think transportation is more affordable for customers and it is it is less expensive and therefore.
That's a great self and.
Driven initiatives the thing with much of our solar investments right now and those are all happening because.
And they are cost effective for customers, but.
But at the same time, if there was for example.
Carbon pricing in Canada.
And the Liberal government has of course proposed.
Higher carbon pricing.
Means the.
That affordability lens looks different in 2030 to 2040 and $170 of carbon.
Per ton of carbon and it would if there was no price on carbon and so that would require Nova Scotia power to work with the provincial government to.
Arrive at a solution.
Within the parameters.
Net carbon tax or that change legislation continues to produce the most affordable solution for customers while being compliant.
With the.
Whether it's carbon tax or or emission regulations or whatever the case may be.
Yeah.
Great. Thank you very much.
Your next question comes from Mark Jarvi of CIBC capital markets. Your line is open.
Yes.
Thanks, Good morning, everyone.
Maybe coming back to the Tampa Electric rate case is there anything that can be gleaned from the Florida settlement and terms of their depreciation studies or anything relative to your what you proposed III and see whether or not.
Staff might be on blowers, and proposals and given that that's a substantial part of the step up and rates.
Okay.
And this way and it's.
Our tier Greg want to chime in with let them look at me and every every rig case submissions is different so I think.
And when it would need to be careful we need to be careful about interpreting and.
The result of a one rate case into another of course pay attention that we pay attention to.
The rate case filing that Florida cover and electric.
Done, but our case needs to stand on its own and the merits of the capital that's been invested and the depreciation study the independent depreciation study that is.
Ben has been done and that helps to guide those discussions and.
And the team at Tampa Electric I know has put a huge amount of work and to ensure that.
Responding to the needs.
Needs to invest that capital and address the appropriate requirements for depreciation and overall.
<unk>.
Yeah.
It's doing so prudently and with a lens on impact to affordability for our customers and.
And so confident and that sounds good.
And the work that's been done and the rate case that has been filed with and with the support for that.
And all.
And as it stands on its own.
Very well thought through very well.
Considered with benefit of expert opinions and and the team will work through that perhaps next week with stakeholders and the FPC.
And your progressions.
Okay and.
And then for <unk>.
Greg.
And see some proposals on tax changes and the U S. But also in Canada does that put you in a bit of a holding pattern into the positioning of corporate debt or any sort of updated thoughts in terms of how you might respond if there are some changes and taxation.
Policies.
Yes.
It's probably a little bit early to tell.
Well I mean, I think it certainly looks like.
And if I start and the U S market.
So by the administration is looking to increase corporate tax rates.
It really doesn't have any impact on our financing other than our U S denominated debt.
The after tax costs will be lower than it is.
Today, but it doesn't really have any impact on us.
And that side of it.
It looks like the discussions were having around.
And the thresholds for alternative and non tax would be sufficiently above our taxable income and the U S and we shouldnt get caught by that at all and by <unk>.
Turning to Canada.
And really it looks like a couple of themes that are emerging and one is is the elimination of any kind of cross border tax structures.
We really don't have anything in place.
And is worth mentioning so that's something that we're very focused on at this point.
And then I guess the last thing is they are still working through the mechanics on is there going to be any kind of interest deductibility limitation.
Which we have to be careful and I think.
And Canada, because obviously again utilities run it at a much thinner capital structure and.
And.
Certainly wouldn't want to season, and a position where we couldn't raise incremental debt.
Canadian regulated utilities because of that kind of limitations. So I think there is some work to be done and that it probably pushes us long term and beans, which we really are effectively today. What it means is holding company debt is probably going to be.
Raised and the United States as opposed to Canada.
And we speculate at this point.
That's great color. Thanks for that Great and my last thing just going back.
Thank you Scott in terms of the balance of the legislation and regulation in terms of big initiatives like Atlantic Loop update us in terms of like at this point are you socializing and what youre thinking and with the regulators and Nova Scotia like how do you get to then come back to the table with your neighboring provinces other people discuss Atlantic loop.
And the confidence that you're putting in within the boundaries of the regulation and and prudent cost recovery.
Yes.
Peter are you comfortable to answer that.
And Scott.
I guess, what I would say too bad and good morning, everyone.
Is that.
And we think the complex projects involving multiple stakeholders multiple problems with utilities and so.
We are having.
And I'd say.
Bill early day discussions with all.
And theres opportunity.
And to bring.
More of those stakeholders and have the discussions of the coming months as both Scott and Greg said earlier, we would hope that we'd have something more to say towards the <unk>.
And the back half of this year.
Got it.
You want to add to that.
And I think Thats exactly right Peter and.
Mark and the only other thing I'd say is it is.
Yes.
Multiple stakeholders.
Involved and anything like this around energy.
And policy and in our case and Nova Scotia and.
As we work to ensure that.
And with the changing landscape of Av.
Of energy policy federally and extent that impacts the provinces the provinces deeply engaged and that's and of course, Nova Scotia power.
