Good morning, ladies and gentlemen, and welcome to the Emera's Q3 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. Remember that this call is being recorded on Friday, November 10, 2023. I would now like to turn the conference over to Arianne Amirkhalkhali. Please go ahead.

Thank you, Sergio, and thank you all for joining us this morning for Emera’s third quarter 2023 conference call and live webcast. Emera’s third 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 emera.com. Joining me for this morning’s call are Scott Balfour, Emera’s President and Chief Executive Officer; Greg Blunden, Emera’s Chief Financial Officer; and other members of the management team. Before we begin, I would take a moment 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. 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, Arianne, and good morning, everyone. This morning, we reported third quarter adjusted earnings per share of $0.75 compared to $0.76 in third quarter of 2022. Our regulated portfolio, led by Tampa Electric, continues to drive our strong financial results. Earnings contributions from our regulated portfolio increased 8% this quarter over the same quarter last year or $0.06 in adjusted EPS terms driven by higher rate supported capital investment, customer growth and by favorable weather in Florida. This increase was partially offset by lower earnings from Emera Energy and the impact of higher interest cost across the business. The sustained customer growth and overall strong demand we continue to see across our portfolio, combined with the investment opportunities identified in a refreshed capital program, reinforce our confidence in our continued delivery of long-term earnings, cash flow and dividend growth to our shareholders. To that end, during this quarter, our Board of Directors approved a 4% increase in our dividend and extended our divided growth guidance of 4% to 5% out of 2026. This represents 17 years of continuous dividend increases. Looking forward, our updated capital plan reflects $8.9 billion of capital investment over the next three years, with the majority of that focused on reliability, cleaner energy and infrastructure modernization. This investment profile translates to 7% of annualized growth in consolidated rate base over the same period. In addition to our baseline capital plan, we see incremental investment opportunities that could drive rate base growth to 8% or more on an annualized basis over this period. However, as always, we are focused on optimizing our capital investment strategy to manage the timing of capital deployment to consider the rate impacts on customers. That's particularly important now, because as Greg will discuss shortly, we are sensitive to the current higher…

Thank you, Scott, and good morning, everyone. This morning, we reported third quarter adjusted earnings of $204 million and adjusted earnings per share of $0.75 cents compared to $203 million and $0.76 in Q3 of 2022. Year-to-date, adjusted earnings were $634 million and adjusted earnings per share was $2.33 compared to $601 million and $2.27 for the same period in 2022. Operating cash flow before changes in working capital continued to strengthen through the third quarter and we continue to be pleased that the cash flow challenges from 2022 are fully reversing as we had expected. Operating cash flow increased by 125%, primarily driven by fuel and storm cost recoveries at Tampa Electric compared to under recoveries in 2022. In addition, operating cash flow has benefited from the commissioning of the Labrador-Island link in April of this year, new base rates at three of our four core utilities and the impact of customer growth and demand across the portfolio. These increases were partially offset by continued interest rate headwinds. Excluding the impact of fuel deferrals in the collection of 2022 fuel and storm costs, we delivered over $1.5 billion in operating cash flow in the first three quarters of 2023, representing a 6% growth year-over-year. Looking forward to 2024, we see several levers for continued cash flow growth across the portfolio including the constructive regulatory outcome we achieved at Peoples Gas which will drive approximately $107 million in incremental cash flow, as well as the already approved rate increases from the Tampa Electric and Nova Scotia Power settlement agreements. In total, new rates at these three utilities will drive a combined approximately CA$300 million in incremental cash flow in 2024. We will also continue to collect the remaining fuel and storm costs at Tampa Electric which will be completed by…

Thank you, Greg. This concludes the presentation and we will now open the call for questions from our analysts.

[Operator Instructions]. Your first question comes from Maurice Choy from RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone. Maybe we could start with the asset sales of up to 15% of the funding plan. Maybe if I could ask you for additional color. What brought you to this position? I know you mentioned the higher cost of capital environment, but if you could elaborate on that, or any other factors beyond that? And as a quick follow up to that, once this asset sale process is completed, what would you view as the successful outcome, be that that credit metrics, EPS dilution or accretion, all that stuff? Thank you.

