Good morning, everyone. Thank you. I'm Helen Wesley. I'm the President and CEO of Peoples Gas, and I will very much look forward to talking to you about that great business later this morning. For now, I have the pleasure of just a really brief introduction. First of all, I know that we have some travelers who arrived late last night. Thank you for making the trek. I know you were coming from Toronto to Tampa, there was some, you know, prize at the end of that with the beautiful sunshine that we have here. I've just got a few fun facts about Florida before we start a day of learning and interesting topics about all of the Emera businesses. First of all, did you know Florida is the flattest state in the U.S.?
You can I didn't know that, but you can certainly tell it when you drive around here. Apparently, 100 feet is the average elevation, this is not the place you come if you're training for a cycling ride or something like that. We have the most golf courses of any state. I think it's over 1,000. 300 days of sunshine a year, which is very important to Archie, as you'll hear about later. We account for about 40% of the world's orange juice consumption and as you've probably seen, if you have been driving around, there are some billboards. It's quite a litigious state. Some things that you should know about if you're thinking about illegal activity. It is illegal to. Failure to tell your neighbor that his house is on fire is illegal.
In Florida, it's illegal to fish while driving across a bridge, just in case you're thinking of doing that. It's illegal to skateboard without a license. Finally, most importantly, just in case you're planning to do this, it's illegal to sing in a public place while wearing a swimsuit. Be forewarned. Don't get into trouble while you're here. With that, I'm going to turn it over to Dave to take us through the day's proceedings.
Thank you, Helen. That was interesting. I have thought about the fishing out of a window across the bridge. I think just trolling in a different way. Good morning, everyone. Thank you for joining us today. My name is Dave Bezanson, Vice President of Investor Relations at Emera. I'd like to welcome you all to Emera's 2023 Investor Day here in beautiful Tampa, Florida. I would also like to welcome those of you watching live stream from wherever you may be. I'm sure the weather is not as nice as it is here. Here at Emera, we like to start each meeting, whether in the field or in a corporate setting like we are today, with a safety message.
This morning, in the interest of time, I'm going to keep that brief, but I will point out that we have two emergency exits at the back of the room. In the unlikely event that we are required to evacuate the building, we will exit through one of those doors, either on that side of the room or over there on that side of the room, and muster out on the parking lot across the street and wait for either myself or one of my colleagues to give the all clear to return to the building. For this morning's presentation, we're planning to run right through without a break. For those of you in the room, just feel free to get up. The washrooms are back here to the left as you kind of came in. There's coffee.
There will be coffee and juice and things available over here. Please just make yourself comfortable and move about. Before we begin, I'll take a moment to advise you that today's presentation will contain forward-looking information, which is subject to the cautionary statement found in this morning's slide. Today's discussion and presentation will also include references to non-GAAP financial information. You should refer to our MD&A for definitional information and the slides in the appendix for reconciliations to historical non-GAAP measures to the closest GAAP financial measure. Today's presentation will also have references to both Canadian and U.S. dollar-denominated numbers. All consolidated numbers and NSBI will be expressed in Canadian dollars, and Tampa Electric, Peoples Gas, New Mexico Gas, and Emera Energy will be expressed in U.S. dollars.
The materials for today's presentation can be found on our website at emera.com\investors under the Events and Presentations link. We have a very full agenda today with about three hours dedicated to management presentations and Q&A this morning, followed by an afternoon of site tours that will take us out to see Big Bend, the Florida Conservation and Technology Center, and our BlockEnergy Pilot project here in Tampa. We will have time allocated for questions at the end, but if you have questions at the end of each pre-presentation, please feel free to ask them at that time and we'll just try to keep things moving. We may have to cut that off, but we'll try to keep things moving.
Before Scott Balfour, Emera's President and CEO, starts off this morning, I would like to share a video that we hope will give you a sense of what Emera is all about.
We are Emera. From Nova Scotia to the world. From a single electric utility to now seven electric and natural gas companies operating across North America and the Caribbean. For a planet that is changing, we know our purpose. A purpose that champions sustainability. A purpose that leads the transition to cleaner energy. In looking forward, we've never lost sight of our roots. We are all in to hold ourselves to the highest standard.
All in to keep delivering. All in for safety and reliability. All in for our net zero climate goals. Transitioning our energy systems and investing billions into clean energy projects. We care for each other, making sure our team is safe and ready every day. We're on the front lines, turning ambition into action, collaborating, innovating, listening. We are building up our communities into ecosystems of future leaders with equitable opportunities. Empowering the places we power for the people we serve. Our future is bright because together we're all in.
Thank you. Now I'll turn things over to Scott.
Let me add to what's going to be a chorus of welcomes, for all of you to, look, it's, you know, it is a journey for many of you to come down to Tampa. I know lots of other things that have been going on this week, so, really appreciate all of you taking the time to come and join us and hear a little bit more about about the story. Of course, I'm gonna, you know, provide you with an overview. You're going to get a, sort of a bookend of Greg and Scott today, me to start and Greg to finish. Many of you get to hear from us frequently. Where the real value, I think, in today is from hearing from the rest of the team.
So look forward to that. I know they do as well. Also obviously, showing you some of the facilities in the field. For those of you that were with us at our last investor day, of course, Big Bend Station was part of that tour then, just at the front end of its construction phase. Now you get to see it fully complete and in service. Really excited about that. Maybe the first piece of news I will share with you today is that there is no news today. For those of you who are wondering if there is any big announcements or anything, there are none.
We're really just using this opportunity to update you on the story, get you in touch with the team, see some of the facilities, and share with you the excitement that we've got about everything we're doing and the path ahead. As Dave said, we start each meeting with a safety message. Make sure I didn't go too far there. There we go. Look, this is an area that's really important to us. You know, we spend a lot of time in this area because it is so important. You know, our vision is an Emera where no one gets hurt, ever. Everybody goes home safe every single day.
You know, there's a lot to be proud of in terms of our progress. Our safety record is continually improving. We are meaningfully better than the industry average, by a margin. We are not yet at world-class levels of safety, which is where we want to be. That's what we're striving to achieve. You know, we're in an industry, we can't forget where we came from, and we're in an industry where people have and can be killed. We have a lot of high energy states in what, in what, in what happens. We're proud of how far we've come, but we can't lose sight of the work ahead to achieve our goal of world-class safety. This slide is entitled Emera's Value Proposition.
Really, you know, from my perspective, from our perspective, is really just sort of the highlights of our, of our story. I continue to think that we have a really compelling story to tell. First of all, I think overall our portfolio of assets, I think is a premium portfolio of assets. As we look across the sector, 95% regulated, of course. Now, about two-thirds of our business, of Emera's business today is here in the state of Florida. 65% of our earnings in 2022 came from the state of Florida. Between Florida and Atlantic Canada, sort of our two biggest regions, that's over 85%. We add in New Mexico, of course, that brings us to 90% of our portfolio really amongst those four utilities.
Today, as we see, particularly in Florida and Atlantic Canada. I'd actually say this is increasingly true for New Mexico as well. We're seeing really strong growth, and you'll hear more about that from Peter and Helen and Archie and Jimmy. Overall, strong growing markets and also very constructive regulatory environments. We'll chat about that a little bit too. We're also proud of the progress that we've been making, and we made measurable progress in 2022. We, you know, fully executed successfully CAD 2.6 billion of capital investment.
Capital investment that's focused on delivering value for our customers, but in doing so, obviously, is driving rate-based growth, it's driving earnings growth and cash flow growth and supporting dividend and the like. You know, CAD 2.6 billion of capital doesn't go into the ground on its own. It doesn't happen easily. Doing that safely, doing that on time, doing that on budget, these are things that takes a team, an expert team, to manage and navigate through what was a challenging environment in 2022. Lots to be proud of there. The investments that we're making are improving reliability for our customers, are cleaning the energy that we deliver for our customers.
At the end of 2022, now less than 20% of the energy delivered to customers is generated from coal. We've seen a 41% reduction in carbon dioxide emissions. We are squarely on track to deliver on our first climate goal, the first of our climate goals of a 55% reduction to CO₂ by 2025. We also achieved a number of balanced, constructive regulatory outcomes in 2022. 2022 was a big year for storms. You know, 2022 started with, I think it was 8 of 10 weekends in Nova Scotia, where we're responding to storms in early 2022.
Of course, within the span of two weeks, we saw two historic hurricanes between Hurricane Fiona in Nova Scotia and, of course, Hurricane Ian here in Florida, and the team will talk more about that. You will have seen also in the fourth quarter, you will have seen some of the work that Judy does within Emera Energy, sort of that commercial lens to the movement and optimization of gas, and taking some of that commercial expertise and sharing it amongst the portfolio that has been delivering value for customers and shareholders in New Mexico Gas. Jimmy will spend some time talking about that.
Share price performance, you know, 2022 from that perspective, frankly, was a challenging year, was a noisy year. You know, Greg and I were chatting about this. Some of you have heard me tell this story a little bit, is we started 2022 thinking, okay, this was going to be the year where we emerge from sort of the middling of valuation profiles and get recognized for the execution of the strong rate base growth, the realization of the premium portfolio, and the strong rate base growth in front of us, and we'll start to see a premium valuation, by the end of the year. I think, you know, through the first half of the year, we started to see that emerge.
We saw a number of things happen in the year, of course. Certainly at the start of the year, you know, pretty much every sector was down in terms of share price, except for utilities, was performing strong in the first part of the year. Finally, rising interest rates and utility valuations started to catch up to each other and that correlation returned to normal in the fall. Of course, in September, we saw Hurricane Ian and Fiona and a little bit of market reaction to the uncertainty of what that would mean.
Ultimately, of course, in October, we saw Bill 212 in Nova Scotia introduced, and what became about a 10% reduction in share price as a result of that and a 10%-15%, you know, relative to our closest peers, a divergence in terms of value. Obviously, you know, that captured our attention, and something that we've been certainly very focused on. You know, one of the messages that, you know, you'll see me hit a little bit here, you've seen Greg talk about, you're gonna hear the team talk about, is just how Nova Scotia, frankly, the impact of Bill 212 is not really a driver of our growth engine.
It is not the primary driver of our growth engine. The State of Florida is. While Nova Scotia continues to be an incredibly important part of our portfolio, we're still very optimistic about its near-term and long-term future. The reality is Emera's growth today is in Florida and really working hard to ensure that shareholders understand that and to address the valuation gap that emerged as a result of Bill 212, which from my perspective has felt, frankly, a little overdone. I think as we talk about the energy transition, you know, The sort of energy transition, obviously, lots of people talking about this and the investment opportunities that that creates, and that is still true. That's been true for a long time.
I think it's going to be true for a long time. I think what we saw in 2022 is something that we've been talking about for a little longer, certainly, something I've been focused on too. The reality of the economic and social economic challenges have been created in many ways by the war in the Ukraine, rising interest rates, and fuel prices starting to do two things. One is, and rising inflation is putting pressure on customers' own budgets, but also putting pressure on utility bills. The reality is for a long time, investment in utilities and supporting rate base growth had been supported by tailwinds of falling interest rates, low cost of capital, by fallen fuel prices and by low inflation.
Of course, we saw all those things reverse. What we've now seen is a conflict in a way, a collision of sorts between the desire to decarbonize and the reality of politicians, legislators, regulators, customers looking for that to happen faster, and the challenges of customer affordability. You know, this is an area that we've been focused on for so long, is talking about how it's important to think about the pace of making these investments so as not to put undue pressure on customer bills. The way we decarbonize, the way we make these investments in decarbonization and reliability matters a bunch. The opportunity set is not going away. It's going, you know, it's going to be here for a long time.
Making sure that we're measuring the pace of that investment in a way that doesn't put undue pressure on customer bills is just so important. You know, we're now thankful for what we've seen now as a new emerging tailwind. Certainly, the fact that fuel prices are back down, natural gas prices now are down below where they were before the Ukraine War, which frankly, I wouldn't have expected sitting here at this time right now, but that's helpful. The other thing that's helpful is now a lot of lean in by government, and certainly in a big way here in the U.S., the Inflation Reduction Act. This is a big deal, right? This is a massive amount of injection into what is really looking to accelerate the clean energy transition.
It's something that, you know, we're leaning into as well. You're gonna hear more about some of the exciting things that we're working on that have been increasingly enabled by the Inflation Reduction Act. You know, I think in the spring budget, we're gonna see some kind of a follow-on reaction from Canada. In the meantime, obviously, you know, Canada's involvement, the government of Canada's involvement in support for a project like the Atlantic Loop, helping Atlantic Canada to close coal plants faster, is something that we're expecting. You'll hear a little bit more about that from Peter shortly. There is a, you know, a little bit of uniqueness to Emera.
You know, I talk about the portfolio of premium assets that I continue to think are important. I think, you know, I think we've built credibility by doing what we say we're gonna do and have done that for a long period of time. A proven track record of execution of our capital plans, delivering those, you know, complex projects on budget, on schedule, executing on the energy transition at a pace that is that is manageable. And, you know, the other thing I'd say is we look at the growth that we've been able to deliver.
One of the things I was sharing with the team in Florida recently is, you know, in the last five years, the kind of growth that we've seen out of Tampa Electric and Peoples Gas relative to the kind of growth that was being seen in the five years before that is actually quite remarkable. In the last five years, Tampa Electric's earnings growth has been 10.9%. In the previous five years was 7.2%. I think that's, you know, sort of a reflection of just taking the strategy that was developed in Nova Scotia and in other places across Emera and bringing that to the table and letting the team run with it in Tampa Electric, which they've done so incredibly well.
At Peoples Gas, which as many of you know, was kind of a bit of a lost child within TECO. It was sort of a small part of Tampa Electric that we've now put with independent management. We've now broke it into its own separate company to drive its own support for capital and growth in people and systems and the like. For the last five years has grown at. Its earnings growth has been 13.8%, almost 14%. In the previous five years was 4.7%. Just quite a remarkable shift in terms of what's happened.
I think really just a reflection of taking the, you know, the proven strategy that we've got and the team that we've got in order to deliver value first for customers, but in doing that, also delivering value for shareholders. Within the business, as I mentioned earlier, you know, Florida is a really, really big and important part of our business. What we're seeing here in Florida is very strong economic growth that is also driving population growth and of course within that, driving customer growth and supporting that growth as well as making investments in reliability and in decarbonization is what we're seeing in terms of the support for what's driving that business.
That's true for Peoples Gas as well, which is broader than Tampa. It serves about half the state of Florida. Again, just growth is really following the growth as to what's happening here, in this, in the state. We're also seeing growth in Nova Scotia. This, you know, this point is newer where we've seen, you know, strong growth in Nova Scotia unlike what we've seen for quite some time. That's driving, you know, economic growth, population growth, and customer growth, both. Again, you'll hear a little bit more detail about all of that from Peter, Archie, and Helen. The other thing that's driving growth, of course, within our portfolio is, you know, just sort of the broader trends that are going on. Electrification.
You'll hear Peter talk about heat pumps and the reality that there's still a lot of homes in Nova Scotia that are not, that are heated with oil, with propane. The adoption of electric heat pumps is just such a highly efficient way for space heating in Nova Scotia. Now with government incentives that are helping to drive that conversion also, supporting growth for Nova Scotia Power and then here in Florida, of course, electric vehicles, and the impact that can have on growth. You'll hear about, all of that, of course, from Archie and from Peter. Making sure I am following with my slides. There we go. Thank you. You know, constructive regulatory environment.
2022 was an active year for sure. I think, you know, at the end of the day we ended up in a place where we can say we had very constructive regulatory outcomes. Of course, in Nova Scotia it was noisy. It was noisy. Bill 212, of course, was a challenging development. I think what we saw with the settlement agreement that Peter and the team were able to secure with virtually all stakeholders, certainly all stakeholders that represent customers.
In the decision that the UARB made, which was actually quite a compelling, thoughtful, detailed decision, quite an impressive piece of work, I think, from the UARB, really just demonstrates the robustness, the strength of that regulatory environment in Nova Scotia that has served Nova Scotia Power well for so long and I think, demonstrated that again in 2022. Of course, we saw a settlement agreement in New Mexico. Of course, you know, we've seen in New Mexico, where generally I think people would have described the New Mexico regulatory environment as very challenging, and that's probably true. Our experience overall, since we've been there, it's been pretty constructive. It's a long process, right?
It's a long process from start to finish, but the outcomes have actually been very constructive from our experience. Unfortunately, Brian Schell can't be here today. He's got some family health issues going on. Jimmy Blotter is here with us again today, and she'll be telling some of that New Mexico story so well. Of course, in Florida, everybody knows, probably one of the best, if not the best regulatory environment, overall business climate environment in North America. You'll hear more about that from Helen and Peter. Of course, the teams just do such an excellent job at managing that really important set of stakeholders. Capital project, you heard me talk about that.
Look, when you think about projects like Big Bend Modernization, the Maritime Link, sort of the two biggest projects in Emera's sort of recent history, as many of you know, I spent time in the construction industry before spending time here. You know, these kind of projects, to bring the complexity of these kind of projects to a place where, you know, Archie described the Big Bend Modernization project as when it landing it on a postage stamp, which I think described it so well. You know, these large projects like that, you know, they can go bad. I've seen them go bad and both of them, notwithstanding incredible number of challenges, both were just superbly executed, both delivered either on or under budget and on schedule.