And continues to work with always works with its its regulator and its and its stakeholders and and that processes and started here now of course, it's not perfect clarity yet on any of these things, but keeping those stakeholders aware and involved and engaged through that through the piece. We're pleased.
And the provinces.
Awareness and and.
And supportive of something like the Atlantic Luke requirements of federal engagement and helping to solve the challenge and Nova Scotia.
But all of this is complex and.
And multiple stakeholders.
Involved and.
Peter and the team that table and squishy power are doing a great job and ensuring that engagement and and.
And alignment as best as possible.
Okay got it thanks for taking my questions.
Thanks Mark.
Your next question comes from Ryan Greenwald Bank of America.
Your line is open.
Good morning, everyone.
Good morning in terms of further.
And I'm still development opportunities can you guys talk a bit about how you're thinking about any discrete opportunities coming out of central and for bill and the U S.
Right right.
Got it.
So if you're going to start Greg go ahead.
Yes.
And again I think.
It's probably a simple answer Ryan it feels a little premature I mean, there's a couple of things I mean, obviously there is the infrastructure Bill and.
And we're looking at what that might.
And might mean for us I would say probably not in the next couple of years, but as we look broader than that and then of course, there is more of a sensitivity and some of the markets too as well in terms of.
System, resiliency and particular because of the events in Texas. So I think there's a couple of things there.
And are happening all very consistent with the themes that have driven our capital investment to this point and.
We're looking to see what the opportunities may mean for us and for our business and for our customers.
But we Havent concluded.
On any of those things yet.
Got it and then just in terms of hedging any thought process at this point given the pressure of late and FX in terms of.
Looking out to later years and just to confirm you guys have no hedges beyond 2022 at this point.
That's correct.
And he thought process around and implementing some now or still kind of too early at this point.
Sorry, Brian I missed the first part.
So for your question.
Just in terms of your thought process at this point in terms of implementing hedges for the later years, given the pressure and more recently and FX.
And we'll we'll continually look at it.
At this point and time, we haven't put any incremental hedges on.
At these levels.
Great I'll leave it there thanks for the time.
Hello.
Your next question comes from David Peters of Wolfe Research. Your line is open.
Yeah, Hey, good morning, guys.
Good morning.
Yeah, I know you don't have a formal guidance range, but just curious back to the FX. If you could just comment and potential impacts for 'twenty one and.
And any offsets you have against those headwinds and I. Appreciate the hedges that you have in place, but I think originally you had assumed a rate of $1 28 versus $1 21 that we're currently sitting on.
Yes.
Correct, David Zone, and the current year, each and each one cent change and that.
And 2021 would be about a penny in EPS and.
And for 2022, we'd be about <unk>.
And EPS.
Could you talk to any offsets elsewhere and the business that you that you seem to help kind of offset those pressures.
Yes, it's a.
Good question I don't know.
Certainly wouldn't necessarily be linked to it but we're also seeing.
As <unk> seen and our Q1 results and Im sure Youre seeing and many of the companies that you're covering.
We're seeing things like obviously lower short term interest rates.
And then maybe most of US would have thought a year ago.
Which is certainly helpful.
All of the capital that we're investing for better versus going in and Tampa electric and peoples gas and new Mexico and assets at a lower FX rate, so our capital requirements and a consolidated basis are slightly less dilutive.
Few things.
And that probably helped mitigate a little bit, but but it is it is the volatility that that will continue over the balance of the year. There's no question about that.
Great. Thank you.
Your next question comes from Andrew <unk> of Credit Suisse. Your line is open.
Thanks, Good morning, Scott you mentioned, a little bit about effectively the cross border divide on decarbonization with pretty clear policies, and Canada and <unk>.
And obviously you have a really robust solar resource and Florida, I guess, just on a longer term basis.
How do you think about decarbonization on holding would that cross border divide and then when you start thinking about the interplay of demand side management and distributed generation.
And that's effectively customers, having batteries and their houses how does all of that play out and a longer term basis for you and obviously a big picture question, but how do you think about that now.
Well I think Andrew it it comes down to.
Simple things like ultimately, we've always got to be focused on making sure that we are.
We're providing cost effective.
Solutions to customers and so we.
And the team at Tampa Electric as has.
And has done a fantastic job.
Think about the shift in the and the generation profile and Tampa electric from just even when we acquired Teco and back in 2016, now with 655 megawatts of solar.
That's in that's in service and another 600 megawatts.
Plan, but it will take it to.
Order of magnitude and 15% with dinner and have their generation profile and then the call to <unk>.
Gas conversion and tactically the retirement of <unk>.
Free.
Two coal units and the conversion of another coal unit, two and high efficiency natural gas again.
Massive change and and not only the generation profile, but the carbon profile for Tampa electric and in that case, all doing it on a basis that is more affordable to customers and then if it hadn't made those changes and so.
Really continuing to think about the business that way too and you can say anything others culture of innovation, which is a big word and and maybe it doesn't sound like it should apply to any you said would be perhaps but but there is an element of that and and driving the transition and what's happened in <unk>.
