Good day and thank you for standing by. Welcome to the Emera Second Quarter 2021 Analyst Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer to ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Mr. David Besancon, Vice President of Investor Relations. Sir, please go ahead.
Thank you, Wrens, and thank you all for joining us this morning. Emera's 2nd 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 amira.com. Joining me for this morning's call are Scott Belfort, 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 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 released our Q2 results, and I'm pleased to say that we continued to see solid results and steady growth in our business. We delivered quarterly adjusted earnings per share of $0.54 an increase of $0.06 over last year and year to date adjusted earnings per share of $1.49 up $0.22 over 2021 despite facing pressure from foreign exchange rates. Our team also continues to safely execute on our capital program and we're on track to complete our $2,400,000,000 2021 plan. The team is also making significant progress on the regulatory front.
Last Friday, we filed a settlement agreement related to a request for a general base rate increase at Tampa Electric. Unanimously supported by all intervening consumer parties, it's a balanced agreement that supports Tampa Electric and Emera's strategy to advance cleaner energy and investments in grid modernization and reliability, all the while never losing sight of affordability for customers. As you know, Tampa Electric has been significantly reducing the carbon intensity of its generation mix with major investments in solar and the Big Bend Modernization Project. Today Tampa Electric is Florida's top producer of solar energy on per customer basis. This 3 year agreement allows Tampa Electric continue this progress, providing great support for investments already made as well as those planned over the period, giving us confidence and our ability to continue to deliver on many fronts.
If approved, we'll see an increase in base revenues of 100 $22,700,000 starting in 2022, these are all U. S. Dollars, a further US90 $1,000,000 in 2023 and US21 $1,000,000 in 2024. The agreement also creates the clean energy transition Which will allow Tampa Electric to collect revenue of $69,000,000 annually over the next 15 years starting January 1, 2022 Together with the base rate increase in 2022 that I mentioned means rates will increase by US191 $1,000,000 starting January 1, 2022 and with the follow on additions in 2023 2024. The agreement also provides for a 9% to 11% ROE band with a midpoint set at 9.95 percent for rate making purposes and no other change no change to our equity thickness.
Thank you to the team in Florida for their hard work in reaching this outcome. In fact, this agreement reflects the hard work of all parties involved in securing rate certainty through the end of for Tampa Electric customers, while positioning the utility to make continued investments in resiliency, customer solutions and a greener energy future. Tampa Electric settlement is the 3rd corporate rate case in our U. S. Utilities over the past year.
As you'll recall, Peoples Gas and New Mexico Gas concluded rate cases last year. This is in addition to the successful application to recover additional costs associated winter storm Yuri in Mexico and a mid course adjustment for fuel cost recovery at Tampa Electric. This track record is a testament to the caliber of our regulatory teams as well as the quality of the regulatory jurisdictions where we operate. It also speaks to the collaborative approach we take that ensures balanced outcomes for all involved. I know this is not easy work.
I want to take a moment to thank all of the Board for their expertise and efforts. We also announced another significant milestone on Monday morning, delivery of the Nova Scotia block of clean energy from the Muscat Falls hydroelectric project will begin to flow through the maritime link to Nova Scotia Power customers this coming weekend.
This is a significant step
that brings us closer to the shared goal of having 80% of Nova Scotia's energy coming from renewable sources by 2023. The Maritime Link was a bold idea that will deliver clean energy to Nova Scotians for generations to come. It's part of a long term vision to support the energy transition in this region. And we see the maritime link as the first in the regional transmission interconnections that are critical to support more local renewables and enable continued carbon reduction in Nova Scotia, all moving us towards achieving the vision to achieve net 0 CO2 emissions by 20. The maritime link project was completed on time and within budget.
It was an absolutely massive project executed safely and expertly by the Emera team and many partners who helped make it a reality. Thank you to the Emera team and all our partners and stakeholders who shared our commitment to a greener energy future to building stronger regional connections. This project is the result of the vision and hard work of so many, including indigenous partners, provincial governments, the federal government, NACOR and countless local, regional and national partners. The commencement of the Nova Scotia block flowing on the Maritime Lake is a significant part of delivering on our climate commitment. With the Nova Scotia block, Nova Scotia Power is on track to generate approximately 60% of its electricity from renewable sources by 2022.
