Q2 2023 Emera Incorporated Earnings Call
Good day, ladies and gentlemen, and welcome to the Amira Q2, 2023 earnings Conference call.
At this time all lines are in a listen only mode.
The presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance. Please press star zero for the operator.
Call is being recorded on August 11th 2023.
I would now like to turn the conference over to Dave Byzantine. Please go ahead.
Thank you Michelle and thank you all for joining US. This morning for our mirrors Q2, 2023 conference call and live webcast Amira.
<unk> second 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 <unk> 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.
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.
Please 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 my remarks by taking a moment to acknowledge the two significant natural disasters that impacted our customers our communities and our teams here in Nova Scotia in the last few months.
In May <unk>, thousands of Nova Scotia's were evacuated and over 150 families lost their homes to the devastating wildfires that broke out across the products.
Thanks, Lee No lives were lost however, many people, including our own employees were impacted.
We are incredibly grateful to the hundreds of first responders, who kept our community safe and courageously battled these fires.
Only weeks later, the premise was hit with a record breaking rain storms, resulting in severe lightening and flooding that caused significant damage to homes and communities across the province.
And tragically for Nova Scotia has lost their lives and the flooding.
On behalf of the entire mirror team, we extend our heartfelt condolences to everyone affected by these events.
I'd also like to take a moment to recognize the team at Nova Scotia power. These.
These disasters underscore the essential work, we do and the value of a strong and reliable electrical grid.
And the response from the team highlights the strength and resiliency of our people.
As well as their expertise and unwavering dedication to the communities we serve.
Yeah.
This morning, we released our second quarter results.
And I am pleased to share that we continue to deliver steady predictable earnings and cash flow growth.
We reported second quarter adjusted earnings per share of <unk> 60.
Up 2% from the second quarter of 2022, driven by strong performance from our regulated utilities, partially offset by lower earnings from Emera energy and the impact of higher interest costs across the business.
And for the year to date, despite higher interest costs, which Greg will discuss shortly as well as inflationary pressures generally adjusted earnings per share has increased seven or 5% to $1 58 compared to $1 51 last year.
Our regulated utilities delivered an 11% increase in adjusted earnings this quarter.
7% year to date, largely driven by an increase in rates supported capital investments.
As well as favorable contributions from asset management agreements with new Mexico gas in the first quarter.
We continued to see strong economic and population growth in our key service areas.
The economic growth in Florida continues to drive meaningful customer growth, approximately 2% of Tampa electric and 5% at peoples gas.
Here in Nova Scotia, we're experiencing the strongest population growth in decades, driving over 1% customer growth at Nova Scotia power last year.
At both Tampa Electric and Nova Scotia power. This customer growth is contributing to growing customer demand and load, which helps to offset some of the impact of less favorable weather in the first half of the year.
As the economies in populations in our service territories grow so does the level of capital investment required to support that growth and to deliver cleaner and reliable energy for our customers.
In the first half of 2023, we deployed over $1 4 billion in capital a 25% increase over 2022.
And we continue to expect to invest almost $3 billion in capital this year.
Our deployment in the first half of the year is on track with our three year capital plan, which remains focused on reliability and de carbonization investments as well as infrastructure expansion investments in support of customer growth.
Last year, we completed the big Bend modernization at Tampa Electric.
I am proud to say that earlier. This month. This project was recognized as the best Energy project in 2022 by Engineering News record.
I was one of the most efficient natural gas plants in North America. It can produce almost 1100 megawatts of energy.
Enough energy to power more than 250000 homes.
This transformative project of our plants that once burnt coal not only provides cleaner and more reliable energy for our growing customer base, but also provides the necessary capacity to support the increasing buildout of solar generation.
Tampa Electric's investment in solar has continued with over 120 <unk> million dollars invested in our solar program in the first half of the year and we're on track to have another 125 megawatts of solar generation in service by the end of 2023 for what will then be total utility scale solar generation capacity of one two.
<unk> hundred 55 megawatts, representing 20% of Tampa Electric's total generation capacity.
We've also invested 110 U S million dollars. So far this year in our storm protection plan, representing important investments to strengthen the system against severe weather events.
We saw firsthand the value of these investments in the aftermath of hurricane Ian with system impacts and outage restoration times both improved.
And at peoples gas, we're focused on investments in system reliability and expansion to support the incredible customer growth utility experience.
We expect over 75% of our three year capital program will be invested in our Florida operations to support the strong population and economic growth that continues in the state.
And overall, we continue to expect to deliver 7% to 8% rate base growth over the forecast period.
However, we are focused on how to optimize the pace of capital investment to best manage the cost impacts for customers.
As we collectively continued to navigate the current inflationary environment. We're also working to support our customers with energy efficiency programs as well as financial support programs for those who are struggling.
Large government tax incentive programs are also helping to reduce the cost of the transition to cleaner energy.
In the U S. The inflation reduction Act provides tax credits that are expected to make several of our current and prospective projects more affordable for customers.
