Q3 2022 Emera Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Amira February 2022 Analyst Conference call.
At this time all lines are in listen only mode.
Following the presentation, we will conduct a question and answer session.
During the call. If you require immediate assistance. Please press star zero for operator.
Call is being recorded on Wednesday.
Friday November .
Thank you I would now like to turn the conference over to Dave.
Sure.
Please go ahead.
Thank you Marcella and thank you for joining us this morning for <unk> third quarter 2022 conference call and live webcast.
<unk> third quarter earnings release was distributed this morning by newswire and the financial statements management's discussion and analysis and the presentation being referenced on this call are available on our website at Amira Dot com.
Joining me for this morning's call are Scott Balfour, <unk>, President and Chief Executive Officer, Greg Blunden, <unk>, Chief Financial Officer, and other members of the mirrors management team.
Before we begin I would like to take a moment to advise you that this morning's discussion will include forward looking information, which is subject to the cautionary statements contained in 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, Dave and good morning, everyone.
I'd like to begin this morning by taking a moment to acknowledge that today is remembrance day here in Canada and veterans day in the United States.
We extend our heartfelt gratitude and respect to those who have served and continue to serve our countries.
Our freedom today is because of their courage and sacrifice.
On behalf of the entire <unk> team.
This quarter, our customers communities and teams were faced with two record breaking storms.
Here in Nova Scotia, Fiona was the most powerful storm to ever make landfall in Canada, and the most destructive storm to ever hit our products.
At the peak more than 80% of Nova Scotia power customers were without power and.
And the restoration effort taken by the team with the largest and NSP history.
As soon as it's safe to do so a team of over 500 power line technicians damage assessors forestry technicians together with NSP team of customer service Representatives and other power system experts worked tirelessly to safely restore power to all impacted customers across the province.
In addition to the NXP team on the ground crews were brought in from eastern and Central Canada and from the northeastern United States to assist in the restoration.
The damage with significant.
Over 4000 down trees declared and the need to replace more than 2700, Poles 500, Transformers and 100000 meters of overhead power lines.
That was five to six times more pulls down and wires down than the previous record storm and Nova Scotia Hurricane Durian.
This incredible restoration effort involved more than 333000 person hours of work.
Our team is motivated by the fact that we provide an essential service that our customers count on every hour of every day.
We also understand that the damage caused by Fiona had particularly devastating impacts on some <unk>.
The teams at Amira in Nova Scotia power moved quickly to partner with the United way to establish the United Hurricane Relief fund with a donation of $250000 to provide immediate relief funding to most the most to help the most vulnerable in the province.
And of course, just days after Kyoto made landfall in Nova Scotia, Hurricane and swept through Florida, causing widespread devastation across the state.
Thankfully despite the severity of hurricane Ian only 35% of Tampa electric customers lost power.
The investments we've made through the storm protection plan to strengthen the grid.
Coupled with the effort of many hundreds of crews from Tampa electric and neighboring states enabled durability to restored 99% of the outages within four days.
We'd like to thank the crews in both U S and Canada came to the support of our teams in Nova Scotia, and Florida to help us restore power to our customers as quickly and safely as possible.
Storms like Fiona, Andy and underscore the essential work that we do.
And the response from our entire team highlights the strength and resiliency of our people and their unwavering dedication to our customers.
Turning to the financial highlights for the quarter I am pleased to say that despite the weather challenges our track record of delivering solid earnings and steady growth continued.
Our third quarter adjusted earnings per share was <unk> 76, compared to <unk> 68.
In the third quarter of 2021.
For the year to date, we delivered 5% growth in adjusted earnings per share from $2 17 per share for the first nine months of 2021 to $2 27 per share in the same period this year.
This growth is underpinned by the strength of our investments in Florida.
We continue to see strong customer growth at both Tampa electric and peoples gas.
Our marketing and trading business did what they do best this quarter by taking advantage of market conditions, then enabled emera energy to contribute $13 million more in earnings quarter over quarter.
This is a great example of how this strategic market facing business applies its physical based lower risk operating model to capture market opportunities and deliver significant returns.
It is also worth noting that our board of directors recently approved a four 2% increase in our dividend and extended our dividend growth guidance of 4% to 5% out through to 2025.
This represents more than 15 years of continuous dividend increases and reaffirms, both management's and the board's confidence in the underlying growth of our business.
We remain fully committed to our dividend.
And to our annual 4% to 5% dividend growth target.
Overall, our team continues to advance our strategy and deliver on our 2022 capital program.
So far this year $1 7 billion in capital has been deployed.
And we are on track to deploy over $2 $7 billion by the end of the year.
This is slightly less than the original forecast of $3 billion.
Resulting from the delay in our final investment in the Labrador Island link as we await final commissioning.
Which is expected in the next few months with benefit of robust trial operations and low testing now well underway.
The Big Bend modernization project at Tampa Electric is near completion.
And is expected to go into full combined cycle commercial operation in the next months.
This is a transformational project.
Effectively facilitating the retirement of three coal units at Tampa electric and meaningfully reducing the carbon intensity of our generation fleet.
