Emera Inc (EMA) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Emera fourth quarter results conference call. Please be advised that this conference is being recorded. I would now like to turn the meeting over to Ms. Jennifer Nicholson, Director of Investor Relations and Strategic Development. Please go ahead, Ms. Nicholson.

Thank you, Patrick. Good afternoon, everyone, and thank you for joining us for our fourth quarter and year end conference call this afternoon. Joining me from Emera are Chris Huskilson, President and Chief Executive Officer; Nancy Tower, Chief Financial Officer; Rob Bennett, President and CEO of Nova Scotia Power, Bob Hanf, President and Chief Operating Officer of Bangor Hydro, Robin McAdams, President of Brunswick Pipeline, Greg Blunden, Vice President finance and Treasurer, Nova Scotia Power and Heather Keillor Hirschman, Emera Controller.

The earnings release, financial states and management's discussion and analysis were distributed earlier in the day via NewsWire. These documents are also available on our website, www.emera.com. Today Chris will begin with a corporate update and a high level overview of the financial results for the fourth quarter and 2008. Nancy will then review the fourth quarter financial results in more detail. We expect the presentation segment to last about 15 minutes, after which we will be happy to take questions from analysts and investors. Please note that all amounts are in Canadian dollars with the exception of Bangor Hydro Electric where segment results are reported in US dollars.

I will take a moment to remind you that this conference call may contain forward-looking statements which involve certain assumptions and known and unknown risks and uncertainties that may cause actual results to be materially different from those that are expressed or implied by the comments. Those risks include weather, commodity prices, interest rates, foreign exchange, regulatory requirements, and general economic conditions. In addition, please note that this conference is being widely disseminated via live Webcast. Now I will turn things over to Chris.

Thank you, Jen, and good afternoon everyone. I would like to start by saying 2008 was another successful year for Emera. Our strong management team, sustainable business model and shareholder confidence have contributed to this success. We would like to thank our shareholders for the confidence they've shown in us this year. We provided you earnings and dividend growth and you clearly have supported us. We're focused on maintaining this momentum and seizing the opportunities that we see ahead of us.

Consolidated net earnings were $144.1 million in 2008, compared to $151.3 million in 2007. Excluding the effect of mark-to-market adjustments at Bear Swamp, earnings increased year-over-year. Net of these adjustments, earnings were $148.9 million in 2008, compared to $141.9 million in 2007. Nancy will go into more detail about our results later in her remarks.

As I said earlier, the business has had a successful year. In Nova Scotia, we're pleased with the continued improvement in the relationship between NSPI and the stakeholders in the regulatory process. The November rate decision by the Nova Scotia Utility and Review Board provides certainty about rates for 2009 and allows the Company to focus on service to our customers including reliability improvements. The rate increase and fuel adjustment mechanism came into effect January 1st. In January, the Province of Nova Scotia released the 2009 Energy Strategy and its companion the Climate Change Action Plan. Both documents share the same goal, to grow the economy while protecting the environment. NSPI and the entire industry have been working with all levels of government over the last decade on climate change initiatives, so the final policy was not unexpected. It gives us certainty about emissions targets and may provide opportunity for NSPI to pursue new renewal power and transmission development which strengthen the grid and decrease the Company's reliance on fossil fuels.

In New Brunswick, Brunswick Pipeline construction was completed and received NEB leave to open, which allows us to ship gas. The pipeline was commissioned just this week, which involved pushing the air out of the line, by allowing low pressure gas to enter. Once the air was purged, the pipe was filled with gas and pressurized. Spending on the pipeline is approximately $420 million to date. We continue to expect the capital cost to be $465 million, plus additional AFUDC and operating expenses, capitalized until gas is shipped from Canaport LNG. Revenue from the customer is expected in the second quarter and by September at the latest.

In Maine, Bangor Hydro had another strong year. They've continued to build on their transmission investments, which will result in continued earnings growth for the business. We continue to work on transition development in New England. We have over $100 million in new projects underway, and are actively working towards additional investments.

In the Caribbean, we continue to explore opportunities and are especially excited about our recent investment in the Bahamas. We're working with the Grand Bahama Power Company and are pursuing additional renewable generation investments in the region. As you can see, Emera's businesses made significant progress this past year and we see many opportunities to continue this growth in the years to come. There are opportunities for renewable generation and transmission development in our core utilities and in our new markets. We achieved a lot during the year and we're pleased with the progress that we've made.

Before I conclude, I'd like to take a moment to welcome Jackie Sheppard to the Emera Board of Directors Jackie is the former Executive Vice President, Corporate and Legal, of Talisman Energy, Inc. Her extensive knowledge of the energy industry as well as her experience with international markets and her solid foundation in risk management and governance makes her a tremendous addition to the Emera Board. Welcome, Jackie.

