Emera Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2023

There are 17 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Emera Inc. Q1 2023 Analyst Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Friday, May 12, 2023.

Operator

I would now like to turn the conference over to Dave Besantzen, VP of Investor Relations, please go ahead.

Speaker 1

Thank you, Colin, and thank you all for joining us this morning for Emera's 1st quarter 2023 conference call and live webcast. Emera's Q1 earnings release was distributed this morning via Newswire. In the financial statements, Management's discussion and analysis and the presentation being referenced on this call are available on our website at amira.com. Joining me for this morning's call are Scott Balfour, Emera's President and Chief Executive Officer Greg Blunden, Emera's Chief Financial And now, I will turn things over to Scott.

Speaker 2

Thank you, Dave, and good morning, everyone. Emera reported strong first quarter results this morning with $0.99 of adjusted earnings per share and a 36% increase in operating cash flow before working capital compared to the Q1 of 2022. The 8% increase in adjusted earnings per share year over year was primarily driven by higher earnings from our marketing and trading business and the impact of new rates and an asset management agreement at New Mexico Gas. The benefit of new rates at Tampa Electric and Nova Scotia Power We're offset by the impact of higher interest rates as well as milder weather in both Florida and Nova Scotia. In addition, Results at Nova Scotia Power were negatively impacted by the requirement to recognize the full provision for the $10,000,000 penalty related to the province's renewable energy standards.

Speaker 2

As a result of the delays in the commissioning of the Labrador Island Link and the ongoing testing in 2022, we received less renewable energy from Newfoundland and Labrador, which put Nova Scotia Power modestly below the 40% renewable energy requirement. However, I'm pleased to say that with flows of energy from the block this year continuing to stabilize and increase, Nova Scotia Power's energy supply year to date has Exceeded the 40% renewable requirement. While accounting rules required us to recognize the penalty in the quarter, We respectfully disagree with the penalty and intend to appeal it to the regulator and we would anticipate a decision on that before the end of the year. Last month, Newfoundland and Labrador Hydro successfully completed high power testing on the Labrador Island Link and as such received the confirmation of commissioning from the independent engineer. Nova Scotia Power customers Have already received more than 1,000,000 megawatt hours of clean hydro energy over the Maritime Link, which has meaningfully reduced carbon emissions in the province.

Speaker 2

This investment also saved customers in Nova Scotia almost $100,000,000 in 2022 by reducing the need to purchase High carbon fuel at elevated prices. With commissioning complete, we've now begun recognizing cash earnings on our Lille investment, an important step forward towards our cash flow and credit metric targets. We deployed over $600,000,000 in capital in the Q1 of 2020 And we're on track to deliver our capital plan of almost $3,000,000,000 this year. Over 75 Percent of our 3 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.

Speaker 2

S. Last year and is also one of the 20th largest economies in the world With significant customer growth in excess of 2% at Tampa Electric in 2022 and approximately 5% at Peoples Gas, Our capital deployment reflects the capital investment necessary to service that growth and deliver reliable energy for our customers. At Tampa Electric, we continue to invest in solar with another 2 39 megawatts to be installed by the end of the year, which will bring Tampa Electric's total solar generation capacity to over 1200 megawatts, representing approximately 22% of Tampa Electric's generation capacity and 14% of expected actual energy production. We're also making significant investments in grid hardening and reliability through Tampa Electric's storm protection plan. These projects are transforming the grid in Tampa for benefit of our customers.

Speaker 2

We're also highly focused on investments in system reliability in Nova Scotia and at our gas utilities, as well as to support customer growth and in continuing to strengthen these systems from the impacts of severe weather events. We continue to manage Our capital plans to ensure we are meeting legislative requirements as well as customer and regulator expectations, while at the same time managing the pace of investments in the energy transition in order to minimize cost impacts for our customers. Our investments in cleaner and more reliable energy across the business are enabling significant progress towards the first milestone in our climate commitment, A 55% reduction in CO2 emissions by 2025. Last year, we achieved a 41% reduction in carbon emissions compared to 2,005. Thanks in large part to our investments in solar and clean hydro energy being delivered over the Maritime Link.

Speaker 2

With over 60% of our capital plan focused on investments in cleaner and more reliable energy, we remain on track to achieve our first climate goal in less As we continue to work towards meeting the federal and provincial government's ambitious climate goals for Nova Scotia, We continue to believe that the Atlantic Loop is the most cost effective solution for our customers without putting system reliability at risk. The federal government reinforced its support for the project in its March budget. And I'm pleased to say we're supporting active negotiations in an effort to make this transformative project of reality. Given the scale of this capital project and with 2,030 quickly approaching, it's critical that we get started as soon as possible with clarity needed on the path forward this summer. With the recent successful conclusion of several major regulatory proceedings, it's a little quieter on the regulatory front this year.

