Q4 2022 Emera Inc Earnings Call
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I would now like to turn the conference over to Mr. Dave defensive. Please go ahead Sir.
Thank you Laura and thank you all for joining US this morning for <unk> fourth quarter 2022 conference call and live webcast mirrors.
<unk> fourth quarter earnings release was distributed this morning via 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 <unk> management team.
Before we begin I'd like to advise you that this morning's discussion will include forward looking information, which is subject to the cautionary statement 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.
This morning, we reported adjusted annual earnings of $850 million and adjusted.
Earnings per share of $3 20.
Continuing our track record of delivering strong predictable earnings growth and supporting ongoing dividend growth for our shareholders.
Excluding the receipt of a $63 million Canadian litigation settlement, representing $45 million of after tax earnings.
Our annual adjusted earnings of $805 million represents our highest ever.
11% year over year.
Largely driven by continued strong growth in Florida, and strong performance at Tampa Electric in particular.
The performance of Tampa Electric was largely driven by new base rates in support of the significant customer focused investments being made and by the impact of more favorable weather than expected.
Our adjusted earnings were also bolstered by strong performance at Emera energy.
Excluding the positive litigation settlement, our fourth quarter adjusted earnings per share was <unk> 76.
And annual adjusted earnings per share was $3 <unk>.
This represents an 8% increase in annual adjusted earnings per share year over year.
Yeah.
Despite what was a very challenging year on a number of fronts, including two major storms Hurricanes, Fiona and in global economic pressures supply chain disruptions rapidly rising interest rates and record setting inflation, our business continued to deliver for our customers and our shareholders.
The fact that our business performed so well in 2022 in the face of these challenges reinforces the strength of our diverse portfolio of assets our strategy and of course our team.
Our regulated portfolio continues to be the primary driver of our growth.
Regulated earnings contributions have been steadily and predictably, increasing as we continue to make rate base investments to reduce carbon emissions and increase of our liability.
While doing so in the most cost effective way possible for customers.
Our recent fuel and storm cost recovery filing at Tampa Electric as a clear example of our commitment to balancing the need to collect on prudently incurred costs with what is more manageable for customers in terms of rate impacts.
Due to the sheer size of the under recovered fuel balance we proposed to the regulator in Florida that we extended the recovery on fuel costs from 2020 to over 21 months.
Our normal practice would be to collect these costs over 12 months.
While global fuel prices are beyond our control stretching out the recovery period helps ease the impact to our customers.
This solution is similar to what we did in 2021 when in new Mexico gas incurred over $110 million of incremental fuel costs as a result of winter storm here.
While new Mexico gas typically has a one month's true up of gas costs through their gas adjustment mechanism. We proposed recovery of those costs over 30 months to assist customers and help manage costs.
And that approach works in new Mexico, the balance of those 2021 fuel costs will be fully recovered over the next 10 months.
Similar story at Nova Scotia power, where we have a history of being flexible with their fuel rates in order to collect fuel costs from customers over a longer period than one year.
<unk> customers with rate stability.
In 2022, we saw the end of a three year fueled stability agreement and our most recent settlement provides for the field.
<unk> to be collected over a two year period, rather than one.
This year the.
The team executed on one of our largest annual capital programs to date.
And even with the backdrop of sudden inflationary pressures and challenging global supply chain disruptions, we kept our large capital projects on time and on budget.
In December we completed the Big Bend modernization project.
I'm incredibly proud of the team that delivered this ambitious and transformative project on time.
Under budget.
And most importantly safely.
In 2022, the Tampa electric team deployed almost $1 5 billion of capital investment, while achieving their lowest ever osha injury rate and lowest ever lost time injury rate.
<unk> well below the industry average.
The team achieved a milestone during the year of more than 6 million hours or 457 days without suffering.
An incident required an employee to Miss a day of work.
Other similarly impressive safety milestones were reached across many parts of our business.
This is meaningful progress on our journey to World class safety.
And while we can never rest when it comes to safety I'm proud of our progress and what the team achieved in 2022.
With the completion of this project at Big Bend is now one of the most not most efficient natural gas plants in North America.
Can produce 1090 megawatts of energy.
In addition to reducing emissions and delivering on our cleaner energy commitments. The Big Bend modernization project is estimated to save customers more than $700 million on a net present value basis over its 30 year life.
Tampa Electric also achieved another significant milestone in their solar program with over 1000 megawatts of solar generation now in service.
This achievement Tampa Electric continues to have the highest proportion of solar generation per customer of any utility in Florida.
Our investments in solar have not only allowed us to decrease the carbon intensity of our generation mix.
Saved our customers money.
$80 million in 2022.
And avoided fuel costs.
Similarly in Atlantic, Canada, our investment in the Maritime link safe, Nova Scotia customers almost $100 million in 2022 <unk>.
By replacing expensive carbon generation with clean hydro energy.
And these are net savings to customers, representing approximately $250 million and a weighted fuel costs netted against the total cost of the link incurred by customers in rates through 2022.
The energy, we're receiving through the Nova Scotia block over the Maritime link we will continue to deliver significant value to customers for decades.
We're also investing heavily in improving the reliability of the grid and.
In 2022 demonstrated how these valuable investments are how valuable these investments are for customers.