This helps deliver on Emera's overall commitment to a 55% reduction of CO2 by 2025. And in Tampa Electric, continue to build out of our solar program with 5,300,000 panels currently up and operating and another 700,000 to be installed this year. In early July, we released our 2020 Sustainability Report, which highlights our progress on all our environmental, social and governance commitments through December 31, 2020. The report captures not only the progress we're making, but the commitment from our team to advance our strategy. We continue to enhance our ESG disclosures and remain committed to transparently reporting on the factors that are most important to our investors and stakeholders.
Meanwhile, however, COVID continues to challenge many of our communities. While Nova Scotian case numbers remain low, case counts in Florida are concerning for everyone. Sadly, we lost one of our employees yesterday due to complications related to COVID-nineteen. This tragic loss illustrates that this pandemic is far from over. This is a difficult loss for our entire team and we extend our condolences to Bill's colleagues and family.
I want to thank our employees for continuing to do their part, not only for our customers, but also for each other, whether that is getting vaccinated, continuing to follow public health guidelines and always keeping health and safety first of mind. You've heard me say it before, but our response to the pandemic has really highlighted the strength 13 and strategy. Emera is on solid ground. With significant progress on the regulatory front, we have good visibility into our cash flows for the next few years. And this allows us to focus our attention on growing the business by continuing to invest in our strategy of safely delivering cleaner, reliable and affordable energy to our customers.
Before I hand it over to Greg to walk through our financials, I'd like to officially welcome Gil Quinones to Emera's Board of Directors. Gil is currently President and CEO of the New York Power Authority. His 30 year career extends across regulated and unregulated utility markets, public utilities and state and local governments. He is an industry energy industry leader with deep experience in driving innovation, new technologies and cleaner energy solutions for customers. Welcome, Gil.
We're fortunate to have you on the Emera team. And now I'll turn you over to Greg to walk you through our financial results. Greg?
Thank you, Scott, and good morning, everyone. This morning, we reported 2nd quarter adjusted earnings of $137,000,000 and adjusted earnings per share of 0 point 5 $0.4 For the 6 months year to date, adjusted earnings were $380,000,000 and adjusted earnings per share was 1.49 Our adjusted earnings exclude mark to market adjustments that I will discuss in a few minutes. Emera's adjusted earnings per share increased for the quarter year to date and infrastructure segment led by Peoples Gas with the segment contributing US10 $1,000,000 more than in Q2 2020. Peoples Gas continues to benefit from new rates and continued growth in its customer base. The timing of preferred share dividends also gave us a year over year increase of $12,000,000 as we recorded 2 dividends in Q2 2020 and only 1 in Q2 2021.
The Canadian Utilities contributed modestly to the growth with a higher contribution from the Maritime Link and Labrador Island Link projects and lower corporate interest expense as a result of our efforts to reduce corporate debt continued this quarter. On On the non regulated front, we continue to see better results at Emera Energy due to strength in market pricing and increased volatility. These positive changes were partially offset by the impact of a stronger Canadian dollar and by slightly lower earnings at Tampa Electric, which experienced increased resulting from our continued investments in solar and Big Bend and the effect of a regulatory settlement that led to an US8 $1,000,000 amortization credit last year. Adjusting for the foreign exchange impacts and the amortization credit in 2020, Tampa Electric was modestly up quarter over quarter. Year to date increases in adjusted earnings per share of $0.22 were due to higher earnings in the Gas Utilities and Infrastructure segment as discussed a moment ago and better results in marketing and trading.