Just really a reflection, I think, of how seriously we take the governance, the execution, the planning, the partnering, of these complex projects. They're sort of the two biggest examples, but they're, you know, right across the company. Just such great examples of the expert, navigation and execution of very complex projects. Of course, you know, in 2022, we saw that in the context of supply chain challenges and inflationary pressures and of course, things that wouldn't have expected at the front end of these projects and yet still able to manage them online. They are delivering value for customers.
You know, you hear from Archie Collins $80 million of savings to customers from the solar installations that are now in service. The Maritime Link, almost $100 million of savings, net savings to customers in 2022 from that important project. You know, there's lots ahead. You know, you've seen our rate-based growth profile, the nature of the projects that are in our CapEx profile, largely centered on decarbonizing and reliability type investments.
We see, you know, while we have 1,000 megawatts of solar now in service here in Florida, pretty remarkable, still another 650 will be in service by the end of this three-year forecast period, by the end of 2025. Storm hardening investments, obviously an important part in both Tampa service territory with the benefit of the Storm Protection Plan, but also in Nova Scotia Power, not with the benefit of the same kind of structured plan that exists here in Florida, but still making important investments in reliability and storm hardening. One of the areas we haven't talked a lot about, you heard a little bit about it today, but will be increasingly important is just grid modernization.
As, you know, our customers are using energy differently, as the generation of electricity is happening differently, that is requiring new and different investments in the grid in order to maintain reliable service, in order to keep the grid stable, in order to ensure that we can continue to deliver and improve on reliability to customers. That's gonna increasingly be an area of focus, and that includes things like storage, to support an increasing number of renewals will increasingly be a part of our capital plans moving forward.
In third quarter, you saw Q3, some of this for the first time as Greg started to talk about, you know, sort of the return on capital profile, the return on equity, the return on equity differences between Nova Scotia Power and Tampa Electric. Then layer on top of that the differences in equity thickness to drive a sort of return on capital type calculation. You know, it's pretty stark. It's, you know, I think one of the reasons between the reality of the growth that's happening here in Florida and also of course, from an allocation of capital perspective, the reality that the capital returns here in Florida are strong.
It's no surprise, of course, that 75% of our capital investment profile over the next three years is here in the state of Florida. That's not to understate the importance of continuing to invest in Nova Scotia, in Atlantic Canada, of course, in New Mexico, and the Caribbean as well. No surprise, both the combination of growth and the ability to earn a return, a fair and reasonable return on capital that we're seeing a lot of investment here in the state of Florida. As we continue to drive, you know, that investment, of course, that will have a helpful impact on consolidated earnings.
It helps to drive earnings growth, support earnings growth, which, of course, I know is important to all of our stakeholders. We started to see that, of course, in 2022. If you look at the profile of our earnings in 2021 against a profile of our earnings in 2022, what we've seen is you know, the combination of the strong customer growth here in Florida and the impact of favorable weather together with new rates for Tampa Electric in 2022, we saw a CAD 136 million increase in earnings contribution from Tampa Electric. That's a 24% increase.
Notable that the increase in earnings from Tampa Electric in Canadian dollars was higher than all of the earnings from Nova Scotia Power. Just a reminder of how important the state of Florida is to Emera, and how that continues to be the real driver of our growth and earnings performance. In terms of financial performance, of course, Greg is going to talk about this in more detail. Today you're going to hear from the team about the continuation of the opportunities to invest on behalf of customers to improve reliability, to decarbonize system integrity, and the like.
All of these opportunities are supporting that 7%-8% rate base growth that you've heard about. Hopefully, you know, what you hear and see today is going to help to make that real for you to help to understand why we are so confident in the ability to deliver that. You know, that rate base growth, of course, is important as it translates into earnings growth. I think that's one of the things that we've, I hope, built some credibility in terms of the translation of that rate base growth into earnings growth. I would, you know, point out that in 2022, we saw almost an 8% increase in earnings, excluding the impact of the one-time litigation settlement from Guatemala.
Over the last two years, it's been almost 10% growth in EPS. Again, excluding that settlement. If we go over five years, been 5.4%. If we exclude the reality, sort of the adjustment for Guatemala settlement, as well as the contributions from the gas plants in Maine that we sold in the earlier years. If you just sort of look at the portfolio that's continuing today, we've delivered earnings per share growth of 7.5% over the last, over the last five years. We have been translating that rate base growth into earnings growth and obviously something we're continuing to focus on.
As we think about, you know, our dividend growth, of course, we continue to be committed to our dividend growth of 4%- 5% per year. We also recognize that our payout ratio is higher than where we'd like it to be. You know, as we set that dividend growth profile of 4%- 5%, it was thoughtful. It was a lot of, you know, work that went into setting that dividend growth rate of 4%- 5%, because we believed over the long term that we could grow our earnings per share at a rate that was higher. We have been doing that. We have been seeing that payout ratio. It now has dropped below 90%. Obviously, it's not still where we would like it to be.
As we continue to execute on our strategy, continue to execute on that rate base growth, continue to translate that rate base growth into earnings growth, we will continue to see that payout ratio come down. We will also continue to see our credit metrics improve. I know that's an area, a pressure point that is a focus for many investors. We continue to have confidence in our ability to grow our credit metrics, to and then through the important threshold metrics that are set for us. We also recognize that to the extent that we face uncertainties, bumps in the road, you've seen us before make important decisions around our portfolio to optimize our portfolio in a way to accelerate the achievement of that.
We, you know, we continue to have the ability, the will to do that again if it's necessary. In the meantime, we have confidence in the execution of our strategy, the driver of growth of our earnings and cash flow that will grow those credit metrics back to where they need to be over time. Obviously, all of that you hear a little bit more about from Greg in a few minutes. With that, as I said, the important part of today is hearing more from the team and less from me. With that, I'm going to turn the mic over to Karen Hutt, who's going to talk more about our strategy. Karen.
Hey. Good morning, everyone. Pull the microphone down a little bit. I'm Karen Hutt, and I'm the EVP responsible for business development and strategy. I also have responsibility for our corporate affairs function, which includes communications and government relations. I've been with the business since 2001. I'm not sure I've had a boring day yet. It really has been fantastic. I've worked in a number of different areas of the business. I spent quite a long stint with Judy and the team at Emera Energy. Prior to my current role, I was President and CEO of Nova Scotia Power. I'm going to spend some time touching on our strategy. Specifically, what I really want to do is highlight our strategy in action.
There's themes that you're going to hear throughout the day, some that you've already heard from Scott, and of course, more that you will hear from our operating company leaders. Our strategy starts with a great team who are dedicated to making energy cleaner and more reliable with an approach and pace that is most co-cost effective for customers. We know that if our team is focused on doing the right things for customers and delivering value to them through the investments that we make, we will therefore deliver value to our shareholders. This is not a new approach. It's one that we've adopted for years now, and it's an approach that we believe is working.
You can see along the bottom of the page the six strategic priorities that should look familiar to you because they're constant areas of focus, and we use those to drive our operating plans each year. We always lead with health and safety. We're continuing our clean energy transition towards a net zero vision. We're focused on the importance of reliability. We're always looking for new ways to work through innovation. We focus on our teams and the communities where we live and work. Of course, we're always searching for ways to drive efficiencies and lower costs wherever we can. Here we go. As you've heard from Scott, we're proud of what we've accomplished on transitioning our fleets to deliver cleaner energy.
Since 2005, we've more than tripled the amount of renewable generation in Nova Scotia to 33%. This is in large part thanks to one of the most rapid integrations of wind generation in Canada, which has tripled over the past two decades. Since acquiring TECO or Tampa Electric in 2016, we've grown solar generation from effectively 0%- 19% of total generating capacity, installing more than 1,000 megawatts, the highest amount of solar generation per customer in Florida. We have worked to bring more solar online. A driving adjacent infrastructure projects where those investments make sense for our customers. In 2017, we built the Maritime Link.
This transformational project connects the island of Newfoundland to Nova Scotia with a 170 km subsea HVDC transmission cables under the Cabot Strait, the longest of its kind in North America. We continue to search for ways to invest in clean energy products that can deliver environmental benefits and that are cost-effective for customers. The world is on a path to net zero by 2050, and the momentum to get there is accelerating. Like many of our international peers, governments in Canada and the U.S. have set ambitious policy targets, which include requirements and incentives to make cleaner energy. Our job as utility operators is to execute on these policies in a way that technically integrates with our system. This journey also presents significant cost challenges and affordability challenges.
We use avenues such as public consultation processes to highlight these concerns to policymakers and to ensure that we also seek ways to address affordability, perhaps through things like fuel cost savings, the development of tariff programs, and our community giving. I'm realizing here, I apologize, I'm on the wrong page. In a moment, we're going to talk about Emera's climate commitment, which really articulates our part of the journey towards a net zero future. Even before that, the evolving needs of customers really began driving the three mega trends that continue to shape our sector. Decarbonization, which is well understood by all of us. Decentralization, which includes the shifting from centralized energy grids to more distributed ones that integrate many different generating sources.
Digitalization, which is really about how we tie it all together using technology to help us optimize increasingly complex grids and discover new cost efficiencies through automation, all while offering our customers better experiences. In parallel to the 3D transformation needs, we also recognize the growing importance of ESG factors to our investors, our customers, our stakeholders, and our teams. Increasingly, businesses are expected to create value that is truly shared across all sectors of society, which includes working to strengthen commitments in diversity, equity, and inclusion, and ensuring a just transition as we move forward to a lower carbon world.
Last year, we announced our 2050 net zero vision. We were particularly focused on how we would articulate our view on the journey to net zero, given the uncertainty that frankly still remains from a cost and from a technical perspective to fully achieve a net zero world. This is, of course, a collective journey, one that the energy sector, governments, and our customers need to pursue together. While we are fully committed to the concept of net zero by 2050, we've cut our heads down executing against our important milestone plans that you can visually see the progress that we're making. As Scott mentioned, our next milestone is a 55% reduction in CO₂ emissions by 2025, which we're on track to meet.
As I said earlier, you will hear more from our operating company leaders throughout the day on the work underway to drive cleaner energy. I'll just quickly hit on a few of the major projects that are underway. Florida Solar Wave 3 is on track for completion in 2025, growing solar to 19% of Tampa Electric's total generating capacity. As you heard on our earnings call last week, as you just heard from Scott, Tampa Electric completed work on the Big Bend Modernization project. This plant can now produce over 1,000 MW of reliable, lower carbon baseload energy that will complement the growing solar in the state.
As you heard from Scott that while Bill 212 has limited Nova Scotia Power's ability to participate in planned decarbonization investments, we continue to believe that the Atlantic Loop is the most cost-effective way to progress carbon reduction initiatives in the region. It makes sense that we remain at the table to participate and shape how the governments will land this critical and transformational project. Archie will talk more about opportunities arising from the IRA at Tampa Electric. As you would expect, this is an important area of focus in the business. You've heard us talk many times now about the cost to decarbonize and the importance of new technology investments to enable the shift to a decarbonized world.
There's no question that with the adoption of the IRA, the U.S. has stepped out in front with a competitive advantage, and we hope that other countries will attempt to follow. We're actively assessing where new investment opportunities could lie and where we could apply our skills. As electrification increases, so too do customer expectations that energy should be always available, and that interacting with energy services should be as simple as ordering something on Amazon. Our teams are advancing multiple initiatives to deliver on these customer expectations and build the grid of the future, which you'll hear more on later. We think about our digital investments like building blocks that support each other and layer up to advanced capabilities that really bring the three Ds together with meaningful investments necessary to address what customers are looking for in this evolving space.
As we know, as the world electrifies, reliability must be front and center, which means we need to invest in new adaptation technologies as well as the tried and true traditional practices in our ongoing maintenance programs such as pole replacement and tree trimming. The speed and scale of the energy transition underway means that we must find new ways to deliver energy and value to our customers. For example, here in Tampa, the team introduced an integrated renewable energy system, which is an innovative pilot that includes a solar canopy system to integrate three elevated solar arrays along with battery storage, which will enable several EV and industrial truck battery charging stations.
The main objective of this pilot project is to evaluate how we can leverage and optimize the use of solar arrays and battery storage along with our fleet of EVs to help increase the supply of electricity during the time of day when the demand for electricity is at its highest. In Nova Scotia, NSP customers can now opt to receive personalized information about their energy use through My Energy Insights. This digital tool sends notifications to customers about how much energy their appliances or equipment have been using and how this compares to their historical use. As you will see later firsthand, BlockEnergy is now operating in a 37-home pilot right here in Tampa. BlockEnergy is the first utility-owned community microgrid platform that combines rooftop solar with battery storage with a connection to the local power grid contributing to greater reliability for customers.
More on BlockEnergy from Rob and the team later. Over the last decade, the utility industry has been able to sustain robust rate-based growth without materially increasing customer rates due to several significant but no longer present rate offsets such as lower fuel costs, interest rates, and lower inflation costs. As we take on this changing environment, our teams work hard through our regulatory processes to collaborate with stakeholders, seeking solutions that are both balanced and are sustainable. We don't stop there. We've had ongoing efforts year-over-year to drive efficiencies in our cost structures and look for levers that can sustainably lower costs for the benefit of customers. We're also always exploring ways to reduce costs for customers, including offering low-income rates as well as efficiency programs.
As I said at the beginning of my remarks, our strategy starts with a great team. In a business full of physical assets, from generation plants to transmission lines to natural gas pipelines, by far the most valuable asset that we have is our teams. We make talent management a core focus area at every layer in the organization. We have an Emera-wide DEI strategy, and each of our operating companies have their own plans and their own DEI employee networks. We know that there is a lot of work ahead, but we're also inspired by the engagement, the passion, and the creativity that we see over and over across the business. In 2020, we launched the Emera People Leadership Academy, which offers a business-wide learning program through a combination of virtual and in-person learning for our emerging and established leaders.
So far, more than 200 leaders have taken part in the academy. We continue to expand our offerings to new cohorts of leaders as we speak now this year. Investing in the communities where we live and work is key to the business. It's also key to the slide that I just spoke about, our team. Across the business, our employees volunteered more than 31,000 hours last year. We invested $18 million in communities in 2022. We've also added an important DEI dimension to our community giving. In partnership with our teams in 2021, we announced a $5 million Emera DEI fund to support organizations that are advancing DEI and focused on advancing DEI in our communities.
So far, we've committed CAD 2 million in support of social justice and equality initiatives with a focus on supporting underrepresented groups in the areas that we operate in. Finally, we have a robust strategy process in the business. We regularly monitor strategic signposts, looking for indicators of change. We talk about strategy regularly with our leadership team and with our board. Each of our operating companies drive their own strategy processes to serve their customers and leverage local opportunities, all in a way that contributes to Emera's growth. Today, through our regulated portfolio, we continue to deliver growth through investments that are for the benefit of customers.
As you heard earlier from Scott, we're also exploring opportunities to evolve how we're thinking and what we're doing as a business pace-based on the changing needs of our customers, investors, stakeholders, communities, and of course, our teams. The road ahead is exciting, and we believe that our experience and our track record positions us well to do more in the future growth within our current businesses and searching for ways to expand and grow the portfolio in a way that continues to add value for our shareholders. I hope that you enjoy this session today. I'm happy to take any questions you may have. Otherwise, I will hand the floor over to Peter Gregg, who is going to talk to you about Nova Scotia Power.
Good morning, everyone. Again, thrilled to be here with you in my first in-person investor day meeting. I'm Peter Gregg. I'm the President and CEO of Nova Scotia Power. I've been with the company a little over two years. It has been an eventful two years, as you would know, especially last year. I'm really proud to lead our approximately 2,000 Nova Scotia Power employees across the province of Nova Scotia, serving our 541,000 customers. While we have had our challenges, proud roots, really where Emera has grown from. I know I and all of us at Nova Scotia Power continue to be proud of the work we do in Nova Scotia.
I'm gonna spend a brief period with you talking a bit about our company. There we go. As you know, we're a vertically integrated company serving the province of Nova Scotia in a cost-of-service model. We have seen some healthy customer growth, and we're now at 541,000 customers across the province. Our capital investment program is really focused on system reliability. Really back to the basics, making sure that we're serving our customers, but also it's reflective of Bill 212, that really, as Scott mentioned, cut back on our capital spending, and it really is focused on system reliability. We're expected to approach 60% renewable generation resources by 2025, and that will be an increase from 25% in 2019.
We still have a 60/40 split when it comes to residential and commercial, industrial customers. We've been seeing healthy growth over the last few years in customers, as I mentioned. Half of our business, half of our customers are in the greater Halifax Regional Municipality. We just got through a rate case, and I think as Scott mentioned earlier, I think while that was a journey in itself, the negotiated settlement and then ultimately the UARB's endorsement of that settlement, I think does reinforce that we have a well-established and robust regulatory structure and environment in Nova Scotia. We've got allowed ROE between 8.75 and 9.25, a maximum allowed equity of 40%. We do have a well-established fuel adjustment mechanism.
