Good morning, ladies and gentlemen, and welcome to Emera Q2 Analyst Conference Call. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. Please note that this call is being recorded today, August 12th, 2019, at 8:30 A.M. Eastern Time. I would now like to turn the meeting over to your host for today's call, Erin Power, Manager, Investor Relations for Emera. Please go ahead, Ms. Power.
Thank you, Chris. Thank you all for joining us this morning for Emera's second quarter 2019 conference call and live webcast. Emera's second quarter earnings release was distributed this morning via Newswire, and the financial statement, 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 will take a moment to advise you that this morning's discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slides. Today's discussion and presentation will also include references to non-GAAP financial measures. You should refer to the supporting slides for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure.
Now, I will turn things over to Scott.
Thanks, Erin, and good morning, everyone. We've continued our positive momentum in the second quarter, increasing our year-to-date adjusted earnings per share by 10% and generating operating cash flow consistent with 2018. Adjusted earnings per share growth was primarily driven by our U.S. utilities, whose strong results more than offset the earnings impact of completed asset sales and weaker marketing and trading margins. I'm pleased with these results, particularly the strong growth we're seeing in Florida. We continue to be on track to deliver adjusted earnings per share and operating cash flow consistent with 2018 normalized results. We're benefiting from a period of regulatory stability as we look forward onto our regulatory initiatives for the balance of 2019. Last month, we received a noteworthy decision from the New Mexico Public Regulation Commission approving the stipulation related to the New Mexico Gas 2018 distribution rate case.
The commission approved a modest $2.5 million increase in base revenues to be phased in over two years and approved a weather normalization mechanism. This mechanism, the first of its kind in the state, will allow New Mexico Gas an improved opportunity to earn its allowed return regardless of the weather, creating a more consistent earnings profile for the utility. Also, with the necessary historical test year behind us, future rate applications by New Mexico Gas will be on a forward test year. The commission also ruled that New Mexico Gas does not need to retroactively refund customers for savings related to U.S. tax reform. Because it was uncertain how the commission would rule on this matter, New Mexico Gas had accrued CAD 8 million refunds to customers in 2018 and an additional CAD 4 million in the first quarter of 2019.
The CAD 12 million adjustment recorded this quarter reverses those previous accruals. We're pleased with the commission's decisions, and we are encouraged by the recent changes in the economic environment in New Mexico. Here in Nova Scotia, we're working to extend rate stability as we continue to execute on the transformation of Nova Scotia Power's generation fleet from coal to clean. In June, the utility applied for an annual average fuel rate increase of 2% per year beginning in 2020 through to 2022. Nova Scotia Power has maintained stable rates since 2014 while continuing to focus on rate-based investments to reduce its reliance on carbon and to improve reliability. A hearing on the application is scheduled for October, and we're expecting a decision later this year.
We're on track to invest approximately CAD 2.5 billion in our regulated utilities in this year. We remain committed to our CAD 6.5 billion capital program through to 2021. As we've highlighted in the past, almost 70% of our capital spend over the next three years will be invested in the state of Florida. This is largely driven by the considerable growth opportunities we see at Tampa Electric as we continue to clean the generation mix and make investments to storm-harden the system. We believe Florida is a very attractive jurisdiction with one of the largest and fastest-growing economies in North America and a business-friendly environment. We continue to advance our solar program in the state. Today, Tampa Electric has over 445 megawatts of solar capacity installed. Construction of the next 150 is well underway and on track to come online in early 2020.
By 2021, Tampa Electric will have over 640 megawatts of solar capacity, and customers will get about 7% of their energy from the sun, the highest percentage of any Florida utility. Our use of solar base rate adjustment ensures that our investment in solar is reflected in rates once the capacity is in service. Today, approximately 405 megawatts of solar is being paid for through this mechanism, which is expected to generate an incremental $62 million of revenue in 2019. In late June, Tampa Electric became the first utility in the state to offer its customers community solar. SunSelect, our 17.5-megawatt community solar program, offers a cost-competitive alternative to residential and commercial customers who want to ensure their energy is coming from the sun. We're pleased with the level of interest in this program so far and will continue to look for opportunities to expand SunSelect in the future.
We're very proud that our solar programs are leading the way in Florida, and we think we can do even more. We believe the system has the capacity to handle further solar generation beyond the 600 megawatts we have announced so far. The team in Tampa is working through a multi-year generation plan to determine the timing and magnitude of future solar investments. We expect the results of this work later this year. We continue to make progress on the Big Bend modernization, and we are pleased to now have all the necessary approvals in place. Construction has started, and we're on track to invest approximately $235 million in the project this year.
As a result of our investment in solar and modernizing Big Bend, by 2023, more of Tampa Electric's energy will come from the sun than from coal, and the utility's GHG emissions will be 30% lower than they would have been without these investments. We're very pleased that the Storm Protection Plan legislation has been approved, and we look forward to greater clarity from the Florida Public Service Commission on related rules by the end of October. This legislation was not contemplated when we set our current $6.5 billion capital plan last fall and will provide incremental opportunities for investment, all with recovery through rates through riders. For several years, Emera's regulated utilities have been the primary driver of our growth.