Speaker 2

During the quarter, Florida Public Service Commission approved Tampa Electric's fuel and storm cost recovery request as filed. The timely recovery of these The incurred costs will allow us to make important progress on key credit metrics this year as we pay down the related short term debt. The team at Peoples Gas also filed their petition for a future rate increase with the regulator for a requested US138 million dollars in new rates January 1, 2024. Since their last rate increase in 2021, Peoples Gas deployed more than $1,000,000,000 of rate base investment to serve the growing population of Florida and to ensure their system continues to operate safely and reliably. We expect hearings for the rate case to take place in late summer with a decision in the 4th quarter.

Speaker 2

Overall, our businesses are performing well. Weather, of course, will always be a variable in our industry, but the underlying growth and our core utilities is strong. We remain intensely focused on strengthening our balance sheet and looking forward to the rest of the year With new base rates at 3 of our 4 core utilities, we expect to continue to deliver solid earnings growth and cash flow performance. And with that, I'll turn it over to Greg to take you through our financial results. Greg?

Speaker 1

Thank you, Scott, and thank you all for joining us. This morning, we reported Q1 adjusted earnings of $268,000,000 and adjusted earnings per share of $0.99 compared to $242,000,000 $0.92 in 2022, representing an 8% increase in adjusted earnings per share year over year. This quarter's results continue to demonstrate the value of our diverse portfolio. We saw stronger contributions from Emera Energy and New Mexico Gas, which was able to more than offset the lower contributions from Tampa Electric and Nova Scotia Power, whose results were somewhat weaker due to higher interest rates and milder weather conditions. And of course, Nova Scotia Power booked the $10,000,000 penalty that Scott referenced a few moments ago.

Speaker 1

Operating cash Before changes in working capital increased by 36% year over year despite the unfavorable weather in the quarter. Excluding the impact of fuel deferrals, Operating cash flow increased by $56,000,000 or 10% over Q1 2022, in line with our expectations. At our Investor Day in March, we outlined the step changes in cash flow and debt reduction we expect to achieve in 2023 that will result in meaningful improvement in our key credit metrics. This included new rate agreements at Tampa Electric, Nova Scotia Power and New Mexico Gas, all of which went into effect in Q1. It also included cash contributions from the Labrador Island Link, whose AFUDC earnings converted to cash earnings in April with the commissioning of the LIL.

Speaker 1

And finally, it included the recovery of storm and fuel costs at Tampa Electric, the recovery of which was approved as filed by the Florida Public Service Commission during the quarter and the recovery began on April 1. Perhaps more importantly, fuel costs have stabilized and where last year we were under So far in 2023, we are seeing an over recovery that is helping to further pay down the unrecovered balance faster than we otherwise would have expected. And while we're adjusting for the effect of the collection of fuel costs on our cash flow, this will reduce the outstanding debt balances associated with financing these under recoveries and therefore will improve our credit metrics. As we execute on the strategy that we laid out for you at Investor Day, we are already beginning to see measurable progress. While cash flows this year from Lille will be modestly lower than anticipated due to the delay in commissioning and an expectation that the incremental Lille investment will be deferred, this Before changes in working capital, excluding the impact of fuel deferrals increased 10% and we remain on track to achieve the $2,100,000,000 in operating cash flow and 11.5% cash to debt metrics that we outlined in March.

Speaker 1

And now I'd like to turn our attention to the details of our quarterly results. MiRIT Energy's Marketing and Trading business delivered a very strong quarter with 50 $3,000,000 in adjusted earnings more than doubled their $25,000,000 contribution in 2022. The weather was generally mild, but Emera Energy We realized unfavorable hedges that were entered into during 2022's elevated market. In addition, the mild winter meant more gas transportation was available, which the business was able to capitalize on. And finally, there was a brief cold spell in early February that brought price and volatility spikes and thus trading opportunities.

Speaker 1

Despite the strong start, Emera Energy is not adjusting its annual earnings guidance, which stands at $15,000,000 to $30,000,000 While Q1 had the benefit of the hedges I just mentioned, similar to what we saw in 2019, we expect some of those impacts to reverse in Q2 and Q3. Q2 and Q3 are always challenged for profitability because the cost of the transport and storage are amortized equally over time despite the fact that related revenues are mostly earned in the winter months. In addition, the 2023 contracts were bid into 20 22s market and so cost Somewhat elevated compared to the last couple of years. Moving to our gas utilities, New Mexico Gas delivered a US14 $1,000,000 or 73 percent increase in earnings compared to Q1 2022. Similar to last quarter, this was driven by favorable asset management agreements that the business entered into to utilize excess pipeline capacity as well as new base rates that went into effect on January 1.

Speaker 1

Due to a combination of market conditions and weather in the region surrounding New Mexico Gas, The AMA generated approximately US38 $1,000,000 of benefit, of which US27 $1,000,000 will be returned to customers and the remaining US11 $1,000,000 before tax contributed to the higher earnings for the quarter. We do not expect to see this kind of contribution continue for the balance of the year. Contributions from Tampa Electric decreased US9 $1,000,000 compared to Q1 2022. The decrease was primarily driven by higher interest in operating expenses. While weather in the quarter started off mild, especially compared to the very favorable weather in Q1 2022, Impacts on load were largely offset by strong customer growth.