It allows for the timely and timely recovery of currently incurred fuel costs. Mentioned we have had some nice economic and population growth, which really is a change from the last few decades. In the last two years, we've seen, I think Scott mentioned this, 2.6% compound growth in population. We expect that to continue, but it probably will slow a little bit out to 2030, and we expect that to be just over 1%. You'll see at the top graph there, we've had some really healthy economic growth in the province as well, and we expect that to continue. Electrification, I think Scott also mentioned this. Really what's driving this, electrification of the economy generally, but we have a real opportunity.
It's around 30% of our customers still heat their homes through home heating oil. We're a jurisdiction where heat pumps are very efficient. We've seen a pretty dramatic growth in conversion to heat pumps, and we expect that to continue. There have been recently announced federal subsidies that our province has accepted that for low to moderate income Nova Scotians essentially will entirely subsidize the purchase and installation of heat pumps in Nova Scotia. We do see some strong growth in electrification continuing throughout the next decade. We have a strong and proud history of decarbonizing, really since 2005. Last year, we generated 33% of our generation mix from renewable resources. We've reduced emissions by 46% compared to 2005.
That really is equivalent to shutting down 450 megawatts of coal. You'll see on the charts I mentioned earlier, by 2025, we expect to approach 60% of our generation mix will be coming from renewable resources. Really over the last year, while there have been some disruptions from the Labrador- Island Link that has disrupted some of the flow over the Maritime Link, we're seeing a real value created through that. In 2022, flows over the Maritime Link saved Nova Scotia Power customers approximately CAD 100 million in avoided fuel costs. You'll see we've got a history of steady rate-based growth and consistent net income. Last year in 2021, we had an all-time record earnings of CAD 141 million.
This past year, CAD 131 million, as Scott mentioned, really driven by warmer weather, particularly in the back end of 2022. I'll talk a bit about the GRA decision. I chatted with many of you last night about this. I know it's been on your minds. As you know, in early February, a UARB decision did substantially improve the solid results. For both 2023 and 2024, we'll see annual rate increases, both fuel and non-fuel of 6.9%. Really, that translates into CAD 160 million in incremental non-fuel revenue through the period. Scott mentioned, if you haven't had a chance to read that decision, it's worth a read.
Very well considered, very well written, and I think does reinforce that the strength of the regulatory environment in Nova Scotia. I know the UARB took that decision very, very carefully. I won't go through all of the details that's on this page, but we were able to get the full value of demand side management programming through a rate rider, which is a big benefit to us, and we're able to recover substantial amounts of fuel costs over the GRA period. And then reaffirmed the fuel adjustment mechanism that the existing balance will be addressed separately through the traditional process and on an annual basis. So that means 2023 under recoveries will be addressed with an additional rider for recovery beginning in 2024.
Also pleased to see for the first time in Nova Scotia that we got a storm rider for the period 2023-2025. We've attempted to do this in the past. It's obviously a common element in many utilities, we're happy to have that as part of this agreement. Also the decision reaffirmed that all deferrals will be financed at Nova Scotia's, Nova Scotia Power's weighted average cost of capital. The last thing I'll say on this, I know Scott mentioned it, I want to underline it, is that it was significant to us that all customer advocates, the representatives of customers, signed on to this settlement agreement. The Low-Income Advisory Group also signed on to this agreement as did the Ecology Action Centre. It had broad support from our intervener group.
I think it recognized that yes, we have to be consistent with the restrictions in Bill 212, and this decision affirmed that we are. That the strength of the utility, the health of the utility in terms of serving our customers in Nova Scotia is extremely important. I think all involved in the settlement recognized that. While it was a longer road than I would have preferred to get there, proud of the team's ability to actually deliver on what I think is a meaningful ultimate decision. Spend a few minutes on ECEI. That's Eastern Clean Energy Initiative, is what we call it, commonly referred to as the Atlantic Loop when you hear about it in the media.
Scott mentioned this as well, that as a result of Bill 212, we have unfortunately paused our investment in clean transition projects associated with ECEI, and that includes the Atlantic Loop. As Karen mentioned, we strongly believe that this is the right plan for Nova Scotia to get off coal and decarbonize. We went through a robust integrated resource planning exercise about three years ago, looked at all options, and that's really where this idea came from. We still strongly believe it's the right thing for Nova Scotia. We believe it's the right thing for Atlantic Canada. The federal government has actually been a very supportive partner over the last two years through active negotiations. Probably taking a little longer than I would have preferred, but those negotiations are still active.
We do have a small team continues to be at the table to keep those talks moving. While we've paused our plans for investment, we believe in this so much that we've kept a small team at the table. We've actually been able to secure federal funding to actually support our ability to stay at the table. We are hopeful that, you know, it says Q1 here and the clock is ticking on Q1, but it's still hopeful that we'll get some more clarity on what the level of federal support for this project will be in Q1. Happy to update you once we get more clarity on that. Mentioned earlier, reduced capital programs. You see the next few years, essentially consistent with what you've seen before 2022.
Really, it's a shift to focusing on core system reliability investments for capital. You know, investment in transmission, investment in distribution. We do. We are completing our Life Extension and Modernization Program for our Wreck Cove Hydro generating station. We will be bringing in to service our work and asset management project later this year. Talk a bit about reliability. That's really where our investment's focused. Last year, we obviously had Hurricane Fiona, and including the costs of that, we had a total investment in transmission and distribution reliability of CAD 257 million. Really over the last 7-8 years, we've seen a 51% increase in T&D system investment to CAD 180 million annually.
On average, over the past five years, we've spent approximately CAD 20 million on tree trimming. Trees are obviously our biggest impact when it comes to reliability. We certainly saw that in Hurricane Fiona. Over the next five years, we're essentially doubling that investment. Again, that commitment to system reliability. What that means is, while we still have outages and there is some weather in Nova Scotia today, we're gonna get 25- 30 centimeters of snow on the ground. I feel guilty being here, but only a little bit.
Our reliability, and we don't tell this story often enough, I think, is that our reliability performance is second best for duration, so SAIDI, and we're best around frequency of outages compared to similar geography in the Atlantic Canada and in the main utilities area. That investment is paying dividends via our strong reliability performance. I believe this is my last slide. Really, that capital investment translates into steady rate-based growth. This will forecast a rate-based growth over the period between now and 2025 of 5.8% annually. I do have a question. Yes.
I was wondering if you could comment on earned returns. I think all the returns you guys are highlighting are actual allowed. I don't hear a lot of commentary on where you're actually earning.
Okay.
I don't know, I did a rough calc, if you wanted to comment on that, like where you think you've been earning and then where you expect to earn versus your allowed ROE?
I think Greg, you're probably gonna touch on that in your presentation.
That's the way that I'd characterize it, Carly. Up until, probably around 2020, 2021, we had about a 10-year run where we're at the top end of the ROE band, 9.25%, which is why we didn't need to go in for rates over that period because we were earning at the top end. I just want to get my year straight. 2021, we were probably, I think, more around the midpoint of the band, somewhere around 9%, and we would have fallen short of that ROE band last year, as a result of pretty much the storms that we experienced and the warmer weather in the fourth quarter. It was probably more like in the 7.5% last year.
Based on the settlement, we would expect that our ROE in 2023 should be towards the low end of the band, so 8.75% now. I think everybody in the room understands our band is very narrow in Nova Scotia compared to most jurisdictions, so the difference between the low end and the high end is not all that significant. We're working through some initiatives led by Peter and his team to see if we can get at that same level of ROE performance in 2024, but we do have a gap, and at this point in time, would expect to be slightly less than the lower end of the band in 2024.
Below the band and then getting to the low end of the band through the settlement?
Sorry, I missed the first part of it, Carly.
You were below the band last year, but getting back to the low end of the band...
That would be our expectation with the new rates. Correct.
For the two years of the settlement kind of?
Yeah. Correct.
On the Atlantic Loop project. If the feds come back to you with like a grant or some type of adjustment on Atlantic Loop, you are under this two-year rate settlement, that's pretty stringent, how do we envision? Are you paused through the whole rate settlement? Like, what triggers you to rethink about how you approach Atlantic Loop, understanding the confines of the legislation and -
Yeah
... the settlement in the next two years?
Our approach for the next two years really is, as we said, we've paused our intent for capital investment in the Atlantic Loop project. That's the decision we made in October post two twelve, and I think it's the right decision. Makes me a little sad for Nova Scotia, but it is the right decision. Our hope really at that time, we altered our request to the federal government to say, we're not going to be putting our capital in. We still think this is the right project to do, and we upped our request for financial assistance at that time. I think it really is going to be important to see what the federal government puts on the table in terms of total amount, but also structure of that type of assistance.
As I said, I'm hopeful to get more clarity on that over the next month, and then we'll see if that's enough to keep the project going.
I guess I'm just trying to understand. Is there any way for you to earn on capital you would put into Atlantic Loop over the next two years?
It's not our intent to be putting capital into-
Okay.
- Atlantic Loop in the next two years.
Okay. Thank you.
Hey, Rob Hope, Scotiabank over here. A couple of years out, but, as you look for new rates in 2025, how do you balance the need to get back into the range with the fact that there's gonna be a provincial election there?
Yeah.
Kind of balance the need for higher rates with the election year?
It's a great question, Rob. something we're very, obviously very focused on now. I think where it starts, is, you know, we went through a rough patch last year, obviously with Bill 212. Throughout that time, though, we were working collaboratively with government on many files. So those discussions were ongoing. I think where our focus needs to be, is continuing to build that relationship with government. There are a lot of shared interests in the energy space by this government and by Nova Scotia Power in terms of building out renewables. I think Atlantic Loop is a real opportunity that we agree and we're working closely on.
The province has aspirations to build a hydrogen economy in Nova Scotia, which obviously we would play a very significant role in that as the utility that serves the province. I think really focused on those files, focused on building that relationship and trying to find a path forward. I can't stand here today, Rob, and say I know exactly what that path looks like. It is a challenge in 2025, obviously, with the need for new rates in an election period. My goal, my commitment is to find that path in a collaborative fashion with the government.
Hi, Peter. Pat Kenny, National Bank. I know Atlantic Loop is on pause here because of Bill 212, but rate base growth-
Yeah
... along the way as well. Perhaps you could just help us understand what the path towards full decarbonization -
Sure
- looks like today -
Sure
... versus the prior vision with Atlantic Loop in that outlook?
I still believe the Atlantic Loop is an important piece of the total decarbonization. We have legislation in Nova Scotia that requires us to be 80% renewable by 2030. That really guides us towards our path of approaching 60% by 2025 and then the remainder by the end of the year. Really, how we get there is the whole Eastern Clean Energy Initiative project, and that really is relying on flows over the Maritime Link. That's a big chunk of what gets us to where we are today and beyond. Also build-out of more wind generation in the province of Nova Scotia. There was an RFP from the provincial government last year to build out more wind.
I do think we'll see some more wind, and I believe we need more wind in Nova Scotia to achieve that. I think there'll be an opportunity for more storage in Nova Scotia to help optimize that wind, and that's part of the path to get there. There will be a need for coal to gas conversions. The way we're looking at it now, current coal plants, we would likely convert two of those to gas plants. Those would be peakers. Kind of stuff that you'd typically see in January and February, really cold days where we don't have a lot of wind flowing. We need those local fast-acting reliability generators there, so likely the coal to gas conversions.
The big piece as well would be the transmission line that goes through New Brunswick and taps into the vast resources in Quebec. All of that together really would allow us to achieve the 80% plus renewable by 2030. Timelines are tight. That's really important that we get clarity from the federal government on what the funding is, so we can get going on that, but that's the plan. Okay. I'm not seeing any more questions. Thank you for the questions. Appreciate that. I'm pleased to call on my colleague, Jimmy Blotter to talk about New Mexico Gas.
Rumor has it that I am shorter than Peter. Thank you for being here with us this morning. We very much appreciate everyone taking the time to make a trip to Tampa. As has been alluded, the weather is lovely. Thank you to all of our Floridians who are here and provided this wonderful sunshine for us. My name is Jimmy Blotter. I'm the VP of Finance, Safety, and Business Support at New Mexico Gas Company. I've been with the company for about 3.5 years now. Our president, Ryan Shell, as Scott alluded to, is unable to be here with us today, although he was scheduled to be here. He sends his apologies. I can get the slides to work for us. All right.
New Mexico Gas Company is the largest gas utility in the state of New Mexico. We have about 545,000 customers, and we serve 60% of the state's population, including Albuquerque, Santa Fe, and Taos. As you can see on the map, we are spread throughout the state. Our system consists of 1,500 miles of intrastate transmission, in addition to more than 11,000 miles of distribution pipe. We are well situated geographically between the San Juan and Permian Basins. We currently have about $800 million of rate base and a 52% authorized equity layer. In 2022, we had consolidated net income of $35 million. During 2022, our asset management agreements, which you will hear more about this concept when Judy is up here talking with us, had a record-breaking year.
Through these agreements, we were able to return 70% of the AMA revenues, which was more than $30 million in 2022, to customers through our purchase gas adjustment clause, or PGAC. We are proud in New Mexico of our diverse workforce, made up of 700 employees. As Karen had talked with us about our DEI initiatives earlier, more than 60% of New Mexico Gas Company employees are Hispanic or Latino, and we also have an active diversity and equity and inclusion council among our employees. Both our workforce and our state are diverse. We serve 18 of the 23 Native American pueblos, tribes, and nations that are located in New Mexico.
We regularly engage with Native American governments and people to share information, provide energy efficiency or bill assistance, and partner with those sovereign nations regarding access for rights of way to maintain the existing system or to extend to new customers. We also have a Native American Scholarship Program. Through that program, we are proud to support 20 students each year as they pursue their dreams. We strive to recognize and celebrate the diverse cultures in the Land of Enchantment where we live. From a strategic perspective, New Mexico Gas Company focuses on three main pillars: customer experience, environmental stewardship, and safety and reliability. While our customer satisfaction scores are good, we know that customers want and deserve an experience that continues to improve. A key element of that is digitalization, making sure that we have the right IT infrastructure to support customer engagement.
We are continuing to implement more efficient ways to interact with customers, and a key to success in this is a major upgrade to our customer information management system. We began this work last year in 2022, and it will be an important part of the foundation to enable further improvement to our customer's experience. We expect the upgrade to be online in fall of 2024. Energy efficiency is important to us for many reasons. From saving customers money on their monthly bills to lowering our carbon footprint, energy efficiency has been and continues to be a key element of the ongoing strategy. Our Native American Energy Efficiency Program started as a pilot in 2018 and officially became part of our energy efficiency program offerings in 2020. It offers no-cost services to Pueblo residents. We are proud of this unique and award-winning program.
We are planning a significant increase to our energy efficiency programs during this year. I will discuss that filing in more detail later in the presentation. We never lose sight of customer affordability. We are focusing on supporting our low-income customers. We work with stakeholders to ensure that low-income customers have access to the resources and to ensure that their bills are affordable. We have worked with advocates and actively supported a proposed bill in the current legislative session that would allow for low-income rates to assist these customers. Environmental stewardship is a critical part of our strategy. We have several ongoing initiatives that are focused on this. Energy efficiency is one.
We are decarbonizing our footprint through solar installations on company facilities throughout the state, as well as making improvements on our system by fixing grade three leaks and replacing controllers at compression stations, resulting in less gas being vented into the atmosphere. I will focus today on hydrogen blending and certified low-emission gas. Although New Mexico has large commercial dairies and therefore potential for RNG production facilities, to date, most of this focus in the state has been from developers who are connecting to interstate pipelines so that they can receive a California price for RNG. To make RNG effective for New Mexico, we would first need to pursue a legislative support to make the pricing competitive for customers. We have had a pilot project over the past year to test the blending of hydrogen with natural gas.
The blending is occurring at our training facility in pipes that are segregated from the customer serving distribution system. We expect this project to provide insight into how the presence of hydrogen in our system impacts the system itself, as well as the experience of our customers when they're using blended gas. Before we take any further steps to extend the project, we will be working with stakeholders to ensure buy-in for the use of hydrogen in the system. Overall, we believe it's possible to achieve a 7%- 10% reduction in the end use emissions with a 20% hydrogen blend. Also in New Mexico, we have relatively new stringent regulations that require by 2026 the capture of 98% of gas produced during oil production. In other words, an end to routine venting and flaring.
This means natural gas produced in the Permian Basin has the potential, through continuous monitoring or production, to be certified as low emissions gas. There is interest in having such certified low emissions gas used by customers in New Mexico. We are actively exploring this concept both with producers and with policymakers in the state. As you've heard before this morning, safety and reliability are core to our capital program, which includes investment opportunities that are tied to pipeline safety and cybersecurity requirements. We are also looking at projects to support certified low emissions gas, as I just mentioned. Following Winter Storm Uri, the commission asked us to review alternatives related to company-owned storage to enhance reliability. I'll discuss the resulting LNG filing in a few slides.
We are regulated by the New Mexico Public Regulation Commission. As is the talk of the town, in January 2023, the commission moved from a five-member elected commission to a three-member commission that was appointed by the governor. The appointed commissioners will serve staggered six-year terms. The first set of commissioners will have various tenures to support this. Patrick O'Connell will serve six years and is currently the chair of the commission. Gabriel Aguilera will serve a four-year term, and James Ellison will serve a two-year term. The commission is made up of two Democrats, O'Connell and Aguilera, and one independent, Ellison. We are very early in seeing how the commission will handle their new roles. Our first impressions are that the commissioners seem to be dedicated and desire to be thoughtful in their deliberation process.