While our adjusted earnings per share has fluctuated over time as the result of one-time earnings and market-driven volatility impacting Emera Energy, earnings from our utilities have been steadily growing. While not as predictable as our utility business, Emera Energy's ability to capitalize on market changes in the Northeast U.S. provides the opportunity for significant earnings and cash flow upside, as we saw in 2018. I expect our regulated utilities will continue to drive our growth for the foreseeable future. Following the sale of our Northeast gas generation fleet, over 95% of our future earnings and cash flow are expected to come from our regulated operations. This shift to be more regulated will improve the underlying quality and predictability of our financial results. In addition, our asset sale program will improve the overall growth trajectory of our continuing operations.
By divesting our merchant gas plants in Emera Maine, we are repositioning our portfolio and reallocating that capital to our strongest and fastest-growing businesses, which improves the rate-based growth profile of our portfolio. While our capital reallocation improves our underlying growth, there will be an impact to our consolidated earnings. For the balance of 2019, we will not have earnings contributions from the gas plants, which were approximately CAD 40 million in the second half of 2018. In 2020, we do not expect to have earnings contributions from Emera Maine, which have averaged approximately CAD 45 million over the last few years. This creates a period of transition as we redeploy capital into our continuing businesses to replace the lost earning contributions from the asset sales. Reallocating our capital in this way better positions Emera to continue to deliver long-term earnings and rate-based growth for our investors.
When normalized for asset sales, our CAD 6.5 billion capital program is expected to drive above-average rate-based growth of 7% through to 2021. As we've noted in the past, we expect that over time, adjusted earnings-per-share growth of the continuing businesses will approximate rate-based growth. The rate-based profile only includes projects that we are highly confident will proceed. Additional capital investment opportunities, including further investments in solar and storm hardening in Florida, will sustain or enhance our long-term rate-based growth profile. Given the importance of Florida to our future growth, we've made the decision to postpone and relocate our fall Toronto investor event. We're planning to reschedule our investor day to be held in the first quarter of 2020 in Tampa. More details and a revised save the date will be provided as we get closer to the event.
We'll be sharing our refreshed capital, rate base, and funding forecast with you on our third quarter earnings call in November. I'm pleased with our continuing strong performance in 2019. Over the balance of the year, I look forward to advancing our capital program and closing the Emera Maine transaction. As I look at the growth opportunities in front of us, I'm confident that we'll continue to deliver the competitive long-term rate base and earnings growth that our shareholders have come to expect. Our portfolio includes some of the highest quality regulated utilities in North America. Our proven strategy, which is rooted in the transition of our portfolio from higher to lower carbon energy, is particularly relevant today as we see increased global focus on reducing our collective carbon footprint. With that, I'll turn it over to Greg, who will take you through the financial results. Greg?
Thank you, Scott, and thank you all for joining us this morning. Adjusted earnings per share for the quarter were in line with our expectations and keep us on track to deliver annual results that are consistent with the normalized 2018 results. Our U.S. utilities had a strong quarter, which more than offset lower contributions from Emera Energy. For the second quarter of 2019, Emera reported adjusted net income, which excludes mark-to-market adjustments of CAD 130 million and CAD 0.54 per share compared with adjusted net income of CAD 111 million and CAD 0.48 per share in Q2 2018. Year-to-date, Emera reported adjusted net income of CAD 354 million and CAD 1.49 per share compared to CAD 313 million and CAD 1.35 per share in 2018.
Growth in the quarter and year-to-date were primarily driven by strong results from Tampa Electric and a favorable regulatory decision for New Mexico Gas, partially offset by lower earnings from completed asset sales and lower market and trading margins at Emera Energy. A strong first quarter at the gas utilities also contributed to the year-to-date increase. Assuming normal weather conditions, we expect that adjusted earnings per share for the balance of 2019 will be lower than what was delivered for the same period in 2018, resulting in annual adjusted earnings per share being consistent with normalized 2018 results. The expected decrease is primarily due to loss earnings contributions in New England Gas Generation portfolio, or NEGG, normal marketing trading margins and a return to normal weather-driven revenues for Tampa Electric and New Mexico Gas, partially offset by growth across our regulated utility portfolio.
Year-to-date, the business delivered operating capital before changes in net working capital was CAD 775 million, compared to CAD 767 million in 2018. This result was also in line with our expectation. We continue to expect that the business will deliver annual capital that is consistent with 2018. Now let's get into the details. In the second quarter of 2018, Emera delivered adjusted earnings per share of CAD 0.48. Keep in mind, this included net earnings contributions from NEGG and Bayside. As a reference point, removing the earnings contributions from 2018 would reduce Q2 2018 adjusted EPS to CAD 0.44. Growth in the normalized 2018 base of CAD 0.44 was largely driven by very strong performance from Tampa Electric. During the quarter, Tampa Electric contributed $93 million of earnings, an increase of 27% over the second quarter of 2018.