Speaker 1

With new base rates in effect as of January 1 and the continued economic and customer growth, The business continues to be very, very strong. Contributions from our Canadian utilities decreased $10,000,000 compared to Q1 2022. Much like in Tampa, we incurred higher interest expense and experienced a milder winter here in Nova Scotia. In addition, during the quarter, Nova Scotia Power was required by accounting rules to recognize a $10,000,000 penalty related to renewable energy standards. We intend to appeal this imposed penalty Excluding the impact of the penalty, the financial performance of the utility in the Q1 of the year was solid as new rates performance for the year to be close to or slightly below the bottom end of our ROE range at a reduced equity thickness of 35%.

Speaker 1

Corporate costs increased $13,000,000 this quarter, primarily driven by higher interest costs. These were partially offset by the timing of share based compensation expense and the related hedges. And finally, higher share count decreased adjusted earnings per share by $0.03 in the quarter. Earlier this month, we completed a $500,000,000 issuance of senior unsecured notes at Emera to address our only holding company majority this year. And in March, we issued $500,000,000 of unsecured notes at Nova Scotia Power for general corporate purposes.

Speaker 1

We saw strong market support for both transactions. I want to take this opportunity to reinforce that we remain committed to our investment grade credit ratings and that we continually do engage regularly with the credit rating agencies. In support of our financing transactions this year, all 4 rating agencies confirmed our ratings and outlooks in their standard letters. As we continue to execute on our capital and funding plans this year, I am confident that our growth in our utilities will allow us to achieve the targeted credit metrics that we have And now I'll turn it back over to Dave. Thank you, Greg.

Speaker 1

This concludes Presentation, we'd now like to open the call for questions.

Operator

Thank you. Ladies and gentlemen, we'll now conduct the question and answer If you're using a speakerphone, please lift the handset before pressing any keys. One moment for your first question. And your first question comes from Rob Hope from Scotiabank. Rob, please go ahead.

Speaker 3

Good morning, everyone. First is on the At the Tampa Investor Day a couple of weeks ago, you highlighted a number of other levers you could pull to strengthen metrics in 2023, including deferring CapEx as well as optimizing some working capital. Can you give maybe give us an update on those items? And I guess as well, It seems like your cash flow was strong or in line with expectations in Q1. I would imagine this wouldn't take into account the

Speaker 1

Yes. First of all, good morning, Rob. It's Greg. On the first part of your question, obviously given the timing of the little commissioning and we're quite pleased that that is now fully commissioned. It looks like the $240 ish million of true up capital will likely be in early next As opposed to this year.

Speaker 1

Absent that, we're still looking through our capital plans, but nothing definitive at this point that we're ready communicate to you, we'll certainly refresh our capital plan as we go through the year and of course in November, provide an updated 3 year forecast at that point in time. In terms of how we're viewing cash flow, certainly, if you recall At Investor Day, we were expecting on a fuel normalized basis to have our cash flow increase 10% on a year over year basis. And we achieved that in the Q1 of this year and that was obviously not incorporating any incremental cash from Labrador Island Link because that commission Didn't start to April 1. Certainly, on a non fuel adjusted, cash flow is significantly stronger than we would have expected, in large part because of the softening commodity prices. And I referenced that at this point in time, we're actually over recovering fuel costs at Tampa Electric.

Speaker 1

And of course, the 36% increase in cash flow quarter over quarter, that is obviously before Starting to collect cash in Labrador Island and also before collecting the unrecovered fuel costs and storm costs at Tampa Electric that did not start until April 1. So yes, I guess in summary, we're feeling really, really good with how cash flow has started the year and our forecast going forward.

Speaker 3

Excellent. And then maybe just reading between the lines here, on the Atlantic Loop project, the commentary or tone surrounding it Seems more positive than in prior quarters. Could you maybe give us an update of the gates that Have to be achieved to get clarity towards the summer as well as when could capital or how far out

Speaker 2

Yes. Rob, it's Scott, I'll let Peter answer most of this. Let me sort of the back part of that question in terms of capital. We'd still be in a place where we're not expecting To invest any material capital in the Luton project itself, we're looking to support From engagement from other parties in terms of that. So we're not we're still at this point not looking for at capital deployment other than projects inside Province of Nova Scotia, inside Nova Scotia Power But let me let Peter answer the substance of your question.

Speaker 4

Sure, Scott. Hi, Rob. So, yes, I think It's fair to say how you're reading between the lines is that discussions with the federal government and other parties involved, remember this is A complex multi stakeholder project have intensified, I would say, over the last number of weeks. So we're having productive Discussions with the federal government. We've always said that for this project to work, our customers in Nova Scotia need direct Federal support to help with the transition.