Similarly, the most recent federal budget in Canada recognized the need to address the significant cost impacts of the clean energy transition with additional funding programs, including meaningful investment tax credit support.
Within our capital plan, Tampa Electric's, almost $1 billion investment in solar generation will attract production tax credits under inflation reduction Act.
And looking forward as we highlighted at our Investor Day in March were excited about the opportunity that federal tax credits have created in support of carbon capture and sequestration as well as hydrogen.
Last year Tampa Electric was awarded approximately $6 million use of funding from the U S Department of energy to perform preliminary study at the <unk> power station to evaluate the cost and feasibility of retrofitting carbon capture technology on a combined cycle generation unit.
I am pleased to say, we received an additional $5 million of funding from the department of energy. This year to continue this important work on this promising project, albeit still in early days.
And in Nova Scotia, we continue to support stakeholder discussions with respect to the Atlantic loop.
Our objective since the beginning has been to find a way to phase out coal generation in a way that delivers the best solution to Nova Scotia power customers.
We believe that a strong transmission tie into the province is key to the most optimal path to phase out coal generation in Nova Scotia, Power's electric grid, while maintaining grid reliability for Nova <unk>.
Increasing electric transmission capacity between regions make sense everywhere, particularly here in Nova Scotia, where our electrical connections to larger larger markets are currently constrained.
New regional transmission capacity would provide Nova Scotia with critical access to dispatch able energy capacity for when intermittent wind and solar generation sources aren't available.
And would also enable Nova Scotia that become an exporter of the incredible wind resources, we have here in the province, which would also help support the development of green hydrogen and offshore wind and Nova Scotia.
But it's complicated.
And as you've heard me say many times, the kind of rapid and transformative transition to cleaner energy that is now underway is extremely costly.
So we are aligned with the provincial government and the view that significant financial support from the federal government is required to achieve federal clean energy policy goals here in Nova Scotia.
It is imperative that we find a solution that is in the best interest of our customers of Nova Scotia's that is our focus.
So while government and other important stakeholders continue to discuss whether the loop project advances are not the team at Nova Scotia power continues to work with the province of Nova Scotia to advance the other important components of the clean energy transition.
This includes investments in battery storage supporting grid connections for new wind procurements, and strengthening the inter tie between Nova Scotia, and New Brunswick.
Last quarter the team at peoples gas filed their petition for new rates effective January one 2024.
Since the last rate increase in 2021 peoples gas has deployed more than $1 billion of rate base investment to serve the growing population in Florida and to ensure their system continues to operate safely and reliably.
Hearings are scheduled for later this month and we expect to have a decision from the regulator in the fourth quarter.
And the team in new Mexico.
That is in the process of developing a rate case that it intends to file later this year requesting new rates that would be effective in the fall of 2024.
To sum up the fundamentals of our business and our portfolio of high quality regulated assets remains strong.
We remain focused on strengthening our balance sheet executing on our well established strategy of investing to deliver increasingly clean and reliable energy to our customers, while always considering the impact of cost on customers.
And by doing that we're also delivering consistent reliable growth in earnings and cash flow for our shareholders.
And with that I'll turn it over to Greg to take you through our financial results.
Thank you Scott and good morning, everyone. This morning, we reported second quarter adjusted earnings of $162 million and adjusting adjusted earnings per share of <unk> 60.
Compared to a $156 million 59 in Q2 2022.
Year to date adjusted earnings were $430 million and adjusted earnings per share was $1 58, compared to $398 million and $1 51 for the same period in 2022.
Our regulated portfolio was the driver of our strong second quarter results Contra.
Contributions from regulated utilities increased $27 million over Q2, 2022, or <unk> <unk> of adjusted EPS.
Due in part to an increase in rates supported capital investments at Tampa Electric Nova Scotia power and New Mexico gas.
This was partially offset by higher interest expense across our portfolio lower contributions from Amira energy and a higher share count.
Operating cash flow before changes in working capital continued to grow in the second quarter. Despite slightly unfavorable weather in the first half of the year year to date operating cash flow increased by 56%, primarily driven by fuel over recoveries at Tampa electric compared to under recoveries in 2022.
In addition on April one we began collection of the 2022 fuel under recoveries in Hurricane Ian Storm costs at Tampa Electric and the Labrador Island link is now producing cash flow with our year to date results, reflecting one quarter's worth in the balance of the year, receiving a full six months worth it.
Excluding the impact of the fuel deferrals and collection of 2022 fuel and storm costs, we delivered over $1 billion in operating cash flow in the first half of 2023, roughly half of our annual target of $2 1 billion.
And as I've said before the cash flow challenges from 2022 were timing related and they are fully reversing as we had expected.
Our path to improve credit metrics is still clear fuel costs have remained stable in the over recoveries. We are seeing in 2023, so far are helping to pay down the under recovered balanced faster than expected.
While we are adjusting for the effect of the collection of fuel cost on our cash flow. This faster collection will reduce the outstanding debt balances associated with financing needs under recoveries and therefore improve our credit metrics.
In addition at our Investor Day in March we were clear that we have additional levers available for credit metric improvement outside of our base plan should we need them.