The commissioners have utility-related experience that should also prove to be beneficial to their oversight roles. I will note, however, much as with any regulator that oversees our business, we have in place a PGAC that allows for nearly real-time recovery of our gas costs as we can reset rates on a monthly basis. We have a weather normalization mechanism that substantially decouples our revenues. We also have the ability to utilize a future test year in rate case filings in New Mexico. Our most recent rate case filing was based on a calendar 2023 test year and resulted in a settlement agreement that provided $19 million of new rates that were effective at the beginning of this year. Our ROE and equity layer were unchanged as a result of the rate case settlement. In June 2021, the commission agreed to our full recovery of 30...
I'm sorry, our full recovery over 30 months of nearly $110 million of extraordinary gas costs incurred in February of 2021 during Winter Storm Uri. Forgive me for just a moment. Am I on the right slide here? How about that one? That's better. I apologize for that. During the hearing, the commission requested that we evaluate storage options to avoid the impact of events like this in the future. Result of that request, we filed in December for approval of a certificate of convenience and necessity, or a CCN, for a company-owned $180 million LNG storage and production facility. The hearing examiner has set the hearing for mid-October of 2023, we expect a decision on the case in the first quarter of 2024.
If this one BCF storage facility is approved, we will start construction with the plan to have the facility online for the 2026 and 2027 heating season. We'll try this slide. New Mexico Gas Company continues to drive value for our customers. In late summer, we filed for a new energy efficiency program to cover 2023-2025. In our filing, we have proposed doubling the annual spending in the program to $15 million. Under this program, therm savings would triple, and the annual incentive would double to nearly $1 million each year. One of the programs that we requested is for manufactured homes. In New Mexico, approximately 18% of all housing stock is manufactured homes, and in many counties, they represent one-third of the housing stock.
According to the DOE, manufactured homes can consume 50% more energy than site-built homes of equal size and age. Through this program, we expect to reach more than 500 manufactured home customers each year, saving more than 166,000 therms annually. Earlier this week, the hearing examiner in that case recommended approval of our proposal with only minor modifications. We expect the plan will be in front of the commission for a vote within this month. Our asset management agreements are another way that we can provide value to customers. In late 2022 and early 2023, we saw significant volatility in gas prices. Far this year, our AMAs have continued to perform well, which should result in an above average year even in 2023.
It's too early to predict if the AMAs will perform as strongly as they did in 2022. In addition to AMAs, we also hedge our baseload gas purchases during December, January, and February. Customers pay for the hedging program and receive all of its returns. During January, baseload gas priced significantly higher than we have seen in recent periods. The hedging program was able to partially protect customers from the significant market price increases. The hedges have netted more than $95 million to offset customer bills this heating season. Both the hedges and AMA revenues have dampened the customer bill impact from higher gas prices compared to what customers would have otherwise experienced this winter. Customer bills have still been significantly higher than in recent years.
Gas prices have come down a lot in the past few weeks, as was mentioned earlier, and we're hopeful that they continue at these lower levels. Our capital program is focused on public safety and reliability with about $380 million of investments from 2023- 2025. Projects are related to pipeline safety, investments for automated meter reading, and as I mentioned earlier, we are upgrading our customer information management system. The upgrade is one of our larger projects running from 2022- 2024 and will total about $30 million. We also have forecasted investments related to the company-owned LNG storage facility, which is currently under review with the commission. We are forecasting relatively small spend in 2024 for that facility. The investments begin to ramp up more in 2025, and the bulk of the dollars are actually expected in 2026.
With the capital investments that I discussed, rate base is expected to grow, nearing $1 billion in 2025. These investments produce an 8.4% compound annual growth rate. In summary today, New Mexico Gas Company continues to drive value for customers. We operate in a constructive regulatory environment with newly appointed commissioners. In our last rate case filing, we were able to achieve a unanimous settlement that resulted in $19 million of new rates that became effective in January. We filed a CCM for the $180 million LNG storage facility, and we expect to have a ruling on this filing in the first quarter of 2024. Our energy efficiency program filing has received support from the hearing examiner, and we expect a commission vote on it this month.
Our capital investments that are focused on safety and reliability result in 8.4% rate base growth through 2025. With that, thank you for your time this morning and happy to take your questions.
Hello. I know you just got new rates, I was a little bit surprised to see how low the earned ROE was in 2022 at 7.45%. Why were you earning so low in '22, and where do you expect is the new rate case enough to get you up to your allowed return? What would be the trends for how often you need to be in for rate cases to be able to keep earning closer to your allowed return?
Sure. Excellent questions. Thank you, Carly. I will strive to keep all of them in my mind, but let me know if I miss anything here. The 7.45 that we had on the slide is related to our base rate revenue. For example, that 7.45 does not include the impact of our AMAs in 2022. We do expect that we would dip down when we are outside of a test year, compared to our authorized ROE. We are hopeful. We have plans to be able to make our authorized ROE during test year periods. 2023 would be one of those.
As you've alluded to, right now, with the construct that we have, the capital programs that we have, we would expect that we would have to regularly be in for rate cases in order to be able to compensate for the regulatory lag that we see primarily from depreciation and amortization tied to our capital programs.
Okay. Two follow-ups there. Can you just remind me, like what's an AMA I know you said '22's AMAs were, like, really high, right?
Mm-hmm.
Do you have an average amount or what you would have earned with your AMAs? Like, I don't know how to think about that.
Yeah, it would have been closer to 9.7, 9.8.
If you're in a test year this year, so that would mean you file next year, like in 2024 or file later this year. Like, is it every other year and you're in a rate case or every three years?
We have not given public notice of everything that we would have, but whenever we are outside of a test period, we will see some regulatory lag.
Okay. Can you just remind me, I think when you, the merger, TECO, and then you bought TECO, there was some merger agreements or merger stipulations you agreed to with the New Mexico regulators. Could you just remind me of what those were?
Sure. We had some various funding that we did within the state. It's not at the levels that you might see in more recent merger cases that are in front of the New Mexico Commission. We had some support for economic development, those types of things. We also had a requirement to maintain a certain level of employees. We had a requirement to maintain a New Mexico Gas headquarter, a separate board of directors. Things that I would view as reasonably standard, I think.
Like ownership through a certain time or something like that?
I'm sorry?
Ownership through a certain time.
Yeah. The TECO acquisition did have a 10-year ownership in it.
Is that 10 years, 2026? Do you remember what the year that expires is?
'24.
Thank you.
You're welcome. I know I saw one up here. There's a couple over here.
Hi, Dariusz Lozny with Bank of America. Just in light of the changes with the New Mexico Commission starting this year, just curious, are there any, like regulatory mechanisms or changes that you'd like to see that maybe would help you reduce that lag on a go-forward basis?
Oh, I have a very long wish list. One of the things that, you know, would certainly help us as Carly was alluding to, would be some sort of a multi-year rate case process. We are far too early to know what the appetite may be for changes.
Linda Ezergailis, it's TD Securities. I'm wondering if you've done some sort of preliminary Forecast or guesstimates about what sort of additional costs might be associated with blending hydrogen to a 21% level. I realize there's a lot of moving parts, as well as what the contemplation is about what sort of additional costs would be associated with certified natural gas in the mix.
Sure. We are still very early in each of these. The cost, I believe, will be higher for hydrogen than what it would be for a pure natural gas blend. A lot of this will factor in, you know, how various tax incentives or things like that might go in the future. I would say it would also be very much like that with the certified low emissions gas. We're too early at this stage for me to be able to quantify that well for you. It is certainly a very important part of the conversation.
Excuse me. Hi, Rich Sunderland, J.P. Morgan. You referenced the AMAs and hedge programs, and I'm curious how the commodity portion of your bill has changed this heating season versus last heating season and how you forecast that for next year. Thank you.
As far as our forecast for next year, we're probably using the same forwards that anybody else is using. As far as the commodity portion of our bill this year, we have seen significant increases. If I come back to my own personal bill, because I am a very proud New Mexico Gas Company customer, I personally saw a bill about double what it had been on a historical level. Those are coming down very significantly for our customers, particularly in March, which is a very good thing for our customer base. All right. With that, I'm going to... Oh, hello, Maurice. I thought I was gonna get off the hook.
Thanks, Jimmy, and good morning. You obviously have a very unique experience now working at New Mexico Gas as well as previously at PNM.
Mm-hmm.
You're obviously aware of an ongoing M&A transaction involving PNM. What's your take on how the new commissioners and the governor view utility M&A? What's important in structuring such a deal? How long do you think these reviews generally take from, you know, submission to approval or denial?
The reviews for an M&A deal?
Correct.
Yeah. You know, excellent questions. I cannot comment directly on PNM. I do think that there are a lot of parties within the state that view M&A as being fairly favorable. I think that we have seen in many utility deals where customers have benefited as a result of that. As far as what the new commission may do or any insight specific to PNM, I'm really not in a good position to be able to comment specifically on that. I know that the new commissioners are very well aware of the transaction that's out there. All right, Helen. Thank you, everyone.
Good morning again. I'm Helen Wesley, President and CEO of Peoples Gas, and I have been with Emera for just over two years. I think Peter joined me about a month before I did. Probably most memorable to me is that the first day on the job as the leader of Peoples Gas was the last Investor Day. This Investor Day will forever remain in my mind, you know, sort of memorializing my time leading the company. We've made some great progress since our last Investor Day on our Fit for Growth agenda. We've added more than 20,000 customers in all segments, and very recently, we started flowing RNG from a landfill, which is a first in Florida. We've also made some really good progress on the personal and pipeline safety front, which is critical to building a sustainable business.
We've continued our streak, holding the first place in the J.D. Power customer satisfaction surveys, we've delivered strong business results, as you can see. Our five-year track record shows very solid rate-based earnings and customer growth. While we're spoiled for choice in terms of opportunity to grow in all market segments, 2022 did present us with some business environment challenges: supply chain, interest rates, inflation, and tight talent markets, to name a few. Today, I'll tell you what we're doing to build and sustain a safe and reliable natural gas distribution system that's responsive to growing customer demand and while also thriving to achieve appropriate returns on invested capital. Florida's population is 22 million strong and growing at the rate of about 1,200 people a day.
Peoples Gas is really well-positioned throughout the state to serve customers in all five metropolitan areas and parts in between. Today, we have about 470,000 customers, which is up from 390,000 just five years ago. On the residential customer side of things, about a third of single-family home residents in Florida who could choose to have natural gas in their homes are doing so. Most of our use is driven by home appliance needs, and lately, we've heard a lot about customers who are very attached to their gas stoves. We have relationships with about 20 national and regional home builders, and that leads to about 250 multi-year build-outs that are in progress across the state. That gives us really good visibility of future growth.
On the commercial side, around half of our base revenues are made up by commercial customers and about 10% of our customer count overall, which consists of restaurants, large retailers, healthcare, and nursing facilities. The growth of these customers tends to follow residential growth. We're also seeing growth in the large commercial and industrial segment as we serve hospitals, universities, hotels, and industrial manufacturers like cement plants. Today, around 75% of Florida's electricity is supported by natural gas, which makes up about 40% of our overall revenues or, sorry, overall volumes. We're now officially in the RNG business, as I said, supplementing our delivery of gas to CNG and LNG users and rounding out our sustainability portfolio.
In short, we're in all the right market segments and locations to serve growing customer demand. Our customer service continues to be a big part of our value proposition. Our strategy is aligned with Emera's focus and ensures that we can maintain the strong position that I just outlined. We're well suited to help others in the value chain decarbonization process, building natural gas pipeline infrastructure and RNG, CNG, and LNG businesses to support customers who want to use lower carbon fuels. We're also well-positioned to capture benefits from ongoing decentralization of energy sources. A good example is the increased demand from backup natural gas electricity generators we saw during Hurricane Ian. Our system needs to be resilient enough to supply those generators during peak periods, which leads to more investment in long-term system planning. The digitalization prong... Oops, sorry. Skipped ahead here.
The digitalization prong of our strategy is probably best captured through our $34 million work and asset management system investment. We go live this summer integrating dozens of different applications and enabling our operations, engineering, and construction organizations to manage work, capital, and O&M expenses more effectively. We've also modernized our customer communications and website platforms to enhance our customer experience. Last year, I told you we were focused on strengthening our organization as we grow. The use of data has been critical to that evolution. A great example is how we've used data to target our damage prevention efforts towards our highest risks. Tracking locate tickets in our system, we send our damage prevention coordinators to the construction sites where we predict the greatest chance of a damage based on contractor and the nature of construction activity.
We're meeting with repeat offenders to educate them. The result has been a decline in damages following these meetings, a 38% reduction among our 20 high-risk excavators. Data turned into information can be a powerful thing. Our plant the flag approach means we have a long planning horizon for system expansion to serve customer growth, which lines up with how the large developers in Florida are approaching meeting customer demand. The multi-year view leads to greenfield development, which is a more cost-effective and less disruptive way of developing and to building a system with appropriate pressures and availability to be responsive to future demand. Finally, our growing, changing company has been an attractive place to join, and I'm happy to report we've been able to hire some great diverse talent to support our plans to be fit for growth.
Looking ahead to future demand, our service territory spans all five metropolitan areas, as I said, demand is driven by a range of sources from population growth to decarbonization to backup resiliency to improved pricing. We're situated in the areas with highest population growth due to people migrating to Florida for lifestyle reasons. In Tampa and Southwest Florida, customer growth tends to be rooted in residential and commercial demand, with additional infrastructure investment required to reinforce our system to ensure reliable service. We're also situated in areas that are growing for economic and industrial reasons. In Jacksonville and Northeast Florida, industrial customer demand is growing as Jacksonville increasingly becomes a transportation and manufacturing hub. From Jacksonville, more than 90 million Americans are accessible within one day's drive, leading to growth in logistics and ground transportation.
Marine shippers are looking for more LNG as they convert to more carbon-friendly options. While not directly in Peoples Gas territory, the Cape Canaveral area is the source of growing demand for natural gas aimed at the space industry. While decarbonization and resiliency are important for other customers, strong comparative pricing is the reason that they choose gas. Gas has maintained its healthy pricing differential to propane and diesel, solidifying the capital investment decisions some of our manufacturing customers made when converting to natural gas from other fuels. Now with lower gas prices expected to persist, this equation becomes even more cost-effective. With national focus on high inflation and interest rates, there is speculation that the housing market in Florida will slow down, leading to a slowdown in the growth for Peoples Gas. So far, we've seen only a slight tempering in growth rates.
Customer signups extend out five years at around 3%-4% growth, followed naturally by commercial growth at a rate of about one commercial customer for every 100 residential customers. How does all this growth convert to capital spending and rate base growth? Not long ago, Peoples Gas annual capital plan was between $100 million-$200 million, with the majority of capital directed at serving residential and commercial growth as real estate developers capitalized on the substantial demand for natural gas in homes and restaurants. As we built out the PGS system across the state and gas became more accessible to more commercial and industrial customers, we also saw more businesses using propane or other fuel sources convert to natural gas.
Since 2020, in addition to the direct investment in service and main lines required to support customer demand, our strategic system planning has led to large expansions which provide additional supply to this growing customer base, including electric generators who have been converting from coal or oil to natural gas. In the past few years, we've invested $215 million for 125 miles of pipeline to connect parts of the state and build resilience. Our customers benefit from this expansion as we're able to quickly serve industrial customers with significant increases in demand for gas supply. A most recent example being some work to supply LNG facilities. In addition, to serve customers, we've invested in three renewable natural gas-related projects, the first of which is now on stream.
We refer to many of these projects as customer-backed projects because they come with a fixed revenue stream directly from the customer to pay for the construction of, and the return on capital of pipeline system infrastructure. In 2023, two-thirds of our capital will be invested in growth and reliability with the balance in sustaining and legacy pipe replacement. While inflation in the cost of goods and services definitely played a role in overall financial results in 2022, and is expected to have a more pronounced effect in 2023, we do have mechanisms in place to mitigate the impact somewhat. We have price-limited escalators in strategic supplier agreements. We've undertaken opportunities of buying pipe up, carefully watching steel prices closely to time our purchases so that we can achieve savings, and we use fixed price agreements on defined scopes of work.
Nevertheless, A residential customer service has increased significantly from just a few years ago. Years, as you can see. As I said earlier, we're focused on being fit for growth. We recently reorganized to ensure we had enough of the right resources focused on safety, operations, engineering and design, and construction project management. We have key relationships with 4- 5 strategic suppliers across the state who perform the bulk of our construction work. Our work and asset management tool will streamline our work activity and spending. Finally, we're building our own in-house supply chain group focused solely on Peoples Gas and our unique requirements.
The significant system expansion over the past few years to meet higher than anticipated demand and ensure reliability has led to more capital investment than expected, and all during an inflationary price environment. While there is near-term pressure on returns, we do anticipate this additional capital will be recovered through our current rate case. In the meantime, we've continued to serve the needs of Florida's growing economy. While the growth in demand for gas means we see a bright future ahead, we also want to do our part to reduce the emissions of our system and help others reduce their own carbon footprint. We manage the integrity of our pipeline system through pipe replacement and leak management programs.