Tampa Electric's storm hardening investments made under.
Florida's Storm protection plan proved to be very effective at reducing the number and duration of outages, resulting from hurricane yet.
And while Nova Scotia power and its customers don't have benefit at the same focused government policies in Florida.
Nova Scotia power does continue to make significant investment in reliability.
With $180 million of investment in transmission and distribution in 2022.
Which is 51% more than 2015 investment levels.
And while we continue to work to make the system, even more reliable over de Nova Scotia. Power's currently ranked number one in terms of the total outages total number of outages and total number for duration of outages among utilities in Atlantic, Canada, and Maine, which operate in similar wind and weather conditions to Nova Scotia.
Earlier this month peoples gas completed construction of its first RMG facility.
Peoples gas is now the first utility in Florida to deliver renewable natural gas to its customers as a reliable and cost effective energy source.
The New River project that was put in service on February one 2023 should generate enough R&D to fuel 17000 homes, a year reduce the landfills methane emissions by about 14000 tons per year and help reduce emissions by more than 34000 tons per year.
Across the portfolio.
Bringing the asset management expertise that we've developed through a mirror energy to our gas utilities in an effort to add additional value for our customers at.
That new Mexico gas asset management agreements or <unk>.
Were implemented to generate incremental value for periods, when new Mexico gas is not usually all of its pipeline capacity.
<unk> generated over 45 U S $1 billion of value in 2022.
Of which 70% or $31 million was returned to customers through the gas adjustment mechanism and the remainder contributed to the higher earnings we are reporting in new Mexico gas in 2022.
In addition last year the team into Mexico applied to the regulator for approval to begin construction on a $180 million liquefied natural gas storage facility to help ensure reliable gas for support.
Reliable gas supply for new Mexico customers and reduce customer exposure to gas price volatility.
These are all great examples of our strategy in action.
And they highlight our commitment to not only deliver cleaner energy, but to do so in the most cost effective manner and at the most cost effective pace for our customers while supporting system reliability.
We are reducing our customers' exposure to volatile fuel prices by building renewable generation and storage.
These projects have not only generated fuel savings for our customers, but have also allowed us to make meaningful progress decarbonising the energy we provide them.
In 2022, I'm proud to say that less than 20% of our generation came from coal compared to almost 60% in 2005.
This represents a 68% reduction in coal used for generation right across a mirror.
And at the same time, thanks in large part to investments in solar and the clean hydro energy being delivered by the Maritime link generation from renewable energy increased from 4% of our generation mix in 2005% to 16% of our generation mix across the portfolio last year.
In Nova Scotia.
Being on the Decarbonising journey for much longer we now have well over a third of generation coming from renewables and that number continues to grow.
We're proud of our progress to date.
But its government climate goals approach there is significant and challenging work ahead.
And Canada, both the federal government and the provincial government in Nova Scotia.
Have ambitious climate goals.
When we conceived of the idea of the Atlantic Loop, we believed that it represented the best solution for the Atlantic region, and most importantly for our customers here in Nova Scotia.
That has not changed.
While the passage of Bill to 12 here in Nova Scotia, effectively restricts our ability to directly invest in the Atlantic loop.
But as the operator of Nova Scotia's energy grid the team at Nova Scotia power is still working hard to enable the solution.
We know it's the most cost effective solution for our customers to enable the closure of coal plants in Nova Scotia, without putting system resiliency or reliability at risk.
Working in partnership with the Federal government, we've stayed engaged to support the essential engineering and planning work needed to continue to move the Atlantic project forward.
We understand that the federal government intends to provide a very meaningful funding support proposal for the project and.
And we remain both optimistic and actively engaged to ensure the needs of customers and stakeholders remain in focus.
Last quarter, we announced our 2023 to 2025 capital plan of $8 billion to $9 billion.
Driving expected rate base growth of 7% to 8% over the forecast period.
Over 75% of our three year capital program will be invested in our Florida operations, driven largely by the significant economic growth in the state.
Florida was the fastest growing state in the U S last year and is today one of the 20 largest economies in the world.
Steady migration into the state has continued and both our Florida utilities have experienced significant customer growth in excess of 2% at Tampa electric and approximately 5%.
At peoples gas in 2022.
Our capital deployment in Florida reflects this growth.
As the economies in populations in our service territories grow so does the magnitude of prudent and necessary capital investment to service that growth and deliver reliable energy for our customers.
2022 was a busy year for us on the regulatory front.
The year began with the approval of the final cost application for the $1 8 million billion dollar Maritime link project with no significant or material adjustment to cost of this highly complex project demonstrating the experience and excellence of the teams multiyear project management efforts.
Our rate application of Barbados light and power progressed, and we were granted interim rates in the fall.
Earlier this month the regulator in Barbados issued a decision on the Barbados light and Power's rate application and requested an additional compliance filing before setting final rates.
We expect.
Final rates later in 2023.
We filed an unopposed settlement agreement in new Mexico gas in the spring and that was approved by the regulator just before year end for new rates now in place.
And in Nova Scotia of course, we filed a settlement agreement late last year that was signed by all customer groups municipal utilities, including groups, representing low income customers and environmental advocacy.
The regulator substantially approve the settlement as filed earlier this month.