And while we are encouraged by the progress in the first half of the year and the more favorable weather we are seeing so far in Q3.
If needed we will not hesitate to use these levers in fact, we have already made the decision to defer our 205 240 million incremental investment in Labrador Island link from this year to 2024.
This will result in moderate cash flow savings from reduced interest expense and more importantly, reduce our associated funding needs in 2023.
And to the extent necessary, we have some incremental opportunities to defer capital and we will reassess as necessary.
Turning to our quarterly results contributions from our Canadian utilities increased $10 million or 26% compared to Q2, 2022, driven primarily by Nova Scotia power and higher earnings from our equity investments.
Last quarter, we announced that Labrador Island link had been commission.
And in this quarter, we received consistent flows of energy from the Nova Scotia block and as a result did not recognize any hold back costs contributing to our quarter over quarter increase in earnings.
Tampa Electric delivered strong results with growth of $6 million in earnings or 5% over Q2, 2022, driven primarily by new base rates that went into effect on January one while the weather in the quarter was less favorable compared to the very favorable weather last year. This was largely offset by strong customer growth.
The weakening Canadian dollar also increase the earnings contribution from U S operations by $8 million for the quarter.
Contributions from mere energy decreased $14 million for the quarter. This was not unexpected as noted in our Q1 call Q2, and Q3 are generally challenge for profitability because cost of transport and storage are amortized equally over time. Despite the fact that the related revenues are mostly earned in the winter months.
2003 contracts were bid in 2000 twos markets. So the costs were somewhat elevated compared to the last couple of years, which is similar to what we experienced in 2019.
And as I'll discuss shortly year to date contributions from Emera energy has still increased $10 million year over year, and we expect the business to deliver adjusted earnings within our guidance range of $15 million to $30 million U S dollars.
Earnings from our gas and infrastructure segment decreased modestly quarter over quarter, primarily driven by higher interest and operating costs resulted resulting from continued investment in support of customer growth at peoples gas.
And corporate costs increased $4 million this quarter, primarily driven by higher interest costs.
And finally higher share count decrease adjusted EPS by <unk> <unk> compared to the second quarter of 2022.
Year to date adjusted earnings per share increased by seven to $1 58, driven by favorable foreign exchange movements as well as higher contributions from our regulated portfolio and Amira energy, partially offset by higher corporate costs and an increased share count.
As I mentioned, a moment ago. Despite the expected loss this quarter year to date, Emera Energy's marketing and trading business generated $28 million Canadian of adjusted net earnings compared to $18 million for the first half of 2022, that's $22 million compared to 14 million U S last year, representing almost 60% increase year.
Year over year.
Youll recall, the Q1 2023 was very strong reflecting favorable hedges access to more gas transport and a brief cold spell in February .
<unk> energy continues to expect the annual earnings within the guidance range of $15 million to $30 million.
Contributions from our Canadian Caribbean utilities increased a combined $8 million year over year due to Nova Scotia power interim rates at Barbados light <unk> power and higher earnings from our Canadian equity investments.
At our gas utilities results. This year benefited from new rates and favorable asset management agreements at new Mexico gas, which were partially offset by higher interest and operating costs, primarily at peoples gas.
And consistent with the quarterly results higher interest costs contributed to the increase in corporate costs year over year, partially offset by the timing of share based compensation expense and related hedges.
And at Tampa Electric new rates and strong customer growth were offset by higher interest costs and less favorable weather, resulting in a modest decrease in earnings year over year.
And finally higher share count decreased adjusted earnings per share by <unk> <unk> year over year.
It is clear from our results. So far this year that higher interest rates have had an impact throughout our portfolio and is offsetting some of the strong growth that we're seeing from our regulated utilities.
I wanted to take a moment to discuss how we're thinking about these impacts across the business and how we expect those to trend in the near and longer term.
In our regulated utility portfolio three of our utilities are currently in rate settlement periods that were negotiated before the rapid increase in interest rates.
And while we never expected interest rates to remain at historical lows of the COVID-19, pandemic and took advantage of the yield curve to term out significant portions of our debt the rate of increase in interest rates over the last 12 months to 18 months has been almost unprecedented in its pace.
As you May recall, the Tampa electric rate settlement included a mechanism that increase the ROE at Tampa electric by 25 basis points and allowed for an additional $10 million in base revenues. When the average 30 year treasury yield increased by more than 50 basis points 50 basis points above the rate on the date of the settlement.
While this innovative mechanism was constructive the 30 year Treasury yield has now increased nearly 200 basis points above the rate on the date of that settlement.
While the settlement periods at our regulated utilities have many advantages the impact in a rising rate environment like we have seen so far means we are more exposed to higher interest costs. We will continue to operate our utilities as prudently and responsibly as possible and look for cost savings to help offset the impacts. However at this pace of rate increases we expect.
To continue to experience regulatory lags and the collection of interest costs.
Importantly, we have a healthy rate case cadence with constructive regulatory environments and forward test years, and all of our core utilities to ensure we earn a fair and timely return on and of the capital that is being prudently deployed.
