Emera Investor Day. Tampa, FL June 21, 2018

Transcription

1 Emera Investor Day Tampa, FL June 21, 2018

2 8:15 8:30 Opening Remarks Scott Balfour, President and CEO, Emera Inc. 8:30 10:15 Florida Business Update Nancy Tower, President and CEO, Tampa Electric T.J. Szelistowski, President, Peoples Gas 10:15 10:45 Networking Break 10:45 11:15 Financial Review Greg Blunden, CFO, Emera Inc. 11:15 11:45 Corporate Update Scott Balfour, President and CEO, Emera Inc. 11:45 12:30 Lunch 12:30 1:15 Guest Speaker Steve Morey, VP Business Development, Tampa Hillsborough Economic Development Council 1:15 5:00 Big Bend Field Trip Agenda 2

3 Forward-Looking Information Forward-Looking Information This document contains forward-looking information and statements which reflect the current view with respect to Emera Incorporated s ( Emera ) expectations regarding future growth, results of operations, performance, business prospects and opportunities and may not be appropriate for other purposes within the meaning of applicable securities laws. All such information and statements are made pursuant to safe harbour provisions contained in applicable securities legislation. The words anticipates, believes, could, estimates, expects, intends, may, plans, projects, schedule, should, budget"," forecast, might, will, would, targets and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. The forward-looking information reflects management s current beliefs and is based on information currently available to Emera s management and should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the time at which, such events, performance or results will be achieved. The forward-looking information is based on reasonable assumptions and is subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Factors that could cause results or events to differ from current expectations are discussed in the Business Overview and Outlook section of Emera s Management s Discussion and Analysis as at February 9, 2018 and may also include: regulatory risk; operating and maintenance risks; changes in economic conditions; commodity price and availability risk; capital market and liquidity risk; future dividend growth; timing and costs associated with certain capital projects; the expected impacts on Emera of challenges in the global economy; estimated energy consumption rates; maintenance of adequate insurance coverage; changes in customer energy usage patterns; developments in technology that could reduce demand for electricity; weather; commodity price risk; unanticipated maintenance and other expenditures; system operating and maintenance risk; derivative financial instruments and hedging; interest rate risk; credit risk; commercial relationship risk; disruption of fuel supply; country risks; environmental risks; foreign exchange; regulatory and government decisions, including changes to environmental, financial reporting and tax legislation; risks associated with pension plan performance and funding requirements; loss of service area; risk of failure of information technology infrastructure and cyber-security risks; market energy sales prices; labour relations; and availability of labour and management resources. Readers are cautioned not to place undue reliance on forward-looking information as actual results could differ materially from the plans, expectations, estimates or intentions and statements expressed in the forward-looking information. All forward-looking information in this document is qualified in its entirety by the above cautionary statements and, except as required by law, Emera undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise. Nothing in this document should be construed as an offer or sale of securities of Emera or any other person. 3

4 Welcome Scott Balfour President & CEO Emera Inc.

5 OPPORTUNITY At Emera, we see opportunity in the change around us, to innovate and shape our future. 5

6 STRATEGIC FOCUS Delivering growth through meeting customer demands for cleaner, affordable and reliable energy, delivered safely 6

7 FLORIDA EMERA S STRATEGY IN ACTION U.S. expansion and geographic diversification Constructive regulatory environment Regions of high economic growth Opportunities for greening of generation Portfolio expansion with gas LDCs Addition of TECO enhances Emera s ability to continue to deliver on our strategy to shareholders 7

8 GROWTH CREATES OPPORTUNITY Population of 21 million people and 9.4 million homes 1,100 people moving to Florida per day Ranked in the top 5 states for growth Above average GDP growth Below average unemployment 8

9 World-Class Safety We are more focused on safety than ever before Governance framework Corporate Safety Program Reinforcing Speak Up culture 9

10 Business Update: Tampa Electric Nancy Tower President & CEO Tampa Electric

11 Tampa Electric Today Regulated electric utility serving the City of Tampa TEC at a Glance $6.0B Rate Base 11.2% 2017 ROE $2.1B Revenue 54.0% Equity 750k Customers 2.7k Employees Note: All values as at December 31, 2017, and in in U.S. dollars 11

12 Florida s Electric Utilities Electric Utility # of Customers Residential Bill (per 1,000 kwh) Tampa Electric 750,000 $ Duke Energy 1,760,000 $ Florida Power & Light 4,870,000 $99.99 Gulf Power 460,000 $ FPUC 30,000 $ Municipal and Cooperative Utilities 3,000, municipal electric utilities and 17 rural electric cooperatives 11 of these regional utilities have generation assets Strategic initiative to pursue innovative partnerships with municipal and cooperative utilities 12