Lower interest expense in corporate OMG and the preferred share dividend timing also improved earnings in the first half of twenty twenty one versus 2020. These increases over last year were partially offset by the impact of Canadian dollar, which negatively impacted our earnings by approximately $20,000,000 or $0.08 in EPS. We continue to be partially hedged for the remainder of 2021 at a rate of $1.42 for approximately $25,000,000 per quarter. And we look to layer on more hedges as foreign exchange rates return to normal levels as we have seen recently. Recording of the amortization credit in Tampa Electric last year and the sale of Emera Maine added to approximately $0.05 or $14,000,000 in earnings that we didn't have this share.
And finally, higher share count reduced EPS by $0.02 in the quarter and $0.05 on a year to date basis. Overall, we are pleased with 2021 so far. Mira Energy's Q2 mark to market loss had a material impact on reported earnings. Many of you will remember that we had a similar situation in 2016. I'm going to take a minute to give a refresher on what is going on here.
Mira Energy has a number of asset management agreements or AMAs with gas and power utilities and natural gas producers Where they buy or sell gas for a specific term and take a corresponding release of the counterparty's gas transportation or storage capacity. Mark to market adjustments on those AMAs arise when the on the price difference between the point where the gas is sourced and where it's sold. At inception, the mark to market adjustment is fully offset by the value of the corresponding gas transportation asset. Of course, the gas prices change over the term of the AMA, which means the value of the transportation also changes. However, the two elements are accounted for differently.
The gas is mark to market and the is amortized evenly over the term. This results in some net mark to market gains or losses recorded in income. Ultimately though, the gas transportation asset and the mark to market adjustment reduces to 0 at the end of the contract term. It is important to emphasize that these arrangements have no actual economic market exposure because regardless of the difference in the value of the gas between the receipt and delivery points, Emera Energy has transportation capacity that enables us to move the gas to the point at which it is priced. While year to date we have seen a decrease in cash flow from operations before changes in working capital, it can be largely attributed to the significant increase in gas costs at New Mexico Gas related to winter storm Uri.
Adjusting for that cash flow impact, cash flow from operations before working capital was up slightly over last year. And looking forward, there are a number of events that have occurred recently that will positively impact operating cash flow going forward, both in terms of incremental cash and greater certainty around the cash flow that we've been expecting. As a point of reference, every CAD50 1,000,000 of Canadian cash flow improves our credit metrics by approximately 30 basis points. In Q2, we received regulatory mechanism to collect the $108,000,000 of incremental fuel costs in New Mexico that we disclosed last quarter. Starting on July 1 this year, we will collect the full amount plus carrying costs over a 30 month period.
While simply timing this will have the effect of increasing operating cash flow over the following 30 months. This will provide US43 $1,000,000 in incremental cash flow in each of the next 2 years as well as an additional US22 $1,000,000 in the second half of twenty twenty one. This month, we also received approval for our mid course correction related to our fuel adjustment clause in Tampa Electric. As approved, it will provide issued an additional US83 $1,000,000 in revenue over the remainder of 2021. And looking forward to 2022, we continue to make significant progress And with that, I'll turn the presentation back over to Dave.
Thank you, Greg. This concludes the presentation. We would now like to open the call for questions from analysts.
Thank you. At this time, we would like to take any questions you might have for us today. We have our first question from the line of Ben Pham from BMO. Please go ahead.
Hi, thanks. Good morning. What's the Tampa settlement recognized? You got to get still approval for that and you had the decision on the Mexico gas fuel costs and loads coming in. Do you have better confidence now in terms of where the cash flow is going to go in 2022?
Good morning, Ben. It's Greg. We do. I mean,
I think we I think it's fair to say we always had confidence. Certainly, The settlements that we reached are in alignment with what our expectations would have been and I think it's fair to say what the expectations of the rating agencies would have been. So The target of 12% FFO CFO to debt in 2022 is very much achievable at this point in time.
Okay. And when you actually head towards 2022, you have step change in the Florida business and the cash coming in. Do you think you could be in a position where you can self fund your CapEx program post 2022? I know there's a bit of drift still in the back end, but as you look forward, is that was there increasing probability there?