Growth in the quarter was driven by higher base revenues related to in-service solar projects, favorable weather, and customer growth of 1.9%, partially offset by higher interest and depreciation costs related to capital investments. Cooling degree days were 8% above the 2018 period, which provided the utility the opportunity to generate an incremental $6 million of revenue. Earnings growth in the gas utilities and infrastructure segment was largely driven by the favorable regulatory decision in New Mexico, which has caused us to book a CAD 12 million adjustment in the quarter to reverse previous accruals, CAD 8 million of which relates to 2018. The second quarter shoulder season is generally not a lucrative one for Emera Energy's marketing trading business. In Q2 2019, marketing trading endured particularly weak market conditions, largely due to weather.
Degree days were 20% lower than the last two years, which reduced absolute pricing and volatility and hence margin opportunity. Fixed costs for transportation storage were also higher quarter-over-quarter, and as a result, Q2 2019's net loss was CAD 15 million higher than Q2 2018. It is difficult to forecast earnings for marketing and trading, especially since the last two months of the year are often material contributors to the total. That said, at this point as a result of weak market conditions experienced in Q2 2019, we believe the best we can expect to do is to earn at the low end of our normal $15 million-$30 million this year. To give you some context, I'll remind you that in 2017, marketing trading also had a similar weak first half of the year, earning $9 million compared to $7 million in 2019.
Nonetheless, full year US dollar earnings in 2017 were $16 million. For the quarter, earnings across our other utilities were relatively consistent with prior year. In Maine, second quarter earnings benefited from higher capitalized overheads as a result of less storm activity this year and the absence of regulatory adjustments. Recall that in the second quarter of 2018, Emera Maine recorded $2.8 million of negative after-tax adjustments related to its 2018 distribution rate case. At Nova Scotia Power, earnings in the quarter were lower than the 2018 period, largely due to the timing of regulatory deferrals. In the quarter, Nova Scotia Power deferred CAD 14 million of excess non-fuel revenues compared to no deferrals in 2018. The timing of these regulatory deferrals causes quarterly earnings volatility, while full-year earnings results are more predictable.
At this point in the year, Nova Scotia Power continues to expect a modest increase in annual earnings. Drivers for the year-to-date period are largely consistent with the quarter, with growth in the U.S. utilities being partially offset by lower marketing and trading margins. Recall that both gas utilities had a strong first quarter. New Mexico results benefited from favorable weather and incremental earnings from an asset management agreement. At Peoples Gas, earnings benefited from lower depreciation rates and increased earnings related to its ongoing cast iron bare steel investments. Annual customer growth at Peoples Gas continues to be strong at 3%, which has been helping to offset less favorable conditions in 2019.
Increased year-to-date losses in the other segment were primarily due to lower marketing trading margins, a loss of three and a half million net loss on asset sale, and three and a half million CAD of after-tax transaction costs related to Emera Maine, partially offset by a CAD 10 million gain on the sale of property in Florida realized in Q1. During the quarter, we have continued to make progress against our three-year funding plans and the objectives we outlined last fall. One of our key objectives was to reduce and potentially eliminate any discrete common equity issuance. As we highlighted on our Q1 call, we will achieve that objective with the successful execution of our select asset sale program. The Emera Maine transaction continues to progress as expected, and we are working through the regulatory process collaboratively with ENMAX.
We have three required regulatory approvals in hand, including FERC and Hart-Scott-Rodino, . We are continuing to progress our remaining regulatory applications. Based on the progress made to date, we anticipate that the transaction will close late this year. Our remaining equity requirements over the 3 years is modest, and we expect approximately two-thirds of required equity will be raised through our Dividend Reinvestment Plan. The remainder will be raised on an as-needed basis through a combination of hybrid capital and common equity issued through our recently established ATM program. A portion of the proceeds from asset sales will be used to retire holding company debt with the objective of sustainably reducing our HoldCo debt to total debt to below 40%.
In June, a portion of the proceeds from the NEGG transaction were used to retire our $500 million bond at Emera US Finance LP. Last month, a further $50 million bond was retired. Assuming Emera Maine closes in 2019 as expected, we will achieve our target by the end of the year. In addition to reducing our holding company leverage, we continue to be focused on sustainably improving our cash flow to debt metrics. We have made good progress. On a trailing 12-month basis, our S&P FFO to debt is approximately 12%. Our Moody's CFO to debt is approximately 11%. Over the course of 2019, we would expect our cash flow to debt metrics to sustain at these levels.
