Good morning, ladies and gentlemen, and welcome to the Emera Q4 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Monday, February 26, 2024. I would now like to turn the conference over to Dave Bezanson. Please go ahead, sir.

Thank you, Laura, and thank you all for joining us this morning for Emera's fourth quarter 2023 conference call and live webcast. Emera's fourth quarter earnings release was distributed this morning by 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 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'll turn things over to Scott.

Thank you, Dave, and good morning, everyone. This morning, we reported annual adjusted earnings of $809 million and adjusted earnings per share of $2.96. Adjusted EPS in 2023 was down approximately 2% over 2022, which was a record earnings year for Emera even when you adjust for the $45 million after-tax earnings impact of a litigation settlement received in the fourth quarter of 2022. Our fourth quarter adjusted earnings were $175 million and adjusted EPS was $0.63. We saw softer earnings results than we expected in the fourth quarter, largely driven by the impacts of higher interest rates and unfavorable weather in Florida. And so while our full year results for 2023 were down year-over-year. We have, nonetheless, still delivered a 5.3% average annual increase in adjusted earnings per share over the last three years. Florida continues to drive our recent earnings growth and our expected forward growth. Tampa Electric's U.S. dollar earnings have increased an average of nearly 8% per year since 2020 and earnings at Peoples Gas have increased on average 15% year-over-year over the same period. Looking ahead, we see many reasons for optimism. We have new base rates effective January 1 at two of our utilities. We're executing well on our nearly $9 billion three-year capital plan focused on clean energy and reliability investments, and we are continuing our disciplined approach to capital allocation and cost management. Plus we see strong customer and load growth in nearly all our service territories. All of these elements together reinforce solid growth in the business and underscore our continued confidence. We continue to make progress on our capital plan, which is focused on delivering cleaner and even more reliable energy, and we're making meaningful progress on our decarbonization goals. In fact, we're pleased to note that the percentage of…

Thank you, Scott, and thank you all for joining us. This morning, we reported fourth quarter adjusted earnings of $175 million and adjusted earnings per share of $0.63. This compares to $249 million and adjusted earnings per share of $0.93 in the fourth quarter of 2022. As a reminder, our 2022 fourth quarter results included the recognition of a $45 million after-tax settlement related to a litigation award, which represents $0.17 of adjusted earnings per share. Excluding the impact of the settlement, adjusted earnings were $204 million for the fourth quarter of last year and adjusted earnings per share was $0.76. For the year, adjusted earnings were $809 million and adjusted earnings per share was $2.96 as compared to $805 million and $3.03 per share for 2022, when adjusted for the settlement I just mentioned. Our fourth quarter results were not what we had planned due in large part to increased financing costs across the business and unfavorable weather in Florida. The impact of weather reduced Tampa Electric's contribution to EPS by $0.02 to $0.03 compared to the fourth quarter of last year. However, we remain confident in the health and stability of our business and our ability to deliver earnings per share growth in 2024 and beyond, supported by our strong rate base growth. With the constructive Peoples Gas rate case results now behind us and both Tampa Electric and New Mexico gas rate cases occurring in 2024, I expect the business will continue to strengthen over the next couple of years. Now turning to the details of the quarter. When you adjust for the impact of the legal settlement mentioned earlier, adjusted earnings per share decreased $0.13 or 17% over Q4 '22. Canadian Utilities earnings were higher driven by new base rates and growth in the business. Emera…

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

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of David Quezada from Raymond James. Please go ahead.

Thanks. Good morning, everyone. Maybe just starting with the Clean Energy Solutions task force, Nova Scotia Power. I'm just wondering like how -- if there's any additional color you could provide on just how you see clean energy opportunities shaping up in the province with the establishment of an ISO. Do you think it changes the magnitude of the opportunity you see there at all?

It's a good question, David. And it's Peter Greg, by the way, from Nova Scotia Power. So obviously, early days, the report was just made public on Friday. As Scott indicated in his comments, we are supportive of the two broad recommendations. That's the stand-alone energy regulator in Nova Scotia. I think that's a positive development and supportive also of a standup of ISO here in Nova Scotia. You'll know that the transition to 2030, the broad decarbonization agenda the province has is ambitioned and will require a lot of focus. The province also established this past year the Clean Power Plan, which is all the projects that will get the province to 80% renewable and off coal by 2030 very supportive of that plan. And I think having an independent system operator to do the long-range planning and oversee that transition is a natural next step in that transition to 2030.