This new generation facility at Big Bend station will be one of the most efficient natural gas generating units in North America.
I'm incredibly proud of the team that has delivered this project on time on budget and most importantly safely.
I'd also like to highlight that during the quarter. The Tampa electric team achieved a significant safety milestone of 365 days without a single employee missing work due to an injury.
Despite the hazards associated with generating and delivering electricity and executing on our significant capital program.
The team has now logged over 6 million work hours without a lost time injury.
Our safety vision is in a mirror, where no one gets hurt.
This impressive achievement by the team at Tampa Electric demonstrates our ability to achieve that vision.
Looking forward to our updated capital plan.
Over the next three years, we expect to invest between 8 billion and $9 billion in reliability cleaner energy and infrastructure modernization.
These investments are expected to continue to support a 7% to 8% growth rate in consolidated rate base growth over the same period from almost 25 billion in 2022 to nearly $30 billion in 2025.
Before jumping into the detail on this I'd like to take a moment to address the legislation passed by the government of Nova Scotia earlier this week.
Bill 212 caps, the allowable increase to base non fuel electricity rates at one 8% from now through to the end of 2024.
And also directs that Nova Scotia power can only use that increase for reliability investments.
As you would expect and from comments we've made on record we are very concerned about the government's unprecedented decision to override the role Nova Scotia utility and review board.
Political interference in the rate setting process is unprecedented in North America, and it's unprecedented for a reason.
It's been well proven that the long term interest of customers is best and most effectively assert both effectively served by the adjudication and setting of electricity rates by an independent expert body like the AARP, which benefits from direct engagement and evidentiary input from customer advocates intervenors and all stakeholders.
We remain deeply concerned about the long term impacts of this legislation to Nova Scotia Power's customers as it delays the clean energy transition and we will ultimately.
In higher not lower cost for customers and is already evidenced by the likely negative impact to Nova Scotia Power's credit ratings as indicated by standard and Poor's MTBE Rs.
However.
The Nova Scotia power team is nonetheless laser focused on working with its various stakeholders to address the constraints imposed by the legislation and the most effective way possible as it continues to prioritize its delivery of safe and reliable energy to every customer.
Subject to final determination by the UA RB built 12 results and a $150 million reduction to revenues and cash flows to Nova Scotia power over the 22023 and 2024 period compared to what was submitted in the general rate application.
It also restricts it also restricts further investment in cleaner energy over this time period.
This reduction in planned revenues and cash flows obviously requires Nova Scotia power to reduce operating costs and planned capital investments in the province.
For example, the last capital plan included $500 million.
In planned investment in the eastern clean energy initiatives, including the Atlantic Lou.
To fund new wind generation transmission infrastructure upgrades and battery storage to help facilitate the transition away from coal fired generation.
Given the restrictions imposed by Bill to 12. These cleaner energy investments have been forced to be put on hold as.
As our capital investments in Nova Scotia power are now required to only focus on maintaining system reliability.
As you might expect we continue to digest and analyze the impacts of bill to 12. So while this is our best estimate of Nova Scotia Power's capital planned at this time, we're continuing to work through the detailed impacts and we will update the profile if needed in future reports.
Even with this reduced capital investment level at Nova Scotia power when we look at our capital plan as a whole it remains very strong and solidly maintains a consolidated rate base growth profile of 7% to 8% through to 2025.
Consistent with our strategy.
I am pleased to say that over 60% or $5 $3 billion of our 2023 to 2025 capital plan is specifically focused on delivering cleaner and more reliable energy with the remainder of our planned directed to sustaining capital projects.
Tampa Electric continues to see strong economic and customer growth, requiring a higher level of capital investment to support that growth and in the process investing in the continued improvement in the reliability of the system.
The team at Tampa Electric also continues to make progress on the transition of their generation mix.
Investing in solar generation at Tampa Electric continues to be the right thing to do for their customers, both economically and environmentally.
In the face of a rapid and significant rise in fuel prices our investments in solar are expected to save customers nearly $90 million in fuel cost this year.
And Atlantic, Canada, I'm pleased to say that with energy now flowing our investment in the Maritime link has saved Nova Scotia customers over $200 million in fuel cost so far this year.
Fuel that otherwise would have been needed to be purchased in today's high commodity cost environment.
By replacing increasingly expensive high carbon generation with clean energy Hydro, we're receiving through the Nova Scotia block of energy over the Maritime link the link will continue to deliver significant value to customers over time.
So solar investments at Tampa electric or the largest clean energy projects in our capital plan.
Last month, Tampa Electric announced expansion of their solar program with an additional 375 megawatts of solar power at six sites.
By the end of 2025, Tampa electric will have more than 600 megawatts of solar generation in its fleet.
Enough to power nearly 260000 homes and the highest percentage of solar power of any electric company in the state of Florida.
Tampa Electric's almost $1 billion investment over the next three years in solar generation will attract production tax credits under the inflation reduction act, making them even more affordable for customers.
I also wanted to highlight that earlier this year Tampa electric received funding from the U S Department of energy to perform a preliminary study at the <unk> power station to evaluate the cost and feasibility of retrofitting carbon capture technology on a combined cycle unit.