Yes. Good morning, Maurice, and thanks for the question. So, look, the rationale for this, I think you and investors have heard us say many times that we're fortunate enough to have a diverse portfolio with a number of strong and well performing assets. And within that, as we think about on a regular and ongoing basis, the allocation of capital within and across our business to make sure that we are being disciplined in that allocation on the capital, including where that capital is already invested. And so in this market, we see the opportunity for -- I know the word commonly used now is asset recycling, but effectively redeploying some of that existing capital into the higher value growth capital that we see across the business. And when the cost of raising new capital is higher, as it is today relative to where it's been in, in previous markets, it makes the importance of that discipline and frankly the value of those decisions even higher. So that's really the motivation and reflections that have led us to talking about it this way at this time. And you're right, the objectives, of course, are to ensure that we're doing that to optimize the outcome as we think about impacts on EPS growth, on credit metrics, on payout ratio. And we look at all those factors as well as, of course, the strategic -- critically important strategic factors as we think about this program and successful outcome of that.

And on the discussion about what is the successful outcome, can you help quantify that or even describe what that means? Is that a cushion versus your top percent? What is the successful outcome to you?

Yes. So you've heard us say before, our commitment to achieving our targeted threshold credit metrics, but then to create some cushion, and that very much continues to be our focus, and looking at asset sales really just provides the ability to accelerate -- ensure and accelerate that path.

Thanks. And maybe just to finish up on a similar vein, I've seen you would have seen a recent reading action by one of your Canadian peers relating to physical asset risk. Thoughts on what that may mean for Emera and whether the cushion that you're speaking of from potential asset sales will be sufficient?

Yes. Hi, Maurice. It's Greg. I don't think the action that you're referring to has much applicability to us. We have a very different physical risk profile in our assets than the peer you're mentioning, albeit I should defer to them to respond directly to that. If you think of the implications of that reading action, they would have -- previous to the action on Friday, they would have had a downgrade threshold of 10.5%. Ours is 10% today. But of course that downgrade threshold for them was for a rating that was a couple of notches higher than us. So I think it feels from our perspective, and we haven't had any conversations with SMP about any such changes, it feels like it's probably trying to get both us and them probably more aligned from a credit profile perspective.

Got it. Thank you very much.

You’re welcome.

Thank you. Your next question comes from Robert Hope from Scotiabank. Please go ahead.

Good morning, everyone. I want to go back to the asset sale commentary. Have you started processes here or is this more of a 2025 impact, just given the fact that in 2024 you will get some kind of residual benefit on a cash flow metrics from storm costs and fuel?

Look, I'm not going to get to telegraph too much into timing, Rob, but I'd say it's -- this is a very active file for us as we think about this. That is not new. Obviously, it's something that we always are thinking about. But I'd just say it's a very active discussion for us.

I appreciate that. And then just maybe moving over to Nova Scotia. Can you walk us through kind of your updated thoughts on the pathway to being off coal, just given recent announcements by the province as well as the Atlantic Loop, which appears to be off the table right now?

Yes. So unfortunately, Peter is conflicted this morning with a public speaking engagement. So he's not able to respond. But yes. So with the Atlantic Loop, it's really not now not yet. As we've been saying for some time, of course, the Atlantic Loop at the very least was challenged from a timing perspective, and now in a place where that is a practical solution to achieve 2030 climate goals is just really not possible. We're thankful for and encouraged that the province has established a clean energy plan that achieves those 2030 climate objectives. That plan is aligned with one of the scenarios from Nova Scotia Power's very detailed P work [ph], its integrated resource plan work. This plan, the clean energy plan involves significant more wind resources in Nova Scotia. It involves some grid scale battery to support that incremental wind. It involves of course continued use of the hydroelectric energy through the maritime link that continues to perform well and will evolve some fast acting gas generation in addition to an important reliability transmission tie, a new transmission tie between the province of Nova Scotia and the province of New Brunswick. So those would be the major components of the clean energy plan that is geared and structured to achieve those 2030 goals.

Thank you.

Thank you. Your next question comes from Ben Pham from BMO. Please go ahead.

Hi. Thanks. On the Nova Scotia Power clean plan, the 2030 targets, you have a placeholder for some investments needed there in this CapEx update. Are you going to quantify how much in aggregate you need through 2030 to meet that plan?

Hi, Ben. It's Greg. I don't have a full amount yet. It's still work that's been done in the timing, of course. A lot of those investments would be outside of our current 2024 to 2026 period. But it's a plan that would have, I'd say, less capital requirements than what the Atlantic Loop would have had. But in terms of how much capital, what years, and who's going to invest that capital, for example, we would anticipate a lot of the new wind developments would be based on or be funded by independent power producers. So at this point in time, we're still working through those details. And hopefully in the coming quarters, we'll have a better visibility over the long-term requirements.