Okay. Excellent. Thank you. Appreciate that color. And then maybe just one more for me. Just generally on the topic of asset sales. I'm curious if there's any color you can by just on what you're seeing in the market for or whatever proceedings you have going on with respect to that and any kind of like relevant activity or comments on what you're seeing from a valuation perspective today?

Yeah, David. It's Scott. I just say that we mentioned in our Q3 call last year, that asset sales are part of our financing program for our capital investment plans. We're well advanced in exploring options. We're encouraged. We don't see any sort of market dynamic that would discourage us from the path that we're on, but we're still in a place where no decisions have been made. Of course, when they have will provide a further update, but in the meantime, we're encouraged with our progress so far.

Excellent. Thanks for that, Scott. I’ll turn it over.

Our next question comes from the line of Robert Hope from Scotiabank. Please go ahead.

Good morning, everyone. First question is on credit metrics. Previously, you talked about getting to 12% odd debt in 2024. And when you take a look at the headwinds and tailwinds in front of you right now, what needs to happen to get to 12% in 2024. And would that include kind of a full slug of ATM or potential asset sales?

Good morning, Robert. It's Greg. What we really experienced, I think, in '23 doesn't really have much of a reflection on our confidence in where we're going in '24. Certainly, mitigating the exposure to interest rates is helpful. The execution of our regulatory filings, whether it was people's gas last year, resolution on some of the outstanding fuel in Nova Scotia and filing of Tampa Electric, I think, gives us some confidence. We said all along that the execution of asset sales would derisk our path to 12%. And we still feel confident in both the organic path as well as derisked it through the execution of asset sales. So still very confident in the targets that we set for ourselves for this year.

Good to hear. And then moving back over to the Clean Energy task force, and I realize that the government only adopted the first recommendation. But if we go through the full list, recommendation five includes some commentary on open competition for additional upgrades to the transmission grid. Can you maybe speak to what the communication has been with the government or other stakeholders for potentially opening up the other investments to competition, not just power.

Sure, Rob. It's Peter again. I point you to The Minister of Natural Resources renewables issued a statement on Friday. He did a number of interviews following that, too, and made it clear that while recommendation five does talk about transmission resources being competitively procured under the new ISO that he will not accept that recommendation. So our understanding is that the role of the new ISO will be to procure -- competitively for cure generation and storage, not transmission.

Appreciate the clarity. Thank you.

Thank you.

Our next question comes from the line of Maurice Choy from RBC. Please go ahead.

Thanks and good morning, everyone. Maybe just a follow-up on the cash flow metrics here for a moment. What was the cash flow to debt metric as of the end of 2023, recognizing that the goal was to reach 11.5%.

Yeah. Like as I indicated, Maurice, we would expect it to be relatively flat at around 11% compared to what we were last year.

Got it. So I guess within this year, you're anticipating that 11% to jump to 12%, if you could confirm that. But a quick follow-up to that. When I think about your asset sales, the size of it, which is 50% of your CapEx plan, are you willing to sell more than that in order to achieve much as a 12%, but also a certain cushion above the 12%.

Yeah, Maurice. We've -- as part of this, we've identified a couple of assets that we think might make sense from a capital recycling perspective. And to the extent that we see favorable market conditions on more than one asset that wouldn't preclude us from moving ahead with that even if it was more than we may have initially set as a target.

I guess when you highlight interest and mainly this with Scott's earlier comments about the interest level, is it fair to say that the interest level that you've seen so far will it somewhat justify the potential of selling these couple of assets?

I'd say the interest level we've seen so far as expected.

Got it. If I could just shift over to the dividend for a moment. I think you disclosed in your MD&A that the dividend payout ratio is at 94% for 2023. And there is obviously a potential that asset sales might bring this number higher if there's any EPS dilution. We've seen quite a number of dividend actions in Canada and globally in infrastructure land. And I wonder if you could refresh us as to how you approach your policy on dividends, including the potential for changes in the growth rate? How is that sized and even potential for any dividend cuts? Thanks.