This is a renewal of the work started at the Coke plant nearly a decade ago.
While carbon capture requires ongoing development work to be economically feasible government support like this along with the inflation reduction act helps to facilitate investments today. So that we can be ready to make the best assessment for our customers. When these technologies become commercially viable in the future.
We're very excited to be part of the work being done in this important area.
The solar program at Tampa Electric and the Maritime link and Nova Scotia are clear examples of how our strategy first and foremost.
Importantly serves our customers.
And how in doing that also drives earnings and cash flow growth for our shareholders.
In light of recent storms, it's also clear that investing in reliability enabled by mechanisms like the storm protection plan of Tampa Electric has never been more important.
With a planned $775 million of spend on storm protection plan over the next three years. This represents one of the most significant projects in our capital plan with immediate recovery through a rate rider.
I spent a long time talking about the investment needs at our electric utilities, which is we're almost 80% of our capital plan that will be deployed over the next three years.
The remaining 20% will be invested in our gas utilities, where the focus is on maintaining reliability and safety of the system along with investing in system expansion to support the significant customer growth were seeing specifically at peoples gas.
We're also continuing to invest in cleaner energy initiatives like the renewable natural gas projects being explored and advanced at peoples gas.
While our profile of capital spend looks different today than it did a year ago. The overall levels of expected investment and rate base growth remained essentially unchanged over the forecast period.
We continue to focus on prudently managing our capital plans to ensure we are meeting customer and regulator demands while at the same time managing the pace of the transition in order to balance cost for customers and the ability for shareholders to earn a reasonable and timely return on their investment.
Before turning things over to Greg I want to highlight a recent leadership announcements.
After 33 years with a mirror, our chief operating officer, Rick Janiga will retire at the end of this year.
Over the past three decades, Rick has been a key leader in our business and an important part of <unk> growth and success.
While these helped us accomplish a lot.
It's worth highlighting in particular that Rick led the maritime link team that delivered this transformational energy infrastructure project on time and on budget.
The maritime link is already delivering cleaner energy to Nova Scotia, and will benefit Nova Scotia power customers for generations to come.
While his leadership deep utility experience and unfailing commitment to safety will be missed day to day I'm pleased to say that Rick will remain involved with a number of projects and will stay on the boards of several of our operating companies.
On behalf of the entire team. Thank you Rick and congratulations on your well deserved retirement.
Thank you Scott and good morning, everyone. This morning, we reported third quarter adjusted earnings of $203 million and adjusted earnings per share of <unk> 76 <unk>.
Compared to $175 million 68 in Q3 2021.
Year to date adjusted earnings were $601 million and adjusted earnings per share was $2 27.
Compared to $555 million and $2 17 for the same period in 2021.
Regulated portfolio led by our utilities in Florida continues to be the driver of strong financial results contributions from our regulated portfolio increased 11% over Q3 2021, representing <unk> of increase to adjusted EPS.
This strong growth combined with the opportunities identified in our new capital program reinforces our confidence that we will continue to deliver long term earnings growth to our shareholders.
Operating cash flow was challenged this quarter by the growing fuel under recovery and storm costs incurred primarily at Tampa electric.
It's important to highlight that absent. These factors, we would have seen a 37% increase in year to date operating cash flow driven by growth in our regulated utilities.
The fuel under recovery and storm costs at Tampa Electric represent almost 600 million Canadian dollars of operating cash flow that we will collect through the regulatory recovery mechanisms available in Florida that are designed for this specific purpose.
We expect to file with the Florida Public Service Commission in the fourth quarter for recovery of the Hurricanes and storm costs.
PSC has 60 days to respond to our application and historically storm costs had been collected over a period of 12 months.
During the quarter Tampa Electric filed for 2023 fuel rates. This application reduces the risk of ongoing material fuel under recoveries by ensuring we are recovering the appropriate amount from our customers in 2023 based on forecast to fuel prices.
This filing was the first of two steps needed to address the impact of rising fuel prices at Tampa electric.
We also expect to file later this quarter or in early 2023 to recover the uncollected fuel costs from 2022, the company is facing and the increases to ease the transition and reduce the impact on customer bills, but ultimately the fuel under recoveries are temporary and these costs will be recovered from customers.
Tampa Electric continued to delivered strong results with growth of $18 million in earnings or 13% over Q3, 2021, driven by new base rates that went into effect on January one and continued customer growth.
<unk> weather in July and August was offset by some loss loads during hurricane even at the end of September .
Emera Energy's marketing and trading business capitalized on higher market pricing and volatility delivering $8 million of earnings for the quarter. This is a good example of the upside potential for this business in the right market conditions that we often talk about.
The weakening Canadian dollar increased earnings from our U S operations by $7 million for the quarter.
And as we look to the fourth quarter of this year and into 2023 and 2024, we have taken advantage of the weak Canadian dollar and have hedged approximately approximately 70% of our U S earnings for the remainder of this year, 45% for 2023 and 25% for 2024.
Contributions from our gas and Caribbean utilities increased modestly driven by a continued customer growth at peoples gas and the economic recovery in Grand Bahama.