Yes, I think that nothing's changed from our expectation on what our funding requirements are for the 2021 Through the 2023 period, we'll of course refresh that in the fall when we also refresh our capital forecast. But At this point in time, we're committed to maintaining our DRIP at the level we are. The ATM program is functioning quite well From our perspective and we'll continue to access that for probably in the $50,000,000 to $60,000,000 a quarter on average going forward for the next at least the next Couple of years.
Okay. And can you comment maybe high level, you think with your CapEx program, there's some advanced metering investments in there NFI, is there more to go, maybe just broad automation and implementing digital systems and whatnot. Is there an upside and opportunity for that in your plan?
Ben, I think Broadly across the portfolio is we continue to make investments to modernize the grid and Make investments in customer facing technologies. Yes, for sure, that will be part of our CapEx plan Going forward, there's aspects of that obviously within the plan now. AMI and smart meters have been obviously the most significant part of that, the part that we've talked about. There have been other components of that as well across the portfolio. And so for certain that will continue to be an important part of our capital program moving forward and part of the transition that we're driving as well.
Okay, that's great. Thank you. Thank you. Our next question is from the line of Mark Jarvi from CIBC Capital Markets. Please go ahead.
Thanks. Good morning, everyone. Just wanted to come back to the question around the funding and now that you've got the settlement agreement. Maybe Greg, when you look at that sort of funding pie chart and you had equity at 15% to 25%, I understand now are you kind of trending towards that middle of say 20 percent equity when you talked about $50,000,000 a quarter for the ATM. Is that sort
of where you're guiding to
in the midpoint of the equity requirements you flagged so far?
Yes, Mark, I'd say, I don't think there's anything that would necessarily suggest that we'd want to tighten that range. I think that range for equity requirements over the 3 years is still appropriate. As I In response to Ben's question, we'll update that when we update our capital program later in the year. But at this point in time, I think that's the most appropriate guidance for us to have out there.
Fair enough. And then coming to the Tampa, the fuel charge recovery, was there a bit of a drag In this quarter or last quarter in terms of just carrying a higher fuel cost. I'm just wondering on that $83,000,000 of higher revenue comes through on a new rate. Is any of that a bit of a catch up or is that all just adjusting to where commodity costs are trending more in the back half of this year?
Yes, it's a combination Mark of a catch up for the first half of the year as well as capturing what we expect the incremental fuel costs would be above what's In the base fuel cost of rates in the second half of the year as well.
And any way to sort of give us a little bit of Color in terms of how much of a grind might have been on Tampa earnings in the last quarter?
So it wouldn't have any impact on earnings at all, Mark, because it just flows through the fuel cost.
Okay. Fair enough. And my last question, just on the Muscat Falls, Nova Scotia block coming through now. What sort of the backup plan, if there was ever any unplanned outages on that or issues with your own transmission lines in terms of obligations on sort of renewable electricity sort of mix commitments and stuff in terms of how you guys either would be exposed on any penalties or how you would fill in if there was any sort of temporary losses in that power coming through?
Yes. Mark, I'll start and then Peter, I know is on the phone and he can sort of backfill my answer. But broadly, we expect now with the Nova Scotia block flowing that will also enable incremental energy beyond the Nova Scotia power
We expect
that that will effectively allow Switchpower to procure the renewable energy that It needs in addition to that, it's already being generated natively here in the province to be able to meet that standard. But Peter, over to you to add any more clarity.
Yes. Thanks, Scott, and hi, Mark. Yes, in terms if there were to be any transmission outages On that line, when it's part of our reliability planning, we need to ensure we've got a portfolio of resources that's available To fill in any gaps. And so you see continuing we'll continue to utilize our coal fleet as we shut those down over the next number of years. We've got gas facilities.
We've got existing renewables. We got hydro facilities. We've also got the tie line into New Brunswick. And so we've got options, and that's what we do every day plan for those contingencies to make sure we can provide reliable source of power.
Okay. Thanks, Dirk.
Thank you. Our next question is from Maurice Joy from RBC Capital Markets. Please go ahead.