As Scott mentioned the rate case at peoples gas is ongoing and we expect a decision later this year for new rates effective January one of 2024.
And on January one 2024, we will also have another approximately $142 million an increase rates that have already been approved at Tampa Electric and Nova Scotia power.
2024 is also the last year and a three year rate settlement period of Tampa Electric Tampa Electric like all of our core regulated utilities is on a forward test year. This means we will be able to assess in 2024, whether we have sufficient rates based on our forecast for 2025 and make an application and the regulator for new rates as necessary.
Therefore, while we expect to continue to see some near term impacts from higher interest rates in 2023, there's a clear regulatory calendar ahead of us that should allow rates at our utilities to reflect the higher interest cost environment on a timely basis.
We remain focused on strengthening our balance sheet and credit metrics and made meaningful progress to that end already this year, while interest costs are admittedly a headwind at this time there are many reasons to be optimistic fuel costs have reversed and the highs of last year. The Labrador Island link is commissioned and delivering energy across the maritime link is planned at Canadian dollars.
Change rate remains favorable and many of our service territories continue to see customer growth.
There remains no shortage of investment opportunities in our utilities as we continue along the clean energy transition and we remain and we remain committed to ensuring reliability of the grid and managing the pace of investments to ensure customer affordability stays front of mind.
And with that I'll turn the call back over to Dave.
Thank you 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 one on your Touchtone phone.
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One moment. Please for your first question.
First question comes from Maurice Choy of RBC capital markets. Please go ahead.
Thanks, and good morning, maybe just sticking with discussion on the balance sheet.
I apologize if I missed it but what is the normalized FX what would that be.
We have as of Q2.
Good morning, <unk>, it's Greg on a 12 month kind of trailing 12 month basis, which would only include one quarter, obviously of the Labrador Island link on a normalized basis were just shy of 11%.
Thanks, and recognizing that Q1 as well as Q2 <unk> recorded relatively good operating cash flow generation here.
Just wanted to get your latest thoughts on moving back to stable outlooks I think back in May you mentioned that you are not anticipating that to shift.
Soon.
With these kind of.
Cash flow generation that video belts.
Balance of continued macro uncertainty have you seen any positive or negative shifts from the reading and Jason.
No no I wouldn't say, we've seen a shift in either way I think the path. We're on is well understood by the rating agencies, obviously things are unfolding exactly as we would have expected either from a <unk>.
Collection of cash flow collection of fuel under recovery of storm costs as well as the regulatory agenda in front of us.
And I think it's just a matter of executing on continuing to execute on those and presumably that would put us in a good position to return to stable.
At some point hopefully over the next couple of quarters.
Thanks.
And just to finish off.
Flip to slide 11, and thanks for that.
<unk> interest rate impacts.
Recognizing that you do have travel weight exposure at both the Holdco msos.
<unk> are set to reset later this month.
You've talked a lot about where rates have gone.
We appreciate your thoughts.
Think the way, it's going and what how that drives your financing strategy.
What if any steps you can take to rein in the financing costs over and above <unk>.
Obviously, the regulatory calendar and just spoke of.
No worries I wish I wish I knew where rates were going to answer a month ago might be different than today I mean, it does feel that.
We have top dose certainly the yield curve would suggest that.
In the near term as we look in particular at our regulated utilities Tampa electric being one.
There is some opportunity to term out some of the short term debt with long term rates being lower than what we experienced in the short term market. So you might see us for example access the market at Tampa Electric doing a bond financing sometime over the next few months.
Great. Thank you for the color.
Thank you. The next question comes from Rob Hope of Scotiabank. Please go ahead.
Marty.
With the balance sheet.
You're going to see a pickup in cash flow.
And I did appreciate the comments about the additional leverage that could be pulled to further strengthen the balance sheet.
We're almost midway through August 10.
<unk> 240 has been pushed but nothing else has really been.
No other leavers have really been called when do we take a look at the puts and takes of your cash flows is the expectation that you are seeing more tailwind.
Given the fuel recoveries as well as the the hot summer so far such that you think you are in a good position for 2023 without really the need to pull these other leavers.
Yes, I think Thats, certainly Rob how we feel today, but we're still always evaluating our capital.
Determine whether or not it would be prudent from a customer perspective to move some of it out, but but youre certainly your characterization is right. We are seeing strong cash flows on a fuel adjusted basis in line with our expectations. If you include the recovery of fuel and storm costs quite frankly.
Coming in way stronger than we might have otherwise expected.
So yes, when you combine all that together.
We're feeling fairly confident from where we sit here today.
Alright, thank you.
And then just a follow up and.
It was kind of noted in the prepared remarks, but yes.
The draft clean energy regulation.
Does this change kind of how you're thinking about generic <unk> carbon capture incremental wind and Nova Scotia as well the federal government continues to speak quite favorably about the live project can you just.
Maybe give us some some milestones where we could see some.
Progressing.
Hey, Rob, it's Peter Gregg for Nova Scotia power.