Okay. And I know in response to some of the questions around asset sales for the balance sheet, you mentioned a couple of financial metrics you're looking at; the credit metrics, payout ratio and whatnot. Are you able to rank order priority for those financial metrics? And then at 15% asset sales, is that an enterprise value assumption or is it equity consideration you expect?

When we talked 15% of our funding requirements, Ben, would be referring to proceeds, net proceeds to give you a sense. How we're thinking about it? It's really funding flexibility, and as Scott mentioned, credit metrics and EPS. We believe that we have some opportunities within our portfolio that will be accretive to our funding flexibility, accretive to our balance sheet and credit metrics and at best, slightly accretive to EPS, but certainly not diluted to EPS is how would we effectively looking at it, but it's premature to give any more specifics than that.

Okay. All right. Thank you.

You're welcome.

Thank you. Your next question comes from Linda Ezergailis from TD Cowen. Please go ahead.

Thank you. Just wondering if you could help us understand a little bit more in terms of asset sales. How do you think of a partial sale versus a full interest sale in terms of maybe governance and financial complexity of a partial sale versus maybe achieving a higher valuation? Might you potentially increase optionality or bidding tension by putting more assets out for sale than you intend to sell or is it more of a targeted process? And can you comment on whether any regulated utilities might be considered, including New Mexico, or maybe would contracted assets be more of a focus?

Linda, it's Scott. Look, I know that the challenge with coming out and saying that we're going to look at select asset sales leads one to start to quickly question exactly which assets and how and -- I'm going to resist the temptation to get into that for hopefully obvious reasons. But I do think that from our perspective, we're looking at this in the context of making sure that the portfolio was set up on a forward-looking basis, continuing to drive the best profile of growth with strong financial footing. As you know, we do have a number of assets in our portfolio that many investors would speculate or maybe less core than others or a little more financially driven than strategically driven. And of course, we think about all those things. But I'm going to resist the temptation to get into specifics about commenting on any specific asset until we're in a position to announce something more formally.

Okay, understood. And now maybe just as a follow up, looking at your 2025 CapEx, it's increased -- the base CapEx has increased. Can you maybe stratify across what is behind that? How much of that is inflation versus additional scope in projects versus maybe some moving parts on FX? And what factors and when might we see kind of an upsizing of that two additional CapEx? So I would assume that's likely just trying to figure out the timing of when you might be adding stuff.

Yes. Linda, it's Greg. So we've tried to keep our capital forecast on a constant FX rate, so 130 is what we're using. So we're trying to take out any effective noise as a result of foreign exchange. In terms of what's driving a little bit of the increase in 2025 and 2026 quite frankly as well, I'd say there's a little bit of inflation. Obviously, we're all experiencing some inflation. But that's not really the main driver for any of it. Scott alluded to in his comments, we're just seeing an increased demand for capital across all of our business because of customer growth, demand for more renewables, demand for stronger reliability. And so the themes that have been driving capital investment in our sector for the last -- arguably the last decade are just continuing to accelerate. And so it's really those fundamental themes that we're seeing is driving the capital investment. It's capital investment that we need to service our customer growth.

Thank you. And then just as another follow up, as you look to potentially increase the frequency of your rate applications to eliminate regulatory lag, might there be other levers you would seek to incorporate that you don't already have in terms of riders to maybe recover capital as it is spent more frequently, especially if there's visibility to some important programs and initiatives to benefit customers in many ways, or other ways to address that lag?

I think you're right on, Linda. Obviously, riders can be an effective mechanism. We use them quite frequently in our U.S. utilities; New Mexico Gas, Peoples Gas and Tampa Electric. They are incredibly effective when they're being used to respond to specific capital investments driven by public policy. So think of the Storm Protection Plan at Tampa Electric, at our gas utilities, the replacement of cast iron, bare steel, pipe that's in the ground. And so taking that learning, it's an effective tool from a shareholder and customer lens to support those public policy driven investments we think it makes sense. And so it's obviously something that we've utilized in the past and continue to see if there's an opportunity to expand it as we continue to respond to new government policies.

Thank you.

You're welcome.

Thank you. Your next question comes from Richard Sunderland from JPMorgan. Please go ahead.

Hi. Good morning. Can you hear me?

Yes, Richard. Good early morning for you.