Thank you and good morning. My first question is on Tampa Electric. You were obviously open to go right to the end, right, on a fully litigated case, but you're also willing to engage in the settlement, which obviously was a route that you took. And you mentioned earlier that this agreement aligned with your expectations. But as you look at this package holistically, can you discuss the puts and takes that led you to accept this settlement?
And also how this deal may compare to the ones that your peers in Florida also filed due diligence here as well as Akyol yesterday.
Yes. Thanks for the question,
Maurice, so Arjun, maybe I'll get you to answer the first part of that question and then I'll answer the second.
Sure, very good. Thanks Scott. Good morning Maurice. So Maurice, I think what your first half of the question was, were we prepared to go The full distance on a fully litigated rate case, and we absolutely were. The team here was in parallel with the settlement we were working on was busily prepping themselves For being on the witness stand during the hearing and preparing filing testimony, etcetera, etcetera.
So we were fully prepared Is there a way for us to work through this and achieve an outcome that we believe is equal to, if not better than what we might derive from a fully litigated settlement.
And
is there a way to do it that brings Certainty to what the price increases will be for customers on the 1st January of 2022. There are other reasons as well, You know, reputational and otherwise why we would have saw fit to engage with all of the consumer parties. The deal the agreement that we ultimately reached is one we feel really good about for us as an organization and where we sit today. It is a settlement that represents
a
for growth, all at a pace that we believe customers can afford. And that is an important element for us priority as opposed to looking at any one element of it. And I say that because We look at it as an entire package of not just de risking and an affordable pace and a platform for growth, but we also look at it from the perspective of doability. And you know, we know what we negotiated, and we feel Extremely confident that the agreement that we have reached will Allow Tampa Electric to perform in the higher end of that ROE range. We don't view the 995 Midpoint as a midpoint.
We view that, quite frankly, as a starting point. And based upon what we have negotiated with the consumer parties, We are extremely confident that,
that
settlement with a subset of their interveners compares to the settlement that we have achieved with all of our consumer priorities. Anything else, Scott?
No, I think, yes, I think that covered it. I think that largely answered the second question to Maurice. I think, As Archie said, look, what we have in front of us, the settlement agreement that we have in front of us unanimously supported.
I think it gives us a
clear pathway to approval. There is, of course, a process that needs to go through with the Florida Public Service Commission. But obviously, with all of the intervening parties supporting that agreement, we have confidence in the outcome. And this settlement agreement will allow us to deliver on our plans, our plans for our customers And our plans for shareholders as well. So I think
Thanks. And maybe just a follow-up to those comments, to 9.95% is your starting point and obviously the higher end is at 11%. Can you compare that expectation to what you've achieved over the last few years. From my recollection, it's probably around 10% or just above 10%, But happy to hear your thoughts on that.
Yes, Maurice, it's Greg. I mean, I think it's fair to say that we've probably and maybe 1 year might have been slightly higher than this or 1 year slightly lower. But I think we've generally been in around 10.25% to 10.5 percent in its totality Probably positions us well that on average we would expect to kind of maintain that level of performance at the utility.
Great. And just my following question on the Investor Day that you scheduled for December. Notwithstanding that you're obviously still waiting for a decision The regulator in Florida, but what are perhaps 2 or 3 things that you're still waiting on over the next 3 or 4 months in order to provide us an update to the CapEx and funding plan?
Yes. I wouldn't say there's anything, Maurice, that we're waiting for from a regulatory perspective or anything like that. We're just going through. It's a natural part of our planning cycle right now at Emera where we're going through and reviewing capital plans with all of our businesses. And there's just some internal work that needs that to get rolled up and we review that with our Board, to make sure that we have their full support.
And so it's really more of an internal processing than anything else.
I missed it. Thank you very much. You're welcome, Boris.
Thank you. The next one we have from Rob Hope from Scotiabank. Please go ahead.
Good morning, everyone. Just a follow-up question on the TECO ROE. So just want to further kind of clarify our understanding here. How what are the key drivers that will move you kind of to the upper end of the band? And then through the agreement, do you think you'll kind of start towards the upper end and then as a little bit of rate lag sets in, you could kind of drift lower to get to that overall 10.25 average?