Looking forward, we would expect these metrics to continue to strengthen to be sustainably at or above 12% by 2021, with the objective of sustaining this level or higher over the longer term. Management has demonstrated that we are committed to doing the right things for the business, and over the past 12 months, we have taken significant steps to improve the quality of Emera's underlying cash flows and business risk. I'm pleased to say this progress is being recognized by the credit rating agencies. On June 13th, Fitch assigned the BBB rating with a stable outlook to Emera's debt. Later that month, Moody's reaffirmed Emera's Baa3 rating and revised its outlook from negative to stable. We are very pleased with both these actions and remain committed to maintaining our investment-grade standing and doing the right things for the company's long-term success.
I am pleased with the financial results that we have delivered for our investors in 2019 and the progress we've made on strengthening our balance sheet. While there will be a period of transition as we complete and absorb these asset sales, I remain confident that our prudent and disciplined reallocation of capital in 2019 will result in a stronger Emera that is well-positioned to continue to deliver long-term earnings and cash flow growth to our shareholders. With that, I'll turn the presentation back over to Nancy.
Thank you, Greg. This concludes the presentation. We would now like to open the call to take questions from analysts.
Thank you. Ladies and gentlemen, in order to ask a question, press star then the number one on your telephone keypad. Again, to ask a question, press star then the number one on your telephone keypad. The first question comes from Linda Ezergailis of TD Securities. Your line is open.
Thank you. I'm wondering if you could give us some perspective on some of the recent developments in Florida, specifically related to deregulation proposed by different stakeholder groups. Can you comment on what the bookends of possibilities might be in terms of process and outcome and what your suggestions are for evolving the energy, I guess, commercial frameworks in the state, if at all?
Linda, Scott. Thanks for the question. Maybe I'll start, and Nancy can fill in if I miss anything. Yes, there has been an initiative proposal, a ballot initiative that's been proposed in Florida. That process is now advanced in the sense that there has been already a conference on financial impact that occurred to provide some of the data that the Supreme Court requires in order to determine as to whether the language that has been proposed on this will in fact get added to the 2020 ballot. There is a conference or an oral hearing by the Supreme Court at the end of August 28th, I believe. We would expect a decision from the Supreme Court at the end of October.
Ourselves and the other Investor-Owned Utilities, of course, are actively engaged in this. We made submissions to the Supreme Court. In total, there were 40 different parties that made submissions to the Supreme Court that was raising concerns with the language and the initiative that has been proposed. We obviously are optimistic that we think that the Supreme Court's view on this will have some concerns with what's been proposed. The process would be a decision from the Supreme Court that we expect in October. If the decision from the Supreme Court is against our view as to the validity of this proposed language, what would happen in terms of process is a certain number, a threshold number of signatures would need to be gathered in order for that language to then make the ballot in 2020.
It's not clear to us at this point as to whether the requisite number of signatures would be gathered for that to make the ballot or not. At this point, I'd say we're cautiously optimistic that this will take care of itself. Obviously, Florida is a state right now that enjoys some of the lowest energy costs in the country. Has a reasonably stable rate profile. The system operates well there. The regulatory construct is very well-defined there. We think that the initiative to disrupt all of that with this ballot initiative is seen not just by us but by other parties in the state as not being the best thing for the people of Florida. Nancy, anything you want to add to that I might have missed?
Scott, the only thing I would add is when you talked about the briefs in front of the Supreme Court, 40 organizations filing a total of 18 briefs. I think it's significant that the attorney general, the Florida House and Senate, and the Florida Public Service Commission all presented briefs that would be against putting this on the ballot. We feel that there's lots of support and lots of significant support to keep it off the ballot. We do, as you said, have to wait till the Supreme Court rules.
That's helpful context. Thank you. Maybe just following up, looking at your funding plan, it continues to progress. You've got a lot of time still till the end of 2021 to finish all your equity raise requirements. Can you just give us an updated sense on what would cause you to trigger using the ATM versus your views on the relative attractiveness of the hybrid capital markets, and I know there's no plans right now to sell some or full assets, but at what point might you revisit that? Would it be if your capital program increased significantly, or what are the moving parts that you use to continue to assess the relative merits of plan A, B, and any sort of plan C for your funding?
Thanks, Linda. It's Greg. We're not in a position right now where we need to do anything over the near term as we think over, as you rightly identified 2021. We'll continue to look at the capital markets. I don't know if we'd call it the attractiveness or lack of attractiveness of the hybrid capital markets these days, but fortunately, we're not in a position where we need to access that market. What we will be doing in November on our call, though, is we will be refreshing our capital program, and we might hopefully have some visibility in terms of what the storm hardening legislation will be in Florida, and would really be through the context of any kind of material change in our rate-based growth opportunities in our utilities that might cause us to retake our funding plan.
We'll provide that update to you in November as well. We will always go through the cost of capital ladder in the most effective way, starting with internally generating cash flow and moving our way up through operating company debt, hybrid capital and equity.
Great. Thank you. I'll jump back in the queue.
Thanks, Linda.
Your next question comes from Julien Dumoulin-Smith of Bank of America Merrill Lynch. Your line is open.
