Good day and thank you for standing by. Welcome to the Emera Q4 2021 Analyst Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, David Bezanson. Please go ahead.

Thank you, Don, and thank you all for joining us this morning for Emera’s fourth quarter 2021 conference call and live webcast. Emera’s fourth quarter earnings release was distributed this morning via Newswire and the financial statements, management’s discussion and analysis, and the presentation being referenced on this call are available at our website at emera.com. Joining me 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 Emera’s management team. Before we begin, I will 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. You should refer to the appendix for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. And now I will turn things over to Scott.

Thank you, Dave, and good morning, everyone. This morning we reported annual adjusted earnings of $723 million and I’m pleased to say that thanks in large part to record earnings and Peoples Gas and Emera Energy’s exceptional year, this represents our highest annual adjusted earnings to date. Our fourth quarter adjusted earnings per share was $0.74 and annual adjusted earnings per share was $2.81. When you further adjust for illegal settlement, we received in the fourth quarter of last year, adjusted earnings per share increased 7% over the fourth quarter of last year and 11% year-over-year. This is a continuation of our established record providing predictable sustainable growth in earnings and shareholder value. Since 2017, we’ve delivered 8% compound annual growth in adjusted earnings and in 2021, we raised our dividend by 4%, representing 15 continuous years of dividend growth. Our continued financial and operational success highlights the strength of our strategy and the dedication of our team, as they continue to focus on delivering value to our customers. As we advance our strategy to reduce the carbon intensity of our portfolio and invest in a stronger, more reliable grid, all at a pace that is cost effective for customers, we are well-positioned to continue to deliver long-term growth for our shareholders. Nova Scotia Power achieved an important milestone in their decarbonization journey in the third quarter of last year, when hydro energy for Muskrat Falls began flowing to Nova Scotia through the Maritime Link. Access to this clean energy is the major contributor to enabling Nova Scotia to reach 60% renewable energy by the end of 2022. I’m pleased to report that last week, the Utility and Review Board approved the $1.8 billion final cost assessment for the Maritime Link. This represents a significant achievement for the business and…

Thank you, Scott, and thank you all for joining us today. This morning, we reported fourth quarter adjusted earnings of $168 million and adjusted earnings per share of $0.64. For the year, adjusted earnings were $723 million and adjusted earnings per share was $2.81. Before we continue, I want to remind everyone that in Q4 2020, we recognized a $36 million award related to outstanding litigation, which represented $0.15 on adjusted earnings per share. Normalizing for the impact of this one-time award better highlights the performance of our ongoing business. Excluding the impact of the one-time award, Emera’s adjusted earnings per share increased 7% for the quarter and 11% year-over-year. Growth in adjusted earnings per share was primarily driven by continued growth at Peoples Gas and improvement at Nova Scotia Power as compared to the weaker 2020, lower corporate costs and higher earnings in our marketing and trading business. These were partially offset by stronger Canadian dollar and a higher share count. The stronger Canadian dollar has been a headwind throughout 2021, decreasing adjusted earnings for the year by $0.11. But despite these headwinds, the strong performance of our underlying business continues to drive earnings growth for shareholders, which I’ll take you through now. When you adjust for the impact of the legal award previously discussed, adjusted earnings per share has increased by $0.04 over Q4 2020, largely driven by strong operating results in our gas and Canadian utilities and lower corporate costs. Corporate costs decreased primarily due to lower operating costs, primarily long-term compensation costs, and corporate interest expense, partially offset by higher preferred dividend expense as a result of our issuances last year. Our gas utilities led by Peoples Gas continued to benefit from new rates and the 4% to 5% growth in its customer base. Excluding the…

Thank you, Greg. This concludes the presentation. We would now like to open the call for questions from analysts.

[Operator Instructions] And we have a question for the line of Ben Pham with BMO.

Hi. Thanks. Good morning. I had a couple questions on the NSPA rate case. And I want to first off, how does the Atlantic Loop project feed into the rate case? You need some visibility on that before clearing the hearings and getting the decision like how it may flows to the rate case outcome?

Yeah, thanks. Thanks, Ben. It’s Scott. So look within the GRA, certainly, there’s important investments that are proposed as part of the journey to close coal plants. It would not specifically, at this point, include anything in relation to the Atlantic Loop but rather would focus on investments required in Nova Scotia. At the same time, obviously, we continue to advance our discussions on the Atlantic Loop, which is also an important part of the ability to transition off coal-generation at Nova Scotia over time.

