Good morning, ladies and gentlemen, and welcome to the Emera Q3 2022 Analyst 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] This call is being recorded on Wednesday – Friday, November 11, 2022. I would now like to turn the conference over to Dave Bezanson. Please go ahead.

Thank you, Michele, and thank you for joining us this morning for Emera’s third quarter 2022 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 Emera’s management team. Before we begin, I’d like to 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. I'd like to begin this morning by taking a moment to acknowledge that today is Remembrance Day here in Canada and Veterans Day in the United States. We extend our heartfelt gratitude and respect to those who have served and continue to serve our countries. Our freedom today is because of their courage and sacrifice. On behalf of the entire Emera team, thank you. This quarter, our customers, communities and teams were faced with two record-breaking storms. Here in Nova Scotia, Fiona was the most powerful storm to ever make landfall in Canada and the most destructive storm to ever hit our province. At the peak, more than 80% of Nova Scotia Power customers were without power and the restoration effort taken by the team was the largest in NSPI's history. As soon as it's safe to do so, a team of over 1,500 powerline technicians, damage assessors and forestry technicians, together with NSP's team of customer service representatives and other power system experts, worked tirelessly to safely restore power to all impacted customers across the province. In addition to the NSP team on the ground, crews were brought in from Eastern and Central Canada and from the Northeastern United States to assist in the restoration. The damage was significant. Over 4,000 down trees to clear and the need to replace more than 2,700 poles, 500 transformers and 100,000 meters of overhead power line. That was five to six times more poles down and wires down than the previous record storm in Nova Scotia, Hurricane Dorian. This incredible restoration effort involved more than 333,000 person hours of work. Our team is motivated by the fact that we provide an essential service that our customers count on every hour of every day. We also…

Thank you, Scott, and good morning, everyone. This morning, we reported third quarter adjusted earnings of $203 million and adjusted earnings per share of $0.76 compared to $175 million and $0.68 in Q3 2021. Year-to-date adjusted earnings were $601 million and adjusted earnings per share was $2.27 compared to $555 million and $2.17 for the same period in 2021. Our regulated portfolio, led by our utilities in Florida continues to be the driver of strong financial results. Contributions from our regulated portfolio increased 11% over Q3 2021, representing $0.10 of increase to adjusted EPS. This strong growth combined with the opportunities identified in our new capital program reinforces our confidence that we will continue to deliver long-term earnings growth to our shareholders. Operating cash flow was challenged this quarter by the growing fuel under recovery and storm costs incurred primarily at Tampa Electric. It's important to highlight that absent these factors, we would have seen a 37% increase in year-to-date operating cash flow, driven by growth in our regulated utilities. The fuel under-recovery in storm costs at Tampa Electric represent almost CAD600 million of operating cash flow that we will collect through the regulatory recovery mechanisms available in Florida that are designed for this specific purpose. We expect to file with the Florida Public Service Commission in the fourth quarter for recovery of the Hurricane Ian storm cost. The FPSC has 60 days to respond to our application and historically, storm costs have been collected over a period of 12 months. During the quarter, Tampa Electric filed for 2023 fuel rates. This application reduces the risk of ongoing material fuel under recoveries by ensuring we are recovering the appropriate amount from our customers in 2023, based on forecasted fuel prices. This filing was the first of two steps needed to…

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

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Maurice Choy from RBC Capital Markets. Your line is open.

Thank you, and good morning. My first question goes back to Nova Scotia. Clearly, the government's rate cap was unexpected and unfavorable. Can I ask if you've had any discussions that you can share with us with the government since the bill was introduced as well as past? How do they see the world beyond 2024 notwithstanding that there's obviously an election in the province in 2025?

Hi, Maurice, it's Peter. Just want to say we've been spending the time since the introduction and subsequent passage of Bill 212 to really understand the impacts to the business. Scott did mention obviously in his remarks too, that the impacts of our ability to spend on decarbonization investments. To your specific question, have we -- having discussions around the government's view beyond 2024, we have not engaged in those discussion at this point.