Speaker 4

I think you've seen public comments from the federal government It sounds like they're very committed to this project, and we're pleased so far with the activity around the negotiation table, But I'd probably leave it there for now. But other than to reinforce Scott's point that we really to hit the 2,030 target, There's a lot to do. And so we really need clarity on the path forward. The biggest piece of that, what is the federal funding support that we would need that clarity sometime this summer.

Speaker 5

Thank you. Welcome.

Operator

Your next question comes from Maurice Choi from RBC Capital Markets. Maurice, please go ahead.

Speaker 6

Thank you very much and good morning. Maybe just sticking with The credit metrics theme here. You mentioned that you're feeling really good with your cash flow generation so far in Q1, yet you've reconfirmed 11.5 percent target for this year. Was there any headwinds that you're that we should be aware of that might be preventing you from accelerating past 11.5% by And this year and also with regards to deferring CapEx, maybe being a little bit more direct here, given where the market uncertainty is, Is there a motivation to perhaps consider that even more forcefully despite being having good cash flow generation just in case and then reaccelerate next year.

Speaker 1

Yes. I think, Maurice, it's important to remember When I mentioned and referred to the 11.5% cash flow debt metrics, we're talking on a fuel normalized basis. And so on a fuel normalized basis, cash flow It's unfolding pretty much exactly as we would have expected. You remember the catalyst to drive that were the 3 rate cases that Rate increases at Nova Scotia Power, Tampa Electric and New Mexico Gas, which are now completed and of course the Labrador Island Link Commissioning, which is also complete. So we're feeling really good on that, Pat.

Speaker 1

What we are seeing though is Obviously, a reversal of what we saw last year in terms of commodity prices and the time of the recovery of fuel costs, so that will help on an overall basis. When we look at it on a normalized basis, it's been pretty much consistent with where we expected to be. In terms of capital, again, just following up on my comments a few minutes ago, Maurice, there's nothing At this point, material that would be worthy of disclosing to you. But I think it's also important to remember that our capital is deployed in our utilities for the benefit of our customers. And when we're seeing large customer growth, quite frankly, not just In Tampa Electric, but in Peoples Gas, we're seeing customer growth here in Nova Scotia Power and requirements to continue to storm hard in the system.

Speaker 1

That doesn't on our core business, it doesn't necessarily give us a lot of flexibility to move capital, but we're still looking at the timing of the execution of that capital. And so there Some capital move between years, but I would say at this point in time, we're not expecting anything material above and beyond The Labrador Island Link true up investment that I mentioned earlier.

Speaker 6

Thanks. And maybe just a quick follow-up, your expectation of how the rating agencies will respond to these and any recent engagement with them about changing the outlooks back to stable?

Speaker 1

Yes, I mean, that's an ongoing conversation Maurice. I mean, generally, they look through the fuel cost Recovery side of it, so looking through maybe the cash flow perspective, but I think they're fairly consistent across the board. They don't normalize for the associated debt with respect to those fuel cost recoveries. Obviously, with the majority of our under recoveries in 2022 at Tampa now having regulatory approval for that, that's helpful seeing an accelerated recovery of those costs, which does mean we're reducing our debt. So given that they don't normalize for the debt, that will certainly be a positive.

Speaker 1

But having said all of that, I'm not anticipating that we'll see a shift back to stable outlooks anytime soon.

Speaker 6

Thanks. And maybe just finishing up here on Emera Energy. Back at the Investor Day, Obviously, we heard that Judy highlighted that the business outperformed the normal range in 5 out of the last 9 years. And in this quarter, results are clearly strong. Thoughts on your normal range of $15,000,000 to $30,000,000 And if this probably should be updated?

Speaker 7

Hi, there. It's Judy. Well, we said we're sticking with our guidance for the year, and we are. Everybody here, I think, on the call understands the phenomenon we have where our gas transportation costs Amortized evenly through the year, so we have to bear the burden effect through the summer months. When we come off of a period of high pricing, The reality is we can hedge that up in the winter and make a little bit of money, but the cost that we have to absorb over the summer are higher.

Speaker 7

So when we look at our forecast now, and it's only a forecast that we have we do have volatile earnings. We're still comfortable for this year In the $15,000,000 to $30,000,000 range. As the summer unfolds, that could change. And if it does, We'll provide updated guidance. But at this juncture, we're still that's the range that still feels right to us.

Speaker 3

Great. Thank you for the color.

Operator

Your next question comes from Ben Meehan from BMO. Ben, please go ahead.

Speaker 5

Hi, thanks. Good morning. Maybe back to the credit metrics and the floated debt Target, I guess with the way you're framing it, you're excluding the or you're normalized for the fuel costs Recovery. But assuming like the Q1 trend continues through year end, Is it correct to say like on a GAAP basis that you're going to be well above the 11.5%?

Speaker 1

Yes, Ben, it's Greg. It's probably too early to tell that, But I think there's a strong possibility of that. But look, as I've said before, I don't think we should be penalized when we under recover Fuel costs and have to finance with that short term debt nor do I necessarily believe we should get the benefit of that. But certainly from a GAAP perspective, It's trending in a fairly material positive way on the upside. And Just to follow-up on a couple of the other questions.