13 TAMPA DEVELOPMENT Water Street Tampa ($3 billion) 42 acre, multi-phase residential, commercial, retail and entertainment development Joint venture of Cascade Investment (Tampa Bay Lightning owner Jeff Vinik & Bill Gates) Up to 45 MW electric load plus natural gas Westshore Marina District ($400 million) 52-acre residential, retail, and marina waterfront project Midtown Tampa ($400 million) 1.8 million-square-foot residential, commercial, retail and entertainment development 13

14 Strategy Delivering growth through meeting customer demands for cleaner, affordable and reliable energy, delivered safely Transformation will be achieved through a combination of coal-to-gas conversions and new renewable generation, primarily solar % 1% 32% 13% 13% 60% 67% 74% 14 Note: Generation mix presented on an energy basis Coal & Other Natural Gas Renewables

15 Florida Solar Initiative EXPECTED IN-SERVICE DATES Tranche 1 (145 MW) Q Tranche 2 (260 MW) Q Tranche 3 (145 MW) Q Tranche 4 (50 MW) Q Investing approximately US$850 million to install 600 MW of solar generation by 2021 Investment earns AFUDC during construction Full and immediate cost recovery starting on in-service date of each tranche Expected annual net earnings contribution of US$50M upon completion 15

16 Key Provisions of Settlement Extension of rate freeze to 2022 (file in 2021) Cost cap US$1,500/kW; share benefits (75/25) if actual costs are lower than the cap Maintains existing ROE trigger that allows ROE to increase 25 basis points if interest rates increase 16

17 Florida Solar Investment Profile Forecasted Capital Spend (1) $537 US$853 million Total capital, excluding AFUDC $95 $161 $ A 2018F 2019F 2020F Land Tranche 1 Tranche 2 Tranche 3 Tranche 4 17 (1) In millions of U.S. dollars.

18 Florida Solar Earnings Profile Forecasted Revenue and Net Income (1) $94 $103 $70 $30 $42 $50 $8 $3 2018F 2019F 2020F 2021F Revenue Net Income 18 (1) In millions of U.S. dollars.

19 Progress to Date 19 Tranche 1 Florida Public Service Commission ( FPSC ) approved first Solar Base Rate Adjustment (SoBRA) on May 8, 2018 for Tranche 1 projects. Projects are permitted and under construction or mobilizing for construction. Tranche 2 first project (74.5 MW) mobilizing for construction; other projects are in various stages of construction and permitting. Expecting to file for approval from the FPSC in June Tranche 3 and 4 Projects are beginning development and have started initial permitting and zoning.

20 BIG BEND MODERNIZATION US$853 million investment 1,090 MW capacity Repowering Unit 1 with natural gas combined-cycle technology + retiring Unit 2 early Investment will improve land, water and air emissions, generate customer savings, improve efficiency 20

21 Big Bend Modernization Investment Profile $205 Forecasted Capital Spend (1) $238 $210 US$853 million Total capital, excluding AFUDC $77 $110 $ F 2019F 2020F 2021F 2022F 2023F Generation Transmission 21 (1) In millions of U.S. dollars

22 Next Steps Site Certification (SCA) and Environmental permits approval anticipated May 2019 Work is underway on engineering and design Evaluating regulatory strategy and engaging with the FPSC 22

23 INVESTMENTS IN CUSTOMER TECHNOLOGIES AMI US$230 million investment Deploying more than 800,000 3 rd generation meters over the next 5 years LED US$135 million investment Converting over 200,000 existing non-led lights to smart LEDs over the next 5 years 23

24 SOLAR PHASE 2 Potential to invest a further US$850 million of capital to add additional 600 MW of solar Post-2020 investment Modernized Big Bend would act as a balancing resource for additional renewable capacity 24

25 Focused Capital Plan Forecasted Capital Spend (1) $1,074 $913 $841 $956 $ F 2019F 2020F 2021F 2022F Base Business Solar Phase 1 Big Bend Solar Phase 2 25 (1) In millions of U.S. dollars

26 Visible Rate Base Growth Forecasted Rate Base (1) $6.1 $6.9 $7.5 $8.0 $8.6 $ A 2018F 2019F 2020F 2021F 2022F Base Business Solar Phase 1 Big Bend Solar Phase 2 26 (1) In billions of U.S. dollars

27 Business Update: Peoples Gas T.J. Szelistowski President Peoples Gas

28 A Brief History of Peoples Gas Electric light bulb is adopted; industry shifts to distributing manufactured gas for cooking, heating and hot water Reincorporated as Peoples Gas System, headquartered in Tampa Acquired by Lykes Bros. Inc.; became the largest natural gas distributor in the state Acquired by Emera s Began business as the Tampa Gas Company Consolidation of independent gas operations throughout Florida begins Convert to natural gas distribution business Acquired by TECO Energy 28