And I look forward, we have a somewhat lighter regulatory calendar in 2023.
We expect the decision from the Florida Public Service Commission later this quarter on Tampa Electric steel and storm cost filing.
The only new rate application, we expect this year will be at peoples gas.
<unk> filed a test year letter earlier this month, indicating their intention to file for new rates effective January one 2024.
Since their last rate increase in 2021 peoples gas has deployed more than $1 billion of rate base investment to serve the growing population of Florida and ensuring the system continues to operate safely and reliability.
Our results in 2020 to demonstrate our strength in delivering value for customers and in turn our shareholders. Despite some very real challenges.
I'd like to thank the entire <unk> team for their continued dedication expertise and resiliency.
In 2023, we remain focused on advancing our strategy and we remain committed to an energy transition that takes a balanced approach.
Meaningful progress towards a greener energy future, while ensuring we deliver a reliable energy as cost effectively as possible for our customers.
I believe that our strategy is driving a balanced energy transition that continues to deliver value for customers Andrew.
And our shareholders.
And with that I'll turn it over to Greg to take you through our financial results Greg.
Thank you Scott and thank you all for joining US. This morning. This morning, we reported fourth quarter adjusted earnings of $249 million and adjusted earnings per share of <unk> 93.
Our results. This quarter included the recognition of a $45 million Canadian after tax settlement related to outstanding litigation, which represented 17 of adjusted earnings per share.
Normalizing for the impact of this onetime settlement better highlights the performance of our ongoing business.
Excluding the impact of the litigation settlement adjusted earnings were $204 million for the quarter and adjusted earnings per share was <unk> 76.
Yeah.
For the year, excluding the impact of the litigation settlement adjusted earnings were a record $805 million and adjusted earnings per share was $3 <unk>.
This represents an 11% increase in adjusted net earnings and an 8% growth in adjusted earnings per share year over year.
Growth in adjusted earnings per share for the quarter was primarily driven by new base rates and continued customer growth at Tampa electric higher earnings from our marketing and trading business and the impact of a weaker Canadian dollar.
These increases were partially offset by lower contributions from our Canadian utilities higher corporate costs, primarily driven by the timing of share based compensation expense and related hedges and higher share count.
Over the last number of years, we have continued to deliver earnings growth in excess of dividend growth. As a result, we have made measurable progress in reducing our dividend payout ratio.
Excluding the positive impact of the litigation settlement, our payout ratio in 2022 was 88%. This is a clear example of our plan to improve our target payout ratio over time with earnings per share growth in excess of dividend growth.
Operating cash flow was challenged this year, but a significant fuel under recovery of storm costs incurred primarily at Tampa electric.
It is important to highlight that absent. These factors, we would've seen a 45% increase in operating cash flow, primarily driven by growth in our regulated utilities.
<unk> under recovery and storm costs at Tampa electric represent approximately $750 million Canadian dollars of operating cash flow that will be collected through the regulatory recovery mechanisms available in Florida for this specific purpose.
And earlier this year at Tampa Electric filed an application with the Florida Public Service Commission for recovery of the fuel and storm under recoveries Tim.
Tampa Electric has proposed recovering the storm costs over a 12 month period and the fuel cost over 21 months in an effort to better manage costs for customers. We expect a ruling from the PSC in March and if approved we will begin collection on April one.
When you adjust for the impact of the legal settlement mentioned earlier adjusted earnings per share has increased by <unk> <unk> or 19% over Q4, 2021, largely driven by the strong performance of our regulated utilities and higher contributions from Emera energy.
Tampa Electric's results benefited from new rates and continued strong customer growth in excess of 2%.
[noise] mirror Energy's marketing and trading business delivered an impressive $39 million of earnings a record fourth quarter for the business favorable weather created strong market conditions with which the business was able to capitalize on during the quarter.
Noteworthy that Q4 built in already.
<unk>, resulting in the second best year ever for Emera, Energy's marketing and trading business.
This year's results demonstrate the significant upside potential for emera energy that we often talk about.
The strength of the U S dollar increased adjusted earnings per share by <unk> <unk> for the quarter.
At our gas utilities, new Mexico gas delivered a $7 million or <unk>, 47% increase in earnings compared to Q4 2021.
This was driven by favorable asset management agreements that the business entered into to utilize.
Excess pipeline capacity.
And due to a combination of market conditions and weather in the region surrounding new Mexico gas during December these ama's earn significantly more than they have historically as Scott mentioned in December alone. The ama's generated approximately $34 million of benefit of which 70% will be returned to customers and the remaining $10 million before tax.
Contributed to higher earnings for the quarter.
These <unk>.
A great example of how the commercial expertise that we have developed in one affiliate can be shared throughout the business to benefit both customers and shareholders alike.
And given the solid performance at peoples gas during the quarter, we did not recognize any of the accumulation accumulated depreciation reserve in the fourth quarter. We therefore continue to have access to $20 million of the reserve Derecognize in 2023.
And excluding the litigation settlement corporate cost increased $39 million this quarter, largely driven by the timing impacts of the share based compensation expense and related hedges higher interest expense and realized losses on foreign exchange hedges compared to realized gains in 2021.
Our Canadian utilities experienced a challenging fourth quarter milder weather in Nova Scotia. In addition to higher storm regulatory and other operating costs decreased contributions from Nova Scotia power compared to Q4 2021.