And then maybe just a follow-up to that. As you look across the rest of your utilities, any thoughts on whether something like this is being contemplated by the local governments and/or regulators?

Look -- it's Scott, Maurice. So thanks for the question. And look, I mean, I think we all have to acknowledge that we're in an environment where affordability for customers is a concern for everyone. And one of the reasons why we work so hard to balance the pace and timing of the investments that we make, obviously, in Nova Scotia that become particularly acute in part, frankly, because of working to achieve aggressive carbon reduction objectives, at least as we thought it was until the passing of this legislation, looking to close coal plants by 2030 and achieve 80% renewable requirements by 2030 as well, which leaves us in a bit of a confounding space now as we wrestle with that legislation together with Bill 212. But I think we'd like to believe that with clarity of understanding of the implications of political interference in a well-established independent expert regulatory process as has been done here in Nova Scotia. There are very real consequences to that, which we've obviously worked to ensure has been clear to all of our stakeholders. And I believe that the clarity of that is understood in most jurisdictions. And as such, I don't anticipate that this is something that will be evidence or seen in other jurisdictions. But I think it does highlight the continuing important work that we do across all of our businesses to ensure that we are mindful of the impact of affordability and rate increases on customers. And obviously, that's something that our teams do and work on every day.

That's great to hear. Maybe if I could finish off with a question about credit ratings. With two of your three ratings moving your outlook to negative, philosophically speaking, how important is it to you that all three must have an investment-grade rating level? And what are some of the measures you would possibly take to support that?

Yeah. Hi Maurice, it's Greg. So it's incredibly important. And as I said, we remain committed to the investment-grade credit rating. Really what we're faced with right now is, I think, two items, one is the Nova Scotia legislation, which although it will have an impact, I think, over the long-term -- short-term and long term at Nova Scotia Power, we don't believe it's going to have any meaningful impact on the Emera credit rating over a period of time. And, of course, the second thing is just the timing of recovery of fuel costs and storm costs predominantly at Tampa Electric. And really that's a timing issue. Those cash flows will reverse and we'll collect them over the subsequent period. So nothing has changed from our perspective in terms of expecting to deliver the credit ratings or metrics that we want to support our ratings on a sustainable basis. But having said all that, I fully understand the actions that both Moody's and S&P took, but we're very confident that we will work our way through that over the next year or two.

Great. And thanks to you and your team for the addition of slide 17. Thank you very much.

Your next question comes from Rob Hope from Scotiabank. Your line is open.

Good morning, everyone. Just maybe a follow-up question on the funding plan and the balance sheet strength. When you take a look at your asset base, you do have a number of assets where you could carve off partial interest that would likely be very well bid in the private markets. Any additional thought on potentially some length minority interest and one or two assets to further bolster the balance sheet and help the funding plan?

Yeah. I'll start, Rob, it's Greg. I mean no plans at this point. Again, as I mentioned in my response to Maurice, really what's dragging on credit metrics at this 10 seconds is really just the timing of the fuel cost recoveries and storm cost at Tampa Electric, which is truly a timing difference. But as we look at our funding plan on a broad basis, we will do what we always do is evaluate the best way of doing that, whether it's through internally generated cash, the hybrid preferred share market, whether it's through the issuance of common equity. And as part of that, as I think we've demonstrated in the past, we'll look to see if there's opportunistic ways of reallocating capital within our portfolio. No plans to do so at this point in time. But as you would expect, we'll continue to exercise that discipline as we look at our long-term funding plans.

I appreciate that. And then maybe a question, not necessarily on engaging with the government, but engaging with the regulator in Nova Scotia. Have you been speaking to them? Is there a potential that you could defer some of the, we'll call it, under recovery of costs, whether that be related to the build and the hurricane, fuel costs over an extended period of time to better ensure that you earn an adequate return on your capital in that region?