Hey, good morning, guys.
Oh.
Good morning, Julien.
Hey, good morning. I want to follow up on a few of the items here first, maybe a couple of housekeeping items first.
Yes, go ahead.
Shifted the date on the Analyst Day here. Just wondering.
Julien, it's Greg. You're breaking up. We can barely hear you.
Okay. Can you hear me now? I'm off a headset.
Perfect, Julien. Thank you.
Sorry about that. All right, excellent. First, a housekeeping item with respect to the Analyst Day. Can you just elaborate a little bit more specifically why the delay? What should we be looking towards if there's any evolution in the story on that front? Secondly, can you elaborate a little bit more on 2019 as you see it? We heard some commentary about some of the expected shifts in timing this year, obviously trading impacted 2Q. Just wanted to get a sense as to the trajectory in 2019 and 2020 of earnings growth as you see it. Should we be thinking about some kind of rate base type growth, or should we think about more normalized sort of flatter levels given the Emera Maine dilution, for instance, et cetera?
Just want to make sure we have a good sense as to what you're expecting here over the next couple of years. I'll leave it there for now.
Julien, it's Greg. Let me start with the Investor Day. As we started to schedule our traditional fall Investor Day, what we were hearing from investors and analysts was the key things for them was they wanted updates and clarity around the closing of Emera Maine, which obviously we will not have until end of year. Looking for much more insight in terms of the potential of what the storm hardening legislation will be in Florida and again, that will be something that we really won't have until at the earliest, late October, and then for us to assess what the rulemaking as it comes out of the Florida Public Service Commission sometime late this year.
As well as I think most folks are familiar, we're doing a generation planning exercise inside of Tampa Electric, kind of a mini IRP, if you will, which will start to give us some greater clarity and visibility around what we think is the potential for another tranche of solar that is also scheduled to wrap up towards the latter part of this year. The most important things for investors and analysts all seem to point to the fall would be a little bit premature and it'd be a much more productive discussion in the first quarter of next year. That was really the driver. What we will do is still provide what we would have otherwise provided at that meeting, in terms of an updated CapEx forecast, funding plan, et cetera.
We'll carve out a portion of our Q3 analyst call to provide that in December to you. Look, in terms of specific guidance, I think we've been clear on this year is that if you took last year and normalized for the CAD 0.10 of tax benefit that we booked in the second half of last year, the CAD 2.78 is kind of where we think the year will end more or less, and we're certainly on track for that and we've been ahead of that plan year to date. As I indicated with the loss of NEGG, in particular in the second half of the year, we would expect to come in pretty much in line with where we were last year on a normalized basis. We're not going to get into specific guidance for 2020. We'll provide a bit more color and update in November.
I think it's fair to say that we feel very confident in our ability to generate long-term earnings growth that is consistent with our rate base growth. Nothing has changed in our business. Obviously, in a period of transition, you might see a bit of a tail on that growth and that your observations that next year without Emera Maine will probably be a little bit softer than if Emera Maine was in the portfolio. I think that's a fair way to think about it.
Thanks, Julien. Scott, just to add to that, I think Greg said that well. We see the contributions that the NEGG fleet added in the first quarter. You know roughly the contributions from Emera Maine. None of those two businesses will provide contributions in 2020 on the assumption and expectation of closing Emera Maine this year. That math for you will be relatively simple. The other thing, though, that you'll see that has happened as a result is that the rate base growth profile would now have taken Emera Maine out of that on a go-forward basis. You'll see that what was a 6% growth profile is now a little more than 7% growth profile. You see what's happened as a result is the underlying growth profile of the business actually is stronger on a go-forward basis.
Really those are the two things we're trying to point your attention to.
Right. Maybe repeating it back to you. It's adjusted for the Emera Maine net financing impacts looking forward into next year. In fact, 7% rate base growth might be the counterpoint, if I've got it straight.
Yeah, what you're seeing in that capital plan and the rate base growth profile through to 2021 is that a little north of 7% rate base growth profile. That is what we expect this business to do. We said that we expect earnings growth to approximate that rate base growth profile over time. Obviously, the near term, that won't be true in 2019 to 2020 because of the impacts that we shared.
All right, great. Thank you so much for all the details here. Good luck, and I'll hop back on the queue.
Thanks, Julien.
Your next question comes from Rob Hope of Scotiabank. Your line is open.
Morning, everyone. I may be jumping the gun here a little bit with your upcoming Analyst Day, but it would seem that the growth opportunities in front of you continue to realize or even increase. How do you weigh capitalizing on storm hardening growth, additional solar, versus your want to get to that 12% FFO to debt?
Yeah. Robert, it's Greg. One of the nice things about the solar program that we have today and what we would expect the storm hardening legislation to come out with, which it would be a rate rider. There's immediate cash recovery on those investments. From a FFO or CFO to debt, those projects are actually accretive when they go into service, which is helpful as opposed to, for example, a Big Bend conversion, which actually has a drag on credit metrics during construction when you're accruing AFUDC. Some of the opportunities that we see in front of us in Florida that may be incremental that we have in our plan would actually be accretive to our credit metrics.