In addition, as a result of lower energy flows from Nellcor contributions from our transmission investments decreased in the fourth quarter due to the maritime link hold back.
And finally higher share count decrease quarterly adjusted EPS by <unk> <unk>.
For the year adjusted earnings per share increased 39 to $3 20.
Excluding the impact of the legal settlement adjusted earnings per share increased by 22 or 8% year over year, driven by new base rates and favorable weather at Tampa electric higher contributions from our gas utilities, Amira energy and the impact of a weaker Canadian dollar.
Weather is always a factor in the energy business and it is one of the main drivers that can result in over or underperformance in any given period.
One of the strengths of our portfolio of high quality regulated assets is its geographic diversity.
In Florida, we experienced weather that was more favorable throughout 2022 than expected and more favorable even compared to 2021 favorable weather in combination with new base rates that were in effect for the year and continued customer growth drove a 24% increase in U S. Dollar contributions from Tampa electric in 2022.
And similar to the quarter higher earnings in our gas utilities were driven by the impact of the <unk> in new Mexico gas as well as continued 4% to 5% customer growth at peoples gas.
Excluding the impact of the weaker Canadian dollar and gas utilities delivered $13 million or 8% growth in earnings year over year.
Contributions from Premier energy increased $16 million during the year compared to an already strong 2021.
And the increase in corporate costs and decrease in contributions from Canadian utilities were driven by factors consistent with those that impacted the quarter as discussed a moment ago.
And finally higher share count decreased adjusted EPS by <unk> 10 for the year.
Throughout 2022, we highlight the continued material impact of fuel under recoveries, primarily at Tampa electric and the impact on cash flow.
We have often discussed the well established regulatory mechanisms in place to recover prudently incurred fueled and storm costs in Florida and with our recent filing for the recovery of these fuel and storm costs at Tampa Electric there is now a clear line of sight into when the impacts on operating cash flow will reverse.
However, these short term under recoveries have also had a meaningful impact on our debt balances, which is less often discussed.
In Florida, we reflect the short term interest rates on fuel balances through our regulatory recovery mechanism and therefore these are funded with short term debt. This means that our short term debt balance at the end of 2022 is elevated by the under recoveries between 2021 and 2022, the total fuel under recovery at Tampa Electric was $518 million.
And the storm cost deferral is $130 million or over 860 million Canadian dollars. In total these have been funded with short term debt at the utility, which both elevates our total debt balance and increases the weighting of variable rate debt in our portfolio.
But much like the impact on cash flow the impact on our debt balance is also temporary as.
As fuel and storm costs are recovered from customers theyre associated debt balances will be repaired if.
If the applications for the storm and fuel cost recoveries at Tampa Electric are approved as filed we will collect approximately $100 million of storm costs and $220 million of fuel cost in 2023, which will be used to repay the associated short term debt. The remaining balances will be collected in 2024.
The other factor that has had a material impact on our debt balance at the end of the year is foreign exchange approximately 70% of our debt portfolio is U S. Dollar denominated on consolidation. These balances are translated to Canadian dollars at the spot rate spot rate at December 31 was $1 35, which elevated our debt balances at the end of the year.
Should be noted that the U S dollar denominated debt acts as a hedge against the US dollar assets and earnings and as a result, there is no underlying economic exposure.
For planning purposes, we have used to foreign exchange rate at a historical five year average of $1 30, which coincidentally is the actual FX rate realized on our 2022 U S dollar cash flow.
The impact to our debt balances as significant between fuel and storm costs under recovery and the impact of foreign exchange our debt balance is $1 3 billion higher than expected.
Rating agencies each of their own methodologies for calculating both cash flow from operations as well as debt balances for credit metrics.
We believe that looking through the impact of the temporary timing differences in cash flow collection from fuel and storms and normalizing for the disconnect between foreign exchange translation on cash and debt balances best reflects our true cash flow and debt profile base.
Based on these adjustments in our view our cash flow debt metrics was approximately 11% in 2022.
Our experience this year does not change our view on our operating cash flow profile going forward and we have a clear path to achieve our cash flow and credit metric objectives at our Investor Day next week, we will be walking you through our expected changes in both operating cash flow and debt to show the path to credit metric improvement.
And with new rates across the portfolio. This year strong customer growth continuing in both Florida, and Nova Scotia, and our proven strategy of investing in our rate base to deliver cleaner and more reliable energy for our customers. We are well positioned to deliver both earnings and cash flow growth, providing value to shareholders and maintaining our investment grade credit ratings.
Thank you and with that I'll now turn it back over to date.
Greg. This concludes the presentation, we would now like to open the call for questions from analysts.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone okay.
If you would like to withdraw your request. Please press star followed by the mandate there.
One moment. Please for your first question.
Your first question comes from the line of Mike Harvey from CIBC. Please go ahead Sir.
Thanks Carlin.
Greg a question for you with the at the market program the expectation, you'll renew that in 2023, and just maybe sort of the level of activity comparable to the what you did in 2019.
And Mark at this point in time, yes, we would expect to renew that it's been a very cost effective way to raise equity as we require as we required and it is part of our funding plan as you know going forward and so we would continue to expect.