Yes, indeed. Thank you for the time today. I wanted to dig in a little bit more to the FFO side. Looking back to 2Q and the 2.1 billion target and the walk you had in the deck there. Could you speak a little bit more to trends on a year-to-date basis outlook for the fourth quarter? And I guess expand a little bit upon your remarks on what you're seeing in the 2024 here as well.

Yes, Richard, thank you. Certainly, we've been obviously very pleased with how the performance of cash flow has been for the year. We would have said on a normalized basis, we are targeting 11.5% with I think the expectations of at least one rating agency to be more on the 11% to 12% range. We're probably more towards the lower on a trailing 12-month basis, probably more like 11% at this point in time. And really a lot of the progress we've made in the execution of things we've done has been partially offset by obviously higher interest costs that wouldn't have been expected a year ago. As we sit here today, if we were to take our trailing 12 months and put it into, as an example, Moody's base methodology that would put us probably we think at around 11.5% to 12%, although we know there's obviously adjustments that get made to that up or down on any given year. So we're feeling pretty good about that. Which is really why at this point in time, we're really transitioning our focus on 2024 and beyond. And that means re-filing the ATM shelf and starting to access the ATM market, the contemplation of asset sales as part of that funding program and making sure we're incredibly disciplined on the timing and filing of rate cases. And so obviously the Peoples Gas outcome is very positive to '24. As Scott and I have alluded to, we will be filing for new rates in Tampa Electric likely on the first quarter of next year for 2025 and New Mexico as well. So the levers that we have in front of us, the path in front of us, just reconfirms our confidence in getting the 12% in 2024, as planned.

Got it, very helpful. And maybe just to unpack that final bit a little bit more, with the asset sales in that 2024 and beyond look, is that all incorporating the full 15% level of the asset sales, just part of that 15% contemplate any of the incremental CapEx you laid out today? I guess maybe even to take a step back, how do you think about funding that incremental CapEx overall?

Yes. I think it goes back to, Richard, a comment I made a couple of questions ago for another analyst is first and foremost, it provides incredible amount of flexibility. And that's flexibility on credit metrics and flexibility on funding. And both of those things will then allow us to be better positioned to capitalize on those incremental growth opportunities, if in fact they are realized in the '25 and '26 period. So we're really positioning ourselves to be able to capitalize on those in a prudent way in '25 and '26.

Understood. Thanks for the time today.

Thanks, Richard.

Thank you. [Operator Instructions]. Your next question comes from Mark Jarvi from CIBC Capital Markets. Please go ahead.

Yes. Good morning, everyone. Just in terms of the asset sales, it kind of implies that there's probably some different candidates you could look at selling. Just wondering whether or not you could upsize the scope of the asset sales or why wouldn’t you upsize the scope of the asset sales to minimize the amount of needs on the ATM as you look forward?

I wouldn't say, Mark -- sorry, it's Greg. I wouldn't say that we've precluded that. It's always going to be a combination of what we think makes strategic sense and positions our portfolio in the best possible way going forward. Obviously, market interest valuations play a role in that as well. But we haven't necessarily precluded anything in terms of the scope of what we might be looking at this point in time.

And just to clarify on that, Greg. If you did that 15% on the asset sales, that still requires you to do the roughly 250 million to 300 million annually on the ATM?

Yes. I don't think we see much of a change in that part of the funding plan, Mark. And I say that because I think as everybody knows, we're in an industry that's a negative free cash flow industry. And you can't continue to grow at 7% to 8% rate base growth while having some equity requirements over the period. And we think it's a prudent way to raise the equity to fund that capital growth in our business. So I suspect the ATM means maybe some years that we don't need to lean into it to the extent we've laid out. But I think over the entire period, I think it will remain part of our funding plan.

And just following the last question Richard asked about the upside in funding for incremental investments. So if I think about this right, 7%-ish percent rate base growth, but then you sells some assets, you lose rate base, you’re maybe down to 6.5% rate base growth. Would your view then be that you would then pursue more aggressively some of those incremental investments and get yourself back to 7% rate base growth? Or am I thinking the right way to think about it is the net rate base growth is more 6.5% over the next three years?

I'll leave it up to you to decide whether if you sell something, whether you take it out of a base or not. But our focus -- you can see 75% of our capital investment is in the state of Florida. And so as we think of the portfolio going forward, I don't think the math is going to move quite as much as you may be calculating right now.

Okay.

Or maybe said another way, Mark, there's assets in our portfolio that are financial assets as an example that actually are not growing at all today. And so you have to think about those kinds of things as well.

Yes, understood. Thanks.

Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines. Thank you.