Corporate costs increased $25 million this quarter, largely driven by timing impacts of share based compensation expense and related hedges higher interest expense and a gain on foreign exchange hedges recognized last year.
I would note that approximately half of the increase interest expense was related to posted margin required posted margin positions at emera energy necessary to facilitate the unexpected market opportunity.
And earnings from our Canadian Electric utilities decreased modestly during the quarter, primarily due to lower contributions from our transmission investments.
And similar to previous quarters the growth in earnings was partially offset by higher share count.
Year to date adjusted earnings per share increased by <unk> to $2 27, driven by higher contributions across our regulated portfolio.
Earnings from Tampa electric increased $65 million or 22% year over year with drivers for growth consistent with the quarterly results as well as favorable weather in the first and second quarter.
The weakening Canadian dollar increased earnings from our U S operations by $14 million for the year.
Year to date contributions from our Canadian and other electric utilities increased by $7 million driven by continued economic recovery in the Caribbean and colder weather in Nova Scotia in the first quarter, which drove higher sales volumes, partially offset by higher storm costs and lower contributions from our equity investments.
Earnings from our gas and infrastructure segment increased $4 million U S driven by higher contributions from peoples gas and seacoast.
And corporate costs increased by $56 million driven by the same factors that impacted the quarter.
Year to date, the mirror energy delivered $29 million of adjusted earnings.
And although this represents an $8 million decrease from 2021, our prior year results benefited from event driven volatility created by winter Storm Fury.
And again finally higher share count decreased adjusted earnings per share by <unk> <unk> year over year.
As Scott mentioned the profile of our capital investment across the portfolio has shifted from a previous capital plan.
75% of our 2023 to 2025 capital plan will be invested in Florida compared to 67% in last year's plan.
For every dollar of capital spent at Tampa Electric we are able to fund that capital investment with a higher equity thickness and also earn a higher rate of return on that equity.
This means that for every dollar we spend in Florida, we generated 63% higher earnings and cash flow than under Canadian utilities.
In addition to higher earnings and cash flow the higher equity thickness means that the funding of this capital will ultimately strengthen our balance sheet as we fund that capital in line with our targeted capital structure, rather than the higher leverage required within the regulatory structure and Nova Scotia.
We also believe that this capital investment profile increases our ability to translate rate base growth into EPS and cash flow growth and support of our recently affirmed dividend guidance.
As we optimize those capital plan, we remain focused on managing the impact on rates and ensuring the timing of capital deployment is aligned with our planned rate case filings.
Unlike in past years, we have not included the category of investments under development.
This is a result of the fact that we are seeing sufficient opportunities in our base case, while continuing our focus on managing the pace of investment.
We have always managed our funding program to maintain our targeted capital structure of approximately 55% debt, 35% common equity and 10% hybrid and preferred equity.
Our funding program enables us to maintain this target capital structure and achieve our targeted credit metrics over the forecast period by maximizing reinvesting reinvested operating cash flows that are supported by common and hybrid equity capital issued by a mirror and the issuance of debt at our utilities in line with their regulated capital structure.
Our equity requirement over the next three years is expected to be raised through our dividend reinvestment plan, which is expected to raise $200 million to $250 million per year, and our ATM program, a very efficient and cost effective way to issue common equity in fact, we raised $235 million of equity through the ATM program. During the first eight months of this year.
And finally, we will continue to manage the hybrid and preferred capital portion of our capital structure at approximately 10%, which is consistent with the targeted capital structure and in October of this year, we increased our base shelf for the issuance of these types of securities by $425 million.
We have been diligent in developing our capital and funding plans to achieve the key objectives of growing both earnings and cash flow strengthening our balance sheet, achieving our targeted credit metrics and serving our customer needs over the forecast period.
We are confident that our highly regulated diversified portfolio is well positioned to deliver on these objectives, while achieving rate base growth of 7% to 8% through important and needed capital investment in the markets we serve.
I would also like to take this opportunity to reinforce that we remain committed to an investment grade credit rating and that we will continue to engage with the credit rating agencies to ensure that we have a full understanding of their approach to a rating and ensure that we are aligned on the path forward.
While we are disappointed in the recent change in outlets at Amira by Moody's and S&P and while we understand the rationale each have taken nothing has reduced our confidence in our ability to achieve a CFO to debt metric of 12% on a sustainable basis.
We have well established recovery mechanisms to manage fuel under recoveries in storm costs, which will address credit ratings concerns.
These cash flow timing differences reverse and we continue to execute our refocused capital plan I am confident that our funding plan and expected cash flows will allow us to achieve the targeted credit metrics that we have set out.
Thank you Greg. This concludes the presentation and we will now open the call for questions from analysts.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press star followed by one on your Touchtone phone.
So acknowledging your request.
I would like to withdraw your request. Please press star followed by two okay.
Please go with your handset before pressing.
Your first question.
Maurice Choy.
RBC capital markets. Your line is open.
Thank you and good morning.
First question.
Goes back to Nova Scotia, clearly the government's great cap was unexpected and unfavorable can I ask if you have had.