Under normal circumstances.
Access that market for around $250 million on an.
On average each year.
Okay.
And Scott a question for you in terms of your comments around the Atlantic loop.
Tempered enthusiasm to invest there.
Just sort of update what would change your tone in terms of willingness to invest in I guess.
So if you think about some of the challenges in getting a lot of our link up and running.
To those types of issues and can just startup issues delay your enthusiasm for a large transmission project investments going forward.
Yes, thanks Mark.
Start with your second question no.
I think the issues that.
<unk> is having with the.
With their Labrador Island link asset really has nothing nothing to do with <unk>.
With a mirror directly.
Our confidence in our ability to.
Design build operate.
Large scale transmission assets I think is best demonstrated by the by the Maritime Link project.
And putting that into service on time and on.
On budget and having it operated.
As expected and now delivering meaningful value to shareholders, sorry to customers meaningful value to customers.
On the Atlantic Loop look really.
It's largely about having a a confidence in the ability.
Two to invest in a project.
I have confidence that there would be a return on and return of that.
Investor capital that we would be putting to work and build to 12.
Put some concern.
Obviously our boats.
Our boat that at large scale for a new project. So that's that's really the consideration in terms of.
Where we're at now but we continue to believe that this is an important project for Nova Scotia, an important project for.
For Nova Scotia power customers and that's why the team at Nova Scotia power is working with its.
Government partners.
To do everything we can to help enable that projected to as.
Cost effectively and as efficiently.
Efficiently from a system perspective as possible to enable the closure of coal plants here in Nova Scotia.
I guess my question is is it completely ruled off or is there possible potentially with federal government support or.
<unk> had discussions with the provincial government and you could see putting recovery on a larger investment.
Yeah.
At this point Mark I'd, just say, it's too soon to speak too.
Too soon to say, we've certainly made our position clear as it relates to.
The effective restriction that bill to 12 is put on on our ability to secure the investments and make the investments required.
So really it's up to the government partners at this point to to.
To help create that that path forward, but we're doing everything we can to enable it.
Understood Alright, but unfortunately update next week. Thanks.
Okay.
Thank you.
Next question comes from the line of Maurice Choy from RBC. Please go ahead.
Thank you and good morning first question I wanted to come back to slide 13 the.
The cash flow to debt metric, which I know your plan is to be above 12% on a sustainable basis.
You mentioned that you're exiting 2010, two at around 11% and Thats, obviously, a proper improvement from what it was in Q3, what do you expect to finish this year in 2010, three at assuming that the regulatory matters at Tampa Electric go as you follow them.
Thanks, Steve.
Pipelines, even $1 30 that use in this assumption.
<unk> will provide a little bit more.
Color and detail around that next week, but.
We're on a path to show continued improvement from the 11%.
With the new rates that are in place.
At New Mexico, Nova Scotia power, and Tampa Electric will comfortably allow us to get to at a minimum of 11, 5% and we're still working through.
Some other items that will provide we hope some upside to get closer to the 12% in 2023.
Thanks, and maybe as a follow up too.
These are the items that you just mentioned.
Obviously being above 12% is what your plan is <unk>.
<unk> for you to be at.
There was obviously quite a bit of room for interpretation of what you view to be an ideal range above 12%. For example, 12, 1% meets a goal, but being at <unk>, 30% offices, some cushion and balance sheet flexibility.
Liquidity given the world that we live today, so just some thoughts as to how you might approach, where you ideally like to Patrick to be okay.
Yes.
Fair question, where he said no point should you interpret that we wouldn't be at 12% a sustainable basis.
We think the $12 one is the right number I think if you look at the.
The probably the reasonable and fairly well baked.
Plan, we have in front of us to get to.
11, five plus in 2023, so call. It a 50 basis point improvement, we would like to target some kind of level of improvement of around 50 basis points, each and every year over the forecast period.
And then that should give us kind of around 100 basis points plus.
Cushion versus the 12% target.
Great. Thanks for that color and maybe I could just finish off with a big Ben.
That unit, one has been repower, and obviously well done for delivering this on time and under budget.
You said Scott.
Which is not an easy feat these days unit Tuesday, and retire at unit three is well on its way to spring.
What future plans do you have for unit four if any.
Yes, I think archery Collins is on the line or do you want to join respond to that.
Sure happy to do that good morning Maurice.
Big Bend for.
We just last year in 2022, we actually.
Made a fairly significant capital investment and big Ben for too.
That allows that unit to achieve full load 480 megawatts on natural gas.
I also have the ability to consume 100% coal in that unit.
So we've got a lot of flexibility on that asset now we're able to play off one fuel against the other and determine what's the most cost effective for customers at any point in time, we like that level of flexibility.
It adds a little bit of diversity into our portfolio. We know that that means it's sort of keeping coal around a bit longer than that some stakeholders might like so that's an ongoing that's an ongoing.
Debate that we have within the company, but at least for the foreseeable future, we see value in that flexibility and we're going to continue to keep that asset available on either natural gas or coal.
Great. Thanks Colin.
I'm, taking my questions.
Thank you. Your next question comes from the line of Ben Pham.
From BMO. Please go ahead.
Okay. Thanks, Good morning, I'm wondering with the.
The gas price movement, which we've seen.