Speaker 1

We're feeling really good about it. Don't anticipate that there'll be any change in outlooks In the near term, near term being the next quarter or so. But I think if this trend continues, I think we'll be well positioned later in the year, on a GAAP basis with both Quite frankly, with all 4 rating agencies.

Speaker 5

Okay. Can you remind me on gas hedging at utilities? Are Are you restricted from doing that?

Speaker 1

We are at Peoples Gas. At New Mexico Gas, We hedge our firm baseload gas. So what we expect to have as a baseload requirement for our customers, But in Florida, like the gas or like the electric utility, there's no hedging.

Speaker 5

Okay. And maybe just one clean up on the $10,000,000 panels in ASPI. Is that are you reflecting that in your Or should we be reflecting the ROE or is that outside of the rate base calculation?

Speaker 1

I would expect that that would be excluded from the ROE calculation.

Speaker 5

Okay, got it. Okay, thank you. You're welcome.

Operator

Your next question comes from Darius Lonsnap from Bank of America. Please go ahead.

Speaker 8

Hey, guys. Good morning.

Speaker 2

Thank you for taking the question.

Speaker 8

Maybe just starting off on the Peoples Gas rate case, Acknowledging it's early days still, it's recently filed. But how do you feel about prospects for settling there? I know there's been some of Opportunities for that in the past at the other Florida utilities. And maybe just in the past, you framed it as largely being about catching up with customer Growth, OpEx, things like that, which seems fairly standard, but any other puts and takes as far as The context of the filing that you could elaborate on. Thank you.

Speaker 2

Hello?

Speaker 7

Good morning. So with respect

Speaker 9

to the first part of your question, our intention at this point is to Continue through with a full hearing process, both FPUC and Florida City Gas had their rate case Proceed in that way and we had some very good results. And with respect to your other question about framing, Yes, you've got it absolutely right. It's largely about capital. And going back to what Greg said, that's in response to very, very strong Customer demand and then outside of that, it's really trying to ensure that we have the organizational capacity to continue to serve that demand and then obviously effects of inflation and interest expense are the other factors.

Speaker 8

Okay, excellent. Thank you for the color. One more if I can on New Mexico Gas Now. Just maybe following up on those AMAs, obviously gave you a strong start to the year, dollars 27,000,000 back to customers, I imagine the regulators are very happy about. What about the part of that $38,000,000 gain that goes to the utility?

Speaker 8

Is that Do you view that as giving you additional flexibility to perhaps derisk O and M either later in the year or into future periods? Just curious how you're Thinking about effectively using that additional gain from the ANAs?

Speaker 1

Yes, Darius, this is Greg. I mean, I think it's important to maybe take a step back and think about it. So we have a requirement to purchase pipeline capacity to service our customers. We've entered into asset management agreements so that when we don't need that capacity, we can utilize it and have a third party manage that for us and create The majority of which goes to customers. So just want to start with that is the benefit is largely going to customers and it's a very constructive thing.

Speaker 1

To the extent that we have an opportunity to create that benefit for customers and there's some residual value to shareholders, We don't necessarily look at that as anything that provides us with flexibility in terms of how we manage our day to day operations. It's nice to have. We appreciate it. It's real earnings, it's cash, all of those kinds of things. But as a outcome of that, we wouldn't be adjusting Any of our operational plans at the utility.

Speaker 8

Okay, got it. Thank you for that. I'll leave it here.

Speaker 1

Thanks, Darius.

Operator

Your next question comes from Linda Ezergailis from TD Securities. Linda, please go ahead.

Speaker 7

Thank you. Just wondering when you reflect

Speaker 10

on the learnings from Maritime Link and Labrador Island Link, How, Emera might approach participation Atlantic Loop beyond requiring Direct federal support for NSPI customers. If it were to proceed, how would you ideally see Either the revenue model, construction or operations, like what would translate well, what would ideally be adjusted? If you can share any reflections that would be appreciated.

Speaker 2

Yes, Linda, I'd say it's still a bit early to frame a lot of that up. Really, the focus that Peter and the team Have had in working with the province and the federal government and the other stakeholders is how to enable The loop as a part of a solution path to achieve the closure of coal plants And 80% renewable by 2,030. The loop is certainly a key enabler of that. It's what we consider to be what we believe is the best path forward for Nova Scotia. Of course, in addition to that, there's still A lot of things that have to happen in Nova Scotia, a stronger inter time between the province of Nova Scotia and New Brunswick, More wind needs to be built, batteries are likely part of a solution, other forms of providing backstop capacity as more and more intermittent renewables and wind is brought onto the system, but we see continue to see the loop this transmission interconnect between Nova Scotia and Quebec through New Brunswick as a key enabler.