Any discussions that you can share with us with the government since the Bill was introduced as well as past how do they see the world beyond 2024, notwithstanding theres, obviously, an election in the province in 2025.
And we reached its Peter.
Just wanted to.
So we've been spending the time since the introduction and subsequent passage of a bill to 12, two to really understand the impacts.
To the business.
Scott did mention obviously in his remarks too that the impacts of our ability to spend in the determination of investments.
To your specific question have we having discussions around the government's view.
Beyond 2024, we have not engaged in those discussions at this point.
And then maybe just a follow up to that as you look across the rest of the year utilities any thoughts on whether something like that is being contemplated by the local governments and regulators.
It's Scott.
So thanks for the thanks for the question look.
Look I mean, I think we all have to acknowledge that we're in an environment where affordability for customers is is a concern.
For everyone in one of the reasons why we worked so hard to balance the pace.
And timing of the investments.
Yes.
But we make obviously in Nova Scotia that become particularly acute in part frankly because of working to achieve aggressive.
Carbon reduction.
<unk> at least as we thought it was until the passing of this legislation looking to to close coal plants by 2030 and achieve.
80% renewable requirements by <unk> by 2030, as well, which.
It leaves us in a bit of a confounding space now as we wrestle with.
With that legislation together to 12, but I think.
We'd like to believe that with clarity of understanding of the implications of a political interference in a well established independent expert regulatory process.
As has been done here in Nova Scotia.
There are very real consequences.
To that which we've obviously worked to ensure has been clear to all of our stakeholders and I believe that the clarity of that as is understood in.
Most jurisdictions and.
And as such I don't anticipate that this is something that will be.
<unk>.
Evidenced we're seeing in other jurisdictions, but I think it does highlight the continuing important work that we do across all of our businesses to ensure that we are mindful of the impact of.
Affordability and rate increases on customers and obviously, that's something that our teams do we work on every day.
Yeah.
That's great to hear maybe if I can finish off with.
<unk> about credit ratings.
With two phase III.
Ratings moving your outlook to negative philosophically speaking how important is it to you that all three must have an investment grade rating level.
What are some of the measures you would possibly take to support that.
Yeah, Hi, Mark this is Greg so it's it's.
Really important and as I said, we remain committed to an investment grade credit rating.
Really what we're faced with right now is I think two items, one is the Nova Scotia legislation, which although it will have an impact I think over the long term short term and long term at Nova Scotia power. We don't believe it's going to have any meaningful impact on the amira credit rating over a period of time and of course. The second thing is just the timing of.
Of of recovery of fuel cost and storm costs predominantly at Tampa Electric and really that's a timing issue those cash flows will reverse and we will collect them over.
The subsequent periods. So so nothing has changed from our perspective in terms of expecting to deliver the credit ratings are metrics that we want to support our ratings on a sustainable basis, but having said all of that.
I fully understand the actions that both Moody's and S&P took but we're very confident that we will work our way through that over the next year or two.
Great. Thanks, Steve and thanks to you and your team for the additional which is on slide 17. Thank you very much.
Your next question comes from Rob Hoffman.
Your line is open.
Good morning, everyone.
Maybe a follow up question on the funding plan.
Balance sheet strength when you take a look at your asset base you do have a number of assets, where you could carve off partial interest.
That would likely be very well bid in the private markets.
Any additional thought on potentially some lifetime minority interests.
One or two assets to further bolster the balance sheet and funding.
Glen.
Yeah, I'll start Rob it's Greg.
I mean, no plans at this point again as I mentioned in my response to Maurice.
Really what's what's dragging our credit metrics at this 10 seconds is really just the timing of the fuel cost recoveries and storm costs at Tampa electric, which which is truly a timing difference.
But as we look at our funding plan on a broad basis, we will do what we always do is evaluate the best way of doing that whether it's through.
Internally generated cash the hybrid preferred share market, whether it's through the issuance of common equity and as part of that is I think we've demonstrated in the past.
We will look to see if there is opportunistic ways of.
Reallocating capital within our portfolio no plans to do so at this point in time, but as you would expect we will continue to exercise that discipline as we look at our long term funding plans.
I appreciate that and then maybe a question not necessarily on engaging with the government, but engaging with the regulator in Nova Scotia have you been speaking to them.
There are potential that you could defer some of the we'll call it under recovery of cost whether that be for <unk>.
Related to the bill the hurricane fuel costs over an extended period of time to better.
Ensure that you earn an adequate return on your capital in that region.
Hey, Rob it's Peter again, so yes, we have been engaged with the regulator, we still need to conclude the general rate application process. So legislation didn't spend yeah application. So it's still active.
And we will be moving into final argument and replace submission later this month and into December . So there is more opportunity to engage with the regulator and with intervenors to explore options but.
On batch.
That's really the extent of the conversation so far.
Alright, thank you.
Your next question comes from Mark Jarvi.
Yes.
Your line is open.
Thanks, Good morning.
The commentary around shifting capital and the different returns of different jurisdictions.
And the incremental spend in the U S utilities in Florida is that a concerted effort by <unk> or is that completely independent of what happened in Nova Scotia.