Rob, it's Peter again. So, yes, we have been engaged with the regulator. We still do need to conclude the general application process. So the legislation didn't suspend the application. So it's still active. We'll be moving into final argument and reply submissions later this month and into December. So there's more opportunity to engage with the regulator and with intervener’s to explore options. But beyond that, that's really the extent of the conversation so far.

All right. Thank you.

Your next question comes from Mark Jarvi from CIBC. Your line is open.

Thanks. Good morning, everyone. Provided that commentary around shifting capital and the different returns in different jurisdictions. Is the incremental spend in the US utilities in Florida, is that a concerted effort by you, or is that completely independent of what happened in Nova Scotia?

Yeah, Mark, it's Greg. It's completely independent. What we're seeing in Florida is customer growth far greater than what we historically have seen, and that's requiring some infrastructure investments to support that customer growth. Obviously, we're seeing some of our capital projects, a little bit of an increase in the cost because of inflation that shouldn't surprise you. And then as well as because of the inflation Reduction Act and some of the benefits, for example, production tax credits on solar, it makes the acceleration of some of those programs a little bit more economic for the benefit of customers. So those capital investments in Florida would have happened irrespective of what has transpired here in Nova Scotia.

Okay. And just given the initial discussions with the rating agencies and their negative watch, has it impacted your views in terms of how you manage, I guess, debt at the corp and in the Nova Scotia Power level in terms of sort of moving debt around and trying to preserve the higher rating enter at the corp level?

Yeah, I'd say probably, I mean, we've already disclosed publicly, Mark, we're looking at what is the appropriate capital structure at Nova Scotia Power in light of Bill 212. And as a result of that, we will not be running at our traditional 40% equity thickness in that utility, which means that to the extent that we reduce our equity investment in Nova Scotia Power, that frees up some cash to allow us to rebalance some other requirements at the corporate level. So we're not talking massive numbers here, Mark, but there is some opportunity to optimize that around the edges a little bit.

And that went out to the rating agency and they consider that you think, in their decisions and their commentary?

Yeah. If you think of what the -- and I'll refer specifically to S&P and to Moody's. S&P is mostly a reaction, not to expected financial metrics but really is a reaction as we all expected to the government intervention and the challenge that that will put on the regulatory construct in Nova Scotia. And so I'm not so sure that's going to change based on an improvement or a decrease in our credit metrics at Nova Scotia Power. So I really believe that's isolated from a government intervention perspective. And Moody's is more of a focus on the fuel under recoveries and uncertainty. You may have seen -- I think it was yesterday, Moody's came out with an industry-wide report. Talking about fuel under recoveries, they put the entire sector back on negative outlook from stable outlook. I think we're getting caught up in that a little bit. Fortunately, for us, the majority, if not all of our fuel under recoveries to date are largely in Florida, and we've been working very constructively with the various customer representatives down there and see a viable path forward over the next coming months.

Okay. Just last question. There's a commentary that you'll be below the ROE band in Nova Scotia, given the implication of legislation. When you talk about the band, is that the current band or the proposed band? I'm just wondering if that's 8.5% or 8.75% you are referencing at the loan?

Well, today, our band is 8.75% to 9.25%, and nothing to date has changed that band, so we would be referring to the existing band.

Perfect. Thanks.

Thanks, Mark.

Your next question comes from Linda Ezergailis from TD Securities. Your line is open.

Linda, we can't hear you. It's -- maybe you are mute.

Apologies. Wondering, if you can help us understand what sort of conversations you might have had recently with any levels of the federal or other maritime governments and utilities around some of the regional decarbonization goals and initiatives and what their response has been and if they can see any hope to kind of mitigate some of the actions of the Nova Scotia government on that front?