Yes. I mean, I think the greatest variability that we'll see over the next couple of years It's weather and load related, Rob. Obviously, we're experiencing some customer growth and we expect that to We do have also step changes in revenue in both 'twenty three and 'twenty four, which also helps. So again, on its whole, we would expect have to maintain a fairly consistent ROE profile with probably the variable being weather and ultimately residential load as a result of that weather.
Sorry, thanks for that. And then just in terms of your kind of capital outlook, the opportunities under development that you've been talking For some time, they'll have, we'll call it just under $200,000,000 of potential CapEx this year and over $400,000,000 next year. Where are we in moving those from under development into the secured bucket?
Yes, it's well, as You've heard us articulate before, about half of it is projects related to the Atlantic Loop or direct investments in the Atlantic Loop. And we said, we expect to have greater clarity and be able to provide some additional color around that in the fall of this year. Some of the other projects, I can't say we're seeing necessarily material changes in it. We are seeing some progress in some of our utilities, New Mexico as an example where we're starting to look at gas storage as an opportunity in reaction to what was experienced with Winter storm, Uri. So there's a few things like that, Robert, but I wouldn't say there's necessarily anything significant to call out for you.
Great. Thank you. Appreciate the color.
You're welcome.
Thank you. The next one we have from Linda Ezergailis from TD Securities.
Thank you. A number of my questions have been answered, but maybe I'll switch the focus a little bit to your operating results. I'm wondering if you could give us a sense of the puts and takes in your operating expenses as it relates to any sort of inflationary pressures you're seeing versus any sort of ongoing or new productivity initiatives, especially perhaps leveraging learnings from remote learning and adopting new technologies during the pandemic?
Well, I can start Linda and
then maybe Scott could add on. It's a big question. I can say on our kind of Our day to day operating expenses, like if you think of kind of corporate expenses and things like that, we're not really seeing any inflationary increases yet. But Although I'm not sure what the level of activity would necessarily highlight that at this point in time because clearly nobody's traveling And some of those things. So we're still seeing a lot of benefits from that side of it.
I think how what we've experienced over the last year, how that will continue, I think there's no question that the volume of travel, some conferences, things like that, investor conferences and and things like that. I think there's no question some of them will stay virtual and I think we'll see some benefit from that side of it. On our core operating utilities, again, minimal impact so far, I would say, from a play perspective, maybe the area we're starting to see some is on things like poles and wires, kind of just the day to day maintenance of our system. But we're still fortunately, we're cost of service utility. Those inevitably get passed through to customers.
A lot of our costs are labor and labor related costs that are Through agreements with unionized workforces, interest rates are certainly being helpful. So I'd say collectively as a whole, it's As a whole, it's something we're watching, but it's not something that we've seen any kind of impact on our financial results to date.
Yes. I think in terms of cost efficiencies, Linda, I think sort of remote aspect Of work, I'm not sure that it would point to anything of notable scale there, but where we are certainly seeing some We continue to invest in cleaner energy, things like the conversion of coal units to natural gas fired units drives a lot of operating cost The labor components of running a gas plant is much less than that of running coal plant and then the same again when you think about renewables. So we're seeing those kinds of of efficiencies as well, the impact of technology, smart meters And the impact there of taking away some manual processes that were required, not just the reading of meters as was required in Nova Scotia, for example, but even the ability to remote disconnect and reconnect without needing to roll a truck in order to perform that service. So we're seeing those kinds of efficiencies that the business is benefiting from and That's an ongoing focus area for us for sure.
Thank you. And as a follow on, As confidently as I can say that we certainly will be within the range. There hasn't been there's been a little July has been okay, but not certainly not as sweet as June was, I guess, how I would Not bad, just not too exciting. That your annual planning process needs to run its course. I'm just wondering how any sort of conversations with both your equity and debt investors are informing your thoughts going into that process around potentially expanded investor base.