Speaker 2

As to what Avmirror Power's role is in the loop. As we said, we continue to support the negotiations between the parties And part of the ongoing conversation with the federal government is how they can assist in enabling that without or reducing the cost pressure that would impact Nova Scotia Power customers. And that involves the that includes the involvement of Canada Infrastructure Bank, which may create some innovative solutions That allows for their participation without the need for Nova Scotia or New Brunswick to directly invest and instead relying upon some financing techniques from CIB. This is all still very much in motion, in discussion until we sort of further advance These conversations to know as to whether this is a workable path or alternative paths without the loop need to be Address, this is all part of the reference that Peter had to the ongoing discussions that need to be sorted through the summer in order to create a clear pathway forward to achieve those 2,030 goals.

Speaker 10

Thank you. And maybe just turning to Emera Energy Services. If we think about the capacity that you've committed to for the balance of the year, is that related to typical Prior opportunities just getting more expensive or are you adding some scope and contracting more capacity related to Doing a little bit more, doing things differently.

Speaker 7

It's mostly that it's more expensive, Linda. As you know, it's kind of run cyclically a bit. If the market gets heated, then we're bidding into these kind of short term capacity assignments every year. So if you're doing that in a relatively hot market, everybody can look and see the value of the transport and they adjust their bids accordingly. And so it winds up.

Speaker 7

You pay a little bit more, but of course, you're able to hedge it out at higher value. So It's a wash, a bit of a wash there. That's a cyclical phenomenon. So This prices stay where they are currently. Kind of the next round of bidding will be a materially lower amount.

Speaker 7

So we've been through that cycle before. We'll be through it again. So there is some we do have a little bit more activity in the Southeast. That's something that we're picking away at building that business, but most of this would be What we still consider our core area in the Northeast U. S.

Speaker 7

And transportation associated with that.

Speaker 10

That's helpful context. Thank you, Judy. And just a quick follow-up question. Energy is losing a little bit Less money this year than last, it looks like. When is your path to getting to breakeven and how Larger contribution do you think it can make once it reaches scale?

Speaker 2

Yes, it's Too early to frame that up at any clarity. I'd say, Linda, we continue to be excited about The prospect of Bloc Energy, we continue to support it, fund it, obviously, as you see and continue to be encouraged by the reaction that we're seeing From prospective customers, from existing customers, where that product is deployed And also in the advancement of the technology to the commercial version of that technology. But it's Still early days with this, so wouldn't want to get ahead of ourselves in terms of framing a timing for Breakeven or framing up what how bright the future might be for Block Energy is one that we continue To advance, be excited about, but we're also cautious and realistic at the same time. So stay tuned.

Speaker 11

Thank you.

Operator

Your next question comes from Mark Gerberry from CIBC Capital Markets. Mark, please go ahead.

Speaker 11

Thanks. Good morning, everyone. I wanted to touch on the at the market program. As far as I can tell, it seems like It seems like you guys used it in Q1. Is that a reflection of share price or just the strong fuel recovery in Eneranger?

Speaker 11

And assuming that the fuel recoveries track well through the balance of this year, does that Change at all your sort of usage of the ATM this year?

Speaker 1

Yes. Hi, Mark. It's Greg. Yes, nothing's change from our financing plan. As you know, we often access that program at different levels in different quarters.

Speaker 1

To be quite frank, it's actually often more about timing. So if you think of we were relatively late in the cycle releasing our annual results We spent quite a bit of time kind of in the March, early April timeframe meeting with credit rating agencies. And given the sensitivity around there, At that point, just didn't feel it was comfortable. Obviously, it's hard not to look at the share price and have that weight on the decision. But I'd say it's more of the mechanics of the timing and Market access than anything else.

Speaker 11

Okay. That makes sense. And then there's been some more press releases from different consortiums talking about offshore wind and Sports on transmission down in the U. S. From Atlantic Canada, other green ammonia.

Speaker 11

Any thoughts in terms of getting involved there? I mean, why export to other markets when obviously there's a decarbonization need in the province of Nova Scotia? Sort of updated views on how those Concerning these are operating and if there's any fit to try to keep more stuff local.

Speaker 2

Yes. I mean, I'd say, Mark, that Nova Scotia Power has certainly been engaged in supporting A number of developers in terms of their efforts to create both hydrogen and offshore wind Development opportunities here in the province and I know that continues to be a focus Up line, in fact, Peter, maybe I'll let you sort of carry on with the question. I can talk a little bit about South of the Border.

Speaker 4

Sure. Mark, hi. Just to reinforce that, we're in regular Discussions, collaboration with a number of hydrogen developers here. We see the potential That the development of hydrogen economy presents for the Nova Scotia economy. And so very supportive of that And it being very supportive of the needs of hydrogen developers as they get up to scale.

Speaker 4

So we'll continue to work with them It's supportive of the general direction. That's really the Nova Scotia power role at this point. Beyond that, we're looking at our capital is really based on reliability investments inside the business. But I guess just to sum it up, supportive of the activities of the hydrogen economy here in Nova Scotia.