Our Damage Prevention Program aims to prevent damage to our system that can pose a threat to the public, results in incremental costs to repair the pipeline, and can disrupt customers. Our Green as we Grow strategic guiding principle refers to the sustainability mindset we apply through all parts of our operations and through serving demand as customers increasingly seek out more carbon-friendly solutions to meet their energy needs. We expect 15%-20% of our capital over the next few years to be dedicated to investments which have an LNG, RNG, or CNG flavor to them, enabling a more diverse revenue and earning stream.
As I mentioned, we've brought our first RNG pipeline on stream. The remaining facilities are expected to be in service in the second quarter. Although the quantities are small to start with, we're excited to pursue RNG investment opportunities, which could provide sufficient fuel for all of Peoples Gas residential customers. As you know, CNG is enjoying quite a bit of popularity at the moment, given its favorable pricing and environmental benefits. Some of our customers estimate a 30%-60% savings over diesel pricing, which enables capital conversion choices, particularly for large ground transportation companies. Longer term, we're also keeping our eye on potential hydrogen investments, partnering with New Mexico Gas and Tampa Electric on different ventures. Our non-rate-regulated transmission pipeline company, SeaCoast, provides Emera with another means through which to serve Florida customers affordably and reliably across the state.
We have about 90 miles of SeaCoast pipeline connecting to the three transmission lines that supply gas in the state of Florida. Through SeaCoast, we move large quantities of gas to serve broad customer needs, and we have one pipeline dedicated to a single electric generator. The earnings from this business currently total around $16 million per year from long-term fixed-price agreements and an asset base of close to $200 million. Turning back to Peoples Gas financials, as you can see, Peoples Gas has earned within its approved ROE band for the majority of the past six years, with returns dropping in 2020 just prior to new rates in 2021, which was the first increase in 12 years. In 2021 and 2022, we earned around our approved midpoint.
With customer growth and therefore capital spending exceeding all expectations with inflation greater than 8% and a doubling in interest rates, as we signaled to the investment community, we expect returns in 2023 to fall below our approved ROE range. We're fortunate to enjoy a constructive regulatory environment in Florida, we have a good relationship with the Florida Public Service Commission and the Office of the Public Counsel, which is something that we work hard at. You know, there's a significant amount of compliance work and ongoing interaction with the commission, and our strong safety and regulatory compliance record is something that we take pride in. We settled our 2020 rate case for new rates in 2021, achieving an increase in revenue as well as the use of depreciation credits over a three-year period.
Given the end of our stay out period and the expectation that our ROE will fall below midpoint this year, we recently notified the commission of our intent to file for new rates effective January 1, 2024. The test year letter indicated a net revenue increase of $125 million-$135 million with a midpoint ROE of 11%. To serve customers and sustain the distribution system, we expect to invest almost $1 billion between 2022 and 2024, the period following our last rate increase. Both our peers have rate case activity underway, which is another indicator of substantial growth in the state, we're watching these cases slowly as we prepare our petition in April.
We believe our strong support for customer demand, prudent and safe operating practices, and excellent customer satisfaction ratings position us solidly as we proceed with Peoples Gas filings. Rate case proceedings are also informed by our reputation. Being fit for growth, a key dimension of our strategy, is rooted in some core principles shared by all Emera affiliates, whether through ESG activities or through demonstration of our values. We're proud members of the diverse communities we serve. Events like Hurricane Ian bring that pride to the forefront as team members from across the state showed up in Fort Myers and Sarasota to bring customers back online and repair damages as quickly as possible. We did so with no safety incidents before, during, or after the storm. We support local not-for-profits with both funding and human resources, with employees volunteering thousands of hours each year.
We continue to convert our strong sense of pride, fantastic customer satisfaction ratings, and great employee experience into an employee brand that attracts skilled, diverse talent and ensures that our employee base mirrors the communities that we serve. In summary, as I said earlier, we are ideally situated to leverage the strong customer demand throughout Florida. We enjoy a constructive regulatory regime. We have ongoing investment required to ensure our over 20,000 miles of pipeline is safe and provides resilient, reliable service. We're well-situated to support the growing and changing demand from customers as natural gas and its friends are seen as more carbon-friendly and cost-effective forms of fuel. We're really proud of what we've accomplished. In Peoples Gas and SeaCoast, last year, we earned nearly $100 million, almost double our total earnings in 2020.
Throughout COVID, we held on to our number one J.D. Power ranking for customer service, and we've added 80,000 customers since 2018. Our priorities are to safely deliver natural gas to our customers, invest prudently be a strong member of our communities and earn appropriate returns for our shareholders. It's a privilege to be in the position that we're in, and we aim to keep it. Thank you. Questions.
Hi. Thanks for the update. Obviously, I think, your growth is just extraordinary, and with that comes challenges of regulatory lag, which you're facing this year. In this next rate case, like I'm just trying to think about, do you need to shorten your rate plans to be able to, like, get in more often? Like, instead of three years, do you do two years? Or do you try to use, like, trackers or like I know in Florida, they use like a SOBRA for solar and like a GBRA. Like, is there something you could propose for the growth you're seeing in Florida on the gas side that would better allow you to keep earning closer to your allowed return for the full regulatory plan? Does that make sense?
Sure. It's an excellent question and one that we think about a great deal. You know, we're working through all of those alternatives at the moment. There are different alternatives available to you if you go through a full litigated outcome versus if you go through a settlement process, where last time we ended up with some depreciation credits, which helped smooth growth over the years. So we're working on all of those. There isn't, you know, currently a strong precedent for the SOBRA mechanism in the gas companies, but, you know, we're working on all of what you just suggested, including making sure that we manage our capital program very carefully over time so that we can smooth the returns.
Hello. Hi, my name is Dean Highmoor from Mackenzie Investments. I wanted to come back to your comments earlier. You talked about natural gas stoves and customers clinging to their stoves. Maybe could you just tell us where we're at with that? Maybe more importantly, how do you mitigate the risk of regulatory or political, I don't know what the right term is, rules or initiatives coming down that would basically derail demand for natural gas?
Yeah. It's a very good question, a very current one. We have a very active legislative session at the moment, and there's actually a bill going into session which would limit the ability for governments to have oversight over specific appliances. You know, would really sort of clamp down on the ability to do what is being talked about at a federal level. We have a governor that's very supportive of natural gas, and so we're feeling optimistic about that. There is a ban on ban in place currently. That's something else that we're continuing to support and, you know, remain tightly connected to in terms of where threats might be to natural gas.
There's a very strong, whether it is the, you know, the tourism industry in Florida, the hotel and restaurants association, there are also very, very strong lobby groups that are making their views known in terms of the importance of natural gas to the economy in Florida and many industries. As, as a company, we participate in efforts that the Florida Natural Gas Association is putting forward, the American Gas Association, Southern Gas Association, all of those groups we're working closely with. Then our external affairs teams are working with the, you know, officials and others in Tallahassee to help continue the support for natural gas.
Thank you.
Hi. Hi, Helen. David Quezada from Raymond James. A question for you. I mean, obviously, you've had really good rate-based growth for quite a sustained period now. I'm wondering if you can talk about how much runway you see for continued system expansion. Is there a point where you hit a saturation in your service area? Just any comments you could provide on how long of a runway you see there, continuing to be able to expand the system and grow at the rate base at that pace.
Again, it's a very good question. You know, we do a five and a 10-year look ahead. At this point, we see good steady growth ahead from different segments, whether it's the residential and commercial addition of customers, the addition of, you know, additional reliability and resiliency capacity. Whether it is new large industrial customers that are looking for large volumes of natural gas for marine shipping and those kinds of things. At this point, we don't see a significant breaking pattern in what we've seen so far. You know, continuing to see different sources of growth for the company.
That's one of the things that we are working towards, as you heard, expanding into more RNG and LNG customer segments so that we're able to sustain the growth pattern that we have been able to enjoy.
Thank you very much.
Hi. Excuse me. Morning, Helen. Maurice Choy from RBC Capital Markets. I want to dive a little bit deeper into SeaCoast Gas Transmission for a moment. I know that Florida is core to Emera, something that Scott and Greg's always said. My essence of my question is whether or not owning SeaCoast or its individual pipelines within SeaCoast is essential to PGS. Because whether you look at SeaCoast, Callahan, Seminole, these pipelines all seem quite discrete and unique. Also recognizing that SeaCoast has a declining rate base profile. My question is, do you need to own these individual pipelines for PGS to continue growing?
I think the way I would answer that, I'll look to Greg or Scott to chime in on this from a strategic standpoint if there's something I missed. SeaCoast has been very helpful to Peoples Gas because it has enabled us to connect to customers that aren't in our service territory and serve demand that isn't traditionally in our service territory. It's also a vehicle for us to partner with other LDCs to do the same. You know, the conversation around SeaCoast is really in my mind, it's an enabler to Peoples Gas. It is long-term fixed-rate investment, and it's a growth vehicle for us. Could Peoples Gas survive without it?
I think so, I think Peoples Gas is significantly enhanced with the addition of SeaCoast and all that it brings. The reason that its earning profile is flat at the moment is because of exactly what you just said. The investments are large and discrete. If and when there is another investment that SeaCoast undertakes, it will be another large pipeline with another large earning stream associated with it. Rather, you know, step increases in earnings and rate base. I don't know. Scott, good? Okay. We like SeaCoast. Okay, over to Archie.
Okay. Good morning, everyone, and, as everyone else has said, welcome to the 2023 Emera Investor Day here in Tampa. For those of you that I did not meet last night, I'm Archie Collins. I'm the President and CEO of TECO Tampa Electric. Just a little bit about me. I have spent my entire career with the Emera family. I actually spent my first 20 years with the company working with Nova Scotia Power, and then made a little bit of a pivot, sort of similar to Karen, similar to Dave, actually.
Went and spent a number of years working in Emera Energy, which, you know, gave an opportunity for this straight-laced engineer to really benefit from working within the ambiguity of the unregulated space, and maybe even more specifically, having the opportunity to work very closely with Judy. That certainly has made me a better leader over the course of my career. Since 2018, I've had the privilege to serve our customers here in Tampa, and I've been serving as CEO for the past two years. I work with a great team here in Tampa, and I would like to call out a couple of folks that are here with us today. They're gonna be with us through the morning, through lunch.
Jeff is here. Jeff Chronister is our VP of Finance, and someone who plays a very key role in managing our stakeholder relations up in Tallahassee and enabling a lot of our... Both Chip and Carlos are going to be the chaperones for the field trip this afternoon. If anybody gets out of line on the bus, you're gonna have to deal with Chip and Carlos. I do want to make a confession before I go any further. I thought that Helen's introduction this morning was really well done.
When I heard her speak about some of the things that you're not allowed to do in the state of Florida that are against the law, it made me realize that there is a high probability that I have broken the law repeatedly in the state of Florida. I am not prone to trying to fish when I cross bridges, but the concept of singing in public while wearing a bathing suit. For anyone who knows me, there is a high probability that I have done that, because I do that quite regularly. Sing, not wear a bathing suit in public. If I have done my math correctly, it's been three years since this group was last assembled for an Investor Day back in Florida.
I will tell you that a lot has changed since then. Since 2000, and Helen covered some of this. Since 2000, we have endured a pandemic, high inflation, supply chain challenges, rising interest rates, a very, very competitive job market here in Florida, and a very heated economy, especially locally. Through it all, Tampa Electric has delivered for its customers and for its investors. Our 2022 results speak for themselves, and I'm excited to share our progress over the past couple of years and our optimism for the road ahead. In Tampa, we are blessed with a diverse and a very resilient economy. Florida's real GDP growth rate between Q4 of 2018 and Q3 of 2022 was 13.4%, much higher than other large state economies and nearly twice the national average.
Over that same time period, Tampa Bay's gross metropolitan product has experienced a 3.8% compound annual growth rate, it is forecasted to remain head and shoulders above the rest of the country. Right here in Hillsborough County, which represents the largest portion of our service territory, we've experienced a consistent 2% annual average customer growth rate. Hillsborough County is forecasted to grow faster than Florida on a whole and four times faster than the U.S. national average in this decade. As an added bonus, our customer base is very diverse. 89% of our customers are residential, and 80% of our annual sales are derived from residential and commercial customers. Another 10% of our sales are from governmental agencies.
Only 10% of our sales are from industrial customers, and the largest of those represents only 4% of total annual sales by volume. This diversity serves to insulate revenue during periods of economic downturn, something we certainly benefited from in 2020 during the early days of the pandemic. Yes, there was a pandemic here in Florida. Just in case you thought anything differently. In addition to this diverse and resilient customer base, and on top of the robust customer growth, is the promise of significant load growth ahead as society electrifies. The pace of load growth from electric vehicle penetration is increasing each year. Florida is currently second in the nation in total electric vehicles with over 95,000 electric vehicles on the road. This bodes well for our usage per customer expectations in the upcoming decade.
Between growth in customer count and growth in usage patterns, we are very optimistic that future sales growth will match and more likely exceed our recent experience. 2022 was a big year for Tampa Electric. Some of these points have been covered by Scott previously, but if you'll indulge me, I'm going to repeat some of these. 2022, we completed the $875 million modernization of Big Bend. As Scott said, we completed that on time, on budget, without any lost time injuries, and without any outstanding legal claims. We completed the second tranche of Solar Wave 2, we now have more than 1,000 megawatts of solar on our system. We announced Solar Wave 3, an additional 375 megawatts of solar to be constructed in 2024 and 2025.
By the conclusion of which, our generation portfolio will consist of 1,630 MW of solar capacity. Of note, this investment decision was made just a few weeks prior to the announcement of the Inflation Reduction Act in August, which proved to be very fortuitous timing because it meant that we locked in quite favorable solar module pricing before the IRA impacted the market. We announced the construction of the South Tampa Resiliency Project, a 37 MW generating asset, that will be located on the MacDill Air Force Base property and which will serve to strengthen grid resiliency in South Tampa. It serves to avoid a transmission investment that would otherwise have been necessary, it also allows islanding capability at the Air Force Base in a time of crisis.
This is a very important partnership that we are forging with the Air Force on this, on this investment. Speaking of resiliency, in 2022, the FPSC, the Florida Public Service Commission, approved our $1.6 billion 10-year Storm Protection Plan. We were also delighted with the performance of our 37-home BlockEnergy microgrid in Southshore Bay throughout Hurricane Ian. While neighbors served from the same AC circuit lost power during Ian, the microgrid performed exactly as designed and delivered on the promise of always on. On top of that, Tampa Electric employees achieved a remarkable safety milestone in 2022.
Working as a collective group from August of 2021 until November of 2022, 447 days in total, over 6 million hours worked without any employee incurring an injury that necessitated missing a day of work. Therein lies the primary ingredient to our organizational success, our employees. Their buy-in, their belief, their commitment, their support is what enables our strategy and drives our results and our growth. As a team, we are focused on getting the right leaders in the right roles. We encourage a speak up culture. We're committed to enhancing our diversity without ever taking our eye off of hiring the best talent. We ensure that our actions always align with our words. At Tampa Electric, our employees are the asset. Our employees deliver.
In addition to those safety results, in 2022, our J.D. Power residential customer satisfaction scores achieved first quartile performance for the first time ever. A notable achievement in the face of rising fuel costs and rising electric bills. Electric reliability continued to improve, and in 2022 we achieved our best ever electric reliability. Fleet efficiency continued its downward trend and has improved 15% in the past five years as we modernize our fleet, add solar, and optimize the performance of our low-cost units, all of which serve to reduce fossil fuel purchases and consumption. That translates directly into reduced greenhouse gas emissions in support of our objective to affordably decarbonize.
Since the year 2000, Tampa Electric has reduced CO₂ emissions by 53%, and we are well on track to achieve the first of the three milestones that we announced in 2021, a 60% reduction by the year 2025. We have a clear path to achieving our 2025 goal on the back of investments already completed and or already announced. The investments that we have made to reduce carbon emissions are benefiting our customers beyond just the promise of a cleaner tomorrow. They also serve to physically hedge the exposure that our customers have to volatile fossil fuel pricing. In 2022 alone, as fossil fuel prices jumped, our solar investments reduced the fuel bill that customers would otherwise have been required to pay by $90 million. That is value creation.
Finally, in 2022, Tampa Electric's net income increased 24% year-over-year. Since 2018, rate base has grown at a 10% compound annual growth rate, and net income has grown at an 11.8% compound annual growth rate. As we grow, we are keenly focused on cost containment and customer affordability. We are proud to share that over this same five-year period, O&M expenses have increased at only a 0.7% compound annual growth rate. Further evidence of the focus that we have on achieving outstanding results through operational excellence, cost control, and fully leveraging our regulatory compact. That brings me to the regulatory environment we operate within here in Florida. It is constructive, it is cooperative, and it is built on a foundation of mutual respect.