Well the CER.
We described both yesterday.
We'll be diving in deeply to make sure we completely understand.
Any impacts it would have on our recently released integrated resource plan, you'll see we released that earlier. This week initially I'd say on the good side pleased to see mentions of the need for flexibility, particularly when it comes to the role of natural gas.
Bridging fuel that can accommodate.
More renewables and also enhanced reliability here in Nova Scotia.
Always when we look at the Decarbonization agenda, we believe it's got to be balanced with affordability and reliability and that's how we'll look at it.
So we are still concerned as we as we dive into more details.
Could have undue cost impacts in Nova Scotia.
So that's where our focus will be also pleased to see that the feds.
Have indicated that they will have a robust consultation period and we intend to consult.
Very heavily with the federal government during that process did you have a follow on there on the loop as well.
Yes, just in terms of what the milestones are kind of near term.
We can see it there.
So where we continue to be engaged in the discussions with the federal government and I agree with you that the federal government has made some positive comments theres still I'd say some uncertainty on whether there'll be the loop, where NOLA and so where our immediate attention at Nova Scotia power is.
Is focusing on investments that are required under any scenario. It really that's an enhanced reliability inter tie to new Brunswick, that's investment in grid scale batteries and working very closely with the provincial government on those investments, but also the need to procure more renewable resources by 2030. So we're very focused on that.
Continue to be engaged in the discussions on the road.
So let me just.
Just to add in the context of the CES I think Peter Peter handle that.
Well, obviously, it's new and we're working our way through it and yes, we're pleased with the with the flexibility, but the challenge in some of the challenged across the country is not the same it's very regionalized in Nova Scotia is one of the provinces, where this will be particularly challenging to to achieve particularly corn.
Lee two to achieve and so yes, while we are.
We're pleased with the flexibility.
As indicated frankly, it needs more for there to be a clear path for Nova Scotia, and it's going to it's going to need federal federal funding support in order to make it to make it affordable so those would be my additional thoughts to Peter's message.
Thank you.
Thank you. The next question comes from Ben Pham BMO. Please go ahead.
Hi, good morning.
Can you elaborate the country deferring tab.
'twenty three capex.
Can you comment on is is there a flexibility in right.
Our rate cases, and what not to do that seamlessly or do you have to go back and engage with stakeholders.
Yeah.
Ben It's Greg.
Managing our capital within a certain envelope.
You've probably heard me say before it's not uncommon to have a few hundred million dollars moved between years.
Just because of timing considerations and the ability to execute on projects because some of the supply chain constraints. We're seeing right now are just naturally, causing some projects not to get done on the exact same timeframe, we would've thought.
But we're able to make those changes.
Across our portfolio with any kind of significant engagement with customer groups or regulators.
Okay got it.
Are you are you planning to provide a refresh of your Capex next quarter.
And then can you comment.
Do you think about data and just the trends in Capex to five 3 billion.
Is really the willingness to increase that maybe somewhat tampered given where your balance sheet is right now.
Yes, so we will be as is customary been providing a roll forward of our three year capital and funding plan on our call Q3 call in November .
In terms of willingness all of the capital we're spending is in support of our customers, whether thats decarbonization reliability customer growth.
And so it's not it's not a question of whether or not we can do it with our current balance sheet consideration, but it is capital that is required to run the utilities.
And as such that doesn't really come into play on it how we finance it is kind of the second piece of that.
And frankly, it's been also just managing affordability impacts for customers and making sure that where we are.
Constantly focused on on measuring that pace so that.
We're managing that.
At a time.
It's sensitive as.
As I say, the general inflationary environments is making that challenging so.
So really it's a combination of all those things to manage it and obviously at this point in time.
Can't speak too to trend as to where.
Where things look like in the next next three year forward forecast, but.
But I wouldn't I wouldn't suggest there's going to be any significant differences significant changes in trend.
Okay, and maybe Alaska.
On rate cases beyond that that you're working on now is there.
Alright areas here youre going to be focused on.
Our back half of this year Antero and next year.
Sorry, Ben just so I understand are you referring to specifically rate cases.
Yes in terms of your calendar for launching new rate cases.
You mentioned around reducing regulatory lag.
Yes, I think the only two things you'll see is a resolution and People's gas said as Scott mentioned, we would anticipate that being resolved by the end of the year and new rates in January one 2024, and again as Scott mentioned.
New Mexico gas, we'll likely be filing as well, but that would be the.
The two significant regulatory filings that we would have in front of us for the balance of 2023.
Okay got it okay. Thank you.
You're welcome.
Thank you.
The next question comes from Linda <unk> of TD Securities. Please go ahead.
Thank you.
Yes.
Given that you are reassessing.
All your priorities around deleveraging and what might be optimal.
Recognizing you are able to defer some capex can you maybe also give us an update on whether you might consider any additional labor related to potentially selling any assets or interest in assets that might be valued higher by third parties and Conversely.
Some of the tailwind you're seeing.
<unk> allow for you to consider discontinuing usage of the ATM.
Over the next couple of years.