Are you seeing some of your sustainability initiatives and reporting and targets translating into potentially broader access to new classes of investors or potentially shifting your investor base a little bit. Any context around that would be helpful.
Yes, I'm not sure It's an interesting question, Linda. I'm not sure I necessarily say we've seen a really notable shift or extension. But I would say that We've been getting really good feedback from existing investors and prospective new investors who are focused in the space around our disclosure, around the language that we're using as it relates even to our carbon reduction initiatives and efforts. And look, we've been working hard to try and tell the story better. I think we've had a good story to tell for a long time.
We just haven't Really focused on telling it as well as we have in the last year or 2 and making steps that we did To really bring some robustness to our sustainability report, the most recent one issued about a month ago now are not just telling a story about the carbon reduction efforts that have already been achieved, but what our plans and our goals are moving forward as part of our climate commitments. And I think frankly being candid with our investors around Our visibility to achieving an 80% reduction by 2,040, but the net zero component of our climate commitment being more visionary, more of an ambition without the ability to have perfect line of sight as to how that could be achieved affordably as we sit today. So I think all those messages have resonated. And I think frankly, within our 2 largest emitters Nova Scotia Power and Hemp Electric. Just even the clarity of the significant progress that both have already made in terms of carbon reduction, I think has been something that shareholders have welcomed more clarity around the significance of the achievements already made.
Thank you. I'll jump back in the queue.
Thanks Linda.
Thank you. Our next question is from Andrew Kuske from Credit Suisse. Your line is open.
Thank you. Good morning. Your renewable power generation exposure has largely been 5 year rate base activities in your utility businesses, Several jurisdictions, what appetite do you have to either build or acquire renewables outside of a regulated framework?
Yes. I mean, Andrew, it's a really good question and of course, one that we've asked ourselves I think we continue to be comfortable with our approach obviously of With an eye on the pace of investment given its impact on affordability, but is to really focus on the transition of our generation base inside Our regulated utilities towards renewables. Looking at it outside of our regulated service territories, Yes, we do look at it. We do think about it. Of course, our efforts with Emera Technologies today is in a way a part Of that, in terms of looking at how distributed renewable generation and backup storage battery storage can be part of a system whether that's inside our service territories or in the service territories of others.
So that today would be our primary focus, but it's an area that We've looked at, but primary our focus is rate based investments in renewables and continuing to push along our block energy concept that Emera Technologies has developed.
So that's very helpful context. And so maybe It's just really a function of you have so much growth within the embedded rate basis and you're trying to avoid rate shocks and that's really the focus right now because it's effectively captive solar efforts, for example, in Florida.
Yes, exactly right. And we look at the risk return trade off in doing something outside of the investment opportunity profile that we have now. And so we keep directing our capital towards those areas where we think the risk return balance is most in favor of our shareholders.
One small question and maybe a
bit of a blast from the past, But also tied to the renewable power side of things and really just on Tidal Power. Are there any initiatives going on, on the Tidal Power side at this point in time?
Not by us. I know the province here in Nova Scotia continues to look at it. But no, we've obviously taken 2 kicks At that. And it's a really interesting concept, but it's a long way from being commercial. And so As I say, our capital continues to be focused on those places where the risk return profile is to the best advantage of shareholders.
And so that's not an area that we're currently pursuing.
Okay. Thank you.
Thank you. Our next question is from David Quezada from Raymond James. Please go ahead.
Thanks. Good morning, everyone. My first question here just on Maritime Link. I believe there's a comment in the MD and A that you have the potential to purchase additional power from Nalcor under an energy access agreement. Just curious what would cause you to exercise that and how you could make use of it, potentially, I guess, flexibility on the cap and trade program or requirements in Nova Scotia?
Peter, are you comfortable to answer that? Yes.
I think Rick can add Well, hi, David. I think it's certainly an option. And as we look to decarbonize our resource fleet, If it makes sense economically to expand that source of power when you compare it to other options, I would say it is an option for us to further decarbonize this as we shut down coal. But we'll judge That based on how it stacks up to other options. As Scott mentioned before, as we decarbonize, the most important thing for us is that we do that in an affordable way.