Year to date, how do you think about that impacting your <unk>.
So maybe a direct or indirect.
Maybe maybe I'll start I'll go ahead Scott.
Let's find Greg if you want to go.
As you probably can tell Ben we're not in the same room at the moment.
Yes, so <unk> been part of the fuel filing that we did at Tampa electric to recover the under recovery of 22 fuel costs over over the two months period in 'twenty three 'twenty four as part of that we had to provide an update on fuel cost.
For 2023 at Tampa Electric and at this point, we're forecasting to have a fairly significant over recovery of fuel costs.
And there'll be we proposed an adjustment to customer rates to to turn that back to customers over the balance of this year so over the.
April one to December 31 period. So so the so the decline we've seen it put us in a position where the fuel rate at Tampa electric is actually higher than what we're actually experience. So that's probably the area, where we will have the most meaningful impact to us obviously lower gas prices help both peoples gas and new Mexico gas as well.
In terms of the fuel component of customer bills.
But really the most significant impact is the fuel cost recovery at Tampa Electric.
Okay got it I would just add that I would just add that it's really it's really helpful to our customers right.
It helps to make.
The energy, we're providing to our customers more affordable obviously that was a real challenge in 2020.
Two at the same time as inflationary pressures and other pressures that the.
The customers were experiencing so reducing fuel prices.
Obviously reduces rate pressure for customers.
This helps to ensure that.
We're not we're not putting undue pressure on customers bills.
Okay, Great and then.
Maybe going back to.
The balance sheet.
This year.
And in a good position I'm I'm wondering as you look forward.
How does that.
How does the asset sales.
That calculus.
Are you guys as you look out towards the one 5%.
What is that.
Yes, I think Ben.
Really no different than it always has is that.
From our view first and foremost as we're executing on our strategy and and is 22 results I think demonstrate the execution of that strategy and.
And delivering cleaner energy.
To our customers investing in reliability.
And doing that in the most cost effective way for our customers.
<unk> is driving meaningful investment needs and is driving.
<unk>.
Meaningful growth.
For shareholders to including improvement of <unk> <unk>.
Credit metrics and so we remain very confident in the path ahead for us, but we're blessed with.
Diversification within our portfolio and we always have.
When we sort of considered are.
Our strategy and our portfolio, we're constantly thinking about how best to allocate capital.
And obviously right now you are seeing that with the significant amount of capital being invested in Florida, but.
We've demonstrated in the past when when it makes sense for our investors to think about.
Recycling the capital.
In the language we've used optimizing our portfolio. Then then we're very prepared to do that but but as we sit today, we're confident with the path of executing our strategy delivering for our customers and as we do that continuing to drive growth in earnings and improvement in <unk>.
Credit metrics as we do that.
Okay, and maybe just a final follow up on that on the asset sales I mean, if you went to an amortization program in the past on that was.
<unk> driven and some of that just more focus on.
Our core areas.
But would you ever.
Push comes on or would you ever consider.
Monetizing pieces of the best parts of your portfolio that we've seen.
Some of those examples.
U S utility Atlantis, one of your thoughts on that.
Yes.
Question has been asked before.
And then I presume by that you mean, there are assets in Florida.
That would that would not be a strategy that we would be.
We'd be considering we consider those those businesses.
The driver of our growth.
And future and so.
No.
That would not be something that we are.
Currently in focus, yes, I do know Thats something that.
Some peer utilities have done effectively and so thats always an option, but but not something that we're comfortable.
Okay. Thank you.
Yeah.
Thank you.
First question comes from the line of Rob Hope from Scotiabank. Please go ahead.
Good morning, everyone. Just two clean up questions for me first one for Greg.
Relating to the 50 basis point improvement in the leverage metrics per year based off of the existing plan just wanted to confirm that that is we'll call. It an adjusted number and not reflecting kind of the incremental cash that youll get from Unrecovered killed in 'twenty, three and 'twenty four out of.
Florida.
Alright.
Alright. Thank you and then just taking a look at peoples gas.
The outlook for flat.
Earnings year over year can you just walk us through some of the dynamics that you are seeing very strong.
Economic activity and customer growth in the region, but as inflation as well as kind of this the sheer magnitude of capital they.
But the work there.
That the key burdens there.
Yeah, you've identified exactly the two issues, Rob I mean, the business performing very well.
But with that customer growth is requiring us to invest capital that may be a little faster pace than we would've expected.
And putting obviously pressure as a result of that is incremental capital comes with higher depreciation higher financing costs and a little bit of pressure on our expected Roe.
Which is why we are filing for new rates.
Probably secondary to that though would be would be the inflationary increases we're seeing across the board.
But the primary drivers just the timing of the deployment of capital to support the customer growth.
Alright, thats great. Thank you.
Thank you. Your next question comes from the line Netherlander Daily from TD Securities. Please go ahead.
Thank you.
Wondering if you could help us understand your.
Outlook for Nova Scotia power in 2024.
Do you think that there's any hope of earning.
Within your allowed ROE or do you expect at this point.
To under earn.
Any context would be appreciated.
Yeah, Thanks, Linda it's Greg I'll start.
Sure.
I think the settlement was a reasonable balance.
For the company and our customers and as a result of that we think there is a.