This is Peter. We've been engaging with the federal government, and obviously, with utilities and ritual governments and neighboring jurisdictions on the Atlantic [indiscernible] energy initiative for quite some time. Obviously, 212 [ph], and what Scott highlighted in his remarks, it restricts our ability to continue to invest in the decarbonization investments. And so we're very concerned about that. In our discussions with the federal government, we've highlighted our concerns that it restricts our ability to make those capital investments. But we still have reiterated that we think the Atlantic Loop project is in the best interest of Nova Scotia, head of Novo Scotians. And so we think it's an important project. We're struggling to see really what our role can be in it as a result of 212, but have really been engaging with the federal government to say that, to make this an affordable transition for Novo Scotians, we need federal support. We've always needed that. But I think the results of the 212 means that board is even more important. I think that I won't speak for the federal government, but I do believe the receptive you probably saw minister [indiscernible] made some comments in the last couple of days that they're committed to the project. So, we'll continue to have those discussions.

Thank you. And as a follow-up, it's helpful to understand, what sort of capital might be deferred or avoided in Nova Scotia. I'm wondering, if you can provide some more context on your evolving thoughts on, how to either avoid or defer operating expenses and without obviously compromising safety and hopefully not reliability too much. Any evolving thoughts would be appreciated recognizing we might get more context at your Investor Day in March.

Yes, I think that's right. We provide more specific context then. I would say on that is that, obviously, we're deeply engaged in working through that thinking now, both from a capital deployment, but also from an operating expense perspective, making sure that we stay -- continue to be really focused on safety and the reliable service to our customers. But really not at this time, but I'd be willing to go into anything more specific than that

Thank you. I’ll jump back in the queue.

Your next question comes from David Peters. Your line is open.

Good morning. My questions have been asked at this point. But Greg, if I could just go one back to the balance sheet, I'm just wondering with your credit metrics living on the edge of downgrade thresholds for a while now, I guess, why not more seriously consider asset sales to accelerate improvement to sort of better withstand surprises like the one at Nova Scotia Power. Just particularly think that valuable as we head to more uncertain times economically. And then I'm just wondering, is it the payout ratio and commitment to the dividend that would kind of not allow you to do something like that?

No, I don't think so, David. I mean we look at all things. We were on -- and still remain on a very clear path to get to credit metrics that we believe are sustainable over the long-term and support our credit ratings. Again, from a consolidated perspective, what really what's impacting our ratings -- our metrics right now is not the decision in Nova Scotia, although that will have an impact in Nova Scotia itself. But from a mirror perspective, it's a timing of fuel cost. And so that will, in fact, naturally reverse itself over the subsequent periods in front of us. But as I said before, David, and as we have demonstrated before, we are always looking at all opportunities to cost effectively and appropriately raise capital in the way that is best for the company overall. And in terms of the payout ratio, it's -- that's not necessarily a driver to any of our financial decision-making in some respects, kind of more of an output of all that and something we watch closely, but I wouldn't necessarily drive any decisions. And similarly, if you think of a 4% dividend increase that we've had the last couple of years, if you take off when it comes back to the dividend reinvestment plan, you're only talking maybe $20 million of incremental cash. So that by itself isn't a driver on the old -- the entire raising of capital in our portfolio. But we'll continually look at all options as we have in the past and make determinations on whether we think there's a more appropriate way of raising capital and also in a more timely way.

Fair enough. And then I may have missed it. Did you guys say what FFO to debt would be currently today, if you excluded the fuel. Obviously, assuming you'll get recovery of that is just a timing issue.

We haven't. But I think maybe to point you to something I think Moody's was calculating it at the end of June to be -- I think it was 10.5%. But if you look in their report, they showed what their calculation would have been. So that's probably directionally for both S&P and Moody's, would kind of probably be in the 10% to 11% range if you normalize the fuel cost out.

Okay. Thank you.

You’re welcome.

Your next question comes from Ben Pham from BMO. Your line is open.