All right. Thank you for that. When we were looking at storm hardening, can you give us some goalposts of potential CapEx over the 10 years? Maybe if we're going to cut it another way, what percentage of your grid would you view as hardened so far, and which percentage would need to be invested in?
Robert, let me start and then maybe Nancy can add in. To be honest, I think it's just premature to speculate. It's not clear to us yet whether the storm hardening legislation is going to be very narrow and specific to the undergrounding of the T&D system, or if it's going to be broader, including storm hardening and protecting our generation assets, whether it's going to include things like vegetation management. This is one of the reasons why we're thinking of the timing of the communication on this. We really need to see the rulemaking of the Florida Public Service Commission before we start to put bookends around that. I think if you took the FPL numbers and divided by six, because they're about six times the size of us, you'd certainly probably be in a ballpark range with us over a 20- to 30-year period.
I'm not so sure how helpful that is in being able to see what the actual rulemaking is.
All right. Appreciate the color. Thank you.
Robert, the only thing I would add is there's lots of opportunity for storm hardening. Only 45% of our distribution system today is underground. All the other things that Greg named, there's lots of opportunity. We won't be limited by capital opportunity in that regard.
Thank you.
Your next question comes from David Quezada of Raymond James. Your line is open.
Thanks. Morning, everyone. My first question here, just on Emera Energy. There was a comment in the MD&A about higher fixed costs for commitments on transportation and storage assets. Just wondering if there's any color you could provide on how material that is going forward, and if it affects your expectations for that earnings range at all?
It's Judy. Judy Steele. They vary. Right? As soon as I drop a number, the number will change, but directionally, it's around CAD 10 million a month. Most of these things, some of them are three months long, and some of them are over the course of a year or a season. It's a constantly evolving portfolio. I think the right number to think about it currently for 2019 is about CAD 10 million a month. I do remind you, though, that lots of those are hedged, so that the net exposure is less than that. We're still comfortable with our guidance at the low end of the earnings range.
Okay. Thank you for that. My second question, maybe just more broadly on your New Mexico business. Obviously, there's a lot of renewables being built there. I'm wondering if you see that driving any opportunities above your current capital plan going forward here.
David, it's Scott. I think as mentioned in the remarks, we're encouraged by some of the activity that we're seeing in New Mexico. I think that the development activity in the Permian and other activities, frankly, broadly in the state is starting to drive a more robust economic environment. We know that the recent efforts to decarbonize the electric sector. We think all of those things contribute positively to the opportunities for New Mexico. Obviously, it's early days as it relates to both impacts on the economy or creating opportunities. Overall, as I say, we're encouraged by what we see as opportunities in front of us in New Mexico today, even relative to what we were seeing a year ago.
That's great. Thank you. I'll get back in the queue.
Your next question comes from Patrick Kenny of National Bank Financial. Your lines are open.
Yeah, good morning. Just first at a high level here, the 95% of earnings coming from regulated businesses going forward, just wanted to confirm, Scott, if that is also your long-term business target or do you see room to backfill with additional non-regulated or commodity-based cash flows towards 10, 15, 20% of the business over time?
Look, I think we're comfortable with where we are today. We don't have so much of a commitment to say it has to stay at 95%. Certainly, we've targeted 90% or more to be regulated. Right now, with the business environment where we're at and the growth opportunities in front of us, we're comfortable with the portfolio that we've got. We're pleased and comfortable with the Emera Energy business and the opportunity that it has in front of it. I think what you can expect to see is a business scenario that's predominantly regulated, has a small amount of unregulated in it that adds both financial and strategic value. We're on a path to be substantially regulated as we are now.
Got it. Thanks for that. The work you're currently doing to assess the ultimate potential for solar in Florida. If you do end up pursuing more than 600 megawatts for phase II, phase III, would that coincide with accelerated coal retirements as well at, say, Big Bend? Would this just be incremental net capacity to the portfolio?
Nancy, you want to tackle that?
Yep, I'll take that. We're looking at all those options right now in terms of, as Greg called it, sort of a mini IRP. We're doing a review of our generation in its entirety to see what makes the best for customers. I'll just say that from the ability to build another 600 megawatts of solar. Once we get Big Bend modernization in place in 2023, that will give us the ability to put more solar on our system, having more fast acting generation. The rest of it, as I said, we're taking a look at the entirety of our system through this process.
Okay, great. We'll stay tuned for the update there. Last one, maybe for Greg here, the negative outlook on the S&P rating. Just curious, are they looking for any change to the funding plan that you've put forth or the capital plan, or are they just waiting to make sure you execute the plan that you have over the next year or so before moving back to a stable?