Okay. And then also what’s the thought process around the ROE and if you get the midpoint the same with interest and earnings sharing mechanism, they also provide potential for a much, much lower downside potential or maybe not much lower, but slightly lower on the downside. Like what’s -- is there a number that you can pick up, that you are thinking about? I love just a rationale around that early change.

I think really, Ben, it’s just a reflection that the 25 basis points up and down, as has been the case of Nova Scotia for some time, is actually unusually very narrow. And with the amount of investments and the journey in front for Nova Scotia, it’s really just looking at that very narrow band and saying what’s appropriate, we believe appropriate for customers appropriate for the regulator to look at that band in the context of the volatility of a potential earnings for Nova Scotia Power and to make sure that it’s consistent with market practice. And right now, that 25% band seems inconsistent with market practice, but ultimately something that the regulator will determine as appropriate.

Okay. [indiscernible] and everything, and maybe one last one on the Caribbean, are you sure that the realized ROEs you’re generating in those businesses and just gives a sense of that earnings is a slight negative?

Yeah, I think -- Ben, it’s Greg. I mean, really, our Caribbean businesses is two businesses, it’s Grand Bahamas and Barbados. I’d say we’ve been tracking kind of at the allowed ROE at Grand Bahamas. The economy is coming back fairly well during COVID and particularly from an industrial side. We’re still seeing some challenges in Barbados, primarily because of lack of tourism and a lack of rebound in the economy, so the returns there have been a little bit softer. But again on hold, in total, the businesses are performing reasonably well in light of the circumstances.

Okay. Thank you.

Welcome.

And your question comes from Maurice Choy with RBC Capital Markets.

Thank you and good morning. If I could continue with the ECEI or the Atlantic Loop, you previously mentioned that you expected an update on this initiative in early 2022. Has there been any change in your view of timing be it in terms of months or quarters? And what is the top reason that could move this timing either earlier or later?

Yeah, Maurice, I think we’re still hopeful for more clarity on that mid-year. Certainly, I think, fair to say we need clarity on that this year and look, as I said before, we continue to be encouraged by the ongoing discussions and engagement with the federal government, with and by the provincial government, and also with our provincial partners. It’s a really complex project and hence working through those complexities and of course, is, as you would understand, governments in Canada, also challenged by a number of other active files and so it’s really just a matter of working through those complexities, but really focused on seeking clarity this year, we’re hoping a mid-year but certainly need clarity sometime in ‘22 in order to move this project forward.

Thanks. And just as a follow up, you mentioned the government’s have other active files going on. Do you see a material change in their view or their priorities in terms of energy transition versus those active files over the recent weeks?

No. No, I don’t think so at all. I am thinking about things like COVID and trucker protests and those kinds of things that are obviously very, very active. But no, I don’t see any shift on that one you asked.

Great. And if I could just finish off with a question on capital allocation. Greg, you mentioned that there’s a good runway of any transition investments ahead, including after 2024. And like many of your peers, you probably have a lot of tools at your disposal to raise funds, including your trip and ATM. Equally, you do have a number of assets that aren’t will be -- are viewed as non-core by the market. In your view, when would it be a suitable time to consider selling these assets to improve your liquidity, especially ahead of some of these large scale investments and potentially reduce EPS dilution?

So Maurice, it is Greg. I mean, we always take a look at all of our portfolio to see what makes the most sense from a strategic and a financial perspective. We have no plans. We’re happy with our portfolio now and have no plans to divest or anything, but we’ll continue to look at it. I don’t know if there’s an optimal or perfect time and whether or not we need to do something. But as we get greater clarity in terms of the timing of some capital investments in some of these large projects, at that point in time, we’ll start to look at what our funding requirements are and what’s the most cost effective way to raise the capital is in support of that. And that would include maybe divesting of some smaller assets but it may not as well and but we’ll make that determination at that time.

And greater clarity on investments, presumably, the ECI/Atlantic Loop is your next biggest project to consider.

Yeah, that’s likely the next biggest project, but the large capital in that would be towards the end of this decade, not in the next couple of years.