29 Peoples Gas Today Largest gas utility in Florida serving customers in all major metropolitan areas of the state PGS at a Glance $0.8B Rate Base 11.25% 2017 ROE $43M Net Income 54.7% Equity 380k Customers 600 Employees Note: All values as at December 31, 2017, and in in U.S. dollars 29

30 FLORIDA GAS MARKET PEOPLES GAS 39 gas companies; 8 investor owned Substantial growth opportunities 10% residential penetration Substantial unserved and underserved growth areas of the state Different than electric utility because of opportunity to serve rather than obligation to serve 50% overall market share of LDCs 70% market share of IOUs Significant power generation behind city gate Average annual capital investment of $100M - $150M Traditional U.S. LDC regulatory structure Purchased gas adjustment (PGA) and cast iron/bare steel replacement recovery clauses 30

31 REGULATORY OVERVIEW Constructive regulatory environment Allowed ROE: 9.25%-11.75% Allowed equity: 54.7% Conservation credits to customers for converting to natural gas Cost recovery between rate cases through cost recovery clauses 31

32 Our Customers Residential 32 Approximately 90% of our customer base is residential; comprises 40% of base revenue Work with developers and builders to install gas lines prior to home construction Installing natural gas appliances contributes to energy efficiency, allowing builders to take advantage of energy conservation rebates and providing a competitive advantage to their developer communities Homes with natural gas sell faster and command a 6% premium Buyers relocating from the north tend to prefer natural gas homes Traditionally build to residential then commercial follows

33 Our Customers Industrial & Commercial Approximately 10% of customer base is commercial and industrial customers, comprising 60% of PGS base revenue Compressed Natural Gas (CNG) Vehicles Major driver in commercial load additions due to low gas prices relative to other fuels 49 CNG stations in our service territory; 3 are company-owned providing over $3.5M of base revenue annually Combined Heat and Power (CHP) & Liquefied Natural Gas (LNG) are emerging opportunities for growth due to low natural gas pricing 33

34 Strong Historical Rate Base Growth Historical Rate Base Levels (1) $663 $686 $726 $751 $813 $ A 2014A 2015A 2016A 2017A 2018F 34 (1) In millions of U.S. dollars

35 Consistently Earning ROEs Greater Than 10% 11.7% 11.7% 11.0% 11.1% 10.9% 11.2% 10.2% 10.1% 10.0% 9.7% 2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A Earned ROE ROE Band (9.25% %) 35

36 Florida Natural Gas is Poised for Growth Natural gas in Florida is underutilized, providing growth opportunities for natural gas usage Cleaner energy lower carbon footprint than equivalent electricpowered appliances Ability to expand into areas currently not served Regulation is supportive of gas utilities in Florida Diverse growth initiatives reduces dependence on population growth related revenue increases 36

37 PGS is Well Positioned for Growth PGS serves 9 of the 10 most populated counties in Florida 37

38 PGS GROWTH STRATEGY The PGS growth strategy is based upon growing net income significantly in the long term, while maintaining strong safety, customer service and operational performance The PGS growth strategy focuses on three pillars of growth: GREEN GROWTH Natural gas projects that result in lower greenhouse gas emissions CUSTOMER GROWTH Providing service to developing areas of the state; increasing saturation of usage in areas currently served MAINTAINING & REINFORCING INFRASTRUCTURE 38

39 Strategy In Action Legacy Pipe Replacement $11 $23 $0.4 $1.6 Cast Iron/Bare Steel and Problematic Plastic Pipe 2018 qualified spend is double the amount of 2017 Accelerated Cast Iron/Bare Steel First full year of Problematic Plastic Pipe ~25% of the way through pipe replacement $34 $2.6 $47 $3.5 $66 $5.0 $ B Total Qualifying Capital Spend (1) Return on Investment $ (1) Qualifying capital spend excludes first $1.0 million of the year and the cost of removal

40 Growth-Oriented Capital Plan Forecasted Capital Spend (1) $152 $187 $224 $216 $ F 2019F 2020F 2021F 2022F Sustaining Growth 40 (1) In millions of U.S. dollars

41 Capital Plan Supports Rate Base Growth Forecasted Rate Base Levels (1) $0.8 $0.9 $1.0 $1.2 $1.3 $ A 2018F 2019F 2020F 2021F 2022F 41 (1) In billions of U.S. dollars

42 Strategy in Action Seacoast Investment Existing Lateral JEA (1) - Greenland Energy Center Initial term NBV $55M Annual revenue $10.5M Annual earnings $6M New Lateral SECI (2) new Seminole Generating Station In-service January 2022 Initial term 34 years $100M- $120M investment Annual revenue $13.5M Annual earnings $6M Existing Lateral (24 miles, 24 ) New Lateral (21 miles, 30 ) 42 (1) Jacksonville Electric Authority (2) Seminole Electric Cooperative, Inc.