Yes, Mark it's Greg it's completely independent.
We're seeing in Florida.
As customer growth far greater than what we historically have seen and thats, requiring some infrastructure investments to support that customer growth.
Obviously, we're seeing in some of our capital projects a little bit of an increase in the cost because of inflation that shouldnt surprise, you and then as well as because of the inflation reduction Act and some of the benefits for example production tax credits on solar it makes the acceleration of some of those programs a little bit more economic for the benefit of customers.
So.
Those capital investments in Florida would have happened irrespective.
Transpire here in Nova Scotia.
Okay.
And just given the initial discussions with the rating agencies and their negative watch has it impacted your views in terms of how you manage I guess that at the Corp, and then the Nova Scotia power level in terms of sort of moving that around and trying to preserve the higher rating and thorough look at the corp level.
Yes, I'd say probably.
I mean, we've already disclosed publicly mark we're looking at what is the appropriate capital structure at Nova Scotia power in light of build to 12 and as a result of that.
We will not be running at our traditional 40% equity thickness in that utility.
Which means that to the extent that we reduce our equity investment in Nova Scotia power that frees up some cash to allow us to rebalance some other requirements at the corporate level so but.
We're not talking massive numbers here earmarked, but there is some opportunity to optimize that around the edges a little bit.
And that went out to the rating agencies and they considered that and thinking their decisions and their commentary.
Yes, if you think of what they are.
And I'll refer specifically to S&P.
And into Moody's.
It's mostly a reaction not two expected financial metrics, but really is a reaction.
We all expected.
Two the government intervention and the.
The challenge or that will put on the regulatory construct in Nova Scotia, and so I'm not so sure that's going to change based on an improvement or a decrease in our <unk>.
Metrics at Nova Scotia power. So I really believe that's isolated from a government intervention perspective, and Moody's is more of a focus on the fuel under recoveries and uncertainty you may have seen I think it was yesterday Moody's came out with an industry wide report.
Talking about fuel under recoveries they put the entire sector back on negative outlook from stable outlook I think we're getting caught up in that a little bit Fortunately for us.
The majority if not all of our fuel under recoveries to date are largely.
In Florida, and we've been working very constructively with the various customer representatives down there and see a viable path forward.
Over the next coming months.
Okay and just a last question there was commentary that youll being below the ROE band in Nova Scotia, given implications legislation. When you talk about the band is that the current band or the proposed ban I, just wonder if that eight 5% or $8, 75% you're referencing at the low end.
Today, our band is 875% to nine and a quarter and nothing to date has changed that band. So we would be referring to the existing debt.
Perfect. Thanks.
Thanks Mark.
Your next question comes from Linda.
Alan.
Your line is open.
Linda we can't hear you maybe you're on mute.
Apologies.
Wondering if you can help us understand what sort of conversations you might have had recently.
Any levels, the federal or other maritime governments and utilities around some of the regional decarbonization goals and initiatives and.
What their responses, Dan and if they can see any hope to kind of mitigate some of the actions of the Nova Scotia government on that front.
This is Peter.
We've been engaging with federal government.
Obviously with utilities and provincial governments in neighboring jurisdictions on the Atlantic loop for future clean energy initiative for quite some time.
Obviously build to 12.
Hi, Lou's remarks restricts our ability to continue to invest in the de carbonization.
Investments and so we're very concerned about that.
Discussions with the federal government and we've highlighted our concerns that restricts our ability.
To make those capital investments, but we still have reiterated that we think.
Atlantic Boot project is in the best interest of Nova Scotia.
And so we think it's an important project we're struggling to see.
Really what our role can be unit as a result of the 212.
But it really been engaging with the federal government to say that to make this an affordable transition for <unk>, we need federal support we've always needed that but I think the results of $2 12.
<unk> is even more important.
I won't speak for the federal government, but I do believe they're receptive you probably saw administered.
I made some comments in the last couple of days that they are committed to the projects, though so we will continue to have those discussions.
Thank you.
As a follow up is helpful to understand what sort of capital might be.
Third or avoided in Nova Scotia, I'm wondering if you can provide some more context on your evolving thoughts on.
How to either avoid or defer operating expenses and without obviously compromising safety and hopefully not reliability too much.
Any evolving thoughts would be appreciated recognizing we might get more context at your investor day in March.
Yes, I think thats right provide more specific context Dan.
Saying that is that obviously, we're deeply engaged in working through that.
Thinking now both from a from a capital deployment, but also from an operating expense perspective, making sure that we see.
They continue.
Continues to be really focused on safety and reliable service to our customers.
But really not at this time, but I'd be willing to go into any more specific than that.
Thank you I'll jump back in the queue.
Yes.
[laughter].
[music].
Your next question comes from David Peter Your line is open.
Good morning.
My questions have been asked at this point, but Greg if I if I could just go one back to the balance sheet I'm, just wondering with your credit metrics living on the edge of downgrade thresholds for a while now I guess.
Why not more seriously consider asset sales to accelerate improvement.
To sort of better withstand surprises like the one at Nova Scotia power.