Hi, good morning. I have a couple of follow-up questions on Nova Scotia Power. And I'm wondering when it was privatized, are you restricted from any sort of ring fencing or restructuring, by given legislation you can't I think you had to keep a head office of in Nova Scotia, but can you remind us what the legislation is?

Yes. So for Nova Scotia Power would have restrictions, where no single shareholder greater than 15%, and no non-Canadian shareholders greater than 25%. And at the Emera level, in addition to head office requirements, there is a restriction of no single investor greater than 15%. But the non-Canadian shareholder restriction was removed from legislation a couple of years ago.

Okay. Got it.

Ben, sorry, it's Greg. I just want to add, as you would expect through -- not through necessarily the Privatization Act, but through a series of regulatory decisions over the past 20 years or so, there's always other things that get put into place. Historically, it was to protect the utility itself from any exposure to parent company activities and those kinds of things. And so there's, a number of things that would probably be traditionally called, ring fencing that would fall into that category. And think of as separate banking agreements, separate credit ratings all those kinds of things. We're probably in a position now, though, that the design of those ring fencing were designed to protect Nova Scotia from Emera not the other way around.

Interesting. Okay. And then your CapEx on, Nova Scotia Power, I know you messaged a reduction. How should we get to that, revised figure? Is that just picking rate base flat, or is there some other driver?

Yeah. So rate base is not going to be flat. Just for the very nature that, if you replace a poll today is at today's dollars and not at the cost of a pull originally. So we are seeing some increase. So we are investing at a great rate greater than depreciation. It was really done in two ways. But ultimately, what it -- what the revised plan is doing is removing capital investment that would have been made in support of decarbonization at Nova Scotia Power, which the legislation effectively restricts. So Scott mentioned, incremental generation, our investments in wind, batteries, transmission upgrades to facilitate things like the Atlantic Loop. And so it's primarily targeted at those areas. We have not made any reductions in anything that would compromise the reliability of the system or the safety of our employees and the communities that we work in.

Yeah. The other one I'd add to that, Ben, is that -- so first of all, at this point, it's still an estimate. The NSP team continues to work through and revise and assess the impacts of their capital plan in the context of Bill 212. But also for context, that forward-looking capital profile is about where it's been on a consistent basis over the last few years, it just doesn't reflect the incremental investments that were planned as part of the transition to achieve the 2030 climate goals of both the federal and provincial government, as a result now of the constraint imposed by Bill 212.

And maybe my last question is I know you had -- you have that slide around the relative attractiveness of moving more money or expensive money to Florida versus over Scotia -- but do you think it's better to make it reduce debt? Or I don't know, maybe it's not as accretive near-term, but just considering your credit rating risk. And then, maybe just any comment on the dividend increase in guidance?

Yeah, Ben, let me start with the first one specifically. I mean, it's not -- you can't necessarily look at any of these things in isolation. So we have a capital plan that the outcome of that capital plan, and again, the higher level of investments outside of Nova Scotia are not a result of a reaction to what happened in Nova Scotia that would have happened anyway. And what we're trying to illustrate is, that higher weighting of capital investment outside of Nova Scotia does have, by its very nature, a higher return profile than what we would have experienced here. That's somewhat independent of the overall funding plan and how we manage debt levels, which we're also very focused on, as you can imagine. And that's because, the capital investments in our other jurisdictions outside of Nova Scotia, those are capital investments we need to do. We need to do it to storm harden the system in Florida. We need to do it to advance more solar generation. We need to do it for customer growth. So those are necessary and required capital investments irrespective. And so, all to say is, again, it's not an option to certainly pay down debt. How we fund those capital investments and manage our balance sheet is a separate discussion, which we're also focused on. Scott, on the dividend.

Yes. On the dividend, Ben, really no change, right? We're as committed to our dividend and to our dividend growth guidance today as we were when the 4.2% increase in the extension through to 2025 was announced in September. So, no change in our level of commitment to both things. Of course, dividends continue to be decisions at the Board of Directors level. But from our perspective, nothing has changed that causes us to have any hesitation in reaffirming our commitment to both the dividend and the growth guidance.