Really, Maurice, we just -- we continue to expect, so we continue looking at the portfolio and if we see a transaction that’s compelling from a shareholder value perspective, we look at it heard and, obviously, you’ve seen our ability or willingness and ability to look at that and to think about the portfolio and recycle capital where it makes sense, and we’ll continue to do that look through that lens.

Understood. Thank you very much.

Thanks, Maurice.

I’m sorry. Your next question comes from the line of Rob Hope with Scotiabank.

Good morning, everyone. Two shorter term kind of questions in nature. First off, NSPI in 2022, it looks like you’re saying earnings are going to be consistent versus 2021 level, yet sales volumes will be higher and you could have the potential for new rates there. What are the puts and takes you’re seeing at NSPI in 2021? And are you assuming kind of a positive outcome on your rate fling?

Rob, it is Greg Blunden. I mean, it’s one month in the year, so I think it’s a little early to be much more specific in terms of what we expect the year to be but, in general, I mean, the two biggest things that would be in front of us, from an uncertainty perspective would be the outcome of the rate case, in particular, the timing of when those rates would be effective. And of course, as always, weather and weather can be positive or negative from a load perspective and also from a storm perspective. And so, it’s hard to be much more precise, I would say, at this point in time, for 2022.

All right. Thanks for that. And then another sort of term question, the volatility and strength in gas pricing has persisted into 2022. Would we be correct in assuming that the gas businesses or your marketing business has had a good start to the year but too soon to kind of point it to the upper end of the longer term guidance there?

Absolutely. Yeah.

All right. Thank you.

Do you agree?

I agree with that.

Your next question comes to the line of Linda Ezergailis with TD Securities.

Thank you. Good morning. Wondering if maybe we could look at your -- some of your other application components to NSPI, specifically, your equity thickness. Just wondering how you converged on that request, given my sense that some utilities in North America would have even a higher equity thickness?

Hi. Linda, it is Peter Gregg from NSPI. Really as part of the preparation of the rate case, obviously, we do engage experts and look at utilities with similar risk profiles to ours in considering what is an appropriate equity thickness and in doing that, that’s where we landed with the move to 45% equity thickness by the end of 2024.

Go ahead Greg.

Linda, this is Greg. I might just say so there’s probably a couple things happening, there’s a phase in was done largely to the extent of lens on affordability for customers and we’re very, very sensitive to that and so we felt as appropriate to phase in over time. The other lens to is, what do we think the required capital structure is to maintain really strong investment grade credit ratings and so that was part of it, as well. And ultimately, in addition to what Peter said, we believe 45 is the right number, but we believe it’s also prudent to get there over a couple of years as opposed to immediately.

Thank you. And just as a follow up, recognizing that affordability is something you always keep at the forefront, and all of your considerations of a balanced application. I’m just wondering what -- if you got everything that you asked for, what would that translate into as higher earnings and normal weather and volumes on load? What would that translate into higher earnings in 2022, 2023 and 2024? And second part of that question is if I didn’t get everything that was requested in terms of a rate increase, what sort of costs could be deferred mitigate the net negative effect of that?

Yeah, I wouldn’t necessarily think of it, Linda, through what would it create from an earnings capacity perspective. I mean the basic math is not going to change and it’ll be a function of the rate base investment, the equity thickness, and the ROE and we haven’t asked for an increase in the ROE and as we discussed, the equity thickness is going through, but to the extent that rate base grows over time, and yeah, earnings will grow with that as well. Some of the other components, like, I think you mentioned load, I mean, that load will be nothing specific in this rate case is going to cause us to have a different view on that side. And I think you might had another -- there might have been one other part of that question, Linda, that’s escaping me because there is just 10 seconds.

Apologies. Yeah. Just in terms of if you don’t get everything you asked for, might there be some costs that you could potentially defer?

Yeah, no need to bother, Linda. I mean, it’s premature. And all these rate cases, it depends on how it’s structured. So as you’re very familiar, often rate decisions come out, for example, there’s certain costs that get deferred, there’s a change in depreciation rates, which means it has no effect on earnings. So it’s kind of premature at this point in time to determine what the outcome would be and what the likely impact of that would be.

Thank you.

You are welcome.

Your next question comes from Mark Jarvi with CIBC Capital Markets.