I think as it relates to asset sales portfolio optimization optimization.
Capital recycling, all the sort of the language it gets used.
In this sector Linda.
The answer is really no different than what you've heard before we continue to look at the look at the portfolio.
Look at our sources of funding and.
And our balance sheet and.
When we see opportunities that.
Our value enhancing for shareholders and make sense for us strategically then.
Then we spent a lot of time.
And our way through that and art.
But we won't hesitate to take steps when we see it makes sense and you've seen us do that obviously.
Obviously before with the sale of gas plants and.
In EMEA remain but at the same time.
The portfolio that we have today is.
You heard me say it in my remarks, we think we have a very strong portfolio of assets to contribute positively to earnings growth.
Cash flow growth and.
So we remain very comfortable with the portfolio, but we constantly assess.
I guess the way to answer that question I'll, let Greg respond to the ATM I think with respect to the ATM Linda as you heard both Scott and I mentioned.
There is significant capital investment opportunities that are in front of us as a result of customer growth and desire.
To Decarbonize our fleet.
And so from where I sit I see the ATM is a is a very prudent and cost effective way of raising the equity to support that growth that we're going to see.
And I would expect that would be continued to be an important part of our funding plan as we as we go forward.
Thank you and just.
Reflecting on recent events at the end.
Fortunate.
The wildfires.
Shutting in Nova Scotia, and looking forward to.
No.
The balance of the hurricane season in Florida, It looks like conditions support maybe an above average activity as we as we come towards the end of that.
How might that inform any sort of cross sector right application or initiatives to continue to storm harden.
And maybe accelerate.
Carbonization, how are your thoughts evolving around lessons learned with some of the recent.
Experiences.
<unk> utilities.
I think.
I mean look largely largely decarbonization.
Investments initiatives or are either driven because of investments can be made that are the most economic ones for customers like the solar investments and coal to gas conversions.
We've been doing in Florida.
<unk> gets driven by policy, obviously, which is.
More relevant to to the past.
Peter and the team in Nova Scotia have been I've been following in the context of.
And in an environment, where the U S government, both from a financial incentive with with the IRI in the AA or now draft proposed guidelines EPA guidelines providing.
More more clear requirements in terms of de carbonization to the extent that those are enacted those those those obviously will be drivers for for those investments and of course in Canada, we know about that.
The federal and the provincial climate and energy policy goals that are driving.
Myles stone achievements in 2030, with 80% renewable and closing coal plants and now with the <unk> towards.
A version of net zero by 2035, so those will all be drivers on decarbonization.
On storm hardening and system resiliency.
Type investments of course.
In Florida.
<unk> and team.
Our well into a 10 year program now there had been some.
Some conversation that had been started with some of the customer stakeholder groups about weather.
Perhaps that should be moderated somewhat.
In the more inflationary.
Cost environment that was going on but ultimately.
The evidence with Hurricane Ian.
And the commission there sort of saw the value of those investments in terms of what it did for the resiliency of the system.
And that program continues.
With.
With with vigor in Florida.
In Nova Scotia, and the team here, obviously very aggressive right now in terms of.
Vegetation management really tree trimming.
Order magnitude, Peter and $25 million a year right now being spent.
Almost double to what it what it was before really trying to its own version of storm hardening.
The same regulatory mechanisms that exist.
In Florida, but taking the important steps necessary to.
To storm Harden the system anything else Peter that you would say on that front I think you've covered it well I'll just say part of it is just good utility management practices as well as Scott mentioned on vegetation management, while the while the fires were certainly tragic for many known as <unk>.
We lost 30 would goals over I think it was 30000 hectare. So it just reflected what Scott mentioned that importance of vegetation management and making sure we don't have the fuel.
But on the ground adjacent to our infrastructure to protect that and then also on the floods.
All of our hydro systems performed well.
Which under under really extreme circumstances. So if you could just underlines the importance of strong asset management plan and good utility viruses as well.
Thank you.
Thank you. The next question comes from Mark Jarvi of CIBC. Please go ahead.
Yes, thanks Accordingly.
Just wondering how the run up in the 30 year U S. Treasuries gets factored into the peoples gas rate case, obviously took a different approach with Tampa electric.
How do you incorporate that into peoples.
Peoples gas in the evolving.
Straight cost.
Yes, Mark it's Greg.
It doesn't specifically get factored in but obviously when we filed the rate application. We had assumed an increase in interest rates and have requested a higher allowed Roe.
I would say that.
With the run up in interest rates less controversial forecast of the interest rates, obviously as supportive of higher Roes as well, so I'd say, it's probably indirectly slightly positive.
It also puts us in a position where.
Yeah.
Depending on how the capital flows and the continued customer growth at peoples gas.
Probably we have to reevaluate sooner rather than later as to the timing of the next application. After this one.
And there'll be no contemplation of doing sort of the inverse adjustment that was happening in Tampa electric to define yields receded that there'd be a retroactive adjustment on the allowed ROE band.
Yes that was a result of a settlement agreement that's certainly something that.