Speaker 2

Yes. And then as it relates to the prospect of transmission of wind energy from Atlantic Canada So, as you know, we've participated and had a number of efforts of that in the past. We're not actively engaged in that today, but there are skill sets that we've got and to the extent that those kind of opportunities develop and become more meaningful than Would be something certainly that we'd be looking at and considering, but nothing that we're actively involved with today.

Speaker 11

And just to follow-up on that, like the Atlantic Link project that you did, I think, a handful of years back, is that something that has Update here with what that consortium is looking to do?

Speaker 2

It's a little different in terms of start point and end point, Mark, but certainly, it's sort of the reference I made earlier that we've been engaged in a number of projects that as well as Overland Transmission Initiatives, it's a space we understand well. We understand the complexities of it. Obviously, we've had some success With subsea electric transmission cables in the past. And so beyond the Opportunities to assist any offshore wind developers that do progress in terms of interconnection into the Nova Scotia Power System To the extent that those opportunities also look for transmission path down to the Certainly, we'll certainly engage in discussions and explore to the extent that there is a role or an opportunity of interest or fit for us. But I'd say we're not actively involved in any of those discussions today.

Speaker 11

Okay. All right. Thanks a lot.

Operator

Your next question comes from David Quezada from Raymond James. David, please go ahead.

Speaker 12

Thanks. Good morning, everyone. Maybe just starting up with a question, Peoples Gas, it seems like Bill 1160 has been moving forward in Florida. I'm wondering if that, I guess maybe could bring forward or change the size of Any opportunities or investments you might be able to make there in either RNG or Hydrogen?

Speaker 2

Helen?

Speaker 9

I'm sorry, just need to make sure I'm talking about the same thing you are, but Bill 1162, if you're talking about the RNG and Hydrogen cost recovery, Bill, can I just confirm?

Speaker 11

That's correct, yes.

Speaker 5

I

Speaker 9

just perfect, thanks. Yes, so I mean, It's interesting. We've been studying it closely and are tracking it and making sure that we're well positioned To advocate for that, it's possible that it will have some positive effects for us. But at this stage, So it's still reasonably early and we're just evaluating it.

Speaker 12

Okay, excellent. Thank you for that. And then maybe just wondering if there's any update on the plan that you rolled out At the Investor Day, a Polk Power Station, any upcoming milestones that we should be on the lookout there for some of the big projects that you had moving forward there?

Speaker 2

Archie, how are you?

Speaker 8

Good morning.

Speaker 13

No real update on our plans at Power Station. We continue to work through the engineering analysis, The business cases in Q1, I am pleased to say that we did successfully negotiate An agreement with the U. S. Department of Energy on the first tranche of funding, which they provided to us in 2022 And actually just a week or so ago, we were informed by the U. S.

Speaker 13

Department of Energy that we have successfully We applied for and we're successful in a second tranche of funding that supports the engineering studies at Polk. But We're still this is a this will there's a year's worth of effort just working through all of the detailed engineering that's needed to finalize our Plans there and that's what the team is very focused on.

Speaker 12

Excellent. Thanks for that. I'll turn it over.

Operator

Your next question comes from Andrew Kuske from Credit Suisse. Andrew, please go ahead.

Speaker 3

Thanks. Good

Speaker 11

morning.

Speaker 2

Sorry, Andrew. Unfortunately, you're breaking up and we can't quite hear you.

Speaker 1

Sorry, is that better?

Speaker 3

It is, yes.

Speaker 14

Okay. So I'm sorry about that. Is it fair to say the learnings from the Atlantic Link project a number of years ago is Transmission, frankly, just takes a long time to get approved. You had a good idea, but it's just challenging. And so are you sort of stepping back a little bit, focusing What you can control to a greater degree on the onshore and then seeing opportunities to connect with offshore wind in more of a Like a backing in kind of fashion, should those projects proceed?

Speaker 2

Yes. If I'm understanding you correct, your question, Andrew, if it's in relation to Our role or participation in offshore wind, I think The way you framed it would be correct. The reality is for Nova Scotia Power in serving its customers, Onshore wind is far less expensive, far more cost effective than offshore and there continues to be significant onshore wind development opportunities. And so that's been the focus For both the province of Nova Scotia in its procurements and for Nova Scotia Power and its integrated resource plan Is continuing to advance and support onshore wind. The offshore wind developments, offshore wind Continues to get more economic as the size of turbines continue to increase to impressive scale and the offshore wind I think has been an area of particular interest When looking at hydrogen development in the province as being an enabler and a supporter of the significant energy requirements That are needed for the production of hydrogen, particularly in green hydrogen form.

Speaker 2

And We continue to be here trying to be as helpful as we can to hydrogen and offshore wind developers to the extent that Nova Scotia Power participates in the interconnection and system support components of that. It will We'll be doing so if and when we see opportunities from an Emera perspective to be Exploring investment and participation, we'll continue to assess that the same way we always have in terms of ensuring that it Makes sense for us from a financial and risk perspective. And so it's a these are files that we continue to actively watch We are building relationships. We're not specifically engaged in investments Or advancement of any of those particular developments currently, but it certainly falls that we're watching and we'll engage if and when it seems to make sense.