Yeah, Maurice. It's Scott. So I would not want anybody to think that there is any suggestion or inclination of a dividend cut since you use those words that is not something that we would consider or need to consider. And to your broader question, our dividend policy is obviously something that is a Board determined matter and something that we engage with and discuss with the Board on a regular basis. And typically, as you know, we would announce our annual dividend approach coming out of a meeting that we hold every year in September. And typically then for the dividend -- application to the dividend in the November dividend cycle. So ultimately, as I say, that's something that we generally look to and provide market guidance to in the fall.

And the dividend growth rate itself, is that usually sized or is that a minimum number that you try to achieve for inflation? How should we think about that rate?

Well, as you know, when we reduce the dividend growth guidance that we had prior to 2018. We work to set our dividend growth guidance at a level that we believe over the long term. Our earnings per share growth would outpace our dividend growth. And that continues to be true today. That continues to be true. And that's the primary measure that we look at is ensuring that our dividend growth rate is at a level that makes sense relative to our earnings per share growth rate, and we continue to have confidence that, that dividend payout ratio will reduce over time as our earnings growth continues to outpace our dividend growth. Of course, we continue to look at that. Our payout ratio obviously negatively impacted this year by the unexpected fourth quarter results. But overall, we've been continuing to track a reduction and continue to target a reduction in our dividend payout ratio over time. And that's something that Greg and I and the Board are all very engaged in and ensuring and that won't change.

Thanks for the color.

Our next question comes from the line of Linda Ezergailis from TD Cowen. Please go ahead.

Thank you. I'm just wondering, in addition to reassessing maybe the merits of upsizing your asset sale program and relative contribution to your funding plan. Is there any ability maybe to reassess? Or have you put thought to the relative attractiveness of your capacity for hybrid instruments -- whether a discrete common equity offering might be an option this year. And also what ability might you have, if any, to consider deferring any sort of discretionary capital at this point.

Yeah. Good morning, Linda. It's Greg. As you can imagine, we look at all options available to us from a funding perspective. We do have, as you noted, some capacity on our balance sheet to do something either with a Canadian preferred share offering or maybe a hybrid offering, albeit from a cost of capital perspective that's not overly attractive in this market. We are not contemplating a discrete equity offering nor do we believe we need one at this point in time. We're happy with the path we're on, which is continually to utilize our at-the-market equity program as well as our DRIP and to complement that financing plan with asset sales. So that is, in fact, the path that we're on.

Thank you. And just as a follow-up. In your discussions with the debt rating agencies, you mentioned like are there any kind of changes in tone or what sort of forbearance do you expect in terms of the time line to achieving your credit metrics? And maybe as part of that, was there any discussion about the dividend and maybe pausing growth, if not cutting it?

Yeah. I think that as they always have been, I think the conversations with the credit rating is have been constructive. I think they're supportive of the path we're on. But I want to be clear, the delivering of that plan is on us. And I'm confident that as we execute our plan over the course of 2024, whether that be asset sales, continuing to utilize the at-the-market equity program, focus on recovering fuel and storm cost deferrals as well as executing our regulatory strategy. I think we are all confident both internally and I think the rating agencies have some degree of confidence that as well. I would suggest if you look at the S&P report that came out on Friday, if you look at the Moody's report that came out late December, that kind of, I think, reinforces that, that I think the time for us to execute is there. And once we do that, I think we'll be where we need to be. In terms of any discussions around dividend growth, there have been none, although maybe from a credit perspective, there might be some positive optics related to that. The reality is it has no meaningful impact on credit metrics at all. And given that the focus with the rating agencies, that would not at all be not surprisingly, that's not a discussion item with them.

Thank you.

You’re welcome.

[Operator Instructions] Our next question comes from the line of Mark Jarvi from CIBC Capital Markets. Go ahead, please.

Thanks. A couple of questions around Nova Scotia. One thing on the province picking up the tab and some of the fuel costs. Can you elaborate how that came to be? And not that signal something around the evolving relationship with the potential government?

Thanks, Mark. It's Peter again. Rob, involving of that, really, it's as simple as, I think, a constructive working relationship we have with the provincial government. So discussions happened over the latter half of last year around the outstanding fuel amount and the impact on rates. And so we had discussions on a range of potential alternatives for managing that amount and ended up with what I think is a very constructive approach that allows for the recovery of that fuel amount but does so in a more affordable manner for customers. So back to your point, I think there is a constructive working relationship and that is some evidence of it. Some other evidence, Scott spoke to our grid scale battery projects, for us to advance on those that required a cabinet approval here in Nova Scotia. And again, I think just lines up nicely with our support of the provinces Clean Power Plan and their objectives to achieving the 2030 goals.