Particularly think that.
<unk>, we had two more uncertain times economically.
And then I'm just wondering is it the payout ratio and commitment to the dividend that would kind of.
And not allow you to do something like that.
So I don't think so David.
We look at all things were on and still remain on a very clear path to get to credit metrics that we believe are sustainable over the long term and support our credit met our credit ratings.
Again from a consolidated perspective really what's impacting our ratings are metrics right now is not the decision in Nova Scotia.
We will have an impact in Nova Scotia itself, but from an <unk> perspective, it's the timing of fuel costs.
And so that will in fact naturally reverse itself over the subsequent periods in front of us, but as I said before David and as we have demonstrated before we are always looking at all opportunities too.
Cost effectively and appropriately raise.
Capital in the way that is best for the company overall.
And in terms of the payout ratio.
That's not necessarily a driver to any of our financial decision, making is in some respects kind of more of an <unk>.
Output of all of that and something we watch closely but I wouldn't necessarily drive.
Any decisions and similarly.
If you think of.
A 4% dividend increase that we've had the last couple of years. If you take up what we've comes back through the dividend reinvestment plan Youre only talking maybe $20 million of incremental cash so that by itself isn't a driver on the whole.
The entire raising of capital in our portfolio, but we will continually look at all options as we have in the past.
And make.
Make determinations on whether we think there is a more appropriate way of raising capital and also on a more timely way.
Fair enough and then I may have missed it did you guys say what.
<unk> to debt would be currently today.
If you excluded the fuel obviously, assuming that you'll get recovery of that just the timing issue.
We haven't but I think maybe pointing to something I think Moody's was calculated at the end of June to be I think it was 10, 5%, but if you look in their report they showed with their calculation would have been so that's probably directionally for.
For both S&P and Moody's would kind of probably be in the 10% to 11% range. If you normalized the fuel cost savings.
Okay. Thank you.
You're welcome.
Your next question comes from.
From BMO your line is open.
Hi, Good morning, I had a couple of follow up questions on.
Nova Scotia power.
Im wondering.
When when it was privatized.
Are you are you restricted from.
Any sort of ring fencing a restructuring.
Given legislation cats.
Keep your head office.
Sculpsure, but.
Can you remind us what the legislation is.
Yes, so for.
Nova Scotia power.
We'd have.
Restrictions were.
No single shareholder greater than 15%.
And.
Yes.
No non Canadian shareholders.
Greater than 25%.
At the <unk> level.
In addition to head office requirements.
There is a restriction of no single investor greater than 15%.
But the non Canadian.
Shareholder restriction was with.
Removed from legislation a couple of years ago.
Okay got it.
Ben Sorry, it's Greg I, just want to add.
As you would expect through not through necessarily the privatization act, but through a series of regulatory decisions.
Over the past 20 years or so there is there is always.
Other things that get put into place.
Historically it was to protect the utility itself from any exposure to parent company activities and those kinds of things and so theres a number of things that would.
Probably be traditionally called ring fencing that would fall into that category.
And think of US separate banking agreement separate credit ratings all of those kinds of things, we're probably in a position now though that the design of those ring fencing were designed to protect Nova Scotia from Amira and not the other way around.
Interesting, Okay and then.
Your Capex on Nova Scotia power I know your message a reduction.
How do you get to that.
Revised figure or is that just taking rate base flat or is there some other driver.
Yes, so rate base is not going to be flat.
For the very nature of that if you replace a pull today, it's at today's dollars.
Cost of the poll originally so we are seeing some increase so we are investing at a rate greater than depreciation.
It was really done in two ways, but ultimately what it what the revised plan is doing is removing capital investment.
That would have been made in support of decarbonization at Nova Scotia power, which legislation effectively restrict so Scott mentioned incremental generation, our investments and when batteries transfer.
Transmission upgrades to facilitate things like the Atlantic loop and so it's primarily targeted at those areas. We have not made any reductions in anything that would compromise the reliability of the system or the safety of our employees and the communities that we work in.
Other lines I would add to that Ben is that so first of all at this point is still an estimate.
<unk> continues to.
Two to work through and revise and assess the impacts of.
Their capital plan in the context of Bill to 12.
But also for context.
Forward looking capital profile.
Where it's been.
On a consistent basis over the last few years. It just doesn't reflect the incremental investments that were.
That were planned as part of the transition to achieve the 2030 climate goals of both the federal and provincial government as a result of that.
The constraint imposed by <unk> as well.
Okay.
My last question is I know you had thought.
Slide around.
The relative attractiveness of movie.
More money on Monday to Florida versus Nova Scotia, Greg makes a lot of SaaS.
Hi.
So it's better to.
The negative reduce data.
I know, maybe it's not as accretive near term, but just from putting your credit rating.
And then maybe just any comment on the dividend.
Increase.
Increase in guidance.
Yes, Ben.
Let me start with the first one specifically.
I mean, it's not you can't necessarily look at any of these things in isolation. So we have a capital plan that the outcome of that capital plan and again, the higher level of investments outside of Nova Scotia, or not a result of our reaction to what happened in Nova Scotia, They would have happened anyway.