Thanks. Good morning, everyone. This one is for Greg. There used to be a slide where you guys talked in past of $2 billion, roughly, of operating cash flow, just with the fuel recovery item you flagged on slide 13, is there an ability to get to that level this year? Do you think that’s been pushed out a little bit in 2023?

No, I think just the opposite mark. I mean, nothing that happened in 2021 changes our view on what we’re going to generate from a cash flow in 20 -- sorry, 2021 changes our impact of what we think will have for cash flow in 2022. With the exception of any under recoveries, for example, on Tampa Electric that will get trued up in the mid-course correction. So if anything, our view on cash flow this year is probably even stronger than it was a month ago, just because of the timing of the fuel costs on a period-over-period basis.

Okay, great. And then can you give us a little more context in terms of the $2 million pullback per month in Nova Scotia blockade? Is there sort of a rolling average or I guess a binary and then maybe how you kind of come up with the access $2 million costs, if you’re shy on the Nova Scotia block?

See, Mark, the teams, obviously, are still going through the regulatory decision, but it is a $2 million per month calculation, and then gets factored against the cost of replacement energy and so -- and then that gets calculated at the end of the year. So, yeah, I think that’s the simplest way to describe it. And, as I say, though, the teams are still going through the details of the decision and getting more, more precise clarity on exactly the mechanics but the way I described it is in simplest terms how it out works.

But if you were, say, six months over and six months under but you still average 90, would there be penalties or would that kind of smooth it all out? Just trying to understand exactly how you get penalized for being short in a given month and whether or not there’s, sort of, again, like average over the whole year?

So the teams are still going through the details to make sure we understand the mechanics Mark but I think that the shortfall is calculated monthly, but the replacement energy, obviously, happens over a longer period of time. So that’s sort of the mechanics of the team still trying to -- we’re trying to try still to work through and make sure that we understand as part of the decision but the shortfall is calculated, yeah.

And, just going back to the question on your energy, you’re talking about the gas markets and how strong you are in ability to hit the upper end of rate expectation, anything in terms of transportation costs, you guys can comment on whether or not, sort of, relative levels versus -- like heading into 2022 versus where you were in 2021?

So we probably have a little bit less trend, of course, than we had in 2021. We’re not dissatisfied. As you know, that’s always a competitive bidding process and so it has gotten more expensive, because of the run up in gas prices, so we have to be very astute when we are bidding and it’s -- we’d rather lose it than overpay for it, to be honest. So we probably have a little bit less going into 2022 than we had in 2021. But again, as I said earlier, quickly, it is very much too early in the year to say anything other than we hope to be within our range, so that’s where we are.

Got it. Okay. Thanks for taking the question.

Your next question is the line of Andrew Kuske was Credit Suisse

Thank you. Good morning. I guess the question is really big picture and directed for Scott and it’s along the lines of the growth we’ve seen at Atlantic Canada in the last two years. We can pick any timeline you want but it’s been a pretty good news story in Atlantic Canada from population dynamics. How does that bake into your longer term outlooks for your core business?

So, hey, Andrew. So look, I think, obviously, being in a place where we’re starting to see some renewed strength of the economy is good news, on a bunch of levels, obviously, that’s certainly true for us in Florida and benefit from a strong and growing economy there. And so to the extent that the economy continued to strengthen, the population continues to increase, frankly, that helps to reduce rate pressure as we invest to make this transition towards cleaner energy. So I think it’s helpful and I think, as I say, it helps to reduce the cost on a per customer basis, the energy transition towards closing coal plants in Nova Scotia.

Okay, that’s helpful. And then maybe just related, with some of the issues that there have been with having transmission lines come from Canada into the US, does that one that being a better news story on a longer term basis for your decarbonization efforts is effectively hydro plants and whether they be Quebec or elsewhere in Canada, the easiest access route for them, may be places like Nova Scotia to effectively put clean power.

That’s certainly the proposition we’re putting forward that it makes sense to try and interconnect the region so that we can move energy around and recognize that both Quebec and Newfoundland and Labrador are blessed with hydro resources, that are many times, if not most of the time, more than they need themselves. And rather than moving that energy down to two US markets, let’s share within the region and help provinces like Nova Scotia and New Brunswick that still have thermal emitting sources to retire those coal plants and that’s really the whole fundamental thesis of the value, we think, to the whole region of the Atlantic Loop and the Maritime Link projects, both.