Can we take those comments, Peter, maybe bring Greg in the conversation, just S&P, one of the big issues was regulatory risk, business risk. How would you say the relationship with the government's evolve? How is that communication with S&P going to cost to them in terms of their perception of it? And I guess, just maybe the task forces, does that change any of the math or any of the questions that S&P might have around Nova Scotia Power.

Yeah. It's -- I'd say the S&P, in particular, their response, I would say, our perspective on a mark has been balanced. I think they clearly see it as a positive as a -- from a pure financial perspective, the funding of some of the fuel providing some kind of perspective for customers as constructive, obviously, part of that was done to -- through a recognition of challenges with credit metrics. So I think that has been perceived as slightly positive. But at the same token, I think S&P, and this is something that we've seen in other jurisdictions as well. We'll be keeping an eye on the next general rate application as well and whether or not that can go from start to finish without any kind of intervention from the government. But all to say is, I'd say it was a balanced reaction probably slightly positive.

Okay. And then just on the conversation rate agencies, maybe comment a couple of things. One would be, based on where you're heading with holdco debt and variable rate (ph) debt, will you be there by midyear to appease the rate agencies on those metrics? And second, just maybe a comment on the magnitude of the ATM usage in Q4 or for you to be a bit more aggressive with it. Was there anything in terms of a firm deadline or commitment you need to make there?

Yeah. I think the path we're on, look, there's never a specific date where the rating agencies say, you have to be at a particular place. But I think all the activity that we've got underway, the steps that we've taken, we're confident the negative outlooks are going to get resolved in 2024. I wish I had a perfect clarity as to the exact month that those would happen. But we have a high degree of confidence in that, Mark. In terms of the ATM issuances, it was not in response to any kind of direction mandate from the rating agencies. You'll recall we hadn't done anything in the fourth quarter of 2022 or the first three quarters of 2023. And of course, as you can imagine, have been in a blackout since the beginning of the year because of the timing of our release of our financial results. So really, what we issued in the fourth quarter was covering six quarters, if you will. And so I would say, largely in line with what we would have expected. There was just a clear path in the market for us to get done a reasonable amount of ATM and catch up to what we hadn't done over the previous four quarters. And so we took advantage of that opportunity.

Last just one quickly for me. Just also a lot of keen interest on the asset sales progress. At what point would you be in a position to think to provide pinto the market with more sort of the direction on the magnitude or timing? Is it something you could provide clarity by the Q1 results in May.

We certainly before the end of the second quarter, Mark, would have some confidence that we should be in a position to provide some clarity by then.

Sounds good.

Thanks, Mark.

Our next question comes from the line of Ben Pham from BMO. Please go ahead.

Hi. Thanks. Good morning. A couple of questions on asset sales? And just on that last question as well for Mark. And you mentioned it earlier around your expectations on asset sales and incoming and it's been in line with your expectations. Can you add more color to that? Because when you announced the asset sale program, yields were much higher than where they were today and most of the infrastructure companies that we've been following have suggest that it's night and day with respect to their conversations on asset sales.

Yeah, Ben. I guess I'd just lean in again with a comment that is we are encouraged with where we sit in terms of our progress and some market conditions. And working, as I said to Mark, to be in a position to provide more clarity by the middle of the year.

Okay. And would you say then -- I mean when you put together asset sales and your expectations and where yields were at that time, call it high 3s that you were anticipating that yields would decline and your -- that led to really an expectation that you get maybe better valuations in '24 versus '23 is all baked into your plan already?

I'd say, we have reasonable valuation expectations would be the way that I'd say if we're in a place where yield movements work in our favor and create a better valuation level, then that's great. But I'd say we have reasonable valuation expectations.

Okay. Got it. And maybe just continuing on that. I'm not sure you answered this question earlier on the EPS impact of asset sales and the FFO differences. And I guess it depends on what assets you sell. Some might be credit accretive to FFO, maybe dilutive to EPS. And I think you mentioned last call, you would not sell an asset unless it's at least neutral EPS. Is that still the case today? Just give more about the debt is trending for you?