Assuming somewhat normal weather, we think there's a reasonable path to earn at the low end of our band or near the low end of our <unk> in 2023 still some work to be done in 2024 with the team is looking at and trying to identify opportunities but at this point in time, we would expect to be.
Somewhat below the low end of the band, but is there I think you might characterize or a hope that we could get there maybe but I'm not so sure hope business strategy, but the team is working that trying to identify.
Our path to two and we're certainly committed to trying to get to the low end of the band at 24 as well.
Thank you and as a follow up just bigger picture and maybe you'll be addressing us on all of that next week.
Just wondering if you could give us an updated sense of.
Our views on the localized unit LNG cost in your jurisdiction for various forms of energy whether it be.
Solar gas coal and Florida other.
How might we think of for example.
Unit four how much call it might consume over the next couple of years.
Based on your outlook for energy prices.
And recognizing that there's been some inflationary pressures on solar, especially the land value in Florida, just interested to get an update on on on a unit basis. What your views are on energy cost and I guess the second part to my question and I realize this is a lot is how much room do you see in your various grants for.
Adding that intermittent source of power.
Power over time.
Yes, Linda.
We'll take that away obviously, that's it that's it.
A question with a longer answer than that.
And then wood.
Would be workable here, but we can work to try and give give us sense of that.
You're right we're seeing.
Sort of the supply chain.
Real estate prices and.
And inflationary pressures globally is.
We're not necessarily seeing the continued reduction in.
In the cost of some forms of.
Renewable energy, that's that's not unique to to Canada, and the U S that would be a global.
Phenomenon, but.
But we can we can we can take that away.
And give you a bit more about the more perspective.
Okay.
Thank you.
Your next question comes from the line of <unk> <unk> from Bank of America. Please go ahead.
Hi, Good morning, and thank you for taking my question, maybe just to start a high level. One how would you characterize the environment and the key stakeholder relationships in Nova Scotia as you stand today, obviously, there was a lot of consternation towards the end of the NFPA rate case, but you've got a constructive.
Outcome there.
Perhaps how does that then manifest itself in your efforts to recover 22 storm costs.
Okay.
Yes, so Peter <unk> on the line Peter do you want to do you want to respond to at least through the first part of that question.
Sure. Thanks Darius.
Bit of a tumultuous year, but I think the.
Your B affirmation of the settlement was a good positive step forward.
Think reflects meaning.
Meaningful ongoing discussions with the key stakeholders on this file.
It's really important that you.
Scott Greg mentioned earlier, the number of customer representatives with plans to add to that.
That settlement, there was significant and important.
The only thing I'd add is that we know.
We need to engage with stakeholders on a regular basis in a meaningful way.
Perhaps we could have done a better job of that in the past.
And it's something certainly I and the team are committed to.
And are actively engaging in at this point.
Excellent. Thank you very much for that color one more if I can.
And this is again another relatively high level one.
Are there any efforts are you may be considering any other ways to reduce the variability that's in your results from one quarter to the next specifically from foreign exchange and also various impacts of long long term compensation I realize those are perhaps somewhat outsize.
Impact from 'twenty, two but maybe just as we look forward.
As far as efforts to improve visibility reduce the variability are there any considerations are either of those fronts.
Yes, there is its Greg.
I think certainly with the.
Initiation of our foreign exchange hedging program on our adjusted earnings that will certainly help.
And.
We're progressing our way through that and have a lot more hedged.
And so I think that will lease certainly helpful.
<unk>.
As we go forward obviously on.
Foreign exchange specifically.
We have seen quite a bit of volatility over the last couple of years for a whole number of factors, which is probably continue.
Tribute to that.
But kind of similar so so we do actually hedge our long term compensation, but again, we're finding ourselves in a position that that you'd be very familiar with that we're just seeing such market volatility.
That it's just causing some timing differences so I think on both foreign exchange.
And hedging of long term compensation as we get into more normal circumstances with with more normal volatility I think youll find that that that will smooth smooth it out on a quarter to quarter basis.
Okay.
Okay. Thank you very much I appreciate those responses and look forward to next week.
Thanks Jerry.
Thank you.
Your next question comes from the line Andreas Koski from Credit Suisse. Please go ahead Sir.
Thanks, Good morning, I guess, we'll have ample time to talk about Florida next week, while we're there but.
I'm going to focus my questions on Nova Scotia, and I guess the first one.
It really revolves around the provinces aspirations for offshore wind.
How do you think about that from an Spi standpoint, and not necessarily you being involved in offshore wind, but just the transmission interconnectivity. We've seen a number of regimes used around the world for the connectivity from offshore wind farms to the shore. How do you think about that right now on a high level basis.
Yeah.
Scott you want me to take that.
Yes, sorry.
Peter you can you can respond to that sure.
Sure Andrew a few points on that.
There's opportunity in Nova Scotia, I think both on onshore continued development of onshore wind.
And offshore wind our focus to date has really been on the onshore.
And with the we often talk about the Atlantic loop, but the projects. We're working on it's called the eastern Clean Energy initiative, which involves the Atlantic loop.
But it also involves more development of onshore wind.
Probably it's going to.
An RFP to bring some more proponents in last year.
And those those projects will continue and I believe there's even more room for onshore.