And in Florida that has already happened and still needs to happen and.
Scotia, and frankly in the Caribbean, and our gas utilities to and and certainly as we think about distributed.
Generation and and.
And that that trend Tampa electric clear to us is playing its part with looking at community.
Solar where with the work that Rob and it is doing with mirror technologies.
And about.
The role that we as a utility can play to enable and accelerate.
The use of distributed and use of batteries.
Being used now and her Caribbean businesses and.
And plans in Florida and service now.
And in Nova Scotia, and the opportunity for four more which will be an important component of ensuring.
William G as part of the transition to more intermittent renewables and whether those batteries are.
And our customers' homes or.
Parked and solar or wind generating facilities, where its substations.
It's going to be all of the above and so the utilities have I think and important role to play.
And all of that and I think that broader trend of.
Policy, whether it's driven at the provincial level or the state level or the federal level or just by economics is going to be continuing driver of our capital programs and growth.
And therefore for many years to come still.
I appreciate those thoughts I guess my my second question.
Still relates to cross border divide and is probably more for Greg and it's just and your capex slides and in the <unk>.
Jack.
You see it being useful and the future there may be just have the U S. Dollar capex for the U S business and then the Canadian Capex like obviously your Canadian reporting issue work.
And you have a translation rate and the deck.
Do you feel that that will mask the growth of the underlying growth and the U S business, that's happening on the U S dollar basis.
It's a good suggestion and Andrew I mean, we try not to.
Overreact to a year ago and the dollar was at $1 42.
And rework a lot of that and trying to do the same consistency today, but it is a good suggestion and we'll take it away and thanks, a lot and thank you.
And.
Okay. Thank you.
Okay, and if you would like to ask a question Press Star then the number one on your telephone keypad.
The next question comes from Patrick Kenny of National Bank Financial Your line is open.
Hey, good morning, just wanted to clarify guys on the Tampa filing what the process looks like if the U S. Corporate tax rate does go up to 28% is there.
And automatic adjustment to the revenue requirement or do you have to go back and for approval and could there be a potential peg in and realizing that cash flow uplift relative to the gen. One effective date.
Great.
Yes, Patrick we've we've asked for a mechanism to recover that but I think it's fair to say that you should expect some kind of regulatory lag on that.
So even.
Even when tax rates went down I think there is still a full year before that's savings flow back through to customers. So.
And so even with the mechanism.
I don't think we would see any impact of that is till probably 2023.
Got it.
And then just on the trading and marketing frontier.
You may have touched on it already but.
Can you quantify just how much of the performance and the quarter was simply extreme weather driven versus perhaps structural in nature going forward.
Judy over to you.
Okay well.
I get that.
It's an interesting question I mean the day.
The business.
Generally make hay and big weather events. So.
You know I don't I mean, I can say.
Let me put it this way.
I would say, we made somewhere between 10 to 15 million and you asked of margin.
And what I'll call markets adjacent to where the most turmoil life.
So I think of that as kind of benefiting directly from the Uri events.
So after tax that's probably.
10, and 15 million Bucks I guess.
And the new England weather didn't really flow world at any time, but it was steadily coal through the quarter and that's what we like to see so.
And new England, where kind of.
And most double what they were at this time and the fed.
First quarter last year, but still kind of an average of five to $6 and peaking out at 14 or 15. So.
And what kind of call that a normal cold winter.
And so if I had to try to answer your question and some meaningful way I would focus on what margin. We earned kind of in adjacent markets to two were here he was really impactful and.
And like I said, that's somewhere between.
12, and $15 million of margin.
Okay. That's very helpful. Thanks, Judy.
And then just over on the Caribbean Frontier.
And any leading indicators you can speak to with respect to travel and economic activity perhaps.
Coming back later this fall.
And to more normalized levels.
Yes, I think Patrick largely.
And they really are Caribbean interest or are centered in and.
And Grand Bahama and.
And Barbados.
Of course, we have interest and and St Lucia and Dominica, too, but really most of.
Substance of our Caribbean businesses, and those two islands and their behavior is a little different so a leading indicator and crumble how much. Your fleet is really very very linked to the U S economy. So as the U S economy strengthens and I would expect to see.
The economy in Grand Bahama strength and of course tourism will also help there is.
It has been.
Shipping related cruise ship related activity, which would be another one to look at the biggest one for for Grand Bahama would be would be good to just a linkage to the U S.
Economy.
Because obviously, it's different and there is is principally tourism driven and so.
And there tourism.
And with the U K, Canada and.
And U S being primary.
Components of that of course, a much much broader but but those would be the ones to look at so it's really a tourism and Barbados and and U S economy for example home.
Okay, that's great. Thanks, everybody.
There are no further questions at this time I will now return the call to Mr. Bauer for closing remarks.
Yes.
Thank you, Chris and thank you all for joining us and for your interest and Tomorrow and I.
And look forward to speaking with you again next quarter and if you have any questions in the meantime, please feel free to reach out to myself and the IR team.
This concludes today's conference call. Thank you for participating you may now disconnect.
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