So it would need to be a cost competitive option for us.
Yes. I think Peter said it right, David. I mean, it really is a it's something that's available to Nova Scotia power if it's in the best economic interest of its customers. And so it's got that option to procure that energy, but if it can procure other energy or generate other energy for less cost, then it will do that. It really provides That incremental benefit to Nova Scotia Power Planning and Nova Scotia Power customers as it relates to Cost and affordability of energy moving forward.
So I think that's probably the best way to describe it. Rick, was there anything else that you'd Like that, I wasn't sure if you were on or not, Rick.
No, no. You have both covered it.
Thank you.
Okay, great. Great. Thank you
for that color. Appreciate it. And then maybe just one kind of a higher level question in the U. S. Just wondering if you have any thoughts on how potential clean energy standard federally could affect things or I guess create opportunities maybe even Cross your footprint.
Yes, I think the way I describe it, David, is look, we have As a regulated utility through regulation, we have an obligation to produce for customers the cheapest electron that is compliant to whatever the rules and regulations and legislation exists in that environment. And so the Renewables that Nova Scotia Power has been investing in over the last few years has been part of that journey to meet the 40% renewable requirement that was set provincially The renewables that are being invested in Florida have been made on the basis that they are the most So to the extent that there is a renewable standard that's imposed, it's another consideration, it's another relates to the generation planning for Tampa Electric, if it's a U. S.-based or Florida based standard, It may change, I. E, accelerate the pace of investment in order to produce that Cheapest electron that is compliant with regulation. So it would be directionally positive, but in the moment, Tampa Electric continues to decarbonize its fleet both with things like big bed modernization and the investment in renewables because it's in customers' best interest Now even before consideration of a renewable energy standard.
So it's not holding us back from doing the right thing for customers today. If there was a change, obviously, We factored that into its own planning and that might cause an acceleration, but we also want to make sure that we're balancing affordability for customers at all times and that would be part of the planning as well.
Excellent. Thank you very much for that Scott.
Thank you. Our next question is from Darius Lofni from Bank of America. Please go ahead.
Hi, good morning. Thank you for taking my question. Just wanted to clarify and follow-up on the inflation comments from earlier, Specifically as it relates to your solar initiatives in Florida, are you seeing much as far as inflationary pressures on the prices of panels or things like that? Or It sounded like maybe the answer is no, but I'll let you respond
there. Archie?
Yes, happy to take that. Good morning, Darius. We're not seeing any inflation on the panels, because we would have purchased those in advance. We have a long term agreement with First Solar at fixed pricing that For the full term of the construction period and that goes beyond just the panels, it goes to the inverters, the trackers And other elements that we had to safe harbor as part of that of those investments in order to secure the investment tax credit. So We're seeing some inflation on things like the steel that's used for the posts and some other smaller aspects of the projects, but nothing substantive that changes the economics of those investments.
Okay, excellent. Thank you very much. And one more if I can, just now that you've the term as far as the growth or potentially the payout ratio. Just curious how you're thinking about it?
Yes. I don't think we're thinking about any differently today than we were last week Last year and obviously the any change in the dividend is always purview of Board of Directors, but it's typically a discussion that we have on an annual basis, typically in the fall. And look, when we set the dividend growth target at the level that it currently is, we did that With an eye to the long term as to what we believed was sustainable over the long term. Of course, our guidance period will be adjusted from time to time, but really had a view as to what do we believe the earnings growth potential of the business is on an basis and looking to ensure that we see an earnings growth potential that exceeds The rate of growth of the dividend over the long term and that's how and why The dividend growth target of 4% to 5% was set a few years ago and we continue to look through that lens and with that outlook today as we have before.
Excellent. Thank you very much. I'll leave it there.
Thank you. I am showing no further questions at this Time. Mr. Scott Balfour, please continue.
Okay. So thank everybody for participating in the call and we look forward to
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.