We would be open to if we found ourselves in settlement discussions but.
Unlikely to be achieved by litigated hearing, which is which is currently in the past we're planning for Tom.
Okay and then just on the recent EPA proposal I'm just wondering when you think about the units.
Tampa Electric here.
<unk>.
You've talked before about pulp.
Take the end of our Ccs and hydrogen blending in getting other units like at what point do you have to make a decision on how fast we pursue that and then also is there a decision between investing in your own units or thinking about purchase power ramping up a bit more.
Okay.
Sure Good morning, good morning, Mark.
The proposed EPA rules.
<unk> really had a pretty pretty modest impact on the on our generating fleet in Tampa. The only units that are implicated in the in the guidelines as currently written would be big Bend for which is which is the single remaining coal fired unit we have in the fleet.
And the modernized Big Bend unit gas fired 1100 megawatt natural gas facility that Scott referenced in his opening remarks.
And in order to comply with the EPA guidelines all big Ben for would have to do is.
Invest in the in the.
The ability for <unk> to co fire, 40% natural gas.
We already have the ability to co fire, 100% natural gas so for all intents and purposes as long as that unit retires before 2039, which is roughly in the timeframe. When we would be expecting that unit would retire in its natural course, we're good there on big Bend modernization. There is there is an expectation.
And that by 2032, we would have to either be introducing hydrogen as a.
As a fuel source in addition to as a supplement to natural gas or or investing in Ccs.
Our belief at this point is that there will be sufficient flexibility embedded within the API to allow and the EPA regs to allow.
A little bit of trading within within the utility itself, meaning the work that we are intending to undertake at Polk provided we get comfortable with the business case.
Et cetera, et cetera will more than make up for what we would need to do on big Bend. One so as we think about where we are the assets that we have and the plans that we have in front of US. We feel we are in an extremely good shape to be compliant with the EPA regs to the extent they ultimately be enacted.
Yeah.
It's good to hear thanks for that one last question for Greg just in terms of not seeing the ATM usage here in the first half of the year is that partly a function of the deferral of the investment as well.
Yes, it's a combination of things Mark obviously, the share price has been depressed, but equally so the volatility around it has been it has been hard to land on but yes, we've seen significantly stronger cash flows and particularly the fuel recoveries that we had and we're deferring some capital, but you should expect that.
Youll see us back into the ATM market in the second half of the year kind of consistent with prior prior periods.
Okay. Thanks, Sarah.
Thanks Mark.
Thank you. The next question comes from Andrew <unk> of Credit Suisse. Please go ahead.
Thanks, Good morning, I guess the question is for Scott and Doug you gave a pretty favorable backdrop for a lot of the potential in Atlantic, Canada, and I guess, maybe not to get too political but.
When you look at just some of the incentives that have been given to the automotive battery battery industry in Ontario.
Do you think Atlantic Canada need some similar incentives to really stimulate the offshore wind green hydrogen and then increased electricity transmission that goes with all of that.
To really get things going in a very positive fashion.
So, yes look Andrew I think I think as it relates to.
The development of.
Wind in.
In Nova Scotia, I think two things are true one is onshore wind is generally more economic than offshore wind. However, what's intriguing about offshore wind as.
As.
Is the degree to which it is.
It blows at times, when it's not as Wendy onshore in other words does it provide more capacity factors so from a from a grid perspective.
That's where offshore wind could have some some helpful contribution to to continuing to advance the journey.
To cleaner energy in terms of the development of offshore wind and supportive of hydrogen gas.
I suspect I believe that.
That industry requires some of.
The clear intended financial support that came out a bunch of 'twenty three in order to.
To accelerate that.
Debt.
That industry.
And that's that's good I think I think thats exactly makes it makes sense in order to take advantage of that resource development opportunity here, but I think getting back to the broader and more important message from from my perspective, the reality around the journey two two net zero.
Electricity in Canada I think.
A few things that are important to recognize first of all the Canadian grain is already one of the cleanest in the world, 85% non emitting.
And the cost to move from 85% to 10 net zero is significant and frankly, just like anything the last few steps are the are the hardest and the most expensive and that will be true here too, but the particular challenges it's not it's not uniform across the country.
Some provinces are blessed being much closer to that endpoint today than other provinces.
Nova Scotia is one of those other provinces, where where this will be particularly challenging just given the sort of the situation or environment that were that were in the size of the province, the nature of the historical.
Generation sources that exist here and the available.
Sources that are native to the province, we're just not blessed with some of the same.
Same benefits in other provinces do and therefore.
Yes, it will be particularly important in.
In order to achieve the ambitious.
Climate and energy goals that have been set for significant financial support in order for those goals to be achieved.
I appreciate that color and then maybe just keeping it at Nova Scotia and.
With some of the basic blocking and tackling that can do what HUD on Spi.
Obviously, the population growth is helping and that looks more secular in nature and may be structural in nature right now, but when we look at things like heat pumps.
If we could get an update from Peter on heat pump rollout, how that looks as part of a bigger broader de carbonization effort not just theres really not of electricity, but if the overall energy consumption in the province.