With that I'll turn things over to Nancy, who will give you a more detailed update on our financial results for the fourth quarter. Nancy?

Thank you, Chris, and good afternoon, everyone. As Jennifer mentioned, our fourth quarter and annual financial results were released earlier today, and are on the Emera website. Emera's consolidated net earnings were $25.3 million in the fourth quarter of 2008, compared to $36.6 million for the same period in 2007. Quarterly earnings per share were $0.23, compared to $0.33 in 2007. Excluding the effect of the mark-to-market accounting adjustments, quarterly earnings per share were $0.26 in Q4, compared to $0.30 in the fourth quarter of 2007. The mark-to-market accounting adjustment relates to Bear Swamp's long-term contract with the Long Island Power Authority.

Earnings decreased in the quarter primarily due to higher fuel costs at Nova Scotia Power. As Chris mentioned, consolidated net earnings were $144.1 million in 2008, compared to $151.3 million in 2007. Again, excluding the effect of the mark-to-market adjustments of Bear Swamp, earnings increased year-over-year. Net of these adjustments, earnings were $148.9 million in 2008, compared to $141.9 million in 2007. Earnings per share were $1.29 for 2008, compared to $1.36 for 2007. Net of the mark-to-market, earnings per share were $1.33 in 2008 and $1.28 in 2007.

Nova Scotia Power earned $105.6 million in 2008 compared to $100.2 million in 2007. This increase relates to the April 2007 rate increase reflected in revenue for the full year in 2008, as well as lower financing charges and accelerated tax deductions. These benefits were partially offset by higher fuel expense in the second half of the year. Bangor Hydro contributed $23.1 million to consolidated earnings in 2008, compared to $27.5 million in 2007. This decrease relates primarily to the benefits received in 2007 during the construction of the NRI transmission line. This was partially offset by increased revenue from the NRI, which was in service for the entire year in 2008.

Other operations contributed $15.4 million to consolidated net earnings, compared to $23.6 million in 2007. Net of the mark-to-market adjustment at Bear Swamp, our other segment earned $20.2 million in 2008, compared to $14.2 million in 2007. The increase relates to stronger energy and forward reserve sales at Bear Swamp as well as allowance for funds used during construction, or AFUDC, during construction of the Brunswick Pipeline.

In December 2008, we issued $150 million medium term notes and in January issued an additional $50 million, all in Nova Scotia Power. Proceeds were used to reduce short-term borrowings, increasing our capacity on our credit facilities. As mentioned in the MD&A we have approximately $500 million undrawn and available on these facilities. We have two maturities on Nova Scotia Power this year. $125 million Series C preferred shares in April, and $125 million medium term notes maturing in July. We expect to be in the debt markets refinancing these as some point during the year. In addition, we expect to finance Brunswick pipe in 2009.

That's all from my financial review. Thank you. And we'll be happy to take your questions.

Thank you. We will now take questions from the telephone lines. (Operator Instructions). The first question is from Matthew Ackerman from Macquarie. Please go ahead.

Thanks very much. Nancy, I just wanted to fully quantify the amount of debt that you guys have to either term out or renew in 2009. And I'm wondering in particular about the credit facilities of just over $1 billion. Is that something that has to be renewed by the middle of this year or how do you look at that?

I'll speak first to the credit facilities, Matthew. The way that it works is the credit facility other than the bridge, the $200 million bridge for Brunswick Pipe, the agreement extends to the middle of this year, June 2009. But the way it works, if we don't come to agreement with the banks, it automatically extends. It terms out for a year. Sorry?

Sorry, at the same terms as previous?

That's a good question. I'll have to find out.

Okay.

Yes, the drawn amounts, obviously. In terms of financing, obviously Brunswick Pipe, so we're hoping to be in the market as I said financing Brunswick Pipe at some time during the year. We would expect to refinance the two maturities I talked about, maybe not the whole thing. Somewhere between maybe 200 and $250 million of those two maturities. And with all of that and with the credit facilities that we currently have absent that $200 million bridge, we're still well within our credit facility.

Okay. Be nice to get back on the credit facility issues that are normally kind of normal course I guess aren't so much these days. My other question is for Chris, and my last question is when you look beyond 2009, you talked a lot about transmission being a growth driver after that and I'm just wondering what the timing looks like on bringing in new electricity transmission projects these days and maybe ballpark within give or take a couple of years, what are you seeing in the next sort of two or three years or is it beyond that time frame now?

Actually, I'm going to let Bob Hanf speak to that a little bit. He's quite actively involved in New England on this issue.