And what we're trying to illustrate is that higher weighting of capital investment.
Outside of Nova Scotia does have by its very nature, a higher return profile than what we would've experienced here.
That's somewhat independent of.
The overall funding plan and how we manage debt levels, which we're also very focused on as you can imagine and thats because the capital investments in our other jurisdictions outside of Nova Scotia. Those are capital investments, we need to do we need to do it to storm harden the system in Florida, we need to do it to advance more solar generation, we need to do.
For customer growth, so those are necessary and required capital versus irrespective.
And so.
I'll just say is again, it's not a.
Not an option is certainly pay down debt, how we fund those capital investments and manage our balance sheet is a separate discussion, which we're also focused on.
Scott.
Yes.
Dividend been really.
No no change.
Yeah.
As committed to our dividend into our dividend growth guidance today as we were.
<unk>.
When the four 2% increase and the extension.
Through to 2025 was was announced in September so no change in our level of commitment to both both things of course dividends continue to be.
Decisions at the board of directors level, but from our perspective, nothing has changed that causes us to have any hesitation and reaffirming our commitment to both the dividend and the growth guidance.
Okay. Thank you.
Thank you next question comes from Andrew Cusco at Credit Suisse. Please go ahead.
Thanks, Good morning.
The comments earlier on the impact of.
Earlier on the call and I guess, maybe just some perspective.
Even the Caribbean assets, you bought over the years.
And then <unk> with the Florida exposure.
How is your storm response mechanisms evolved is clearly a more storms from Cowen exposures. When you bought the Caribbean assets.
<unk> itself, and so how things evolved and become more sophisticated.
Yes, Andrew I think.
I think obviously.
Arm hardening storm.
Strong protection.
Reliability investments have always been part of of what utilities.
Do and focus on but there is there is no question that as we see the impacts.
Of climate change, we are seeing increasing frequency and increasing intensity of storms in and all of our regions and so no surprise of course that that our focus on on hardening the system.
Of designing the system in a way that it can withstand.
Levels of <unk>.
Of wind loads.
Is something that's in focus across our utilities of course the most.
Robust.
Process right now is in Florida, where.
The government in Florida the state.
Established a requirement for utilities to.
To put in place a storm protection plan.
Follow up really to hurricane Irma at the time and provided through.
Through regulation a mechanism for for the timely.
Recovery of.
Of investments made through this storm protection plan with a specific specific rider so.
It's enabling.
Not just Tampa electric utilities in the state to to storm Harden the system and frankly, we've seen we saw the benefit of that most recently.
<unk>.
With hurricane Ian in terms of.
Less damage than would've otherwise occurred and the ability to restore power more quickly and so we continue to believe that this is an important.
Area of.
<unk> focus and pleased to be doing our part across the regions of course.
Bill 212 dose does provide some cost constraints.
Does does handcuff.
Pushed power ability to.
To do everything that was looking to do hoping to do in that area, but but continues to be a key and critical focus.
Okay.
Sure.
I appreciate that.
That color and then I guess just to expand upon that point.
Through 12, effectively handcuffs you to a certain degree on.
Some of the reliability initiatives you'd like to do from a storm hardening perspective.
Yes, it's Peter Andrew.
We're still working through that obviously, when we look at it.
Necessary cuts, we will have to make as a result of the legislation. Our focus is really on safe reliable delivery of power to our customers. So that's first and foremost and we'll do whatever we can to make sure we have safe reliable service.
Where our focus is as we are.
Making revisions to our plans for 2023 24.
Okay, Great I appreciate the time thank you.
Thanks Ian.
Thank you next question comes from Matthew Weekes at RBC capital markets. Please go ahead.
Good morning, Thanks for taking my question I noticed that I think this was talked about a bit in the prepared remarks, and then sorry, if I just kind of missed some debt, but I was just wondering if you can kind of recap.
Where you are as far as the.
The Labrador Island link commissioning.
Progress made there and then kind of when you expect that to be sort of working and fully commissioned.
Confident you are in that target.
Yes, Matthew so so yes loved around the link is now.
In commissioning.
Its commissioning process and robust testing.
That obviously is enabling increased flows over the maritime maritime link in terms of in terms of timing of final commissioning.
In full commercial operation for Labrador Island link of course, that's not within within our control that's entirely.
Within the control of now for but but we expect that to be within within the next few months early early 2022 early 2023.
Okay, Thanks, and just facing on the testing and load testing you're doing right now there's no reason to think that.
Got it.
Be progressing as planned at this point or are there sort of continuing issues.
I think I'd say the level of optimism is very high.
Okay. Thanks, I appreciate that that's it for me I'll turn it back.
Thank you there are no further questions. Please proceed.
Thank you and thank you all for attending today and before concluding I'd like to draw your attention to a couple of upcoming dates we will release. Our Q4 results on February 23, and will host an investor day on March 2nd in Tampa with the reception to be held the evening of March one we hope to see you all there. Thank you and have a great day.
<unk>.
Ladies and.
Gentlemen, This concludes your conference call for today, we thank you for participating and ask you. Please disconnect your lines.