Speaker 14

Okay. Appreciate that. And then Maybe just not completely obscure, but it's gaining a lot more popularity recently just on pump storage And your Bear Swamp exposure, if you could just maybe just give us a brief highlight of the contractual length around Bear Swamp and just what your expectations are of the asset?

Speaker 7

Andrew, it's Judy. So Bareswap doesn't really have it's a market facility now. It has it's entitled to capacity payments from ISO New England and then it basically Brookfield is the commercial manager and they manage it on a daily basis in the market. Years ago, it had a long term supply agreement with Lifebu, but that ended, I think, April of 'twenty one. So it's a market facing facility, just had a big upgrade on both units.

Speaker 7

So it's in excellent condition. I would say it's the biggest we refer to it as the largest battery in New England. And it's there, it's challenged and we try we're working it every day as we feel it should be Paid a little bit more for the value it provides in terms of its call ability and that kind of thing. But That's a long process with the with ISL New England to try to get that properly recognized. But in the meantime, it's basically a market facility.

Speaker 14

Okay. Appreciate that. Thank you.

Speaker 7

Thanks.

Operator

Your next question comes from Patrick Kenny from National Bank Financial. Patrick, please go ahead.

Speaker 15

Hey, good morning. Just wanted to come back to the fuel costs over recoveries in the quarter. The 81,000,000 at Tampa Electric makes sense, but can you just walk us through the drivers of the 33,000,000 Under recovery at NSPI. And I guess if commodity prices stay where they are, if you expect NSPI to switch to over recoveries for the balance of the year. And if so, wondering if there might be any mechanism Within the new regulatory framework where you could reallocate some of those over recoveries towards non fuel rate increases, say above the 1.8% cap that might allow you to bring forward some capital projects in Nova Scotia?

Speaker 15

Thanks.

Speaker 1

Yes. Patrick, it's Greg. We're not expecting because we have a fairly extensive hedging program at Nova Scotia Power, we're not expecting to have any over recovery of fuel costs this year. And if you think of the rate Settlement, the majority of the rate increase in 2023 was directed to non fuel and then that flips in 2024. So the under recovery that we're experiencing is kind of by design and then that'll get Largely collected in 2024 and you may recover or may recall as well that the agreement that we have with the customer group that the U.

Speaker 1

A. R. B. Has approved that we'll be filing later this year as well for any incremental change that we need on fuel rates for 2024. But at this point in time, we wouldn't expect that profile to reverse at all.

Speaker 15

Got it. Okay. Thanks for that.

Speaker 2

And I

Speaker 1

would say sorry, Patrick, I would say it generally is Higher in terms of total dollars in Q1 just because that's where the majority of our load is over the course of the year as well.

Speaker 15

Makes sense. Okay. Thank you. And then at New Mexico Gas, again, just given The lower natural gas price outlook, wondering if there's been any change in thinking around the need for LNG storage or Perhaps any delay in development of that project, at least until you have maybe more certainty on the macro commodity price environment?

Speaker 2

Ryan, do you want to answer that one, please?

Speaker 16

Yes, I'm happy to take that. No, I think our view on LNG is Still very good for customers. It's not only a pricing play, but a reliability play here in New Mexico. We believe if we own the It's a much more reliable asset. We can get our gas quicker and it's under our control.

Speaker 16

So We still feel it's an important asset for the business for the long term. I understand that gas prices have moderated here In the last month or so, but we certainly don't know in the future where gas prices will be. So we still think it's a very positive investment for customers.

Speaker 15

Okay, perfect. Thanks for that. And then last one, maybe for Greg as well. So Just back to your commitment to the investment grade credit rating and I know your metrics are moving in the right direction, but just wanted to confirm that Your commitment is to an IG rating across all Rating agencies or is it more of an average IG rating? In other words, if one rating from one agency slipped One notch to non IG, but the others stayed intact.

Speaker 15

Would you be okay with not taking any action unless more than one of your ratings fell to non IG. Thanks.

Speaker 1

Yes, Patrick, it's probably a hypothetical question. I mean, we're committed to investment grade credit ratings Across the board, in general, I mean, the rating agencies are typically in line with each other on their views. We're Happy with the progress we're on, the path that we have in front of us. And so we don't believe we're going to be in a situation where we're going to have to contemplate that.

Speaker 15

Excellent. I'll leave it there, guys. Thank you.

Speaker 1

Thanks, Patrick.

Operator

Okay. And there are no further questions at this time. I'll turn it back to Dave for closing remarks.

Speaker 1

Thank you, Colin. That concludes our call for today. Please reach out to Investor Relations if you have any questions. Thank you very much and have a great day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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Earnings Conference Call
Emera Q1 2023
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