Yeah, Patrick, I wish I had a crystal ball on it. The report pointed to a couple of things, including some uncertainty around the closing of our sale of our gas plants, which we've now achieved, and we've achieved their targeted FFO to debt metrics. Certainly our belief is that it's just continuing execution, wrapping up Maine, closing 2019, and then sustaining the 12% FFO to debt. We think that should be enough of a catalyst to get back to stable.
Okay, that's great. That's it for me, guys. Thank you.
Thanks, Patrick.
Your next question comes from Ben Pham of BMO. Your line is open.
Okay, thanks. Good morning. I just had one follow-up on some of the questions and your comments on earnings generate tracking rate-based growth. I know it's pretty difficult to pin this thing down by year, just looking at specific years. I'm just curious, when you think about this rate-based growth of 7% and earnings, is the way to think about it, is it looking at 2018 as a base and just seeing how it looks the next five years on average, just in your eyes? Is it more just going through this time period of asset sales, and you start to use a new starting point in 2020 or 2021 going forward?
It's a good question, Ben, and let me take the first run at it and see if I answer your question. When we provided the 3-year guidance last fall, we were using 2017 as the base. Obviously 2018 came in materially stronger than 2017, and 2019 is expected to be relatively flat. Quite frankly, whether you use 2018 or 2019 as the base, you're effectively using the same base, which is probably convenient for your purposes. Then when we look over the longer term off of that base, yeah, we expect EPS growth to be pretty much in line with the rate-based growth that Scott had identified. Recognizing that similar to this year, as we go through a transition, there'll be a little bit of a step change as we go through those 3-year periods.
Okay. That's very helpful. Second question is the funding. I'm curious about the asset sales. You certainly have an urgency to sell more assets. Are you guys opportunistically still looking at asset sales? I know there's a couple of disclosures this quarter, last quarter, some smaller monetizations. Maybe you can comment on that. You look at your ladder approach. How does asset sales look relative to your stock or cost equity at this point in time?
Yeah, Ben, it's Greg. I think we're done the asset sales that are required to meet our funding targets that you laid out last fall. As we go forward, the way we would look at any additional asset sales, and I would call them, they're probably around the margin. It would be more through a strategic lens than it would be through any sort of, I would argue, financial lens. Always done in the context of how does that compare to raising equity in the capital markets.
I know last year it was pretty obvious that selling assets made more sense than issuing equity. You look at how your stock's done quite well. Is there a pretty similar calculus now at this stage between asset sales?
Yeah. I think, Ben, if you look at some of our assets right now, it would obviously depend on valuation, but at a CAD 55 share price versus a CAD 40 share price, the math is very different on asset sales versus raising equity in the capital markets than it would've been a year ago.
Okay. All right. That's great. Thank you.
Thanks, Ben.
Your next question comes from Robert Kwan of RBC Capital Markets. Your line is open.
Great. Good morning. I'm just wondering if you had some additional color on how the process in Maine is going, particularly with just some of the recent headlines with respect to some opposition that seems to be popping up a little bit here.
Robert, it's Scott. Frankly, we think the process is on track. Yes, there's going to be from time to time headlines and distractions. At the end of the day, the commission has a job to do. There's a defined structure for these things. This is not new ground for the commission. We think we have a solid application. We think ENMAX is a great next owner for Emera Maine. We think they're demonstrating that today in the state of Maine already. We continue to be confident that this transaction will close in and around year-end.
That's great. Maybe if I just turn to marketing and trading. Does this quarter represent a very minimal revenue quarter? Put differently, is the CAD 28 million negative margin close to the straight-line cost of transportation?
I'm not sure I understand your question, Robert. Can you take another crack at it?
Sure. Recognizing this is a seasonally weak quarter.
Right
you've got a bunch of the fixed costs that are out there.
Right. Yep.
Did you generate very minimal revenue? Is this about as bad as it-
Yes.
Yep.
Yeah. It is.
Okay.
Yeah. Sorry. Don't mean to be flip. It was extremely weak market conditions through the whole of the quarter, frankly. Anybody living in the Northeast can attest to that. We had very limited opportunity and, as you know, we carry the burden of the fixed cost investments we make in transport and storage through the summer months so that we have the opportunity to make money on them through the winter months.
Maybe I'll add to that, Robert. It's the one quarter where we actually expect to lose money in the quarter. That's the norm. In part, the transportation cost that Judy refers to, they get booked evenly through the year, where obviously the offsetting revenue opportunities are more seasonal in nature. That's why we generally see that kind of pattern.
The only other thing I'll add, and just remind folks is, as I said earlier, they're generally relatively short-term commitments. We acquire them in competitive processes. If market conditions are such that people don't see the value in the transport of a storage, or they don't see as much, then market prices adjust accordingly on the next go-round. It's kind of a self-correcting cycle. It has to be endured. I expect a return to brighter days eventually.