We are held accountable to keep value creation for customers top of mind. In exchange, stakeholders are committed to supporting the investments that yield customer benefit and that serve to sustain a healthy and forward-looking utility. These stakeholders recognize that a healthy utility underpins and enables a thriving economy. In 2022, our earnings were supported by new revenues resulting from the 2021 rate case settlement. Were also supported by the fact that midway through the year, our ROE midpoint was increased 25 basis points to 10.2% once the 30-year US Treasury bond rate increased 50 basis points. Something that happened even more quickly than we anticipated when we added the ROE trigger to the settlement agreement back in August of 2021.
As noted, our settlement agreement also includes 2023 and 2024 base rate adjustments totaling $111 million, $90 million of which we are realizing in 2023. Looking forward, our business strategy at Tampa Electric is centered on three primary pillars. The first of these is aspiring to a cleaner future. We're proud of the progress to date, and we are committed to building on that work. The modernization of Big Bend 1, the retirement of Big Bend 2 and Big Bend 3, the enhancements at our Bayside Station that have resulted in an additional 130 MW of capacity being added without requiring any additional fuel. Our solar investments, battery storage, they are all serving to reduce fuel purchases, and in so doing, reduce our carbon footprint.
Over the next three years, we will invest $740 million to complete Solar Wave 2 and Solar Wave 3. We will invest $165 million in energy storage. Energy storage is serving the dual purpose of providing cost-effective while also fulfilling our winter capacity needs because our peak increases by roughly 45 MW each year. We acknowledge that achieving an 80% reduction of CO₂ emissions by 2040 and achieving a net zero future without compromising reliability or affordability is not going to be easy. There is no doubt that that path will include additional solar and storage investments. We also believe it will include innovations that we do not envision today.
It is for that reason that in 2022, we announced a $5 million investment in clean energy research at the USF College of Engineering, the largest investment ever made in that program. That's on top of the $2.6 million investment that Tampa Electric made in the Low Carbon Resources Initiative at EPRI in the year 2021. We are committed to a cleaner future, and we are also committed to being a part of the funding, to being part of funding the needed innovation that will deliver on the promise of a cleaner tomorrow. Let me repeat what I just stated. We believe that achieving a net zero future will include innovations that we are unaware of today.
We also believe that a net zero future that is both reliable and affordable will not be achieved through renewable investment and storage alone. We need to consider other possibilities, and we are. Chief amongst these possibilities is what we refer to as the promise of Polk. The potential to capture and sequester carbon emissions at this site, and the potential to repurpose the gasifier to generate blue hydrogen. Our Polk Power Station is a 1,500 MW gas-fired facility. It's remotely located. It's designed with unique integrated gasification technology. It sits over proven geology that is considered one of the best storage reservoirs in the U.S. Polk is also blessed with an abundant water supply. It serves as the offtaker of recycled wastewater from neighboring communities.
The site also has 2 8,500-foot injection wells, which were installed several years ago when the US Department of Energy, RTI International, and TECO partnered on carbon capture and sequestration research at this site. Between 2009 and 2015, more than $168 million was invested by the partners in this research, which ultimately proved to be successful. As you can tell, TECO and the US Department of Energy have always believed that the Polk Power Station is an ideal location to capture and sequester carbon emissions, given its unique set of attributes. An investment which would serve to reduce air emissions, yes, but it would also preserve spinning generation, which helps address the reliability riddle that all utilities are grappling with.
While we have been optimistic about this potential, it has been challenging, if not impossible, to make the economics work. With the introduction of the Inflation Reduction Act last August and the 45Q carbon capture production tax credits contained within that bill, the playing field has tilted. We have a business case that stands on its own. In an effort to reduce the cost of the project for customers, we are actively pursuing additional DOE funding through the infrastructure bill. We were heartened to receive a $5.6 million grant from DOE last fall to support the first phase of that work. This has the potential to be a $1.2 billion investment, which could be reduced with DOE funding, with the bulk of the spending occurring later in the decade.
We are viewing this largely as an investment to generate tax savings for customers that just happens to reduce greenhouse gas emissions as a secondary outcome. The tax savings are substantial and more than cover the cost of the investment itself. In parallel with that, we are also exploring the potential to repurpose the gasifier at Polk to produce blue hydrogen, which could either be consumed on-site, sold into the adjacent pipeline, or used as a feedstock to produce ammonia for use in the Florida fertilizer industry. We are actively pursuing all three options. Tampa Electric was one of 33 companies out of a total of 79 applicants to receive a favorable response to our hydrogen hub proposal, and we are intending to submit a more comprehensive proposal to the Department of Energy by the April 7th deadline.
These two parallel and distinct opportunities that we are actively pursuing at Polk, we have the land, we have the geology, we have the gasifier, we have the wells, we have the water supply, we have the completed research. We have the benefit of a 25-year relationship with the US Department of Energy. We have a resident ammonia market here in Florida. We have an ammonia pipeline that runs directly adjacent to the station. We are very bullish on the promise of Polk. This afternoon, the team that's actually working on this, working to unlock the potential of Polk, will be spending 15-20 minutes during the field trip to provide a bit more detail on our timing and plans regarding these two projects. Moving on to the second pillar. Building a more modern, resilient grid. A grid that fully enables decentralization.
Our investments to increase grid resilience, to build a stronger grid are already paying off. When we compare the grid's performance through Hurricane Ian in 2021 compared to Hurricane Irma in 2012. Sorry, Ian was in 2022, not 2021. When we compare the performance of the grid through those two systems, the improvement is apparent. Both hurricanes followed a similar path with similar intensity. With Ian, we experienced zero failures of hardened transmission and distribution poles and 20% fewer outages overall. It's also worth mentioning, although completely unrelated to SPP, that during Ian, we also suffered damage to only 100 of all of our solar panels that we have installed in the state, and we currently have more than 6 million panels installed.
Very limited damage for as that Category 1 hurricane rolled through. Over the next three years, we intend to invest $600 million in further hardening and strengthening the grid, we will invest $535 million over the next three years in modernizing our grid. We're also investing between $40 million and $50 million over the next three years to support and enable EV penetration in our service territory. Our third area of focus is less about rate base investment driving rate base growth. It's more a focus on affordability, more specifically, it's a focus on trying to answer the following question: How will we keep electricity rates in check even as rate base continues to grow? We believe the answer to this question, at least in part, is by generating new non-electric revenue, especially something we refer to as subscription-based revenues.
Subscription-based revenues grant us the opportunity to earn an investment that is paid for only by those customers who are interested in the product or the service, as opposed to an expense that is recovered through traditional rate making and is borne by all customers. Examples that we are pursuing include lighting growth and community solar. Within our service territory, Tampa Electric owns, operates, and maintains only 30% of the streetlights, and that represents about $100 million worth of revenue for us on an annual basis. We have stood up a business development team to increase our street lighting market share, and last year that team added $4.1 million of new revenue to the income statement. Community solar represents an opportunity to fund future solar investments from subscribers interested in procuring solar energy.
Our goal is to increase non-electric revenue each year as a means to mute rate increases. When you add it all up, Tampa Electric intends to invest $3.795 billion U.S. dollars in the next three years to support our growth and strategic objectives. Within that, we are very focused on the quality of that capital. Prioritizing investments that maximize value creation, that support growth, that generate AFUDC and/or earn immediate recovery via a clause. Sustaining capital that depresses return on equity represents only 35% of our planned capital over the 2023-2025 timeframe. All of which translates into a projected 8.5% rate base compound annual growth rate forecasted out to 2025. Thank you all so much for your attention and your interest in Tampa Electric. I will just say the future is bright. Thanks very much.
Hi. Rich Sunderland, J.P. Morgan. The Polk CCS opportunity. I'm curious what you're looking for in terms of actually green-lighting that. Is it a matter of proving out the actual economics further under the higher 45Q or a greater look into DOE support? What are the hurdles there?
I think, primarily it's, you know, that we're comfortable with the technology. We continue to refine and stress test the business case that underpins this, but it's a very compelling business case. The path that we're on is really about ensuring we're going about this in a very measured way because we know that we're gonna need to bring stakeholders along. We're gonna require the Department of Environment's support from a permitting perspective. There's lots of work that need to be done to really go through the engineering, get the community on board. Get the regulator on board, elected officials on board, and ultimately have support from environmental agencies.
Archie, it's Andrew Kuske from Credit Suisse. Question about just grid modernization and storm hardening. Like, what ending of this process are you in? What are the moderating factors on it? Like, how much faster can you go? Do you hold it back and throttle it back just because of dealing with linear infrastructure, you have to deal with certain things in a certain order, or just rate pressure? Like, what the moderating factors for you?
Yeah. Our pace is really dictated by affordability, rate impacts. That's one big consideration. It's also dictated a bit by the availability of contractors and materials. The faster we try to go, we create a supply-demand dynamic within the state, and we've already seen that. As we've stood up this resiliency play together with our peer utilities at, you know, across Florida, it has created a demand that has resulted in increased costs that for everything that we try to do on the delivery side of our business. That becomes one of the throttles on how quickly we wanna go as well. Also it's, you know, the third factor in that is you always wanna be sure that the cost, the benefit to the customer is demonstrable.
We have to be really thoughtful about which circuits we're choosing to prioritize and what work we were investing in, so that we can be certain that, as we present our performance, you know, to the to the Public Service Commission and the other consumer parties, it's compelling and gives us the license to continue.
Hi, Mark Jarvi from CIBC. I just wanna come back to the Polk opportunity, Archie, and maybe you can comment. Besides the DOE, would you think about other partners coming into that to share risk, construction, operating risk around the CCS and the hydrogen perspective?
Right now we're partnered with ION, if you're familiar with that organization. They've done a lot of work in this space. They are helping us on a lot of the engineering and the analysis that we're doing. Beyond that, we are not contemplating bringing in any other partners at this point to diversify or spread out any of the risk.
The second question for me is just with the fuel cost recovery filing where you have gone for a 21-month recovery, if fuel costs come down or are low through 2023, is there an opportunity to revisit that as you work through 2023 and into 2024 to maybe do that in a more timely fashion, depending on how things go through 2023?
I don't think so. I think we've committed to the 21-month recovery for the 2022 under-recovery. However, what we're now experiencing in Florida, and you may have seen this playing out right now in real-time in the news. As fuel prices have continued to decline in 2023, it would now appear that we are quite likely to over-recover in 2023. To the extent we over-recover in 2023, it effectively just chips into that under-recovery that we were pushing out into 2024. If things play out the way that they're currently shaping up, we would expect that the $300 million portion of that $518 million under-recovery that we intend to recover in 2024 will be a much smaller number.
It's a different way of achieving the same outcome without necessarily having to revisit the 21 month timeline. Does that make sense?
Yep. Thanks.
Hi. I saw the earned ROE is 10.9% for 2023. That's like the first year of the rate case. I, you know, I'm just cautious, like, what we're seeing with Peoples Gas, where you are kind of creeping down in your earned ROEs over the rate plan. I know you guys have some attrition in your four-year plan, as you look out, how do you see the ROE trending at Tampa Elec. for the remaining three years of your rate stay out?
We've got two more years for the rate stay out, where it was a three-year settlement that we would have negotiated, so it was 2022, 2023, 2024. You know, the, obviously, we have some advantages within our, within a settlement agreement, within our regulatory compact. The clauses, earnings that we can generate, and the fact that we did have a GBRA for 2023, to which adding an additional $90 million of revenue that we didn't have in 2022. Despite, you know, the capital investments that we've made and the impacts that at least the sustaining portion of those or the projects that have gone in service will have on ROE, our expectation for 2023 is that we are in and around our 10.2% midpoint for the year. It's too early yet to comment on 2024.
Okay, thank you.
Just a quick question on hydrogen. I'm assuming it's any sort of opportunity to create blue hydrogen would be kind of a carve-out from your core utility business, and I'm just wondering sort of what the commercial model look like. Are you thinking of that as kind of an offset to rate pressure and potentially, I don't know, a revenue generator for the utility?
Yeah, both. That, that is an outstanding question, and that is an active... That's something we're in the middle of trying to figure out. The most important thing for today is we're trying to ensure that actions we take today don't limit any flexibility we have tomorrow. That's right. That's the most immediate issue that we're dealing with right now. Trying to figure out what the construct might be for investments that we make at Polk, that we don't have an answer to that yet, but that is a big strategic question that we will have to answer at some point. I think we've got time. We'll give them a few years before we need to get that one answered.
Hi, Dariusz Lozny from Bank of America. Just a little bit more specifically on the capital portion of the SPP. When's the next opportunity to go back and maybe revisit or roll forward that 10-year look? Can you discuss a little bit like the metrics or the performance standards that the regulators look at to just make sure that that capital is having the intended effect?
Okay, there were two questions there. The way that the SPP mechanism works is every three years, We are required to come in before the FPSC and present an updated 10-year plan. We just did that in 2022. We'll be back in again in 2025. In 2022, 2023, 2024, 2025, we have some certainty that we will continue to invest this money within any changes to the program. In 2025, we will present a new 10-year plan, and it will be debated by the parties as to whether or not customers can afford it. It's delivering the customer benefit that we indicate that it will.
The metrics are simply we use a third-party firm to help us with developing the cost-benefit analysis for the investments that we make. There are a whole series of metrics within that. To the extent we can simply show and, you know, the very best evidence that we can demonstrate is our performance during a hurricane. The very fact that our grid stood up so well during Ian and all of the circuits that we had invested money in moved underground, it increased line clearance on, didn't have any issues with those. That's what the consumer parties, the regulator, customers are looking for. So we're not that we're looking for any more hurricanes to stress test our grid, but that was certainly strong evidence of the value of SPP investments.
Okay, Archie, and I think in the interest of time, we're gonna move on. Archie will be around a bit too at lunch, and if there's other questions, we can always follow up then.
Judy Steele, everyone.
I obviously have to thank Archie for that shout-out. Anybody that knows what an outstanding leader Archie Collins is knows how absolutely flattering that is. Thank you, Archie. It's nice to be here in Florida. Lots of chatter about Florida law. I bet you I'm the only person in the room that's had a brush with it in the last four days. I was stopped in a boat with my friends going a little too fast on the Intracoastal the other day. The good news is that we were able to identify the location of all the safety equipment, including flares, which hard to see why you'd need those on the Intracoastal. It was a good testament to Emera's safety consciousness and my influence on the friend group.
I know lots of people in the room, but for the rest, I will take a moment to introduce myself. I'm Judy Steele. I'm the President, Chief Operating Officer of Emera Energy, a role I've had for just over 10 years now. Time certainly does fly. I've been with Emera for almost 25 years. I started as the Director of Investor Relations and then joined Emera Energy in 2007 as the VP, Finance. In 2011, I had a gig as the interim CFO of Emera Inc. I went back to Emera Energy as the President and Chief Operating Officer in 2012. I'm a chartered professional accountant, and I spent the first chunk of my career with Ernst & Young. It's nice to be here and have a chance to talk about Emera Energy.
Coincidentally, 2023 marks our 20th anniversary. I'm very, very proud of our business, what we have delivered, how we run it, the scale and sophistication we have built, and the quality of our team. I'm looking forward to telling you a little bit about our story. Emera Energy is a physical energy and marketing trading business. We buy and sell gas for delivery to customers in the same day ahead, and term markets. We operate through Northeastern North America and stretch west to Alberta and the Gulf of Mexico. The business has scale. We move an average of 2 billion cubic feet of gas a day, and in 2022 we delivered CAD 71 million in adjusted net earnings to Emera. We are contractually enabled with over 400 counterparties and have about 80 employees in Halifax and three origination staff located in the U.S.
We also commercially manage about 3,300 megawatts of electricity generation for various owners in Canada and the U.S., and we have a small power trading business. 2022 was the second-best year in Emera Energy's history. I'm gonna switch to U.S. dollars now because that's what our external guidance is based on. We had record margin of $109 million, which is roughly split 90/10 between natural gas and power. That translated to adjusted net earnings of $50 million U.S., well above our normal guidance range of $15 million-$30 million. In fact, we've beaten the high end of that range in five of the last nine years, and our average is just north of the high end.
Clearly, there's volatility in the earnings, but we manage the business to protect the downside and enable us to capitalize on upside when the market opportunity presents itself. My favorite statistic is that over the last decade, Emera Energy has delivered CAD 500 million of cash to Emera. I believe that culture is destiny, and particularly in a business like ours. Highly competitive, fast-paced, high pressured, and populated with a relatively young team, many of whom have only ever worked at Emera Energy. Seven years ago, we brought our team together to define and articulate the values which we felt were critical to our long-term success. Safety and wellness, honesty, integrity, respect for one another, and environmental responsibility are table stakes. In addition, and in particular at Emera Energy, we value commercial acumen, performance, collaboration, loyalty, good citizenship, and fun and celebration.
Underpinning these themes are pure commercial concepts like a nose for opportunity and a sense of urgency and a superior work ethic, that kind of thing. There are also character concepts, support for one another, diverse views candidly and respectfully expressed, building leadership skills, helping those in need. These are the values to which we hold ourselves accountable, and they've been integral to our success. As I noted, gas represents about 90% of our business. What do we do there? We have four primary activities. We buy and sell. We buy and sell the commodity among our network of counterparties in the day ahead, intraday, and term markets at fixed and index-based prices. This network gives us pricing insights that support profitable trades, and our broad and very deep operational knowledge of the pipe network is also a key success enabler.