And if I could sneak in one more, is there any longer term prospect of revisiting your transmission project that you had going from Nova Scotia and the Massachusetts?

So it’s not a focus for us today. I’d say, Andrew, obviously, we know that there’s been some challenges in dealing with some of those other proposed transmission lines, but our focus right now is really trying to address the off coal and renewable targets here in Nova Scotia and as part of that, a transmission interconnect ideally to Quebec as part of the Atlantic loop and broader Eastern Clean Energy Initiative. So that’s really where our focus is here right now.

Okay, that’s great. Thank you.

Your next question comes from the line of Dariusz Lozny with Bank of America.

Hi, good morning, and thank you for taking my questions. I just wanted to, at the outset, ask about, I think the timeline for the retirement of the Trenton, one of the units there got pushed back by one year. Can you maybe just discuss that decision a little bit? How the process is going to procure replacement energy and whether there’s any risk of the timeline potentially moving back again, whether it’s another year or any other amount of time? Thank you.

Hi, it’s Peter Gregg from NSPI. Really what drives that our ability to shut coal is that we need to have available capacity inside Nova Scotia to be able to shut those plants down. There has been a delay in receiving the Nova Scotia block over the past several months, it is flowing now and that’s a positive development. And consistent flows over the Maritime Link will certainly aid in our ability to commit to a coal shutdown. As we go further into the rest of the plants, we’ve got Nova Scotia, obviously the Atlantic Loop comes into play, things like grid scale batteries come into play as do coal to gas conversions for the whole story and how to shut down coal. But to your trend finds direct question that is part of ongoing analysis and discussions around the confirmed timing of that and when we have that nailed down, we’re happy to share that.

Okay, great. Thank you. Appreciate that. If I can pivot over to Tampa Electric, earlier in the call, you alluded to the pending fuel [Technical Difficulty] your level of confidence on being able to achieve the full ask on the recovery there, particularly given the bill impacts that I think are estimated at maybe low-double digits per month, given the current inflationary environment that we’re in today.

Hi, Dari. This is Greg, I mean, I don’t ever want to speculate what the commission will ultimately decide but certainly, if you look at the track record of the commission and the other investor-owned utilities in Florida, including ourselves last year, generally, these approval of these mid-year course corrections go through without a whole lot of controversy and we wouldn’t expect this to be any different this year.

Okay, great. Thank you for taking my question.

You’re welcome.

And your next question comes from the line of Matthew Weekes with iA Capital Markets.

Good morning. Thanks for taking my questions. The first is just kind of broad. Anything new to report on BlockEnergy?

Yeah, so BlockEnergy, we continue to be really excited about. I can share with you that the pilot project is that entails 37 homes in Florida. These are homes that have been built and are being lived in are now starting to be live connected. The block system is now live and active and is performing exactly as we expected and so that continues to build our excitement around what this idea can do, what this technology can do as part of a clean energy transition. And so one of those stories, we’ll continue to share more, as developments move along, but happy to share that we did achieve that milestone last few weeks now with that pilot now live and on stream.

Okay, thanks. I appreciate that. And then my second question is just relating to capital costs on projects, whether it be solar or other projects. In the inflationary environment we’re in right now, are you seeing any sort of pressure on the cost side or any sort of meaningful increases in project costs above prior estimates? And how do you see that impacting things going forward? Will that largely be passed on? In the end, is that the expectation?

Yeah, look, it’s a really good question. And certainly team and I, I’m sure like teams in all companies and all sectors right now are spending a lot of time talking about inflation and supply chain risks, and the like, and certainly, we’re not immune to those things. But, fortunately, I will say, all of our major active projects are in good shape. We’re not -- most of the important procurement has already happened for the way the solar that we’re executing now for the completion of the Big Bend monetization, those kinds of things. But we are seeing some cost pressures that’s part of the team’s planning in order to impact those things and could have an impact on the capital programs that are in front of us over the medium to longer term. And the team is working really hard to make sure that we minimize those impacts.

Okay. Thank you. I appreciate the answer on that. That’s everything for me. I’ll turn it back. Thanks.

Thanks, Greg Blunden.

And there are no further questions in queue.

Okay, thank you, Don. And thank you all for your participation and continued interest in Emera. This now concludes our call for today. Have a great day.

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