Yes, we're certainly seeing positive impact we've seen that over the last several years is to penetration of heat pumps continues to grow in Nova Scotia, we continue to see that contribute to.
While we are a winter, peaking jurisdictions to revenues happening in the summer months.
Good.
People deal with the warmer weather so it certainly is helping.
Grow the load here in Nova Scotia, and we expect to see that continue we still got I think it's just a little under 30% of our customers across the province use home heating oil is the primary source and so theres a real opportunity to see continued penetration of heat pumps across our service territory.
That's great. Thank you.
Yes.
Thank you. The next question comes from Darius <unk> of Bank of America. Please go ahead.
Hey, guys. Good morning, Thanks for taking the question just wanted to circle back to the <unk> to debt quickly.
As mentioned just under 11% for the trailing 12 months and I believe the target for 23 years at least 11 five so just doing the back of the envelope math there suggests that you'd be on track for just north of 12% in the second half of the year can you confirm if that's the case and you are still tracking to 11 five or higher.
For the full year.
Yeah, I mean, we're still tracking to kind of.
Mid elevens, Darius I mean, obviously.
Moving the investment the planned investment Labrador Island link is probably about 15 basis points on our expected credit metrics on an annualized basis and of course, we will have the full benefit of the cash flow from the Labrador Island link in the second half of the year as well so.
To your point, we're certainly trending in the direction that we would've expected.
Great. Thank you one more if I could.
O&M pretty substantially year over year, Jim can you, maybe unpack that a little bit on obviously inflation.
Meaningful contribution can you also speak to customer growth any other substantial drivers that youre seeing and how you expect those to shape up for the balance of the year.
Sorry, I missed that I missed the first part of it Darius.
O&M.
O&M.
The O&M line item, if you could potentially speak to the contribution from respectively inflation customer growth or any other drivers that you're seeing.
At the corporate level.
From a pure costing perspective, we've seen very little change most of the change youre seeing year over year is just the timing of our long term compensation expense, which which has some volatility related to share price and the related hedges that we have in place but from from a corporate perspective outside of interest in the share based.
<unk> are our core operating costs are have been relatively flat on a year over year basis.
Got it okay. Thank you guys.
Thanks Terry.
Thank you. The next question comes from Patrick Kenny of National Bank Financial. Please go ahead.
Hey, good morning, guys.
Just on the carbon capture opportunity down at the power station.
And recognizing very early days as you mentioned, but.
Just given we've seen a bit of a slower pace here in Canada on Ccs development.
And government support could you just provide your take on.
What the earliest timeframe might look like in terms of deploying capital.
For that investment.
Good morning, Patrick It's Archie again.
I think.
So this is a very very active for us down in Tampa looking at what we refer to as the promise of Pope.
The phase that we're in now so we're fortunate that we're getting support from the U S Department of energy on on the monies that they have earmarked for for our front end engineering studies at.
To the tune of $11 million, so far which is.
The substantial portion of the overall investment that we're making thus far.
Our efforts right now are in completing those engineering studies, we anticipate that in 2024, we would be filing the applications for the class six wells that are necessary to.
To store the carbon beneath beneath the pulp power station.
Meaningful capital spending likely doesn't begin until 2027, something like that base.
Based upon the trajectory that we're on and realistically we wouldn't think we would have to.
To the extent we undertake.
<unk> project at Polk, probably not completed until 2031 or so.
Which again would be in line with that.
The timelines that are set out in the in the proposed EPA regulations.
Okay, that's perfect thanks for that Archie.
And then maybe just for Greg creates come back to your discussion around the.
The equity portion of.
The funding plan so.
Just given the pullback on the ATM could you just refresh.
What your capacity for additional hybrid securities might look like going forward.
And also any other thoughts around potential refinancing opportunities too.
Perhaps mitigate the impact of rising financing costs.
Yes.
Yes, Patrick we have probably somewhere around 500 million to a $1 billion of capacity on our balance sheet to do either Canadian dollars preferred shares or some kind of hybrid offering obviously that mark.
Not very attractive right now from a debt perspective.
If you look at <unk>.
Slide <unk>.
11 in our presentation half of the rise in <unk>.
<unk> costs have been at Tampa electric and that's likely as I referenced earlier and opportunity for us to term out some of that short term debt into long term debt, albeit it will still be more expensive than it was a year ago.
The way the yield curve right now is there is some opportunity to reduce the exposure and reduce our overall costs over the balance of the year by by terming out some of that debt.
Okay. That's great. Thanks, guys I'll leave it there.
Yes, Thanks Patrick.
Yes.
Thank you once again, ladies and gentlemen, if you do have a question. Please press star one at this time.
There are no further questions at this time I will turn the call back to David Jansen for closing remarks.
Thank you very much before wrapping up please note that our next analyst call will be held on November 10th and.
And as Greg mentioned, we will be rolling forward, our capital and funding plans as per usual at that time. So thanks, very much and have a great day.
Ladies and gentlemen, this does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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Yes.