I guess this may be just a follow in terms of how you then think about the business. Whether it's just going into the contracts or as you referenced, you have, it sounds like higher levels of contracts on the books right now. When you're going into it, how do you decide the amount that you want to take out with respect to how much are you locking in or hedging against that fixed cost, let's just say, on an annual basis?
Yeah. As I said earlier, we bid competitively. We go through a process of saying, okay, what do we think the upside opportunity might be in this circumstance? What can we hedge? What's the net exposure there? Are we comfortable with that equation? At any given time, 75%-80% is what we would hedge, and then make a decision on how we feel about the exposure on the balance and whether or not we think that's worth taking when we compare it to what the upside might be.
Okay. When we take that number versus your annual guidance, the bottom end, it could be worse than that, but it really is that, call it 20%-25% unhedged exposure?
Yeah. Yes.
Okay. That's great. Thank you.
Directionally, yes.
Again, if you would like to ask a question, press star, then the number one on your telephone keypad. The next question comes from Andrew Kuske of Credit Suisse. Your line is open.
Thank you. Good morning. Maybe just another follow-up for Judy on the energy marketing. Given the pricing was poor, the volatility was poor in the quarter, and you've got the greater fixed costs. When things rebound and you're in a more normal environment, do you really see the upside as being linear, or is it more exponential in fashion?
Well, maybe I won't use the word exponential. I think it's asymmetric. Let's put it that way. We do manage the business, so we've got a known and fixed downside. Then with the opportunity for upside when market conditions present. Exponential is a big word, Andrew. What I will say, asymmetrical to the positive.
Okay. That's good enough for me on that. Just maybe on Florida, and this is probably for Nancy. With the quarter-over-quarter decline in coal production, about 1,000 gigs. I think there's commentary earlier in the call that greenhouse gas emissions were 30%, there's a 30% decline. Do you have any quantifiable data on just the air quality improvements in the Tampa area, given the transition you've had in your generation mix? Does that become part of the regulatory dialogue, not just in Florida, but elsewhere?
Andrew, I don't have anything off the top of my head on what the change has been. What we're seeing in our current generation mix today, as you saw in the release, we're burning a lot of gas in the units that can burn gas or coal. That has a positive effect around the surrounding area in terms of the amount of coal we're burning in, reduction in greenhouse gases, reduction in other pollutants on the gas versus coal. I think that by residents of the area and certainly in Tampa generally, I think all that is seen as very positive, and will continue to be, especially as we get Big Bend modernization up and running. Not only will we have gas, but we'll have more highly efficient gas generation. It's certainly a positive going forward.
Okay, great. Thank you.
Your next question comes from Julien Dumoulin-Smith of Bank of America Merrill Lynch. Your line is open.
Hey, guys. Sorry for the quick follow-up. I just wanted to be specific about the Florida legislation and the clause recovery enabled there. I know it's excluded from the $6.5 billion number at present, but I wanted to understand just how you think about your earned ROE opportunity in Florida, given the potential for more clause recovery. Separately, just could you elaborate a little bit further on the process? I know you said already, I suppose it was end of October for an FPSC decision. Just can you talk about timeline and how that would relate to any eventual CapEx update? Sorry.
Greg can take the first half, and Nancy take the second.
Yes, Julien. All the clause recoveries, whether it's the SoBRA, storm hardening, or any of the environmental clause recoveries that we have in Florida will be at the defined capital structure at Tampa Electric. The midpoint ROE is 10.25%. That's relatively, I'd say, straightforward, Matt. Then Nancy, maybe you can take the second part of the question.
Yeah. The rule, we're working right now on the rule making with the other IOUs and intervening parties and commission staff. I suspect it will be next year before we have clarity on the exact amount of capital that will be allowed. I think the rule will give us some direction in October, but specific capital amounts, we'll have a better sense of that in 2020.
Okay. Just to clarify this, with respect to the consolidated earned ROEs at Tampa Electric, how material is the clause recovery? That's really what I was trying to get at, is sort of the aggregate oscillations in earned ROE that, I suppose, you previously contemplated through the rate case cycle, and if this might mitigate that. How material could it be to mitigating that, rather?
Julien, we'll have to follow up with that. I don't have that off the top of my head. Obviously, as you go through time, that can change. For example, the solar today, we get through a clause recovery. The next time we reset rates, that'll go into base rates, which will then change. In terms of what component of the rate base today is clause recovery versus base rates, I don't have that off the top of my head, unless you do, Nancy.
Okay, great.
No, I don't.
I'll pick it up later. Thank you. Over. Oh, sorry.
I think, Julien, obviously, it's only helpful. I don't think it will change the path that Nancy and team are on as it relates to the timeline and the need for rates. It's helpful, but I don't think fundamentally it's going to shift the expectations around the timing of the need for rates.
All right, great. Thank you all.
Thanks, Julia.
There are no further questions at this time. I will now return the call to our presenters.
Great. Thank you all for joining us this morning, and we look forward to speaking to you guys again in November.