Yeah. I mean, look, every asset would have different dynamics depending on proceeds, use of proceeds, I mean, first and foremost, the execution of this program is to fundamentally accelerate our deleveraging and improve our credit metrics. So the use of proceeds will be primarily targeted at the reduction of holding company debt. Obviously, in a perfect world, you'd have no impact on EPS. And as short-term interest rates remain high, there's an opportunity to mitigate any kind of impact. But if we find ourselves in a situation where it might be have a very modest impact on EPS, but a material impact on credit metrics. That's certainly something that we wouldn't discard in the moment. So -- but I'd say it's too early to tell on all those things. It's not just EPS today is what do we think the growth rate of those assets are and what the contribution to EPS over the next couple of years as well. So a lot of factors come into play.

That's understood. And then just lastly, on you got your CapEx program, $8.9 billion, and you've noticed some other items on Slide 5, Atlantic Tide, you talked about the storage maybe not happening. Can you talk about how some of those projects flex the CapEx? Is it all in there or is it leaves us some upside later on?

Yes. That's one of the reasons when we rolled out in November, our roll forward of capital, Ben, is we had a number of projects in our opportunities under development. And you would have recalled, I hope that we characterize them as one of the things we needed to have is regulatory certainty, support and a clear path for cost recovery on some of those projects. The storage facility in New Mexico would be an example of that. We added our opportunities under development because there was some uncertainty of whether or not there was a path forward. That, of course, has played out kind of in real time related to that. So to the extent there's other projects like batteries now, we have moved those up into our core projects. So you'll see a little bit of shifting as we go through time, as we get certainty around some of these projects. And certainty means not just the ability to invest and the desire to invest but also a clear path to earn a return on enough capital. But I'd say in total, there hasn't been anything meaningful on a consolidated basis that would cause the numbers or our view of the ability to invest that capital to change materially.

Okay. Got it. Thank you.

Thanks, Ben.

Thank you. We have our next question coming from the line of Patrick Kenny from National Bank Financial. Go ahead, please.

Thank you. Good morning. Just maybe on your gas utilities here just in the context of the depressed state of natural gas prices I guess, implying a bit of a tailwind for customer demand and just overall affordability. Just wondering if you're experiencing any sort of outperformance either at Peoples Gas or New Mexico in light of the low natural gas price environment?

Yeah, Patrick. It's Greg. It's a good question. I mean, obviously, what we've seen in natural gas prices has been relatively recent. And if you think of certainly, the impacts that, that would have on our system, whether it have Peoples Gas or New Mexico Gas. We don't see a lot of change in volume in the near term because of significant movements in gas prices. People still need gas in New Mexico to heat their homes and in Florida for more of the amenities. So we don't find it as sensitive in the near term. Obviously, if gas prices remain at these levels, we would expect that to probably provide some underpinning for some additional commercial and industrial growth, but I think it's still a little bit early to tell.

I'd also add in the meantime, it's also helpful on the electric side just in helping to keep the cost of energy, sort of the gas generation cost of energy lower. So it's certainly helpful across both our gas and electric utilities.

And then I guess from an affordability perspective as well, looking out more over the medium term, would it help to bring any of the additional potential investments that you've highlighted here over the next three years bring those projects forward a little bit?

Yeah. And again -- well, it depends, Patrick, and it's certainly -- it's different by jurisdiction and the nature of capital investments. Certainly, lower gas prices helps from an affordability perspective, whether it's on our gas LDCs or as Scott mentioned, from a fuel cost perspective at Tampa Electric. Does that give you some headroom. We don't really think of our capital program through the -- necessarily through the lens of headroom. We're investing capital to support our customers. And it's capital that is ultimately required. The timing of that may change. But also low gas prices, if they're here to stay, and I think we all know that they will be volatile over time. Does mean that when you look at the economics in some jurisdictions of renewable energy, those economics change as well as gas becomes more favorable from a price perspective. So there's a lot of different dynamics. But all to say is the current pricing environment is certainly helpful for customers overall on both the gas and electric side.

Makes sense. That’s great. Thanks, guys.

Thanks, Patrick.

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Bezanson for final closing comments.

Thank you. Thank you all for joining us this morning, and thanks for your interest in Emera. Have a good day.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. Thank you for participating and ask that you please disconnect your lines. Have a lovely day.