Okay. Thank you.

Thank you. Next question comes from Andrew Kuske at Credit Suisse. Please, go ahead.

Thanks. Good morning. And I appreciate the comments earlier on the impact of Fiona earlier on the call. And I guess, maybe just some perspective, given the Caribbean assets you bought over the years and then TECO with the Florida exposure, how has your storm response mechanisms evolved, there’s clearly a more strong-prone exposures when you bought the Caribbean assets and then TECO itself. And so, how things evolve and become more sophisticated?

Yes, Andrew, I think, obviously, storm hardening, storm -- storm protection, reliability investments have always been part of what utilities do and focus on. But there's no question that, as we see the impacts of climate change. We are seeing increasing frequency and increasing intensity of storms in all of our regions. And so, no surprise, of course, that are focused on hardening the system of designing the system in a way that can withstand higher levels of wind loads is something that's in focus across our utilities. Of course, the most robust process right now is in Florida, where the government in Florida, the state established a requirement for utilities to put in place a store protection plan and the follow-up really to Hurricane Irma at the time and provide it through regulation, a mechanism for the timely recovery of investments made through this storm protection plan with a specific rider. So that's enabling not just Tampa Electric, but all utilities in the state to storm hardening the system. And frankly, we've seen -- we saw the benefit of that most recently with Hurricane Ian in terms of less damage than would have otherwise occurred and the ability to restore power more quickly. And so we continue to believe that this is an important area of focus and pleased to be doing our part across the regions. Of course, Bill 212 does provide some cost constraints that does handcuff Nova Scotia Power ability to do everything that we're looking to do, hoping to do in that area, but continues to be a key and critical focus.

Okay. Great. I appreciate that color. And then I guess just to extend upon that point that Bill 212 effectively handcuffs to a certain degree on some of the reliability initiatives you'd like to do from a storm hardening perspective?

Yes. It's Peter, Andrew. It does. We're still working through that. Obviously, when we look at what necessary cuts we'll have to make as a result of the legislation, our focus is really on safe, reliable delivery of power to our customers. So that's first and foremost, and we'll do whatever we can to make sure we have a safe, reliable service. And that's where our focus is as we're making revisions to our plans for 2023 and 2024.

Okay. Great. Appreciate the time. Thank you.

Thanks.

Thank you. Next question comes from Matthew Weekes at iA Capital Markets. Please go ahead.

Good morning. Thanks for taking my question. I know this was -- I think this was talked about a bit in the prepared remarks. And sorry, if I just kind of missing that, but I was just wondering if you could kind of recap where you are for the Labrador-Island Link commissioning progress made there and then kind of when you expect that to be sort of working and fully commissioned? And how confident you are in that target?

Yes, Matthew. So yes, Labrador-Island Link is now in commissioning and its commissioning process and robust testing that obviously is enabling increased flows over the Maritime Link in terms of timing of final commissioning and full commercial operation for Labrador-Island Link, of course, that's not within our control that's entirely within the control of Nalcor, but we expect that to be within the next few months, early 2022 -- early 2023.

Okay. Thanks. And just basing on the testing and load testing you're doing right now, there's kind of no reason to think that it sort of wouldn't be progressing as planned at this point or that they are sort of continuing issues?

I think, I'd say, the level of optimism is very high.

Okay. Thanks. I appreciate that. That's for me. I'll turn it back.

Thank you. There are no further questions. Please proceed.

Thank you, and thank you all for attending today. Before concluding, I'd like to draw your attention to a couple of upcoming dates. We will release our Q4 results on February 23, and we'll host an Investor Day on March 2 in Tampa with the reception to be held the evening of March 1. We hope to see you all there. Thank you, and have a great day.

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