43 Networking Break Tampa, FL June 21, 2018

44 Financial Review Greg Blunden CFO Emera Inc.

45 2017 FLORIDA RESULTS First full year of operations as an Emera company Record earnings and double digit earnings growth Earned ROEs at the top end of approved bands 45

46 A More Diverse, Regulated Portfolio TTM June 30, 2016 TTM March 31, % 24% 76% 92% Regulated Unregulated Regulated Unregulated 46

47 GROWING OUT OF TAX REFORM 2018 approved settlement to offset storm costs against the benefits of tax reform 2019 recovery of 50% of alternative minimum tax credit balance of US$214 million; 50% of the remaining balance return each year thereafter 2020 and beyond opportunity to rebalance capital structure as deferred income tax is reduced following the elimination of bonus depreciation 47

48 Illustrative Example Rate Base Pre-Tax Reform Before tax reform, the deferred income tax balance was expected to continue to increase over time with additions to rate base Debt 2,200 2,600 2,750 2,950 3,200 3,350 Equity 2,600 3,000 3,250 3,450 3,700 3,950 Deferred Tax Liability 1,300 1,300 1,400 1,500 1,600 1,700 Rate Base 6,100 6,900 7,400 7,900 8,500 9,000 Average Earnings Pre-tax Reform Earnings are based on equity portion of investor owned capital at a mid-point ROE of 10.25%

49 Illustrative Example Rate Base Post-Tax Reform After tax reform, as deferred income taxes decline, an opportunity will develop to invest additional investor-owned capital, increasing the earnings potential of the utility Debt 2,200 2,600 2,850 3,100 3,400 3,650 Equity 2,600 3,050 3,350 3,650 4,000 4,300 Deferred Tax Liability 1,300 1,250 1,200 1,150 1,100 1,050 Rate Base 6,100 6,900 7,400 7,900 8,500 9,000 Average Earnings Post-tax Reform Average Earnings Pre-tax Reform Earnings Opportunity

50 Financing Our Growth 50 Regulated operating company debt June $350 million refinancing at TEC Q4/18 - anticipated refinancing at TEC Preferred share issuances May $300 million Room available in capital structure for incremental hybrid capital Reinvestment in the business Opco cash flows generated retained to fund growth Growth being driven by opcos with higher equity thickness, contributing to consolidated deleveraging

51 Cash Flow and Capital Structure Credit metrics support current ratings; 13% cash flow-to-debt target by 2020 Short term funding plan includes use of excess cash from operations, cash flow from DRIP program, and hybrid securities and/or preferred shares March 31, % March 31, % 2020 Target 10% 27.5% 62.4% 29.8% 60.5% 35% 55% 51 Notes: (1) Preferred equity includes hybrid debt (2) Equity includes the NCI and excludes AOCI Debt Equity Preferred equity

52 2018 Off to a Strong Start 52 Strong earnings and cash flow growth driven by load growth and favourable market conditions in key service areas Increased capacity payments in New England Maritime Link operational and providing cash earnings and regional electrical stability Positive regulatory outcomes in Florida substantially mitigating impact of US tax reform

53 Wrap-Up Scott Balfour President & CEO Emera Inc.

54 STRATEGIC FOCUS Delivering growth through meeting customer demands for cleaner, affordable and reliable energy, delivered safely 54

55 OTHER EMERA STRATEGIC INITIATIVES Become a global leader in thirdgeneration AMI through our Cross-Utility AMI Program Battery Storage pilot in Nova Scotia and grid-scale storage in Barbados Use our Barbados 100/100 Program to gain experience operating grids with high renewables penetration 55

56 Why Invest in Emera SUPERIOR SHAREHOLDER RETURNS STRONG EARNINGS DIVIDENDS GROWING OPERATING CASH FLOWS 5 year annualized total shareholder return of 7.5% compared 5.5% returned by S&P/TSX Capped Utilities Index and 6.9% returned by the S&P/TSX Composite Index (1) +90% regulated earnings; exceeding minimum 75% regulated earnings target Adjusted earnings per share CAGR of 6.1% over the last 10 years (2) Dividend increase of 8% announced September 29, 2017 Dividend per share growth CAGR of 9.9% over the last 10 years (2) 8% CAGR target through 2020 (3) Conservative cash coverage on dividends 13.0% CAGR in operating cash flows over the last 10 years (2) VISIBLE GROWTH PLAN $6+ billion capital investment plan to drive growth through 2020 Investment-grade project pipeline 56 (1) As at March 31, 2018 (2) As at December 31, 2017 (3) Dividend target announced July 4, 2016