As we look I know, we have many discussions with potential offshore developers.
We're really looking at that from a transmission interconnectivity Internet connectivity perspective.
But we will continue to have those discussions if there are opportunities obviously for.
Investments in the transmission assets.
We'd certainly look at that very closely.
Okay I appreciate that color and then maybe a bit more granular in kind of hot off the presses from yesterday.
The feds and the province of Nova Scotia, just the heat pump subsidies that are that are coming.
How do you think about that in relation to the core asset base with Spi.
The way I think about that is I think theres still still a heavy reliance on on home heating oil and Nova Scotia. So that's a very positive thing for our customers.
The subsidies to move into efficient heat pumps.
Had a program.
Allowing for longer term financing for our customers to switch to eat pumps have been very successful.
<unk> like to see that obviously theres a load growth opportunity through that electrification exercise and we think that that's an important to sort of longer term development.
Okay. That's great. Thank you very much thank you.
Yes.
Thank you. Your next question comes from the line of Patrick Kenny from National Bank Financial. Please go ahead.
Thank you and good morning, everyone just on block energy.
I'm sure we'll be getting the full update next week, but just in light of the volatility in fuel costs.
Im wondering if youre seeing any pickup in customer demand for.
The block energy platform, either in Florida, or perhaps other jurisdictions, where it might be.
Looking to deploy the technology.
Yeah.
Yes, Patrick.
Patrick.
I mean, it's still early for us with with block energy is.
Effectively.
Pilot now in Florida, and now working on a second.
Pilot outside of <unk>.
Outside of Florida.
You're right I think.
The volatility of.
Fuel prices and the impact that that has on an energy prices for customers is as an important selling feature of the block energy solution.
But so too is is reliability and one of the things that.
<unk> was clearly demonstrated in 2022 through hurricane Ian is the resiliency the improved reliability that that can be achieved with.
With this product is.
Hurricane even Ian course, ravaged ravaged, Florida and resulted in a number of outages, including of course in Tampa Electric service territory, while those customers that were served.
With block energy.
Continue to have energy through throughout that experience. So the combination of those two things continues to have us feeling.
Im excited and confident as to the path forward for <unk>.
Boardwalk energy Theres certainly building.
Interest from from customers of all kinds.
In this micro grid solution.
But it's still relatively early days and certainly as you point out something that.
That will talk about more when.
Altogether in Florida next week.
Got it.
And then I guess just from a larger scale perspective, just given.
The heightened level of interest in all things energy storage, whether its batteries gas storage or developing pumped hydro.
I know your three year capital plan is locked in but.
Just given the long lead times for some of these opportunities I'm curious if your team is looking to bring any of these larger scale energy storage type assets into the portfolio by state.
Say the latter part of the decade.
Okay.
Yes, youre exactly right in that the energy energy transition is.
And this is in part going back to a question of lenders as well, but energy transition obviously.
<unk> has.
It is.
It has its challenges win.
Lot of the early moves in that transition.
As the build out of intermittent renewables and.
And most most systems can take a good portion of intermittent renewables, but once you get to a certain certain percentage center at least in Nova Scotia and.
And in Tampa electric that would sort of be in the mid to high teens.
Generation mix it starts to get more challenging to avoid.
The degree of Intermittency did is now on the system with.
With that generation from from not causing.
Challenges with with system reliability so.
So therefore storage becomes important and so yes, absolutely storage is going to be an important part.
The continuation.
Of the energy transition the continuation of <unk>.
Delivering cleaner reliable service for <unk>.
Customers and you're right that's going to be.
Storage of all of all forms and.
And then obviously a big part of the Maritime Link project in a way is finding ways to bring in storage in the form of Hydroelectricity, which can have some of those advantages batteries. Obviously, a big component you heard me talk about LNG, even for our gas utilities and.
That will continue to be a theme of our capital program.
Well beyond our current three year.
That's great.
Okay, that's great I'll leave it there thanks Scott.
Thank you.
Next question comes from the line of Richard <unk> from Jpmorgan. Please go ahead.
Hi, good morning, Thanks for the time today, just one quick one for me on the New Mexico contribution curious at 421 as a good normalized base there meaning that.
Year over year impact or is all upside versus I guess normalized expectations also just under the market dynamics any continuation of that upside into <unk>.
Yes.
Greg.
Oh, sorry, yes.
No go ahead go ahead, Greg and then Ryan can add on.
Yes, I think 2021 is probably more representative rich.
We would expect on a normalized basis, obviously, we had some outperformance in 'twenty two.
I'm not so sure 'twenty three we will be back to 'twenty, one levels, but I don't think it'll be at 22 levels, either we're still seeing some.
Market dynamics of which will create some upside potential but not nearly to the extent that we saw in 2000.
In 2022.
Yes, I just want to add a little more color from your perspective.
Yes, I would agree with what Greg just said I don't think Theres anything further that I would add.
Yes.
Great. That's all for me thank you.
Thanks Rich.
Thank you. Thank you there are no further questions at this time I would now turn the call back over to Mr. Steve Mccann for closing remarks.
Thank you Laura and thanks, everyone for attending today and we look forward to seeing many of you next week at our Investor day have a great day. Thank.
Thank you.
Thank you so much presenters ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a lovely Paul.