I'd say firstly, Matthew, in Maine we currently have $100 million of current transmission projects that are well under way and will be in service '09, '10, '12 and then speaking further out and larger projects of course, our partnership with National Grid and Northeast Energy, Inc. We're still working together on that project and we're finding high receptivity to that project and we continue to work on that. Although it's still early, in the conceptual phase we're still positive about that.

But I think, Matthew, it's more like 2012, 2013, those kinds of time frames than earlier than that at this stage. There's a lot going on in New England right now. There's a fair bit of decision making happening within the regulatory bodies and so on, figuring out how they want to introduce these new types of projects. We feel pretty good about where we are. We feel good about continuing to pick up more transmission in our business. We like the fact we've got some under construction rights now and we'll continue to move down that path.

Okay. Great. Thanks very much.

Thank you.

Thank you. The next question is from Andrew Kuske from Credit Suisse. Please go ahead.

Good afternoon. With terming out the debt for Brunswick, when you look at the spreads you could see in the marketplace today, how does that compare to your plan?

Andrew, they compare -- so, the indications that we've been getting, they would compare to our plan. They would compare -- they would be right around where they thought they would be when we set out on this journey. Obviously, actual experience may be different from that, but certainly the advice we're getting, it would be in the ballpark.

So the actual nominal rate that you would pay for just the spreads themselves are in line with your plan?

Well, I think when we looked at our plan we probably weren't thinking spreads so much as all-in rate. When we look at all-in rate now versus all-in rate that we had in our business plan, they're in the range.

That's helpful. And then if you could just walk through each of your regions where you've got utility exposure and just give us a little bit of a demand outlook, so Nova Scotia, Maine and then out in the Caribbean, if that's possible.

It is. We'll go around the table a little bit, though, and let the individual business leaders speak to it.

Hi, Andrew. Excuse me. It's Rob Bennett here in Nova Scotia Power. In Nova Scotia like everybody else in the world we're feeling a little bit of a downturn in the economy but not nearly as much as you might see in other regions in Canada and all of the forecasts are quite consistent around that in this province. With that said, we essentially expect loads in this province to be flat with last year's experience.

Andrew, Bob Hanf at Bangor Hydro. Similar comment to Rob. We find in Maine that we're confident that our earnings will be slightly higher for '09 from '08. Particularly we're pleased with how our earnings are now shifting away from as you know we had, moving two transmissions, so we're quite pleased that our earnings are coming -- the percentage of our earnings are increasing from the transmission side of our business and we remain confident, feel well-placed in that area.

Generally speaking, Andrew, we're seeing a lot more decoupling in our various businesses and that's been a successful step that we've taken in the utilities. If I go to the Caribbean, it's interesting. There's still a lot of -- there's still a lot of construction. I think residual construction going forward and so at this point we're still seeing growth in those utilities. Whether that will continue over the next couple of years will depend on just how long the downturn is. But we would expect that we would see some softening of those markets in the next short while. Certainly the tourism side is down and so that will eventually affect the utilities but generally speaking, they're pretty solid from an earnings perspective.

That's very helpful. Then, one final question, just on pension funding. With the pension funding costs you're expecting that you stated in your release, you do expect regulatory recapture on those increased costs, do you not?

Yes. So -- and again, this is cash and it is -- that is the before tax amount because we're on the taxes payable method in Nova Scotia Power. So expenses, we would expect a little bit less and funding to go up and all recoverable through the regulator.

That's great. Thank you.

Thank you, Andrew.

Thank you. The next question is from Michael McGowan, BMO Capital Markets. Please go ahead.

Good afternoon. Just wondering if you could speak a little bit about the settlement at the MNP pipeline, the amount you can expect to recover in the first quarter of 2009 and whether or not you'll be paid for all of your capital outlays at this point?

So the settlement was reached just before the end of the year, and the amount, I think half of the amount came through just prior to the end of the year and the other amount I think is pretty solid in terms of our expectations, so we would expect to see that come through in Q1 and yes, we have recovered all the capital cost outlays and a little bit more, I think, in terms of recovery for some of the effort, additional effort.

Okay. And just a small housekeeping question here. You also mentioned $6.5 million in tax recoveries during 2008. Can you talk a little bit about what's causing this and whether or not this is going to be a recurring thing?

So we looked at how we were filing our returns and certain items that were being capitalized and we believe could be expensed. And we made those adjustments to the returns and recovered some cash and have used that methodology going forward. So we do expect -- we will file our returns in that manner going forward.

So was the $6.5 million, was it booked during the fourth quarter or evenly throughout the year?

I think, yes, I think it was evenly throughout the year.

Okay. And just a question about your -- about the renewable projects that you have been or you have procured over the past few years. With the economic downturn, I know that Earth First that owned a few of the products is in bankruptcy protection right now but you still see yourself being able to meet your renewable portfolio standards, I guess the near term ones in 2010 and 2013?