Speaking of pipes, we contract for pipe capacity over various terms to move gas from lower to higher price markets. We pay a fixed toll, some or all of which we hedge to cover a portion of the cost and lock in the downside. We watch for opportunities to capitalize on price swings when they happen. We store gas. We contract for storage to inventory gas in low-priced periods and sell it in higher-priced times. We park and loan gas on pipes for shorter durations, storing gas when it's cheap and drawing extra when it has value. Finally, we hedge. We use financial products to hedge our physical exposures on term deals on gas and storage, locking in future prices, or locking in the differential between two points on a pipe or time spread to protect our margin. Power is a much smaller element of our business.
Here we do two things. We commercially manage about 3,300 megawatts of client-owned generation, dispatching it into the market, making the fuel purchase decisions and scheduling. For context, NSPI system is about 2,400 megawatts, so it's a decent portfolio, primarily in Ontario and the New England, New York areas. A lot of the generation is gas-fired, but we also manage some hydro, and we are expanding our presence in renewables with some short-term offtake and scheduling arrangements that give us insight into the impact of these intermittent resources on the system and the market. We also arbitrage electricity. We have a small team of three that looks for arbitrage opportunities between nodes, regional markets or day-ahead real-time markets. We're active in New England, New York, PJM, SPP and Ontario. Of course, we don't ever talk about Emera Energy without highlighting our risk management and compliance processes.
We employ best practices with respect to governance, structure, education and monitoring, and technology support. The proof of the success of the overall program is in the pudding. We've never had a material risk management, credit or compliance issue, and we guard against complacency by focusing on continuous enhancement and education. In addition to what I'll call the corporate risk management structure, there are commercial-level risk mitigations and management processes. First off, the physical nature of our business, which is based on deep infrastructure knowledge and long-term customer relationships, we are not commodity speculators. We maintain a single trading book which aligns team interests and promotes transparency and accountability. You won't be surprised to know that we have strictly defined trading authority vested in a very small group.
We set and monitor risk, reward, and exposure targets to provide trader direction and drive a conservative posture. We only deal in financial project products to hedge our physical exposures. There's no financial trading for trading's sake. We limit our deal size to diversify risk among key delivery points and counterparties. In other words, we avoid giant killer transactions. At its most basic, our role in Emera is to make money within the confines of the corporate risk tolerance. We have grown our business gradually over time, expanding our market presence and penetration, or as I say, the old-fashioned way. We also provide Emera with critical market sensing, commercial, and competitive intelligence and capabilities. It's proven very beneficial for Emera's regulated utilities to have access to those skills. As you all are aware, EE alumni have gone on to greater heights.
Archie Collins, Karen Hutt, formerly Emera Energy employees, are now leading large pieces of our broader business. Dave Pickles is the chief operating officer currently at Nova Scotia Power. Of course, Dave Bezanson is now the VP of Investor Relations, following in his old boss's shoes. I could go on, you get the picture. Look at the tangible example of that strategic value within the portfolio. Asset management agreements are regulator-approved arrangements that let utilities with gas transport capacity monetize the value of excess requirements. It's done by competitive bid. The successful proponent pays for the right to use the utility's transport when it is not needed. The utility gets paid upfront for the capacity and sheds risk. The bidder has the upside opportunity on successful optimization, often the utility shares in that too.
For example, Peoples Gas has a tariff that allows for revenues associated with off-system sales to be split between the ratepayer and the shareholder, 75, 25. EE had the winning bid for this PGS capacity in 2019. Since has delivered over $7 million of value to PGS customers. In addition to receiving the fixed fee, PGS benefits because Emera Energy can bring incremental optimization opportunity because our universe of counterparties is larger, and it actually includes customers in their service territory. To put another way, we can make more with the same capacity, PGS gets to share it. EE also assisted New Mexico Gas years ago when it was first getting into the concept of asset management agreements for its assets, and as we heard from Jimmy earlier today, that has paid off in spades. That sums up who we are.
Our strategy is simple. We want to continue to capitalize on our industry-leading capabilities to build Emera Energy in North American markets where we see appropriate opportunity. For the next while, that means further expansion in the Southeast and the Gulf. Risk management will continue to be a key enabler, and our culture of communication, collaboration, transparency, and accountability is the foundation on which we'll stand. Thank you, and if you have questions, I would be happy to answer them. Realize I can't call on people before they have a microphone. Okay.
Hi there.
Hi.
It's Dean Highmoor from Mackenzie Investments. Can you speak to what sort of metrics or milestones you have to evaluate success of your business? Just looking at that net in-earnings contribution, it kind of goes up and down depending on your results. I guess just going forward, how do you see that earnings contribution changing over time?
It's interesting. When we first started to try to provide some earnings guidance, it was an effort to kind of put a fence around the business for outside consumption, so that people realized that it wasn't Emera's intent to have a $500 million marketing and trading business. Our current guidance at $15 million-$30 million of net earnings gives you a sense of what we consider the current normalized scale. I think I've said this over a couple of years in a row, maybe this will be the year. It might be time to move that guidance up a little bit, but if we were to move it would move up by $5 million-$10 million. The reality is, we like the scale of the business as it stands now.
There is volatility, there are certain circumstances where the market opportunity is really not there. We want to avoid ever being in a circumstance where that results in a negative number for us. If you know, if you look at our history over the last that I presented earlier, you can kind of see that we're managing to do that reasonably successfully. I think that the business has the right amount of scale for Emera's risk appetite at pretty much at its current level. That at all helpful?
Just like, but how do you know you're doing a good job or a bad job, I guess? Like not losing money would be a starting point, it sounds like.
Right. Yeah.
Like how does. Because the earnings, if you look at that, have not really grown, over that time period you've shown on your bar graph.
It doesn't have the trajectory that you can see in a regulated utility, I understand that. I would say that when we look at the history of the business, I would say the opportunity that we have to have $71 million of earnings in a business that basically has 80 people and some computers, you know, with a very tightly risk-managed, I think we think that's pretty successful. That's a good success definition for us. We can't do it every year, but if we can reliably push to $30 million or $40 million every year, that provides us with a bit of satisfaction.
I see. Just my last question would be how much capital does it take to backstop all of your positions at any one time?
That moves. We probably would require about $100 million for what I'd call normal working capital. We do have to post margin for our forward positions. That spiked to probably around $400 million in the summer of this year, but it's actually back now down to less than $100 million. You know, the price of gas obviously is a major. The future price of gas is a major driver of that. We're very fortunate to have an accommodating banker, and. We also manage that very tightly ourselves. We use, try to place LCs when we can. We take advantage of credit insurance when that's available to us, and we're happy to, you know, pay the premium on that to enable our position.
It's, you know, when gas winds up being $50, we do have a different credit post, margin posting, but it's cyclical.
All right, thank you.
Thank you.
Hey, Judy. Rob Hope, Scotiabank. this side.
Hey. Hi.
Can you maybe just talk about how the hard assets interplay with your business? You know, do you get learnings from SeaCoast or Maritime Link, the Northeast or the other kind of pipes that informs your business or are they, you know, quite independent?
Well, I guess I'd have to say that the operation of the pipeline network is integral to successful management of our business. The fact that we've got nine people scheduling gas on these, the pipes all the way down to the, all the way down the Southeast really, every single day, all day, all night, it does a couple of things. It helps us design what portfolio of assets we want to have so that we have a robust enough collection of transport, storage and gas supply that we can navigate through all circumstances and find opportunity.
The reality is you, an in-depth knowledge of the pipeline infrastructure also is a money-making opportunity for us 'cause it enables for us to find the most efficient routes and do the most cost-effective movement of gas and also enable us to find some trading opportunities in there. I would say we consider it very fundamental to our business, our focus on the logistics, the gas scheduling piece of it. I think we spend more time and effort in that than almost any of our competitors, where it's just more of a routine scheduling process. For us it's a real economic opportunity. Can't see anybody else but my... I'm suffering from allergies. I could be blind and it's dark. I think we're good. I'm turning it over to Greg Blunden. Thank you.
Thanks. Thanks, Judy. Look, I think you can see why we're really excited about our business. Maybe nothing drives that point further than the discussion Archie had around carbon capture and sequestration at Polk Power Plant. You'll hear a little bit more about that this afternoon. When I look at a project like that could potentially allow us to invest up to an additional $1.2 billion into rate base at the existing equity thicknesses and ROE profiles in Florida with really no regulatory lag, no need to increase rates from customers because it'll be fully funded by production tax credits provided for under the IRA. Just projects like that are just so incredibly important for our customers, for the environment and of course, you, our shareholders.
Before I get into some of the forward-looking information, I thought it'd be helpful just to do a little bit of reflection. As I look back, one of the things that I think we need or felt appropriate to highlight is the transition that we've talked about. The allocation of capital that Scott referenced with a little bit more weighting to Florida than we traditionally have seen. That's not new. That actually has been going on for a number of years now. If you look at the growth in our rate base over the last three years at Tampa Electric, Peoples Gas, New Mexico Gas and Nova Scotia, our four core utilities, it's more weighted towards Florida. These are the jurisdictions that have the highest returns, and that's where the capital is going.
This transition has been going on for a while, we're going to continue with that. As a result of that allocation of capital to Florida, as well as what we have been doing over the last number of years with executing on our rate cases, we now have what I believe is visible, consistent EPS growth. If you look at what we have done since 2019, we've grown our EPS by a 5.4% CAGR over that timeframe, each and every year, delivering EPS growth on a year-over-year basis. Although we don't provide EPS guidance, if you look at consensus for this current year, that would suggest an additional increase in EPS consistent with what we've seen over the last three years of 5.6%. Why is that?
Some of that is, again, the allocation of capital to Florida. Scott mentioned it earlier. Every dollar invested in Florida achieves a 63% higher return than what we're experiencing in Nova Scotia as an example. Our Florida earnings have increased 44% over this timeframe. I cannot drive the point home enough. In 2022, the increase in Tampa Electric's earnings in CAD was more than what Nova Scotia Power made. Meaning we effectively added a Nova Scotia Power right here in the city of Tampa. That's not a trend that's going to continue forever, but it just reinforces the value of this jurisdiction and our ability to execute on our capital plans and translate that into visible earnings.
I believe, even though, and I mentioned, we don't provide EPS guidance, that we do provide pretty clear transparent guidance on what our expected ROE will be by each of our operating segments, what our capital forecast will be, and what our rate base forecast will be. I think that creates predictability on what our earnings growth will be. I just want to spend a moment on this chart because I think this really highlights it. The beginning of the year consensus is an important number for us because that shows what the market is expecting, what you, as investors are expecting at the beginning of the year, and we compare that to what we're actually achieving. You can tell over the last couple of years as we've been through this transition, we are effectively delivering exactly what the market expected.
I'd characterize it this way, we're meeting investor and market expectations. We're not managing them. We're not spending the year trying to get those consensus numbers down. We're actually delivering on what the market is expecting from us, and that's something that we would expect to continue. As a result of that continued increase in EPS over this timeframe and the measured approach on dividend increases that we have talked about in the past, that's going to allow our dividend payout ratio to go down over time. We've made measurable progress last year. Ignoring the Guatemala settlement, we're under 90% for the first time since 2018. If you include the Guatemala settlement, we're down closer to 83%. We expect that growth to continue.
EPS growth is not going to be perfect each and every year as the previous slide indicated, but we would expect that over time, EPS growth is going to continue to exceed dividend growth such that by the end of our current forecast period, we are expecting to be well less than 85%. This slide is not new. This is just an accumulation of everything you've heard this morning. Very consistent, if not identical to what we shared with you all in November. We will update our capital forecast again this November. Just reinforcing that everything you heard from across all of our businesses results in a capital spend of CAD 8 billion-CAD 9 billion over this forecast period, roughly CAD 3 billion a year, and that's going to achieve a 7%-8% CAGR in our rate base growth.
It's a little bit front-end loaded in 2023, and some of those '23 projects may very well get shifted into '24 and '25. As we go out each and every year, we always seem to be able to identify other projects that we haven't incorporated into our current forecast. We believe the 7%-8% rate base growth forecast is not only achievable over this forecast period, but likely will be extended well beyond this forecast period. Again, where we're spending that capital is important. The transition that we've experienced over the last three years will continue. 75% of the capital is in the state of Florida, and almost 60% of our capital is in Tampa Electric. That's important. There was a number of discussions over the course of the morning about our allowed and achieved ROEs.
Interestingly enough, the majority of our capital is going into Tampa Electric, who had an achieved ROE last year of almost 11%. We have clear visibility of this having above market ROE achievement in Tampa Electric going forward. We're excited about it. This will continue to reinforce our EPS growth, drive cash flow for our business, allow us to have a better balance sheet and continue to deliver for all of our shareholders. I'll spend a minute on our funding plan, and then I'll get into how we're seeing our credit metrics and balance sheet unfold over the next number of years. Our funding plan is working, and we see no reason to change it. As I said, I'll get into our credit metrics in a moment, but we are happy with the approach that we are taking.
We have external common equity needs of around CAD 500 million-CAD 600 million a year, and we're happily doing that on a very cost-efficient way through our DRIP and our ATM, roughly 50/50. 50% from our ATM and 50% from our DRIP. We do have room in our capital structure over the forecast period to issue probably another CAD 500 million-CAD 600 million worth of preferred shares. From a debt perspective, outside of our regulated operating utilities, the only notable refinancing we have is a CAD 500 million maturity that's coming up in June at the Emera Holding Company. It is our expectation at this point in time that we will in fact refinance that.
late last year, we had all three rating agencies change their outlook from stable to negative for Emera. mostly, but not entirely, but mostly tied to Bill 212. I can't say I agree with all of their decisions. Quite frankly, I think I can speak on behalf of my peers at Emera, we were disappointed in the actions of many of the rating agencies. However, it has done nothing to change our commitment to our investment-grade credit ratings or our confidence in achieving our credit metrics over time that support those credit metrics. How are we going to do that? On Thursday of last week, we shared with you where we felt we closed 2022 from a cash flow to debt metric of 11%.
That was about an 80 basis point improvement from where we were the previous year. As we look forward to 2023, we see another step change in improvement on a cash flow to debt metric. Building off what I would have shared with many of you on Thursday of last week, we have a total of about $240 million in incremental rate increases across our regulated utilities. $90 million from Tampa Electric that went into place on January first of this year. Roughly CAD 100 million from Nova Scotia Power that will go in effect at the beginning of February of this year. Roughly $20 million from New Mexico Gas that went into effect on January first of this year.
That CAD 240 million is baked, it's done. There's nothing left for us to do. Those rate increases have been approved and are now in effect. We are anticipating the conversion of Labrador- Island Link to go from AFUDC earnings to cash earnings this year. Yes, that's been a struggle for us for many years, although we're extremely confident that Nalcor is making significant progress in getting ready to put that asset into final operation in the coming weeks, if not months. To the extent it doesn't happen, we do have some levers to pull and some offsetting mitigation impacts to that. For example, including our capital plan is a CAD 240 million true-up on the investments in Newfoundland. That does not happen until the asset actually goes into service.
Lastly, when we look across our businesses, we see a potential deterioration of roughly CAD 100 million in cash flow in 2023 compared to 2022. That might seem a little bit unusual as you hear about the growth in all of our business, but in large part, that's because of the outperformance of Emera Energy as one example that we would not be anticipating repeating in 2023. From a debt side, relatively straightforward, if I build off what we shared with you on Thursday. We would expect about a CAD 900 million increase in our overall debt levels from where we are, where we closed 2022.
All of that, and I repeat all of that, is at the operating company level to support the capital growth we're seeing in our regulated utilities in align with the approved capital structures in each of those utilities. If I take that relatively straightforward walk from where the 11% where we were last year to where we expect to be in 2023, the simple math puts us at 11.6%. We think there's opportunities in this year to improve on that. I already mentioned potential opportunity. Maybe I should go back because there is a metric here that I think will be helpful as I go through the opportunities in 2023.
Just to give you a rough sense, every CAD 20 million of cash flow is about 10 basis points on our credit metric, and every CAD 175 million of debt is also about 10 basis points on our credit metrics. When we look at the opportunities to close the gap even further from the 11.6 to our target of 12%, one is the deferral of capital. On a CAD 3 billion capital program, we think there's gonna be some opportunities and some natural requirements to move some of that capital from 2023 into 2024. Again, every CAD 175 million of that would be a reduction in debt and 10 basis points on our credit metric. Working capital optimization.
It's not that we don't optimize working capital, you know, what was probably not highlighted much in 2022, we ended up the year with over a $150 million increase in our fuel inventories across the regulated utilities. That's because of higher commodity prices. As commodity prices lower, the requirement to fund that working capital will go down. We think there's some opportunity there that we'll experience in 2023. We talked a business outperformance, I highlighted we're expecting a bit of deterioration in cash from room-based business, predominantly because of things like the outperformance of Emera Energy. As Judy indicated, more often than not, we're at the top end or higher than the top end, from an earnings opportunity at Emera Energy. We plan for the midpoint of that $15 million-$30 million range.
To the extent those opportunities, either at Emera Energy, favorable weather in Tampa, asset management agreements in New Mexico, that we believe will have an opportunity to take that expected deterioration of cash flow and minimize the impact in 2023. I mentioned preferred shares. Today, that market is expensive. We have capacity on our balance sheet to issue preferred shares, but rates are high. If we feel it is appropriate or we need to, we are willing and capable and able to issue preferred shares in a relatively short period of time to help achieve credit metric improvement in 2023. Collectively, we think those opportunities very realistically give us an opportunity to achieve an incremental 50 basis points plus improvement in our credit metrics in 2023.
Looking forward to 2024, we have a number of other levers that are already in front of us that will help that continued improvement in credit metrics. We have another 6.9 rate increase in Nova Scotia Power effective January 1st of 2024. The majority of that is in fact fuel-related, but it is fuel costs that were not incurred in 2022, but actually fuel costs were incurred in before 2022, and that will have some meaningful impact on our reduction of debt as well as our cash flow. We have a modest amount of incremental rates coming into Tampa Electric, again in 2024, of approximately $21 million. Both the rate increase at Nova Scotia Power and the rate increase at Tampa Electric, again, those are baked, those are already done.
There's nothing else we need to do to have that cash flow improvement in 2024. Is probably the most meaningful item for 2024 is the new base rates at Peoples Gas. They filed a test year letter, a few weeks ago indicating that the U.S. dollar request for base rates will be in the $125 million-$135 million range, and the final filing of the rate application will be the first week of April. That'll give you a sense of what's in front of us, and that's the item that we're most focused on from a cash flow perspective in 2023 for delivering of results in 2024.
The improvement that we saw in 2022 over 2021, what we're expecting to see in 2023 versus 2022, and what we have in front of us for 2024, we think that will comfortably allow us to continue to improve our credit metrics by approximately 50 basis points a year, getting not only to the 12% target that we have, but continue to allow us to go through that, getting to the 13%-14% range as we look out a number of years from now. In closing, I would say that will put us on a position where we believe we'll have a balance sheet and credit metrics that are supportive and solid, complementary to our portfolio of assets, which we think are among the best in the industry, and our growth profile.
We believe that the path to a higher valuation is through the balance sheet, Scott and I and the rest of the team are as committed to it as we ever have been. With that, happy to take any questions.
All right. Thank you. Rob Hope, Scotiabank. I'm imagining you're gonna get a number of questions on a similar theme, but I guess I get to start out. You mentioned valuation as well as the underperformance in 2022, in part due to kind of the credit metrics. How do you weigh, we'll call it, more aggressive measures, whether it be asset sales or equity to, you know, quickly improve your credit metrics, which, you know, would have some upfront dilution, but could, on the other side, improve your overall valuation?
Yeah, yeah. I think there's two questions there, Rob. I mean, you know, from an equity issuance perspective, we don't believe that that is the right path. You know, we're on a clear and visible path to get to the targeted credit metrics we need. Issuing equity is a permanent change that would have an impact not only on EPS, but on dividend payout ratio as well. As a result of that, we don't think that's at all an appropriate path to issue permanent equity to solve what we think is a very temporary timing difference in terms of getting where we wanna be. Yes, in terms of asset sales, you won't be surprised. We get that question a lot. I certainly know that asset sales are in vogue now.
Maybe we actually started the trend if you go back to 2018 and 2019 when we sold our gas plants in Emera Maine. Look, it doesn't necessarily solve the issue. When you sell assets, you're selling the cash flow and you're selling, you know, the earnings that go with it. Yes, it's helpful. Look, even if I go back to selling our gas plants, it was dilutive to credit metrics. Yes, if you go back and you look at Emera Maine transaction, say, okay, if you can sell something in your portfolio that's a North American regulated asset that sells a two times rate base, yeah, the math probably works. That's not gonna help credit metrics in 2023 'cause it's not gonna close in 2023.
I'm not even sure in this environment whether the certainty of close and regulatory approval really takes away any of that risk. We've demonstrated a willingness to before. Scott mentioned it. You know, we don't exclude it, but, you know, it's not necessarily a short-term fit that's gonna provide an automatic solution to what I believe is a problem that we're solving on a very methodical and responsible way.
Thank you for that. Maybe just as a follow-up, once again on the asset sale theme, how do you view complexity as well as minority stakes and what we'll characterize as some of your marquee assets as a potential, you know, easier way to swallow an asset sale, if you will?
Sorry, I missed the first part of the question.
A minority stake in some of your better assets, you know, higher valuations, easier to get through the regulatory process.
Yeah. If you're referring to Florida, we're not at all considering selling a minority interest in our Florida assets. We think they're not only the crown jewel in our portfolio, but as one of our largest investors told us recently they think it's a crown jewel in the entire sector. We're not planning, or would not contemplate selling any minority interest in our Florida assets.
Uh.
It's Andrew. Andrew Kuske, Credit Suisse. Greg, do you have a bit of a conundrum right now from a balance sheet perspective? Because you're really on a watch at the top of the house, but then you're also allocating capital to Florida, which has a higher equity thickness in and of itself. Like, do you have to do something structural to sort of solve that problem?
No. I mean, you know, in large part because of the performance of our U.S. utilities, you know, a lot of the equity that's required in those businesses is, in fact, retained equity, which is certainly helpful. Obviously, we're raising, the equity that we're raising in large part from the ATM and DRIP would be, you know, helping to balance those capital structures. At this point in time, we're not having any kind of structural challenges between, you know, Canada, U.S., or between holding company and operating company.
Maybe just a follow-up. Given the balance sheet skew, and I know I've asked this question before, but I'll ask it again. Is it time to go with the US dollar reporter status and then maybe U.S. listing on top of it?
Yeah. It's a good question. Given my background as accounting, I obviously probably think about it a lot more than others. You know, it's not lost on us that you know, if you look at the TSX 60 companies, the majority of them that are in or a lot of them that are in our position with a lot of U.S. dollar exposure have gone to that path. Certainly, as we're seeing a continued, you know, each and every year, a higher weighting to U.S. dollar functional currency businesses versus Canadian, I think that makes a more compelling story. We haven't decided to do that yet, as you can imagine, we're continually thinking about it.
Hi, Greg.
Hey, Ben.
Hey. Credit rating agencies, you've probably put the walk in front of them and you mentioned some of it's baked in secured. Is the concern for them more of that remaining 50 basis points, AKA the 2023 opportunities that's causing a little bit of a concern? How long do you think they'll give you to make up to the decisions?
I'm actually comfortable with where we're at with the rating agencies. That doesn't mean I'm dismissive of, you know, the challenges in front of us or anything like that. Look, they all have their own methodology. They all do their own normalization for things. There's no doubt that when they calculate our 2022 FFO or CFO to debt, they're gonna have a different number than us, and they'll have a different number between them. You know, we've shared and have conversations with them in how we view the world. They don't disagree with that. It may not necessarily fit in their methodology, I would be very surprised if either of them took additional action given the path we're on, the things we've accomplished and what's in front of us.
Okay. Maybe a follow-up. I'm curious to Inflation Reduction Act. What's your thoughts on the relative attractiveness of maybe ramping up non-reg investments rather than selling them, which is the question you get more where you can actually benefit from the tax benefits versus reg assets, you have regulatory lag you gotta deal with?
Yeah. There's nothing that we've particularly seen in the IRA that would suggest that we wanna ramp up around regulated businesses. I think the IRA is gonna present some interesting opportunities inside our regulated utilities in terms of the ability to capture some of the specific tax items. Of course, in the U.S., you can file consolidated tax returns and things like that, which certainly help. There's nothing in the IRA that's driving us towards thinking about expanding our non-regulated footprint.
Hey, Greg, it's Dariusz from Bank of America. You referenced in one of the earlier slides taking appropriate steps to defend the IG credit rating. You've got one up there, potentially deferring capital. Obviously you guys haven't modified that dividend growth rate. Should we take that to mean that the dividend is safe and you're not considering modifying the dividend at this point?
Yeah, that's correct. I mean, obviously dividend increases are at the preview of our board. You know, we were very thoughtful when we went to a 4%- 5% dividend increase. We reaffirmed that in the fall of last year. To be quite honest, if from a credit metric perspective, if you actually run the math, you could cut that dividend increase to 0, and it has no impact at all on credit metrics or leverage. There'd be no reason to revisit that at this point in time.
Just, maybe a quick follow-up on the deferral of capital that you're considering up there. Just given the discussions we've had about regulatory lag in the various jurisdictions, should we take that to mean that that's an effective order of preference as far as where you may pull back on capital in the near term?
Yeah. I think across all of our business, Dariusz, you know, Archie mentioned a little bit, you know, in terms of, you know, there's capital that gets an immediate cost or, you know, a rate rider from customers, some as AFUDC. Across all of our businesses, we have sustaining capital, that there's some flexibility on. It's not just a financial decision, but when you're spending $3 billion, and you have, you know, supplies chain constraints, you have, resource constraints, it's not much of an effort and not quite frankly, not unusual to see maybe upwards of 10% of your capital plan move between years just from an execution perspective. It would certainly be focused on those areas where it's also contributing to regulatory lag.
Hey, Greg. Mark Jarvi from RBC.
Hey, Mark.
Just follow up on the deferral spending. You said the 10% number. Is that roughly the number we should be looking for then is sort of CAD 300 million? Then I guess if that's contemplated now, why not announce that sooner than later as opposed to maybe wait till the three-year capital update next fall?
I think it's just too early in the year, Mark. You know, we constantly are looking at our capital plans, again, starting with what is you know, what are the teams seeing on the ground? What are we seeing from a customer growth perspective? What are we seeing from a reliability perspective? What are we seeing from a pricing perspective? We're just saying that it would not be uncommon to see that type of movement between years. It is something that we're making sure we have identified projects in the event that we think we need to move some of them to help our credit metrics in 2023 or show incremental improvement. I think it's just premature to make decisions on some of those projects at this point in time.
Just a quick follow-up. Is that something we don't hear an answer on until the fall, or is there something between now and then where you could give us an update?
I think you'll probably see it more so in the fall.
Hi, Greg. Richard Sunderland, J.P. Morgan. Just following up again on that last point. Across the waterfall of these considerations on your 2023 opportunities, is there any way to handicap, I guess between the working capital optimization and just seeing how the business results come in, how you're thinking about addressing that? I guess pursuant to a point you made earlier, it sounds like if the pref markets become more attractive, that would come into the plan. Is that at least the right waterfall of considerations to think about before talking capital deferrals?
Yeah, yeah, I think so. I mean, clearly, you know, what we all strive for and across our business is to improve the incremental cash flow in the business. And again, if you think of that metric of roughly $20 million of cash flow has the same impact on credit metrics as $175 million of debt or the deferral of capital, you know, we can see that kind of performance in any given month at Emera Energy, in Tampa Electric or Asset Management Agreement. We're constantly watching the numerator part of it, but also making sure we understand the levers we have on the denominator, if you will, so that, you know, if...
We think we have a conservative view initially, cause like I said, we're starting with a point where we're expecting a deterioration of $115 million. We're just making sure we have the levers to pull if we, A, want to or if we wanna provide incremental support for our metrics in 2023.
Thanks. I just want to turn to a separate topic. Maybe zooming out to a high level, how do you think about your regulatory strategy and where it stands now in terms of getting that adequate recovery of capital sufficiently timed to your needs, whether on a credit front or just to earn your authorized returns? Do you see the regulatory strategy in a place now where it is sufficient for this new higher level of investment, particularly in Florida? Any particular changes that you're still thinking about or focused on for how to optimize the regulatory side of the strategy going forward?
Yeah, it's a good question, Richard. I'd say I think we have it in a really good. First of all of our utilities are forecast test year periods. The only thing that would prohibit us from going in on a frequent basis is if you're in a rate stability period or you've had a settlement, or alternatively, as Jimmy mentioned, there's a bit of a challenge with the timing of rates in New Mexico. Traditionally, we've had things covered off in Nova Scotia. I think, you know, our ROE performance up until the last couple of years indicated that we were able to stay ahead of that, and I believe that's still to be the case, although obviously Bill 212 might cause some complications of that in the near term.
In our two Florida utilities, I'm very comfortable that we under normal circumstances don't have regulatory legs. Certainly I feel that way today about or for Tampa Electric. The last rate settlement at Peoples Gas, we were very confident that we had a rate settlement that was gonna allow us to earn inside of our ROE band over the rate settlement period. What happened, though, is we saw customer growth way greater than anything we had anticipated. In the gas utility, that requires a build-out of infrastructure to support that customer growth. There's a natural leg of when you put that not just a regulatory leg, but when that capital goes in the ground to where you start to see a meaningful contribution from our customers that get to use that infrastructure.
I think we would have been fine, if not for the significant customer growth that we've seen. Not surprisingly, you know, we're very focused on our rate application for Peoples Gas to make sure that we've captured, you know, what we believe is maybe the new norm for customer growth in the state of Florida.
Yeah. Okay. Thanks. Go ahead, Carly.
Hi. Back to the chart with the cash flow improvements. I believe the transition of LIL, the commissioning of LIL, you'll know probably in the spring whether or not that's completed. Is that correct?
Yes.
Okay.
You know, what they're testing, our understanding, obviously we don't have operational control. Our understanding at this point is they need to test at certain load levels, and they need to do that in the winter months. Every test they've gone through at an increased load, the system has passed. We're hopeful that over the next couple of weeks that they'll do their final testing, which, you know, hopefully, and I wish, I truly wish, as you know, that we had more control over it, but hopefully that would put them in a position to do final commissioning of that transmission line, you know, over the next couple of months.
That's kind of a risk to even getting to the 11.5, which is below Moody's downgrade threshold of 12. Obviously we're aware of storms and there's fuel volatility and things like that. I'm just trying to think about these CapEx deferrals. Like, if you know that LIL is not commissioned in the spring, are you ready to start deferring CapEx-
Yes.
-soon? Okay. All right.
Remember, part of that deferral happens immediately because in our capital plan for 2023 is a CAD 240 million true-up on the Labrador- Island Link investment.
Yeah. Is your 10% of flex, I'm assuming, is kind of outside of that number because that's-?
Yeah, we're working on both.
Okay. Just wanna confirm the commitment to investment-grade credit ratings. Is that kind of the ultimate guard on everything at your company? Like, is that... Is it at all three agencies? You know, managements have to prioritize, obviously, you know, that's why you get paid the big bucks. I understand there's a lot of competing forces and stakeholders at the company. I'm just trying to think about, like, when you at the end of the day, you know, if you're faced with more storms or just unexpected setbacks, how do you kind of approach the prioritization of different, of the credit rating?
Yeah, I might characterize it a different way. First of all, we have said and nothing has changed, Scott and I and the team and the company as a whole are committed to our investment-grade credit ratings. I don't think there's a disconnect or competing priorities. As I said, we believe the path to a higher valuation in our stock is through the balance sheet. I think we're much more aligned than maybe gets characterized in our sector on occasion. We're committed to it. We see a path. Now, you know, you get into the nuances on what if there's another storm. You have a natural problem with that because at Tampa Electric, as an example, we have to fund the storm costs and fuel under recoveries with short-term debt. That's the practice in Florida.
To suggest that we would then compensate for that at the corporate level by putting equity in place would effectively mean our shareholders are subsidizing the customers of Tampa Electric, and I'm not so sure that works. you know, Archie talked a little bit about the storm cost or the fuel cost recovery. That is also one of the reasons why we're very focused as well on the storm cost recovery and making sure we collected the Hurricane Ian costs over a 12-month period, starting on April first of this year through to March 31st of next year, to not only recover those costs but also rebuild up the buffer that we had, the storm reserve that we had to protect us against a future storm because we will have another storm.
I don't know if we'll have another run-up in gas prices, tripling the gas prices in the short period of time that we had, but we absolutely do know we'll have another storm.
I guess just one last comment. I appreciate all your focus on earnings growth, but I think one thing your company has struggled with is cash flow growth, and there has not been any slides in here on your cash flow trends. I'm wondering if, like, you've looked at those trends, why your cash flows have lagged earnings growth so significantly, and is there any focus by the board level to try to use cash flow as more of a management comp or determinator of the health of the business? I think we're kind of stuck at similar leverage today as you were when you acquired TECO in 2016, and I'm just hopeful that I know you've got these organic measures, but it hasn't really played through yet, and it's hard to know that it's going to play through with the rate plan.
I'm just trying to figure out why there's this kind of issue with the cash flow for earnings.
I disagree with the characterization. I did try not to repeat the slides that we used in our earnings call, if you normalize for the fuel costs and storm costs at Tampa Electric, we had a 45% increase in our cash flow in 2022 versus 2021. I'd say that's measurable. If you go back to the first day out of Tampa Electric and what our credit metrics were like at that point in time, by design, we took on incremental debt to fund the transaction, which I would do all over again. I think our credit metrics, as published by the rating agencies that year, were like 7%, 8%, you would probably know the numbers better than I.
To suggest that going from 7%, 8% to 11%, 11.5% is a material improvement over that timeframe, I would characterize it very differently, Carly.
On that note, I think we gotta wrap it up, Greg. We're well over time, so thanks for all your interest. We're gonna try to move to... Sorry, the speaker right in my head. We're gonna try to move quickly to lunch.