It's Rob here. Yes, we do have contracts in place for about 246 megawatts of new renewables that came in place in 2007. We're continuing to work with those developers and obviously you would expect that they would be having some challenges. All of them are working along Earth First, as you mentioned, is probably particularly challenged. But overall, the developers are moving their projects ahead as best they can. We're working along with them and working with government as well to provide all of the support that we can.

Okay. Thank you.

Thank you. The next question is from Winfried Fruehauf from W Fruehauf Consulting, please go ahead.

Thank you question on old hydrogroup. When do you expect that investment group to contribute to net earnings.

It's probably still a few years out from that perspective. The main reason that we invested in that particular opportunity at this point is because it gives us a level of influence on how the whole thing develops and what might happen in the Bay of Fundy. It certainly at least in our view is the best technology that exists globally at this point for title development and I think by the number of contracts that are being awarded to it, it's continuing to get more contracts awarded to it over time. I think that's -- that is showing that many other people agree. So I can't tell you exactly when it will be profitable. It is a few years out. That's something that the Company is looking very carefully at now, but with their order book or with their situation where they're beginning to get orders, that will be sooner than we might have originally thought. Biggest thing for us, though, is we see a great opportunity in the Bay of Fundy. We think this technology is the technology to deploy and we want to be involved at the ground floor as that comes together.

Okay. And regarding the investment, Grand Bahama Power, the net income contribution of $2.5 million to $5 million doesn't strike me not exactly like a barn burner. Why did you make this investment?

Well, I guess we're pretty pleased -- we will be pretty pleased with it when it gets to the top of that range. It won't be there this next year because there is from our perspective a bit of work to be done to bring that together but for us it gives us a bit of insight into what we think is a very interesting market. The market in the Bahamas. There is a lot of other activity going on there, especially on the renewables side, and it gives us on the ground exposure to the renewables piece and as you probably know, the government of the Bahamas has said that they want to privatize the larger utility which is BEC. All of those things become opportunities because we're on the ground and the combination of all those things with the nice little return that comes from the existing utility are really our rationale. I think, as you know, Winfried we're still looking at that region. We would like to deploy more capital in the region. We see -- we like the returns. We like the potential growth that exists over the long-term in that region and we're really just seeing if we can establish ourselves and find some nice continuing opportunities.

Your investment of $42.3 million US include a purchase price discrepancy?

Winfried, we're still working that out and we'll have a better sense of that probably in the first part of next year.

All right. Thanks very much.

Thank you.

Thank you. The next question is from Robert Kwan from RBC Capital Markets. Please go ahead.

Good afternoon. Just so I'm understanding what's happening on Brunswick, it's a delay in the cash collection and then is there -- are you going to continue to book AFUDC until the cash collections start?

I'll ask Robin McAdam to answer that question for you, Robert.

The answer is yes, we will book AFUDC until gas flows from Canaport and they start to pay the tariff and that will start no later than September 1st, whether or not gas flows.

Go ahead.

It's okay.

Okay. And the last question I had is just on the guidance for Bangor and the slightly higher, is that on a US dollar basis or is that in Canadian dollars?

In Canadian dollars, Robert.

Okay. Great. Thank you, Nancy.

Thank you.

Thank you. The next question is from Linda Ezergailis from TD Newcrest. Please go ahead.

Thank you. What was the achieved ROE for MSPI in 2008?

Linda, we haven't quite calculated that yet. It's in the band. It's in our earnings band. But there are a number of non-regulated adjustments we have to make and I just haven't seen that calculation. But it is within the band.

So you may need to make adjustments to your non-regulated earnings to get back to your regulated?

Yes.

Returns? Okay. Can I follow up with you in a week or to to -- ?

Yes, probably. Okay.

Thank you. I'm looking at your corporate costs, which have come down year-over-year. What sort of run rate might be appropriate going forward?

Obviously, we've had a focus on trying to get those costs down. I think that we'll focus on that again in 2009. Our hope would be it would come down slightly, but I think that that range is probably good. There won't be a big, material change in that.

So flat.

I'd say flat.

Somewhat lower.

Somewhat lower, is our focus.

The CEO says somewhat lower.

Okay. Thank you.

Thank you. (Operator Instructions).

Maybe I'll take a minute to just answer Matthew's question on the terming out of the facility, credit facility. We don't believe at this time, based on what we know, that there is a change in spreads, so what we believe happens is that there is no change in spreads, just a conversion to a one-year term on the drawn amounts.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Ms. Nicholson.

Actually, to me, Chris. So thank you very much for that and thank you for your participation in the call today and your interest in Emera. I hope everyone has a great weekend. Thank you very much.

Thank you. The conference is now ended. Please disconnect your lines at this time. And thank you for your participation.